By a narrow vote, the European Parliament has effectively blocked the entry into force of the partnership agreement with Mercosur. This is yet another failure by the EU to improve its prospects for prosperity and economic transformation. The agreement that was signed is a step in the right direction, but delaying it means accumulating lost benefits—at a time when growth in the core of the euro area is dangerously close to zero.
What is Mercosur anyway?
Mercosur is the South American common market that includes Brazil, Argentina, Uruguay, and Paraguay. Bolivia is expected to join soon. The bloc has a population of over 270 million people and a combined GDP of around 3 trillion US dollars. To put this in perspective, Mercosur’s economy is about twice the size of Turkey’s and significantly larger than those of Canada, Mexico, South Korea, or Australia.
At present, EU exports to these South American countries are relatively modest—between €50 and €60 billion per year. This is exactly what the agreement aims to change: to make access to these markets easier for European producers. This creates strong growth potential by expanding opportunities for high-performance industries with advanced technologies and products, where Europe is already a global leader.
Europe’s success in the global economic competition depends on expanding freedom of trade and investment with the rest of the world. The EU has a more open economy than both the United States and China, and it exports goods worth around €2.7 trillion every year.
If we exclude European markets outside the EU (including the United Kingdom), which receive about 32% of EU exports, the largest external markets are the United States (€540 billion) and China (€250 billion). If we also include Mexico and Canada—both closely integrated with the US economy—as well as the dynamic economies of Southeast Asia, which are closely linked to China, these two economic blocs together currently absorb nearly €1.1 trillion worth of EU exports, or more than 40% of the total.
However, this reflects the past. The road ahead is likely to be far more difficult. Donald Trump is strategically cutting access to the US market by sharply raising tariffs. At the same time, Chinese industry, supported by subsidies and targeted state protectionism, is steadily eroding the competitive advantages of Europe’s traditional industries, such as automotive manufacturing, machinery, chemicals, and other specialized sectors.
This is why the prospect of greater freedom for trade and investment with Mercosur was such a valuable opportunity for the EU, at a time of major global economic changes that are undermining the long-standing strengths of Europe’s historic industrial leaders.
We should not deceive ourselves: opening more trade opportunities is only half of the formula for success. The European economy also needs innovation, investment, and restructuring in order to benefit from expanded access to foreign markets. And that requires deregulation.
Heavy, complex, and slow rules and restrictions discourage entrepreneurial activity and make it harder to build new, modern, and competitive factories. Without new investment and the rapid adoption of new technologies, Europe cannot achieve the high productivity needed to compete with the scale and speed of China and other Asian economies, nor can it stand a chance against the United States in digital services and related industries.
In short, Europe must move away from its obsession with preventive and all-encompassing regulation and instead embrace the idea of economic freedom.
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