The international relations are navigating perilous waters of increasing conflicts and unprecedented uncertainty. As all crises, this represents both a risk and an opportunity, if one is ready to face the challenges.

The international economic and monetary system had already been evolving in the last few decades through increasing tensions and contradictions, which became more and more acute and difficult to sustain. Basically, interdependence was left to increase – both in terms of globalization of trade due to dispersed value chains and increasing capital mobility, in the context of a digital transition that allowed real-time capital movements – without providing the governance infrastructure to manage such worldwide interdependence.

The recent four major shocks that hit the global economy (Covid-19, with the upsetting of global value chains; Russia’s invasion of Ukraine and the subsequent energy crisis; the resurgence of inflation, both cost-driven and speculation-induced; the advent of protectionism in the heart of the global economic system with the advent of Trump) are now exposing all the contradictions that have been accumulating since decades.

At least since 1997, when the USA (with the complacency of the IMF) frustrated the Japanese proposal for an Asian Monetary Fund (Masini 2024), a regional tool to avoid domino effects in the East-Asian currency crisis, while China was negotiating its accession to the WTO. Since then, we have seen a skyrocketing accumulation of reserves (in US Treasury bonds) as a cushion against potential sudden capital flights and the need to recur to the IMF, with its heavy conditional lending. Hence the growing of a paradox: savings from the rest of the world have been financing US expenditures, both investment and consumption. This paradox is particularly striking in the case of low-income countries, which were bound to buy $-denominated T-bonds for precautionary reasons, given their vulnerable financial position, instead of spending for growth and social protection.

Such paradox could survive only thanks to the credibility and recognized legitimacy of the dollar to play a hegemonic role; and of the US-denominated T-bond to be the safe asset par eccellence. Which could in turn rely on the US playing the role of guarantor of free trade and a stable currency and its function as de facto Lender of Last Resort (via the currency swaps of the FED) and Consumer of Last Resort of the US Federal Government during major systemic crises (as in 2008-09).

Attempts at fixing some flaws of the international monetary system with a new international monetary conference, a sort of Bretton Woods 2 (as was repeatedly called for in those years), based on overcoming the Triffin Dilemma (as the speech by the Governor of the People Bank of China Zhou made clear in March 2009) were frustrated by USA (and the whole G7).

Hence the emergence of the BRICS (June 2009), the multilateralization of the Chiang Mai Initiative and the establishment of a first-line regional safety net (2011) and the recent trans-national payment system in renminbi (2025).

Such evolution shows that we are heading towards a new bipolar world, with a weaponization of currencies and financial infrastructures that needs to be resisted, as a new confrontation between blocks would hinder the production of global public goods that are increasingly becoming crucial for the survival of humankind: decarbonization and the struggle against climate change, a peaceful resolution of conflicts, universal access to primary resources, regulation of the digital transition towards artificial intelligence and the new technologies, etc. All unanimously shared needs by the citizens of the world, that require global collective action.

Although these issues are usually left to top-level strategic games between a few major global players, we believe that the peculiar situation we are currently experiencing leaves some room for manoeuvre to bottom-up political action.

First, the emergence of awareness concerning the global nature of a few but key public goods opens the opportunity for a narrative pushing for the establishment of mechanisms and institutions for the provision of such global collective goods. Such narratives might serve to collect popular calls for more practical action, upscaling initiatives such as the Fridays for Future that emerged a few years ago and should not be wasted.

This would also enhance the possibility to strengthen the process towards multilateralism, through greater regional integration in all major areas of the world: Africa, Central and Latina America, South-East Asia, etc. All existing regional initiatives should be encouraged, with a few concrete proposals such as the establishment, for example, in both Africa and Central and Latin America, of regional safety nets, comparable to the one existing within the Chian Mai Initiative.

Secondly, the impossibility of the renminbi to be a genuine, alternative safe-asset to the USD-denominated T-bond, given its obscure capital market and poor transparency, provides an opportunity for the euro to acquire a greater role in international payments and reserves. This would require the completion of the banking union and single capital market, its increasing deepness and liquidity, on all yield/maturity combinations, and the increasing quantity of euro-denominated T-bonds, not fragmented in national issuers but centralized at the supranational level for high-quality and high-return investment projects. From this point of view, however smart, proposals to revive (Blanchard 2025) the blue-bond proposal (Delpla and Weizsäcker 2010) are not heading into the right direction, as they would only consolidate past debt, instead of facing the current challenges. We should also acknowledge here the resistance of national governments to allow trans-national mergers and acquisitions that would rationalize the banking system and make it more competitive in a global market.

This would require a political and intellectual shift away from standard economic policy orientation in Europe, as availability to lose part of its monetary sovereignty sacrificing domestic objectives to international needs would be necessary, possibly in cooperation with the other major global players, as well as issuing more supranational collective euro-denominated bonds for collective regional projects and playing the lender of last resort in case of global systemic crises.

An increasing international role of the euro, though, should not aim to replace the dollar as a principal reserve currency in the world, with the risk of replicating the contradictions that have been characterizing the dollar hegemony; nor should we aim at a multi-currency system, that might bring about even greater financial instability. A greater role of the euro should only aim, in the short-term, at showing that an alternative to hegemonic stability is possible. While, in the medium-term, the objective should be enlarging the role of SDRs (the only multicurrency asset) as “principal reserve asset”, as the Articles of Agreement of

the International Monetary Fund state (art. XXII). This would require a collective responsibility to coordinate broad monetary policies between the major global players, both in normal times, to manage macroeconomic surveillance and financial stability, and open the possibility, in the middle-term, to a revision of the SDR basket allowing for accession of regional currencies and, in a longer-term, the eventual transformation of SDRs into a genuine supranational currency, not based on national ones, issued to finance global public goods.

We are now experiencing an extraordinary opportunity to struggle for: a strengthening of regional integration processes, especially in Europe, where a constitutional reform of the EU would increase its international actorness; and for a reform of the international monetary system to deliver on the provision of crucial global public goods in a multipolar, multilayered logic. As academics, think-tanks, and civil society organizations, we are all called to exploit such unprecedented window of opportunity; we should not miss it.

References

Blanchard O. 2025. Now is the time for Eurobonds: A specific proposal, Peterson Institute for International Economics, May 30, https://www.piie.com/blogs/realtime-economics/2025/now-time-eurobonds-specific-proposal.

Delpla J. and von Weizsäcker J. 2010. The Blue Bond Proposal, Bruegel Policy Brief, 3, May 6.

Masini F. 2024. Reappraising Japan’s proposal for an Asian Monetary Fund, Rivista di Studi Politici Internazionali, 91(3), 367-392.

“… ensuring that the ‘power of rules’ prevail over the ‘rules of power’…”

Tanja Fajon, Minister of Foreign Affairs of the Republic of Slovenia, 

Bled Strategic Forum, 26-30 August 2022

Introduction

As suggested by Tanja Fajon, ensuring that the power of rules prevails is the main challenge concerning the relationship between the Balkans and the EU. This challenge must be viewed against at least four critical features: the current global geopolitical challenges; the reshuffling from global to regional value-chains; the risks and opportunities deriving from the EU enlargement to the Balkans; and the need for a European structural reform.

1. The global framework

Before the Russian invasion of Ukraine, since at least the US-led financial crisis, the world was in need of (and moving, slowly, towards) multilateralism, as a way to overcome the weakness of a hegemonic system no longer reflected in the real balance of economic and political power worldwide. The conflict put a halt to this process, risking a return to a new form of bilateralism, that very much resembles the doom years of the cold war. The need to provide crucial global public goods for the survival of mankind suggests that we cannot afford such trend.

We must return on the way of multilateralism.

A key responsibility for this is the birth and consolidation of a clear European actorness and sovereignty, in turn depending on the ability of Europe to provide crucial public goods such as ensuring security in the provision of energy, food, raw materials, technology, multi-layered industrial structures, etc. Generally speaking, this requires restructuring the European economy to be more self-reliant; at the same time this implies a single foreign policy and a common strategic attitude towards external partnerships (Africa, Latina America, wider Europe, post-Putin Russia, Mediterranean Basin, etc).

Hence the need to enhance the European cohesion in areas where externalities split over national boundaries, again: security, foreign policy, energy, health, major infrastructure, digital and green transition. This can be done via national coordinated action, which proved weak in times of crisis, i.e when it is most required, and with high risks of asymmetry (due to different financial health of national budgets) or with a joint budget, increased with genuine own resources and/or in deficit spending. 

2. Reshoring

One key aspect of this European sovereignty enhancing strategy requires internalizing formerly global value chains. This is an ongoing process since the covid, but should be further pursued.

Hence the economic relevance of the Balkans in the EU. The following is a series of graphs and tables illustrating the trade interchange between the Balkan countries and the EU, from both sides.

They testify of a strong interdependence in regional value chains that should be further pursued. Not in an autarchic perspective, that the EU cannot afford anyway, being extremely exposed to external provision of key raw materials, but in a strategy of greater productive autonomy.

The EU current account surplus is constant and comes from an increasing trend of both imports and exports.

Exports are mainly directed to Serbia, which has a leading role in economic terms among the Balkan countries, in particular thanks to the strong engagement of Germany and Italy.

Also from the part of the Balkans, the EU represents over 4/5th of the regional exports and accounts for more than a half of imports. Both China and Russia are currently of minor economic importance to the area. This strategic asset should not be wasted.

3. Critical features

Traditional, historical, geopolitical alliances may be a problem. Serbia’s relations with Russia may be a risk for the strategic unity of the region. But it may be turned into an opportunity. Sooner or later the conflict in Ukraine is destined to come to an end; and we cannot expect simply to ignore the existence of Russia. Some kind of reciprocal relations must be established again between the EU and Russia. In this case, previous privileged relationships with Russia of some member countries may be an opportunity as a political and economic bridge. It is a long-run perspective. But nobody can predict how short this long-run may turn out to be.

Another major risk may be diverging interests between the Balkans. It is not by chance that we use the term Balkanization to illustrate fragmentation. It is in the responsibility of the EU to single out areas where balkanization risks are minimized a strategic unity ensured.

One more risk derives from the current weakness, especially in some of these countries, to ensure the (active) protection of human, civic, social rights and common European values. We do not want more problems similar to those we are experiencing with Hungary and Poland. This will very much depend on the way collective decisions are taken and enforced. We shall return on this later.

One further issue concerning the diverging performance of these countries in economic terms, that will need to be addressed. This also implies a more active redistributive capacity of the EU budget than what it is currently. We shall return on this in the next section.

4. Deepening or enlarging?

I hope I made it clear that the sooner we allow the Balkans in the process of EU membership the better. Pending the implementation of effective powers in foreign policy, the enlargement represented (and still represents) the true, viable EU foreign policy till now, by which the EU extended the power of supranational rules to a growing number of European countries. 

Enlarging is therefore unavoidable; to stabilize democratic trends, ensure balanced growth, enhance the resilience of the whole European continent to internal and external challenges. The ADRIA Region is already providing a useful table for common projects in the fields of skills, best practices, human capital, joint investment, etc. It is not enough. Full membership should come as soon as possible.

Deepening, nevertheless, is key too. In particular, no collective decision can be left again to the blackmails of veto power. And this requires treaty changes and an ex-ante agreement, before any enlargement takes place.

A two or three tier Europe might fit for the purpose of accommodating the institutional architecture to the required compromise between enlargement and deepening. Macron’ European political community might serve for this purpose. This implies, nevertheless, that a core of European countries has the strength to increase its collective sovereignty, basically thorough founding a federal system. 

Concluding remarks

In any case, what is mostly important is that Europe provides a clear and timely signal of a radical change in its governing structure, showing that it is ready to take the opportunities and minimize the risks of inefficiency, eventually providing a convincing coherence between its decision-making system and the rhythm of history.