Conflict and Cooperation, Future of Europe
Amir Bagherpour PHD, Allison Hamlin | Mar 2017

European Integration

Applying giCompute Decision Analytics to Assess the Future of the European Union

 

Summary

Global Impact Strategies (giStrat.com) applied giCompute, an advanced decision analytics platform, to estimate the future of integration in Europe.   Policymakers in Europe and the United States are questioning the survival of the European Union. Since the June 23rd vote by Britain to leave the European Union the future of the EU has garnered significantly more attention.  Integration is faltering as populism and nationalism sweep across Europe. EU member countries struggle to deal with the political backlash caused by the influx of refugees and slow economic growth.  As a result of harsh political and economic realities, member states have failed to reach consensus on whether or how to accommodate refugees. Amidst calls for a “multi-speed” Europe the differences in stances and development levels of the EU countries are stark[1].  With France now eyeing a potential exit from the EU, policymakers and leaders want to know how integration in Europe will evolve. Below are the key findings of our analysis:

  • The largest remaining EU countries such as Germany, France, Italy, and Spain prefer integration, but the collective power of the smaller countries is substantial. giCompute results suggest nearly two-thirds of EU member states will reduce economic and political cooperation.

 

  • Although an economic union will likely continue for at least the next 12-18 months, our results reveal a significant shift away from political and economic integration. Under this pathway, we also foresee most member states will push for more aggressive resettlement policies aimed at keeping migrants outside of Europe. Security alliances such as NATO will likely remain in place.

 

  • The Eurozone and Schengen countries remain committed to integration and are not likely to dissolve their ties.  The Eurozone and Schengen countries with a few exceptions are more integrated and thus more committed to integration than countries that are in the European Union but not part of the Eurozone or the Schengen agreement.

 

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Background

The vote by the United Kingdom to leave the European Union shocked the world, placing the future of the European Union into question. As populist movements gain traction across Europe, many Europeans continue to grow disillusioned with the concept of integration as they struggle with high unemployment, slow economic growth, and a massive influx of immigrants[1].

As we seek to project the future of the European Union, we must first set the basic definitions for the various forms of integration between nations.  A key element of integration is free trade.  Countries engage in free trade by reducing or eliminating tariffs and other forms of barriers for the purpose of increasing the flow of goods and services across borders.  At its most basic form, an integrated free trade bloc results into more commerce between countries by incentivizing them to trade with each other rather than nations outside of the bloc. When executed fairly, free trade can provide a competitive edge to sectors and help preserve jobs through the concept of comparative advantage, whereby products are produced at lower opportunity costs compared to competing actors.  Beyond free trade, there is a deeper form of integration commonly known as a customs union.  In customs unions member countries once again reduce tariff levels but go one step further by agreeing to set a common external tariff level against non-member countries. A common market has the same features of a customs union and includes free movement of services and capital between member countries. A level of integration beyond customs unions is the economic union whereby all tariffs are removed accompanied by the free movement of labor.  The European Union for instance is a strong economic union where in addition to free flow of labor and trade, monetary and fiscal policies are also integrated alongside a single currency.  The deepest level of integration is a political union which contains all the features of an economic union as well as a common governing body that replaces some of the sovereignty afforded to each state with a centralized authority.[2]

The European Union had its beginnings in the European Coal and Steel Community which started to unite countries politically and economically.  The original countries were France, Germany, Italy, Belgium, Luxembourg, and the Netherlands.  In 1957 the Treaty of Rome established a common market termed the European Economic Community (EEC).  The European Union was formed in 1993 with the Maastricht Treaty and today includes 28 member countries and a common currency[3].  However, the United Kingdom’s departure from the EU has inspired other nationalist movements to push for their own respective exits. The most notable of these nationalist leaders is Marine Le Pen, the far-right French leader of the National Front.  Le Pen has vowed that if she wins the Presidential election in France she will hold a referendum on French membership in the European Union[4] Many leaders believe that if France leaves the EU, the entire union would fall apart[5].

Global Impact Strategies applied giCompute to gauge the future of European integration.  We applied giCompute, a decision analytics platform, to estimate how European integration is impacted by each country’s stance on the issues of migration and security.  Migration, particularly from volatile areas in the Middle East, North Africa and South Asia has become a contentious issue among European Union member countries who attempt to have similar policies regarding migration and the movement of labor.  The EU’s policy toward refugees and migration was a large focus of the debates surrounding Brexit[6]. Countries are worried about the impact of migrants.  Over 1 million migrants sought asylum in Europe in 2015[7] Countries worry about providing support for immigrants and refugees while also combating domestic economic insecurity[8].  Some countries are also worried about cultural differences and assimilation.  Eastern and Western European countries remain divided about how to respond to migrants and refugees.  Germany remains open to welcoming immigrants and refugees from Iraq, Syria, Afghanistan, and North Africa while many countries in the EU like Hungary, Slovakia, and Bulgaria are refusing to accept immigrants.  Hungary notably installed 15-foot barbed wire fences to keep immigrants out of the country.  Global Impact Strategies finds that each country’s stance on migration policy is important in assessing their willingness to remain at their current level of integration.

Similarly, there is a renewed focus on creating a more integrated European military force given Russia’s actions in Ukraine and growing concerns about President Trump’s commitment to NATO[9] Differences in how to deal with security concerns and how to fund a security force affect future integration.  To strengthen Europe’s CFSP would require additional funding from member states, some of whom are growing less amenable to additional fiscal responsibilities for the EU. Using giCompute we estimate the future level of EU integration using these two broad policy issues, both of which pit the sovereignty of the state against the interests of the union.

About giCompute

giStrat applied its analytics platform, giCompute, to estimate game theory based benefits (payoffs) of the major groups and actors regarding the future of European integration by ranking their known preferences across two factors relevant to the integration.  We estimated the overall utility values of the various factions and stakeholders on the potential outcomes related to European integration. We estimated the likelihood of deeper integration. giCompute incorporates the principles of game theory and decision science to calculate the positions leaders adopt and more importantly the impact of their actions on the overall outcome.

Results

Projected Positions and Outcome Pathways

giStrat analysts ranked the known preferences of key stakeholders across two factors deemed relevant by research literature to European integration: security and migration.  The migration positions are fortressing Europe, turning back refugees, sending assistance to crisis areas, resettling refugees outside Europe, establishing safe zones outside Europe, resettling refugees within Europe with controls in place, and accepting all refugees.  The security positions consist of remaining neutral, backing NATO only, supporting NATO and EU forces, supporting only the Common Foreign and Security Policy.  The analytics estimate the likelihood of deeper integration and the most likely level of integration achievable.  We find that it is highly unlikely that a deeper level of integration will be achieved.  It is likely that the European Union and Eurozone will remain in place under current conditions; however, their long-term survival is questionable.

Outcome Pathways:

Below are the defined outcomes and the factors associated with each of those outcomes.

Estimated Payoff Results:

Below is a table of the estimated utility payoffs score (net benefits) for each of the major stakeholders involved in European integration.

Definitions

Payoffs: The scenario closest to current reality (status quo) is indexed at a score of zero. Any payoff score greater than zero is a better option than the status quo, while any payoff score less than zero is worse than the status quo. giCompute generates these group and stakeholder payoffs (i.e. utility value or net benefit) by first capturing stakeholder preferences across the factors defined in the issue setup. giCompute then sifts through the full combinations of possible payoff scores to identify the true payoff that corresponds to each scenario outcome.

Egalitarian Outcome: The egalitarian outcome calculates the average payoff of the stakeholders across the various outcomes. It assumes all the stakeholders are equal in vote or influence.

Influence Driven Outcome: The influence driven outcome is a calculation of the aggregate payoffs for each outcome when considering the weighted influence of the various stakeholders and groups.

Cost of Friction: The relative cost of friction is defined as the degree of disagreement between the various stakeholders and groups across the scenarios.

Outcome Trajectory:  giCompute simulation results indicate that in the near term the level of economic integration in Europe will remain, but there is a significant shift away from political integration.  The most likely current outcome for integration in Europe is the preservation of the economic union, but the long-term course is toward disintegration stemming from a high level of disagreement regarding the future of the European Union.  The rise of nationalism is a significant contributor to the movement away from integration.  The widespread backlash against globalization has also led to doubts about the benefits of integration.

Strengths: Further disintegration is unlikely in the short-term.

Weaknesses: The trend away from integration can lead to additional economic instability in the region and disagreements among EU members.

Opportunities: The high likelihood of stability in the EU in the short term allows leaders time to either prepare for a lessening of integration to avoid a Brexit-like shock or to attempt to shift away from the anti-integration movement.

Threats: Given the rise in nationalism, the trend away from integration is troubling as additional disagreements and lack of coordination contribute to the likelihood of conflict.

Comparing Current and Projected Landscapes on Integration

Current Landscape

Projected Landscape

Projected Outcome: The current landscape indicates there is substantial public support for the Eurozone and deeper integration in Europe. However, when the current landscape is compared to the projected landscape we see a major difference in the stance of European countries towards integration.  Most countries support an economic union as opposed to Eurozone with a common currency.  Strikingly, several countries want disintegration or a customs union.  This shows the shift occurring within European countries whereby the EU is on a path towards disintegration rather than further integration.  Our results show the largest remaining EU countries such as Germany and France prefer integration, but the collective voting power of the smaller countries are significant.  For instance, giCompute utility calculations suggests nearly two-thirds of EU member states will seek to reduce economic and political cooperation.

Friction and Convergence Between Stakeholders

Degree of Convergence: The charts below show the range of utility payoffs for the stakeholders across the various defined scenarios. Misalignment of the bars and colors within the bars indicates disagreement between stakeholders. Alignment indicates agreement.

The chart above reveals that the largest disagreement stems from the smaller countries.  The largest differences come from Switzerland, Hungary, Iceland, Austria, Sweden, Ireland, Cyprus, and Slovakia.  Each of these countries perceives disintegration and low levels of integration as a benefit. Most of the EU and European countries view disintegration as the worst possible outcome.

Alternative Scenarios

Eurozone Countries

To test our results giStrat ran two alternative scenarios.  The first scenario included just the Eurozone countries.  The Eurozone consists of 19 of the 28 European Union member countries who all share the same currency, the euro. We ran the model on these countries because they have a deeper level of integration than the rest of the European Union. We find similar results to the main model suggesting a shift away from integration.  Again, the smaller countries are making the shift while the large countries – Germany, Italy, Spain, and France – prefer deeper integration.

Current Landscape: Eurozone

Projected Landscape: Eurozone

Schengen Countries

In the second alternative scenario, only the Schengen countries are included in the model.  The Schengen Agreement abolished border checks for member countries to allow the free movement of people across their borders[10]While the agreement reduces internal barriers it also increases border security on external borders, which necessitates a level of political cooperation and integration.

Current Landscape: Schengen

Projected Landscape: Schengen

Outcome: The results indicate that the larger countries in the Schengen Area that are not also members of the European Union are shifting away from integration.  The large countries that are members of both the Schengen Area and the European Union remain committed to integration for the near future.  Overall, the results suggest that there is a significant shift away from deeper levels of integration in Europe.  The shift is mainly driven by smaller countries.  For the near future, Germany, France, and the large European countries can hold the EU together but over time there will be a movement away from deepening integration.

Reliability Testing: Monte Carlo Simulations

Description: The graph below depicts results from the Monte Carlo simulations. The Monte Carlo method uses repeat random sampling to solve problems or obtain results. giCompute uses Monte Carlo simulations to allow users to test how the outputs react to randomly generated inputs over many trials. Users can direct the platform to run up to forty randomized alternative futures. Users can also determine how many variables to randomize. The chart shows the percentage the model results in each outcome over the specified number of simulations. An outcome is more likely when it has a higher win percentage.

Results: giStrat conducted reliability testing on the full model to gauge the future of the European Union.  The results indicate that the outcome of the model is robust. We conducted Monte Carlo simulations across forty alternative futures at a ninety percent shock probability.  The results suggest that given current conditions it is unlikely the European Union will revert to a customs union or disintegrate within the next 12 – 18 months.  It is likely that the economic union will remain in place, but overall there is a trend away from an economic union and the grand experiment of the European Union. The Eurozone is more likely to remain in place than the European Union as there is less disagreement among the members of the Eurozone. The large countries are committed but may not be able to defend the European Union from the backlash against integration if it continues in the long-term.

References

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