Five Big Policy Issues for Europe's Next Five Years

Stephen Fidler - 15 May 2014

The European Union is looking forward. Elections for the European Parliament next week will be followed by an overhaul of the European Commission, the EU's executive arm. Herman Van Rompuy will also step down as president of the European Council, the powerful body where the 28 EU leaders meet, at the end of November.

With the changing of the guard in Brussels, politicians, policy makers, diplomats and businesspeople are debating the challenges the EU will face during the next five years.

Here, distilled from some of these discussions, are the five often-overlapping policy areas expected to dominate Europe's next half-decade.

The Neighborhood:

The legacy of the Arab Spring had already created turmoil and conflict in the countries around the Mediterranean before Vladimir Putin started intervening in neighboring Ukraine at the EU's eastern border. Many diplomats fear that Moscow is trying to turn Ukraine into a failed state, seeking to make sure that if the country doesn't fall into its sphere of influence it won't fall into the West's.

Trying to shore up Ukraine and managing an adversarial relationship with Russia are geopolitical challenges for a bloc that is most comfortable handling technocratic obstacles. Most EU nations would like to return to business-as-usual; Mr. Putin may not let them.

Migration:

The unsettled neighborhood is amplifying the numbers of undocumented migrants seeking refuge inside the EU—this year likely to reach record levels.

The bloc already faces a humanitarian crisis, with hundreds drowning in the Mediterranean while trying to make the crossing from Libya to Italy. Tensions are already high between countries in the south where the refugees land and which argue they are bearing most of the financial cost, and countries in the north where they want to go. On top of that, officials are bracing for increased numbers of migrants from Ukraine.

So far, external migration has been put in the tray marked "too difficult." But it's not only external migration that's an issue. Migration inside the EU—deriving from the right of free movement of labor—has become a political hot potato in the U.K. and elsewhere. That brings us to the third likely challenge.

The U.K.

A campaign to curb immigration has become a rallying cry for the anti-EU U.K. Independence Party, which is riding high in the opinion polls. UKIP's undercutting of the Conservative Party has led Prime Minister David Cameron to promise an In-Out referendum on the EU in 2017. It's not yet inevitable because the Conservatives are far from certain to be returned to office in next year's elections. Nonetheless, the U.K. is seeking negotiations that will reduce the EU's perceived power. Those talks could be linked to EU treaty changes Germany wants to make to reform the euro zone.

Before then, the cat could be put among the EU pigeons if Scotland votes in a September referendum to leave the U.K., triggering negotiations over how it enters the bloc.

Growth and Jobs

Some British officials worry that the case to leave the EU could be boosted by feeble economic performance in the euro zone, strengthening the argument that the U.K. should "untie itself from a corpse."

Unemployment, particularly among young people, remains the No. 1 domestic priority in many economies. But there's little or no scope for government-financed stimulus across most of the bloc. Governments have promised reforms to improve the functioning of economies—but now that financial-market pressure has lifted, the impetus for change at a national level has halted.

At the European Business Summit, a conference of business leaders in Brussels over Wednesday and Thursday, business leaders pushed for the completion of a trade deal with the U.S., which many say would help growth and jobs.

They also urged completing the EU's single market. They emphasized the need to reduce national barriers in the digital economy, which make it impossible for Europe to replicate the U.S. experience. The euro zone's "banking union" exists for many enterprises only on paper, with a great divide in the cost of and access to credit for similar companies in the periphery and the core.

Energy

Nowhere is the failure of the EU to create a true common market more evident, many of these executives said, than in energy. Apart from urging exploitation of shale gas, many argued Europe must create a continental grid of electricity and natural gas to allow increased efficiencies and to lower prices.

Typical of a continent-wide problem: Spain and Portugal have a host of terminals for liquefied natural gas, but there is no infrastructure to allow that gas to be delivered into France and the rest of Europe.

This issue is more than a matter of economics. Policy makers argue that reducing Europe's heavy energy dependence on Russia is now a security matter. Given the experience of the past five years when it seemed only crisis could spur the bloc into action, it is possible the turmoil in Ukraine could be the spark needed for a decisive move toward a common energy market.

Read the orginial article on WSJ.com: http://online.wsj.com/news/articles/SB10001424052702304908304579564180959369024