1 Paolo Guerrieri University of Rome ‘La Sapienza’ A MULTIPOLAR WORLD ECONOMY Global and domestic challenges

2 The rise of new powers is making the world economy increasingly multipolar. The multipolar world could evolve in different ways The EU desirable model of multipolarity would be multilateral The domestic and global reform agenda to make it politically sustainable The stakes are very high: the prospects for prosperity of much of the world CONTENTS

3 There is a redistribution of economic power at world level across countries and areas Emerging countries - China and India in particular - will take a greater slice of the world economy. On current trends, in 2020, the US, China and the EU will each have a little under 20 per cent of global GDP, while India will have almost 10 per cent The rise of new powers is making the world economy increasingly multipolar. A MULTIPOLAR WORLD

. WORLD GDP SHARES

5 How will China and India exercise their powers? Cooperative and/or conflicting behaviors? The new global governance and the stability of the multipolar world A further expansion of globalization? Two models of multipolarity: multilateralism and neomercantilism The linkage between global governance and world economic growth GLOBAL GOVERNANCE in a MULTIPOLAR WORLD

6 World GDP will grow at an average annual rate of 3.5% - 4% in (similar to the past 15 years). China and India will be among the fastest-growing economies The pace and extent of globalisation will be the single most important determinant of world economic growth Gradual trade and investment liberalization Well-functioning international institutions and a rule-based international order THE MULTILATERAL MODEL

7 The Multilateral Model: Global Economic Growth ,5% ,6%

8. 8 GDP Growth Rates * Source: EIU, 2006 China India Russia Middle East Eastern Europe Africa Sub-Sah. Latin America US EU 25 Japan Average = 3,5%

9 Multipolarity based on great power rivalry Governments are moving away from reliance on multilateral rules to emphasise the promotion and protection of national interests More protectionism and neo-mercantilistic policies Global growth in would drop significantly (1.5-2%), implying for many countries and areas essentially stagnant world percapita incomes. The hardest hit would be the emerging markets, especially the poorest ones THE NEO-MERCANTILISTIC MODEL

10 Neomercantilistic Multipolarity: World Economic Growth 10 Valori proiettati del PIL Miliardi di dollari USA* * Valori costanti 2003 Fonte: Goldman Sachs, 2003 Russia Giappone India USA Cina Italia

11 In the second scenario the EU rate of economic growth will be significantly reduced In any global system based on great power rivalry Europeans would find it much harder to tackle the problems they consider most urgent The EU desirable model of multipolarity, by contrast, would be multilateral. The EU must not be a passive observer of the new international order that is emerging THE EU IN A MULTIPOLAR WORLD

. Multipolar World: Globalization Models

13 The globalization, in some appropriate form, is a major engine of economic growth and its contribution to economic development are palpable But exposure to the international economy can impose serious costs on people, industries, regions and even whole countries and these costs vary from place to place and time to time It has become increasingly unpopular Persuasion alone won’t suffice THE BENEFITS and COSTS of WORLDWIDE ECONOMIC INTEGRATION

14 Institutional reforms and policies are needed at home and internationally to render further market opening politically acceptable and sustainable: a “Multilevel Governance Agenda” The benefits of trade and financial globalization requires better domestic institutions and policies to smooth transitions, essentially improved safety nets in rich countries Institutional Reforms and Policies at Domestic Level

15 Work should be done to strengthen multilateral bodies, and the international rule of law. The governance agenda of the existing multilateral institutions The multipolar world will also need new institutions, both formal and informal, to manage the stresses and strains of globalisation (in the spheres of economics, the environment and security; and to accommodate the rise of new powers). But many other challenges would be better served by informal groups of the most relevant countries Institutional Reforms and Policies at Global Level

16 The earlier wave of globalization ( ) collapsed because of the inability of the international system to cope with the tensions created by the expansion of global finance and trade Main problems: inherent instabilities in global finance, a growing social and political backlash, and the overloading of multilateral institutions These problems are remarkably similar to those we face today THE LESSONS OF HYSTORY

17 A Multilevel Governance Agenda: the challenges is not only how to liberalize further, but how to allow countries to handle the problems that openness and economic integration creates. No magic formula The EU desirable model is for an open multilateral world economy The EU’s own attitudes, policies and actions will have a big impact on how the multipolar world develops THE CHALLENGES AHEAD

18 So the priority for an European reformist agenda is clear: The EU must be able to relaunch its social-economic model and speaks by a single voice: a stronger and more influential EU The EU should become a fundamental tool to manage the multipolar world and transform the many threats into viable opportunities The stakes are very high: the prospects for prosperity of Europe and much of the world as well THE CHALLENGES AHEAD II