Europe-Malaysia, partners in difficult times

By Vincent Piket, Ambassador, head of delegation of the European Union to Malaysia via The Star

THESE are difficult times for the global economy. People are following the debate about the economic and financial challenges facing Greece and some other members of the euro area.

Economic growth is forecast to slow in Europe as well as in the United States. But the wilder speculation is wrong. The European Union (EU) is responding forcefully to the crisis and the euro is here to stay. The EU remains the world’s largest economy, and the EU and Malaysia enjoy a strong and growing economic relationship.

The EU as a whole is one of the largest foreign investors in Malaysia, with more than 2000 companies established here. The EU is also Malaysia’s fourth largest trading partner, with Malaysian exports of more than RM85bil in 2010. So it is natural that people in Malaysia are concerned at the prospect of further economic difficulties in Europe.

While Malaysia’s economy still shows robust growth, this country, like many others, cannot avoid the consequences of an economic slowdown or recession in its major trading partners. But the EU economy is resilient and will return to the path of growth. And EU-Malaysia trade and investment relations will remain at the heart of our alliance. The EU’s leaders are addressing the current serious situation.

As the President of the European Council, Herman Van Rompuy has said, “We will continue to do what it takes to safeguard the financial stability of the euro area, working on more governance, fiscal discipline and fiscal integration.” He also declared, “European leaders are taking the decisions, individually and jointly, to bring this storm to rest. We are acting with determination and in a spirit of solidarity. It requires political courage and statesmanship.”

It is clear that coordinated and decisive measures are needed to resolve the current crisis, and to ensure it does not happen again. Only far-reaching measures will bring government debt levels in certain Member States under control and make sure that countries live within their means in future.

To this end, the EU’s leaders have agreed on new mechanisms and frameworks which show that we have learned our lesson and will be better equipped to ensure stability and discipline in future.

To manage the crisis in the short term, the European Financial Stability Facility has been created with the capacity to support countries in difficulty. Furthermore, leaders have strengthened budgetary and macroeconomic surveillance and made it easier for the EU to sanction Member States which do not honour agreed commitments in terms of policy coordination.

More tough decisions and hard work lie ahead, but the basis for discipline and trust is there for the long-term future of the euro. Amid the difficulties, it is also important to remember a few other facts underpinning the EU’s relations with the world and with Malaysia specifically.

First, the European economy has many strengths. Our long-standing approach of integrating internally while remaining open to the rest of the world has driven the EU’s economy to decades of economic growth. With just 7% of the world’s population, the EU produces about 20% of world economic output.

And its trade with the rest of the world accounts for around 20% of global exports and imports. While three countries, representing just 6% of the GDP of the euro area, have threatened the financial stability of the whole euro area, the EU still includes some of the world’s most competitive industrial regions and boasts some of the world’s most dynamic and innovative companies.

Second, the euro is the currency of 330 million people in the 17 euro-area countries, and has become the world’s second most important currency after the US dollar. The single currency makes the European single market more efficient. It increases price transparency, eliminates currency exchange costs, oils the wheels of the European economy and facilitates trade. The result of this crisis will be a stronger and more integrated EU “more, not less Europe”, as European Commission President Jos Manuel Barroso has said.

Third, we should also remember that the EU-Malaysia economic relationship is resilient. We have been through crises in the past, especially following the Asian monetary crisis of the late 1990s and the world financial crisis of 2008. But each time trade and investment have bounced back: suffice to mention that after a depressed 2009, Malaysian exports to the EU rose by 40% and hit an all-time high last year.

The worst possible response to this crisis would be to close borders or increase protectionism. Most economists agree that the worst economic crisis ever, in the 1930s, was severely worsened by trade protectionist measures, which reduced trade and caused retaliatory tariffs in other countries. International trade plunged by more than 50%. Our challenge now is to redouble our commitment to multilateral negotiations and trade expansion. The best forum for this is still the WTO and the Doha Development Round as they could increase opportunities for trade, creating jobs and income for all.

At the same time, bilateral EU and Malaysian economic and trade links have entered a whole new exciting phase. In October 2010, Prime Minister Datuk Seri Najib Tun Razak  and the EU Commission President Barroso officially launched the EU-Malaysia FTA negotiations. Negotiations are well underway and both parties aim to conclude in 2012.

The objective of the FTA negotiations with Malaysia is simple: we wish to create new opportunities for businesses from both sides. Companies wishing to sell goods or offering services between the two sides should enjoy preferential treatment. And consumers should get access to a wider variety of products at better prices.

For the EU, Malaysia represents a growing market for exports and investments, as well as a crucial link to the wider Asean region. Likewise, it makes eminent sense for Malaysia to get preferential access to the EU, the world’s largest market. The gains of a new, more ambitious arrangement for liberalising our bilateral trade can be huge.

A study conducted in 2006 indicated that Malaysia would be a clear “winner”. Let me just quote one figure: Malaysia’s GDP would be boosted by 8% by 2020 if a deep and comprehensive Free Trade Area (FTA) were to be concluded.

We will have some difficult times ahead. But the EU economy will recover, the euro will emerge stronger and EU-Malaysia trade and investment could be significantly greater as the EU returns to the path of economic growth and prosperity.