During the last week, the European Union took significant steps on three of the most important political issues on the continent: the asylum system, the capital markets union, and China. Together, they reveal a Europe in which a renewed sense of unity is driving progress in some areas, while deep divisions persist in others - and both forces are equally likely to shape Europe’s future.
Asylum. The EU is moving forward with legislation to establish return hubs in non-EU countries for asylum seekers who have been denied entry and must be returned to their country of origin. Currently, more than 70% of those ordered to leave never actually do so. This could become the most significant asylum legislation in decades and reflects a new degree of political unity on the topic.
Capital markets union. The six largest EU economies have agreed on first principles for a capital markets union that would gradually replace national investment regimes with a single European framework. The plan is widely seen as capable of significantly improving conditions for doing business across Europe and attracting greater flows of global capital. The countries involved are pressing for urgency and want an actionable plan by the end of the year.
China. As a new trade conflict between the EU and China shows signs of escalating, Spain - known for its China-friendly approach, including welcoming Chinese investment in solar, batteries and electric vehicles - pulled back from a French-led initiative to develop European tools to restrict Chinese imports. Spain's minister for economy and trade stated that Europe should focus on engaging with Chinese authorities and remain open to Chinese investment, rather than pursuing legislation that further damages the trade relationship.
A Singaporean think-tank has found that 66% of Singaporean opinion leaders would side with China over the United States if forced to choose - a striking figure for one of Washington's closest partners in the region.
Europeans should resist filing this under "Asian story." Singapore (and ASEAN more broadly) sit in Europe's predicament: the US is their most important security partner and China is their most important trade partner – and they would rather not choose at all.
As news emerges of escalation in the trade conflict between Europe and China, it may seem naive to point to the opportunity of them working more closely together. However, we should not be surprised if that is exactly what happens in the coming years. Europe and China share a fundamental goal in the transition to clean energy, and to complete it, they need each other.
The transition to clean energy is a shared goal for Europe and China, albeit for different reasons. In China, clean energy is central to the country's economic reform plan, in which the economy transitions away from investing in real estate and infrastructure and towards high-tech manufacturing, including clean energy technologies. In Europe, besides climate targets, successive global crises have made its energy system expensive and vulnerable to disruption, necessitating a transition towards clean, local energy sources.
What is sometimes underappreciated is that, because of this shared goal, clean energy has already become a key driver of economic growth for both (see chart). In China, clean energy industries account for 25% of GDP growth; in Europe, more than 30%. In the US, the figure is just over 5%.
Most importantly, to complete the transition to clean energy, Europe and China need each other. Europe cannot achieve energy security without affordable Chinese technologies, and China cannot sustain its export model without reaching agreement with advanced economies like Europe on the rules for market access.
The key question is how exactly Europe and China will be able to cooperate amid conflict – driven mainly by Europe's concerns about overreliance on Chinese products – especially at a time when tensions are still escalating. The answer lies in the current energy crisis. Europe will increasingly discover that the greatest value from clean energy lies not in manufacturing these technologies (solar panels, wind turbines, heat pumps) but in deploying and integrating them with the local energy system, as this is what unlocks the potential of the broader economy. The Netherlands is a case in point: its congested electricity grid is already preventing new business formation even outside industrial production.
The main bottleneck for cooperation between Europe and China is therefore not economic competition but strategic security: Europe does not want to become overly reliant on a single country for its energy needs again. This will drive European policy towards a logic of diversification – as seen this week in the area of chemicals – rather than punishment (like the US approach of import tariffs on Chinese goods). This European approach could, like the Western quota policies on Japanese imports in the 1980s, provide the basis for diplomatic agreement.
