For the first time, all 27 heads of the European Union's member states are to meet Indian Prime Minister Narendra Modi in a virtual summit this weekend. Many initiatives are expected to emerge from the session, including hopefully fresh discussions on a trade deal that was put on the backburner years ago. But perhaps the most important thing to watch for will be a new partnership on infrastructure between Europe and India.
There's a definite momentum to India-EU relations at the moment. Partly this is because their individual relations with China have chilled noticeably. Just this week, India announced 5G trials that exclude Chinese companies, while European officials cast doubt on whether a new bilateral investment agreement with China would ever be ratified.
But it's also because the European Commission has finally got its act together, issuing a strategy for the Indo-Pacific in April. The European Council said the strategy should focus on "a rules-based international order, a level playing field, as well as an open and fair environment for trade and investment, reciprocity … and supporting connectivity with the EU." That's a collection of priorities — or buzzwords, if you're a cynic — that amounts to saying, "Europe has finally decided it must do something about China's growing power in the region that's the world's economic center of gravity."
Certainly, that is how the policy was read in New Delhi — and in Beijing. Any infrastructure agreement signed between democracies will thus inevitably be seen as — OK, will actually be — an attempt to compete with Xi's gargantuan Belt and Road Initiative.
This would hardly be the first such try. Japan announced a "partnership for quality infrastructure" as long ago as 2015, and the U.S. has launched various measures since. The Europeans themselves signed up to a partnership on "sustainable connectivity" with Japan in 2019.
The mooted new agreement will likely revolve around joint projects in India and elsewhere, alongside benchmarks for sustainability — both environmental and financial — in infrastructure investment. What we will need to look for is whether it also addresses the central stumbling block that the previous partnerships have faced: Private-sector investors just haven't been excited enough by the proposals to jump in with their money.
One way to change their minds might be to zero in on climate-related infrastructure in particular. Europe, following its creation of a taxonomy for green finance, is the regulatory leader in this area. The EU taxonomy will be instrumental in how and where the swelling pool of ESG-related capital flows over the next decade.
Brussels also needs to look carefully at whether its rules incentivize the flow of private capital into infrastructure projects elsewhere — and how it can create financial regulations at home that harmonize with the partnerships it announces. This is the decade in which the Indo-Pacific and Africa will build much of the infrastructure it will live with for a century. European finance should be able to support that build-out while earning a return.
Perhaps most importantly, there's an opportunity here for Europe to assume the mantle of geopolitical leadership in a way it never has. The EU is a community of norms and it also exerts disproportionate impact over how institutional finance behaves. While it has demonstrated a willingness to sign bilateral agreements with Japan and India and the U.S., it now needs to figure out how to create a multilateral architecture that finances sustainable infrastructure on its terms.
The EU clearly worries the old system isn't working. So why not lead the effort to establish a new one? Why should Chinese or American presidents be the only ones to convene global summits on issues such as democracy or infrastructure? Get the world's leaders in a room — or on a screen — and have them hammer out an agreement and accompanying commitments and institutions on infrastructure finance. Only the EU has both the intention and the capability to do something like that. Leadership is within Europe's grasp.
And it would make a difference, too. If nothing else, the multiplicity of agreements and arrangements in the infrastructure space over the past few years has confused investors, as compared to the simplicity of what Xi aims to do with the Belt and Road. There's also an institutional solidity to an EU-wide decision, once taken, that the U.S. or Japan can't provide. Those countries' minds can change when their leaders do. While Brussels can be an unwieldy ship, that also means it's far harder to turn around.
Mihir Swarup Sharma is a Bloomberg Opinion columnist. He is a senior fellow at the Observer Research Foundation in New Delhi and head of its Economy and Growth Programme. He is the author of "Restart: The Last Chance for the Indian Economy," and co-editor of "What the Economy Needs Now."
Disclaimer: This article first appeared on bloomberg.com, and is published by special syndication arrangement.