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date: 20 October 2017

The Foreign Policy Implications of Financial Crises

This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Politics. Please check back later for the full article.

The “Euro-crisis” poses a fundamental challenge to the European integration process not only in economic but most of all in political terms. It is far less clear, however, to what extent the crisis is also a problem for the EU’s international standing and role. So far, no consensus has emerged among academics and policymakers on whether and how the financial and debt crisis has had an impact on the EU’s foreign policy.

Roughly speaking, three different perspectives can be distinguished in the debate: One perspective stresses that, under the impression of the crisis, foreign policy has increasingly become an instrument of economic power-politics. The term “geo-economics” captures the idea whereby economic policies have turned from more positive interdependence—where cooperation is mutually beneficial—to an area of conflict and competition for market access, financial investments, and natural resources. The second perspective emphasizes that EU foreign policy is determined mainly by structural and long-term developments that are not directly related to the crisis. Accordingly, deficits and shortcomings in the EU’s external relations are due to well-known and well-analyzed factors such as the lack of coherence in EU policies, the missing consensus among member states on many foreign policy issues, as well as the economic decline of Europe and the West in relation to the “rising powers.” At a maximum, the financial and debt crisis has to some extent reinforced some of these long-standing developments. Third, some analysts and politicians negate any significant impact of the crisis on EU foreign policy.

It seems likely that the crisis led to an erosion of the financial and budgetary basis of foreign policy—even if it was more pronounced on the national than the European level. It also accelerated a trend toward the economization of political priorities resulting—among other things—in deepening conflicts among EU member states. These developments have in turn eroded both the effectiveness and the soft power of the EU’s foreign policy. The crisis therefore not only places a strain on the European integration process but also presents a central challenge for the EU as an international actor.