International Cooperation: China-EU Relations

So there has been a lot of interaction between EU and China, as of recently. I'll start with the following article from the Chinese Embassador to the EU, where he praises the Lisbon treaty and it's ability to increase European integration, thus endowing the EU with a new authority and consequent ability in international relations, fundamental to the EU-China foreign strategic relationship (whatever it may be...).

Then we follow with the renewed calls for Beijing to allow the renmimbi to float, which is really to say that the EU and the USA want it to appreciate.

The Chinese on the other hand want to leave it be for fear it'll create chaos, which I'm assuming they fear would be large enough to topple the single party regime.

At the same time the Chinese seem to have requests of their own, involving European countries giving up some of their IMF seats.

What does all this chatter mean? Well nothing really for the moment. The ambassador is supposed to say this sort of things on the eve of China-EU strategic talks. In the mean time, until the EU can buy and sell Bonds in international markets, all that China really cares about is trade policy. Regarding the renmimbi, they won't fully float the currency anytime soon. They perceive it as too risky a move. If we really want to help, we ought to start having calm, quiet and respectful little chats with about convincing them of the long-term economic benefits of a stable democracy that abides by the rule of law, in terms of its ability to absorb social unrest. I mentioned this before here.

Regarding the IMF seats, they should really sit us down and make us understand that we should all get one EU seat. But for the time being, unless a phenomenal proposal is put on the table, which I doubt, France and the UK will want to have their seats at the UN and be together with Germany to pull their weight in the IMF.

The truth is though that for all the pretty talk nothing will happen immediately. However the narrative is set. We all trade a lot with each other. This exposes us to the political fragilities that limit our ability to make good decisions for fear of social unrest. Nothing will happen until China's hit by an economic shock. As this'll happen, they want to devalue the currency which the EU and the USA won't enjoy much. So what we end up with is a very similar situation between the EU/USA and China, to the one Germany had with with the rest of the EU in the 1980s and 1990s. Right? So where do we go from here? How long does it take the world to go from where we are now to where the EU is? The answer is qualitative not quantitative, and thus ambiguous. The best way for ms to think about this is to think of what Alesina, Moravsik, Majone, Tsebelis, Putnam, Acemoglu and Olson have to say about this. Alesina argues that international cooperation (and delegation when cooperation isn't credible or binding) happens when economies of scale can be exploited and when negative spillovers are damaging enough. Moravsik argues that all EU integration happen through an intergovernmental bargaining process in the answer to severe crises, while Majone in my opinion rounds this argument by saying that it also occurs through institutional encroachment of delegated agents on the monopoly of integration owned by the principals. Thus principals decide to cooperate and their actors ensure compliance and consistency. Tsebelis' veto player theory tells us that the larger the number of players involved the smaller the winset of policies they can agree on. Putnam, in turn describes the dynamics of two level games, where agreements must be sold at home and abroad. Acemoglu reminds us that the iability of players to ever come to an agreement depends on their ability to at some point in time start get to a common understanding of the world, from which they can build on, in order to eventually agree as signals educate them bringing them asymptotically ever closer to the truth. Finally, Olson tells us that a small but well funded and organised interest group can high jack cooperation if it endangers the benefits it has leaned to extract a has come to depend upon, over time.

Alesina and Moravsik's criteria are fulfilled. However they have bot engaged in the type of institutional build up characteristic of Majone's argument. Sure, there's the IMF, the WB and the WTO, but the organisations hardly have the pull of the European Commission.

Then there are the insight about veto players, which inform us that more veto players will take longer to agree on less. Following Acemoglu, as long as the countries don't trust each other I doubt that they'll be able to get to similar conclusions as they'll interpret positive developments as the result of their might and negative ones as a result of others plotting against them. Finally the communist party in China is probably the most powerful interest group in the world, and thus has the most to lose from the erosion of it's power. Combining the last two observations implies that a narrative must be constructed where the survival of each member of the communist party of China will be guaranteed in exchange for political reform. At the same time in order to deal effectively with these crises more interaction will have to take place between the relevant actors. The way Europeans built trust with each other was by repeated and regular meetings, where no doubt many prejudices were shed in favour of more trusting approaches. This it seems good to have more high level meetings and more cultural exchanges, in order to build the trust necessary for cooperation. After all we're only getting started.