UNIT 8 Eu’s Global Gateway
Global Gateway: The EU Maps a Different Path Than Belt and Road
1. Global Gateway Forum 2023, announced by EU Commission President Ursula von der
Leyen, will convene leaders in government, business and civic society from the EU and
around the world on October 25-26 in Brussels to debate issues relating to global investment
in infrastructure. While often overshadowed by more prominent international topics, the
European Union’s Global Gateway initiative represents a significant step for the EU as it
strives to assert its presence on the global stage, especially in the MENA region. It could
reshape the future of European soft power and trade diplomacy. However, there are
conditions for its success – both within and outside the scope of Global Gateway.
2. Building Bridges, Creating Opportunities: The Core of the Global Gateway
At its core, the EU’s Global Gateway is a multifaceted strategy aimed at enhancing
connectivity between Europe and the rest of the world. This strategy encompasses a range of
ambitious projects, including investments in infrastructure, digital connectivity, the energy
sector, and sustainable development in countries outside the EU. The goal is to facilitate
trade, promote economic growth, and strengthen diplomatic ties with key partners. By doing
so, the EU hopes to position itself as a significant player in the emerging global order and
advance its values and interests on the international stage.
3. Navigating Challenges: Balancing Economic and Geopolitical Interests
As the EU extends its influence through the Global Gateway, it faces a delicate balancing act
between economic interests and geopolitical considerations. The initiative’s success relies on
attracting investments and fostering economic partnerships with countries across different
regions. Simultaneously, the EU must navigate the complex web of international politics and
maintain its commitment to promoting democracy, human rights, and the rule of law. Striking
this balance will be essential to ensure the initiative’s long-term sustainability and credibility
on the global stage.
4. Charting the Course: The Belt and Road Comparison
One cannot discuss the Global Gateway initiative without drawing comparisons to China’s
Belt and Road Initiative (BRI). While both initiatives share the goal of enhancing
connectivity, they differ significantly in their underlying principles and approaches. While
the BRI focuses on building physical infrastructure, often with a Chinese-centric approach,
Global Gateway emphasises sustainability, transparency, and adherence to high
environmental and social standards. By aligning its initiative with global best practices, the
EU seeks to distinguish itself as a responsible and reliable partner in international
development.
5. Regional Geopolitics: Forging Energy Connections Amid Complexities
Some EU countries have already taken significant steps to create such alliances with the
MENA region. ELMED, the “Electricity Link between Italy and Tunisia,” is a pivotal energy
infrastructure project bridging Europe and North Africa. This undersea cable system will
connect Sicily to Tunisia, facilitating bi-directional power transmission and promoting
renewable energy integration. Notably, ELMED’s success is intertwined with a broader
Interconnectivity Corridor, offering an alternative to China’s Belt and Road Initiative (BRI).
In September 2023, the EU, US, Saudi Arabia, UAE, and India announced a historic project
called the India-Middle East-Europe Economic Corridor (IMEC), which will be funded by
Global Gateway. The project is planned in the form of two corridors, spanning from India to
the Persian Gulf and from there to Europe, to bolster economic development by fostering
economic integration and connectivity between Asia, the Middle East, and Europe.
As of July 2023, Global Gateway includes 87 major projects, with IMEC specifically
launched to bolster transportation and communication links between Europe and Asia
through rail and shipping networks while acting as a counter to China’s BRI. The new IMEC,
which like many Global Gateway projects, became part of the initiative through rebranding,
faces many challenges, not the least of which is Hamas’s recent terror attacks against Israel
which could delay the project.
6. Threats to Global Gateway and the Need for Joint Conflict Resolution
Regional conflicts, such as Hamas’s attack on Israel, emphasise the importance of diplomatic
efforts for conflict resolution to secure economic interests and ensure the functionality of
such crucial corridors. This underscores the need for the EU to strengthen its capacity for
joint conflict resolution in pursuit of its economic goals. The success of the Global Gateway
relies heavily on these kinds of collaborations with international organisations, other
countries, and private sector stakeholders. Through cooperative efforts, the EU aims to create
a more interconnected and interdependent world where shared values and interests drive
global cooperation.
7. The Global Gateway’s Potential Impact
In the broader context of global politics, the European Union’s Global Gateway is a testament
to the EU’s evolving role in international affairs. It is a proactive step towards expanding its
reach, fostering economic growth, and promoting shared values worldwide. Global Gateway
provides a credible framework for future cooperation on infrastructure and interconnectivity
the EU and its partners can rely on. It enables the resource pooling of EU institutions and
member states need to compete on the global stage. At the same time, the initiative leaves
adequate flexibility for individual actors to move ahead quickly with time-sensitive projects,
thus opening the opportunity to leverage the true innovative potential of unity in diversity.
However, there are still certain questions that must be assessed as Global Gateway
implementation continues: Will Global Gateway be able to fulfil its role as a project
incubator? Key implementation and absorption capacities of both the EU and its partners are
subject to a multitude of factors, many of which escape the EU’s direct influence, such as
demographic development, public opinion, and private investment.
Finally, Will the EU be able to contribute significantly to the resolution of high-stake
conflicts that pose a threat to the initiative? The Hamas-Israel war has been a wake-up call
that conflict resolution must remain at the heart of the EU’s geopolitical strategy. Responding
to future challenges with one European voice remains crucial for European sovereignty, with
or without Global Gateway.
UNIT 12
OTHER KINDS OF FINANCIAL FLOWS AVAILABLE IN ADDITION TO
ODA
Poor countries struggling with debt fight to get help
1. On the morning of November 13th last year Zambia’s vice-president told
parliament, “This country will not default.” Hours later the inevitable
happened. Having destroyed its relationship with the IMF, struggled to provide
clear data on its borrowing from China and failed to win a reprieve from
bondholders, Zambia missed a deadline to pay interest and defaulted on its
debt. Lenders could only shake their heads in bemusement.
For some poor countries like Zambia, a debt crisis has always been the story of a
chaotic and corrupt government that has borrowed carelessly. But in the more
complex creditor landscape of today, defaults can also, more than ever, be about
struggling nations stuck in the web of diplomatic feuds that bind their creditors
together.
2. Each lender enters restructuring talks with the same preoccupation: is someone
else getting a better deal? No one wants to be first to give concessions and
there is little advantage in showing your hand.
More than financial data or legal frameworks, it is these power struggles that have
come to define restructuring negotiations.
The pandemic has left many countries struggling to repay their debt. As well as
Zambia, five others—Argentina, Belize, Ecuador, Lebanon and Suriname—defaulted
last year. For some, healthcare and social spending rose just as the global economy
tanked. In other cases, like Zambia’s, covid-19 provided an excuse for a profligate
government to default. Others could run out of money in the months ahead.
3. The last time a large number of poor economies were crumbling under the
weight of government debt, around the turn of the millennium, the group of
creditors was smaller. It included multilateral organisations like the IMF, a
handful of commercial banks, and rich countries like Britain and America
operating in unison as the “Paris Club”. An unusual mix of other players,
including Bono, an Irish rock star, and Pat Robertson, an American
televangelist, generated widespread support for debt forgiveness, but even then
it was difficult. The resulting programmes—the Heavily Indebted Poor Country
(HIPC) and Multilateral Debt Relief (MDRI) initiatives—have saved 37 of the
world’s poorest countries over $100bn.
4. Things are more complicated now. Poor nations have borrowed from new
lenders. China and Saudi Arabia have lent a lot of money to developing-world
governments. And as yields on rich-country debt have plummeted, poorer
governments have been able to sell foreign-currency bonds. The average
portion of emerging-market public external debt owed to multilateral
institutions dropped from 43% in 2008 to 34% in 2019, according to World
Bank data crunched by Fitch Ratings, while the share for commercial lenders
(largely bondholders rather than banks) jumped from 29% to 45%. Meanwhile,
bilateral lending fell.
With the creditor landscape transformed, lenders are looking at recent negotiations,
including those in Ecuador and Zambia, for signs of how future resolutions might take
shape. Two new power struggles have emerged.
The first is between Chinese lenders and everyone else. The second is between Wall
Street and Washington, where official-sector lenders like the IMF and the American
government are based. For the 50 most-indebted recipients of Chinese lending, the
average stock of debt owed to China reached 15% of GDP in 2017 from less than 1%
in 2005, according to data from a group of experts including Carmen Reinhart, a
Harvard academic now at the World Bank. Because of the political competition
between Beijing and Washington, this lending is—often unjustifiably—framed as a
devilish ploy to cripple poor economies and grab strategic assets. People think of
China “in almost conspiracy-theory terms,” says Meg Rithmire of Harvard Business
School. Governments in Zambia and Ecuador have been renegotiating their debt with
one eye on elections this year. In a sign of just how contentious the issue is, the front-
runners in the poll in Ecuador, which also owes a lot to China, are running on
opposing economic plans: Andrés Arauz promises to scrap the existing deal with the
IMF, whereas Guillermo Lasso wants to rebuild investors’ trust.
5. Beyond suspicion and rivalry, Chinese lending has specific characteristics that
complicate talks. The first step in any restructuring is calculating how much a
country owes and to whom. That is a thorny business when China is involved.
What analysts refer to as “Chinese lenders” includes a variety of institutions,
such as state-owned enterprises and policy banks, which act on behalf of the
government. “They’re not all on the same team,” explains Deborah Brautigam
of the China Africa Research Initiative at Johns Hopkins University.
Keeping track of all this lending is tricky, too. Much of it goes undeclared, and
confidentiality clauses prevent governments from sharing the terms of their loans.
That has been a stumbling block in Zambia. To offer support, the IMF needs
information on loans from China that have been agreed upon but are yet to be handed
out, meaning they do not show up in public accounts. Foreign bondholders, who have
lent a total of $3bn, have refused to provide a reprieve for fear that their funds will be
used to pay off Chinese lenders.
Everyone is seeking clues about the extent to which Chinese lenders will join
coordinated debt negotiations. So far, they seem eager to look like they are engaging
with other creditors. But they are changing their ways gradually, following the
Chinese proverb and “crossing the river by feeling the stones”. Policy banks have
deferred payments on loans to the Zambian and Ecuadorean governments, but details
are patchy. Similarly, China joined the G20 in its Debt Service Suspension Initiative
(DSSI) announced last year, to pause repayments on bilateral debt for 73 of the
poorest nations, and in its “common framework”, which provides longer-term help.
But it has curbed the power of the DSSI by treating some policy bank loans as
commercial, so they are not part of the standstill.
6. As for the other main power struggle, it pits official lenders like the IMF and
creditor governments, which have a long history of lending to the developing
world, against commercial lenders that make money doing the same.
Here, too, trust is an issue. Abebe Selassie, director of the IMF’s African department,
points out that one of the biggest recent scandals around undisclosed loans involved
European banks, including Credit Suisse. Some $2bn of questionable debt that was
taken on by state-owned enterprises in Mozambique in 2013 and 2014 eventually
crippled the local economy and forced the government into default. “Transparency is
about all lenders, not just China,” says Mr Selassie.
7. More worrying still is disagreement on the responsibility a fund manager
sitting in London or Hong Kong has to a poor-country government. Private-
sector lenders have come under pressure to offer concessions, even to solvent
governments. Some bondholders, like Yerlan Sydykov at Amundi, say they
have a fiduciary duty to generate returns for clients and that it is not their job to
“provide financial aid” to poor governments. “We’re not charities,” he says.
Besides, renegotiating foreign-currency bonds might not be in the interest of
poor economies if it leads to a credit downgrade, making it more expensive to
raise money on international capital markets in future.
Egos involved. Bondholders nowadays are a disparate group. Some funds hold on to
debt for a while; some are opportunists, buying bad debt when prices nose-dive. They
all have different goals, which is why they have split into multiple committees in
recent talks, including those in Argentina. The same fund managers pop up in all
emerging-market debt restructurings, too. There are big personalities involved and
personal feuds linger.
8. A government trying to restructure its debts needs not only to get all lenders
on-side but to do so in the right order. The Paris Club will negotiate only once
a country has an IMF programme in place and demands debtor countries ask
other lenders for concessions comparable to their own. That is why Iraq, with
vast oil reserves and foreign troops on the ground, began negotiations with the
rich-country public-sector lenders, winning a 90% reduction (in present-value
terms) of its Saddam-era debt stock that it could then ask other creditors to
match. A country that lacks geopolitical clout is unlikely to get an easy ride
from bilateral lenders and might follow a different strategy. “This is a major
tactical question for a sovereign that has both Paris Club and commercial debt:
what is the right sequence?” says Lee Buchheit, a lawyer who specialises in
sovereign debt.
UNIT 7: CHINA’S BELT AND ROAD INITIATIVE (BRI)
Italy’s decision to exit China’s BRI is mystifying in both tone and tenor
Defence Minister Guido Crosetto used strong language about a loose association
that aims to boost trade and build much-needed infrastructure
1. When Italy joined China’s Belt and Road Initiative in 2019, it was a big deal. A
majority of the world – 148 states – may have signed up to the ambitious global
investment programme at the time, but Italy was the only member of the G7 to
do so. Despite northern European stereotypes about it being a country of style
and siestas, it is globally the eighth-largest economy. Italy being in the BRI
gave weight to the idea that the ancient Silk Roads could be revived throughout
the breadth of the Eurasian landmass.
2. But now the country’s defence minister, Guido Crosetto, has not only
suggested that the agreement should not be renewed automatically next March.
He has said that the decision to join in the first place was an “improvised and
wicked act”. This is very strange and emotional language to use about a loose
association that aims to boost trade and build much-needed infrastructure. It is
also inconsistent with Mr Crosetto’s aim of walking back from the BRI
“without damaging relations” with Beijing, as he put it in an interview with the
Italian newspaper Corriere della Sera.
3. But his words are not backed by the facts in any case. “We exported a load of
oranges to China, they tripled exports to Italy in three years,” complained Mr
Crosetto. But Politico reports that: “Chinese exports to Italy increased 51 per
cent from 2019 to 2022, while China's imports from the EU country rose by 26
per cent during the same years, according to Italy’s Trade Agency.” That’s
either an awful lot of oranges, or it’s way more substantial than that.
4. What is true is that Chinese foreign direct investment in Italy has been very low
over the past few years. So if the Italian government wanted to leave the BRI, it
could have done so diplomatically by citing those figures and saying that the
partnership hadn’t really worked out, but had been a worthwhile effort.
5. Instead, Mr Crosetto has used words that appear calculated to offend, playing
straight into the narrative that the BRI is either some kind of con trick or a
cunning ploy by which other countries will unwittingly end up under Beijing’s
influence. It is no surprise that several reports about his explosive intervention
all refer to China’s “controversial” BRI, as if the adjective naturally attaches
itself to the initiative.
6. That is not a view, however, that is supported by any objective study of the
BRI. The European Bank for Reconstruction and Development, for instance,
describes it more soberly and sensibly: “China’s Belt and Road Initiative is a
strategy initiated by the People’s Republic of China that seeks to connect Asia
with Africa and Europe via land and maritime networks with the aim of
improving regional integration, increasing trade and stimulating economic
growth. The BRI has been associated with a very large programme of
investments in infrastructure development for ports, roads, railways and
airports, as well as power plants and telecommunications networks … The BRI
now places increasing emphasis on ‘high quality investment’, including
through greater use of project finance, risk mitigation tools, and green finance.”
7. As someone who represented Malaysia at a conference on the BRI in
Bangladesh, in the heart of a region – South and South-East Asia – that has
direct knowledge of the BRI’s effects, I say: that’s more like it. One of my
fellow speakers, Dr Zhang Jiadong of China’s Fudan University, put it aptly.
The BRI is not a new form of Chinese colonisation, he said, neither is it a
strategy. “It is a process” whose focus had shifted “from economic
development to constructing a community of ‘shared destiny for all mankind’”.
8. A 2020 report published by Chatham House, titled Debunking the Myth of
“Debt-trap Diplomacy”, defused one of the main charges against the BRI, with
the authors concluding that “developing country governments are not hapless
victims of a predatory Beijing. They – and their associated political and
economic interests – determine the nature of BRI projects on their territory”.
That includes negotiating with Chinese state-owned firms to ensure that local
populations make up a satisfactory proportion of the workforce on projects, and
undertaking analyses into affordability, sustainability and long-term returns on
investment. Just being responsible, in other words.
9. Italy’s Mr Crosetto either has such a low opinion of his colleagues that he
thinks they are not capable of behaving in such a manner if his country remains
in the BRI, or he simply wants to have as little as possible to do with China or
Chinese firms. Either way, if his aim was truly not to damage relations with
Beijing, he would appear to have failed by speaking so discourteously.
10. Thus far, the reaction has been mild. An editorial on viewing the BRI as a
“trojan horse” in the Chinese Communist Party’s Global Times stated: “We do
not want to see a closed and conservative Europe, and China has no intention to
change Europe … The intermingling and interaction of different civilisations is
the path to joint development in the new era.”
11. If Italy, and Europe as a whole, cannot see the BRI as “a pathway through
which we can collaborate and enhance mutual understanding”, as Global Times
puts it, but instead insists on demonising it in the crudest terms on the basis of
cherry-picked facts and unsubstantiated smears, a huge opportunity will have
been lost. And as a European living in Asia, it dismays me to see such
unwarranted hostility to what could be the 21st century’s greatest trading
initiative – all because it is led by China. (934 words)
