Dec. 14, 2023 11:07 am ET
Central banks in Europe want to push back against the strengthening consensus that 2024 will be a year of interest-rate cuts. They may be swept up by it anyway.
Investors expected both the European Central Bank and the Bank of England to leave borrowing costs unchanged Thursday. In this regard, they didn’t disappoint. But their messaging struck a very different tone to that of Federal Reserve Chairman Jerome Powell Wednesday. Whereas U.S. officials are openly pivoting and have suggested that rates will be cut many times next year—sparking euphoria in the stock market—their peers across the Atlantic are sticking with a narrative of “higher for longer.”
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As the European Union (EU) navigates its internal divisions, growing disagreements over the continent’s stance on international issues have cast a shadow over its consensus-driven foreign policy. In particular, the EU’s recent wave of hawkish action has marked a break from the continent’s historical postwar posture of favoring diplomacy and restraint. This newfound assertiveness has been driven in part by the rising influence of Central and Eastern European countries, where fears of regional insecurity have pushed many governments to call for more robust measures in dealing with foreign powers.
The most striking example of this hawkish trend is the often-strident rhetoric coming out of the Visegrad group—comprising Poland, Hungary, the Czech Republic, and Slovakia—who have repeatedly made public their objections to the EU’s proposed financial and refugee-resettlement accords. In response, these nations have taken a harder line on issues like sanctions against Russia, the aftermath of the Brexit negotiations, and the conflict in Ukraine.
While the EU’s more confrontational stance has produced tangible results, experts agree that this hard-edged approach will be difficult to sustain in the long term. For one thing, it flies in the face of the EU’s primary aim of fostering political and economic solidarity among its member states. Moreover, the intensity of the bloc’s response is often sorely mismatched with the underlying issues and threatens to undermine collective EU action. Finally, many worry that a more aggressive EU could inspire further conflict rather than provide any meaningful resolution.
Nevertheless, the EU’s recent outbursts of hawkish rebellion have also served to highlight the essential need for a more unified and effective approach to foreign policy. The challenge going forward will be finding a way to combine the EU’s more restrained stance with the aggressive impulses of some of its members in order to bring about a genuine resolution to the many complex international issues facing Europe.
