Yves here. The choice of the expression “coalition of the willing” as a recommendation for how Europe can bolster its international position generally and advance international initiatives important to EU is both unfortunate and telling. As most of you remember, the “coalition of the willing” was the group of nations that joined the US in the Iraq War. Its small number confirmed how isolated the US was. And while the US can claim to have won the Iraq War, its high financial cost, damage to the region, and to US reputation makes it look like a Pyrrhic victory (unless the point was, as some contend, to destabilize the Middle East and provide an excuse for more arms purchases).
On the one hand, this article is by two heavyweight economists: Olivier Blanchard, former chief economist of the IMF, and Jean Pisani-Ferry, who has been an economic adviser to the European Commission, the French Prime Minister’s Council of Economic Advisers, and to the Director of the French Treasury. So one suspects this piece is “leading edge conventional wisdom,” as in not necessarily ideas unique to them, but an articulation and refinement of ideas in elite European circles.
Yet even though the idea of EU officials forming alliances with like-minded countries outside the EU, such as with China on climate change, seems sound, the details in the short overview below give cause for pause. The third of three examples of policies to pursue despite Trump administration rejection are the OECD BEPS, for “Base erosion and profit shifting.” That (in crude terms) is an initiative to effectively impose a minimum corporate tax level across participating countries.
The EU is particularly keen about BEPS since US multinationals, particularly tech players and Big Pharma, put their intellectual property in very low tax jurisdictions and recognize profits there by how they set royalty payment levels. That results in lower tax recepits in jurisdictions where these companies have operations.
Keep in mind that BEPS is an OECD recommendation. The OECD can’t impose tax laws on OECD members. Nevertheless, tax experts have told me that EU member states regularly told legislatures that they needed to implement BEPS because OECD.
Shortly after taking office, Trump loudly denounced BEPS and said the US was withdrawing. As the article below does correctly point out, this is not quite as meaningful as it sounds. While the US body language had been that it was all on board with BEPS, it has not passed the needed legislation.
However, Blanchard and Pisani-Ferry completely omit that Trump went further and said the US would punish countries that implemented BEPS and as a result charged higher taxes on US multinationals. Recall that this was the point of the exercise. From the Financial Times on January 21, Donald Trump threatens to double tax rates for foreign nationals and companies:
Donald Trump has threatened to double tax rates for foreign nationals and companies in the US to hit back at “discriminatory” levies on American multinationals….
In a memo outlining his “America First” trade policy on Monday, the US president referred to an obscure 90-year-old provision of the US tax code — Section 891 — that empowers him to retaliate against foreign countries by imposing punitive taxes on their citizens and businesses in America…
His order, signed on Monday, specifically asks the Treasury secretary to “investigate whether any foreign country subjects US citizens or corporations to discriminatory or extraterritorial taxes” so it conforms with Section 891.
This section says that when a president formally declares there is such discrimination, the tax rates should “be doubled in the case of each citizen and corporation of such foreign country” — without needing Congressional approval.
“This [invoking Section 891] is the most extreme option and it’s interesting that they’re threatening to use it straight out of the gate,” said Alex Parker, tax legislative affairs director at Eide Bailly. “Based on the way the legislation is worded, it does seem to be double or nothing.”
Trump also issued a separate policy memo withdrawing US support for last year’s OECD global tax pact, which allows other countries to levy top-up taxes on US multinationals.
He added the “list of options for protective measures” should be drawn up “within 60 days”, putting signatories to the OECD pact — including EU member states, the UK, South Korea, Japan and Canada — on notice that Washington intends far-reaching challenges to global tax rules.
It’s mind-boggling to see two supposedly well-informed Serious Economists blathering on about the now dead-on-arrival BEPS program as one of a limited number of examples they showcased as to how Europe can form alliances to take power back in the face of Trump administration onslaughts. The fact that this pair can’t even correctly identify fights that Europe might win (despite the pink paper showcasing the obstacles) is not promising.
By Olivier Blanchard, Robert M. Solow Professor of Economics emeritus Massachusetts Institute of Technology (MIT); Professor of Economics Paris School of Economics (PSE); Senior Fellow Peterson Institute for International Economics (PIIE) and Jean Pisani-Ferry, Senior Fellow Bruegel; Non-resident Senior Fellow Peterson Institute for International Economics (PIIE). Originally published at VoxEU
President Trump has launched an attack on the rules-based international order, which most governments regard as the bedrock of peace and prosperity. This column argues that the EU has the potential to organise an effective collective response, but it must overcome two obstacles: its size and its internal divisions. To do this, EU countries ready to go ahead should work with non-EU countries to form international partnerships, or ‘coalitions of the willing’.
President Donald Trump has launched an all-out attack on the rules-based international order, which most governments regard as the bedrock of peace and prosperity. 1 Many governments are appalled by his initiatives (The Economist2025). They still believe in respecting trade rules, in limiting tax competition and in fighting global warming. The EU, which is governed by such rules, has the potential to organise an effective collective response. To do so, however, it must overcome two obstacles: its size and its internal divisions.
First, the EU is often a secondary player on the world stage, accounting for just 6% of global greenhouse gas emissions and just 11% of global equity market capitalisation. On such issues, Europe cannot lead unless it builds a coalition of like-minded partners. Second, the diversity of policy views within the EU, especially in a context of strong foreign influence on countries such as Hungary and Slovakia, hampers agreement on common positions and can result in stalemates.
To overcome these shortcomings, EU countries ready to go ahead should work with non-EU countries to form international partnerships, or ‘coalitions of the willing’. In fields such as trade policy that belong to the EU’s core competence, this implies that EU countries must abide by majority decisions. In other fields, flexibility can be found, giving rise to two-speed integration, as is the case for the Schengen area, the free-travel area that does not include all EU members but does include several non-EU countries.
In what follows, we explore how this could work for three issues: climate action, trade, and taxation of multinational corporations. (To be clear: building coalitions is only one of the issues facing Europe; it must also address structural weaknesses, which long precede the Trump presidency, as well as determine its collective response to potential US tariffs. We leave those issues aside here). 2
A Climate Coalition
Start with efforts to combat climate change, for which the EU sets policy targets through a complex process involving the country leaders, ministerial councils and the European Parliament. Major decisions are taken based on European Commission proposals which, after they have been broadly endorsed by the leaders, are approved both by a qualified majority of member countries and a majority of votes in the European Parliament. This process, known as ‘co-decision’, results in EU decisions that are binding on the member countries. Accordingly, the EU participates in the international negotiations on their behalf.
Because this governance structure formally ensures European unity, the EU can form alliances with third countries and exert significantly more global influence than it would otherwise enjoy. Especially, the fact that member countries are legally committed to meeting agreed targets and can be fined for missing them gives leverage to the EU level.
Building on this architecture and on its 2040 emissions reduction targets, the EU could thus negotiate climate partnership agreements with third countries and build a coalition of the willing that would help keep the momentum toward net zero despite the US withdrawal from the Paris Agreement. Potential partners in this coalition include major advanced economies such as Japan, emerging countries such as Brazil and possibly India, but it should involve first and foremost China. Despite being the world’s top emitter of greenhouse gases, China has a major stake in the building of a green economy. It is not yet clear when its own emissions will peak, but at any rate it should happen before 2030. Moreover, China’s resounding success in manufacturing green equipment implies the country has a vested interest in the pursuit of the transition to net zero.
In doing so, the EU should find ways to overcome the curse of such coalitions: as pointed out by William Nordhaus (2015), the larger coalitions are, the stronger the incentive to leave them and free ride on the discipline they provide. A straightforward way to avoid this is the use of carbon border taxes on imports from non-members, but this is only partially effective. The solution advocated by Nordhaus is to form climate clubs whose members would levy a tariff on imports from non-participating countries. The problem with this otherwise effective solution is that a tariff based on climate policy – in effect, a penalty – is not legally feasible under currently prevailing WTO rules. Given President Trump’s misbehaviour, however, bending these rules should not be excluded.
Maintaining trade rules
The next case is international trade. As the US shifts toward protectionism, the EU has a major card to play. Building on existing trade agreements, it can create yet another coalition of the willing to help reform the global trade architecture.
EU trade policy is governed by exclusive EU competence, which means that the European Commission negotiates trade agreements on behalf of all EU members, based on negotiating directives issued by trade ministers meeting in the Council of the EU. Once an agreement has been reached, it must be approved by the Council (by qualified majority) and the European Parliament (by simple majority). This decision-making process ensures that, as illustrated by France’s inability to block the EU–Mercosur trade deal (Khatsenkova 2024), a minority of holdout countries cannot prevent the conclusion of a trade agreement approved by the majority. This governing arrangement provides overall EU effectiveness while preserving the rights of member countries. It has proved instrumental in making Europe a global trade player. In the heyday of multilateralism the EU was – together with the US, Japan and India – part of the informal steering group for global trade negotiations.
The question for Europe is whether it has the clout to take the initiative and bring together a group of countries willing to salvage what is left of trade multilateralism and define an agenda for its future. This will be demanding, as the existing apparatus of rules amalgamates fundamental principles that must be upheld and provisions that have become ill-suited to a much more heterogeneous global economy. The agenda should thus help sort out the indispensable from the secondary.
A coalition of the willing could comprise the UK, Japan, Korea, Australia, India, Canada, Mexico, and members of the Mercosur and ASEAN blocs. It would thus build on existing regional trade agreements. We suggest that the EU could convene a dedicated summit to discuss issues and define an agenda. Again, a major negotiation with China, recognising the relevance of security considerations, the desire to keep alive certain industries – such as the European automobile industry – and the rules determining when the use of tariffs is justified or not, would be a signal that the EU is not following the US blindly and that much of the world wants to continue to play by reasonable rules.
Tax deal teetering
Finally, take the taxation of multinational companies. After a long discussion process, more than 140 countries and jurisdictions – in effect, an already existing coalition of the willing – agreed in October 2021 on a minimum effective tax rate of 15% on the profits of multinational firms. More importantly, they agreed on the taxation of extraterritorial profits in the following way. To the extent that the firm did not pay 15% in one country, implementing countries could collectively tax the difference between 15% of the profit and the tax actually paid in that country, and then pro rate the distribution of the proceeds according to the share of production in each country (more specifically, a mix of the share of capital and the share of employment in each country). The great advantage of this system is that, in contrast to the race to the bottom in which countries cut the tax rate to attract firms, it is self-enforcing. If a jurisdiction does not collect the 15% tax, it will be collected by other countries. Better, then, for jurisdictions to collect it themselves. The race to the bottom becomes a race to the standard.
To come into being, the agreement must be voted on and approved by national parliaments. So far, more than 40 countries have done so, and many are scheduled to soon do the same. The US departure, announced in January (The White House 2025), is largely symbolic, as Congress has not voted yet to approve the agreement. The absence of the US does not make the agreement irrelevant. Other countries could build this other ‘coalition of the willing’, although they must expect strong US pushback on the issue of taxation of extraterritorial profits. One possibility, to avoid an open conflict with the US, is to exclude US profits from global profits for purposes of the computation of extra-territorial profits. This would weaken but not destroy the existing agreement.
The world of the future, at least of the near future, is a world in which the major multilateral institutions may be largely paralysed. This has long been the case for the UN, with the veto power of the five permanent members of the Security Council. It has been the case for some time at the WTO, with the unanimity rules and the blocking of the Appellate Body (Grieger 2024). It may well be the case for the World Health Organisation, perhaps even for the World Bank and the IMF. In that world, progress and cooperation will have to take the form of coalitions of the willing. We have explored three cases and discussed how Europe, hopefully joined by many other countries, could lead by example and thereby help keep multilateralism alive.
Should Europe follow this route and be joined by others, there will be many problems to solve, from the response to heterogeneity within large coalitions, to enforcement mechanisms and cross-issues linkages. We have just emphasised the positive role the EU can play and outlined a path forward. We are convinced that the rest of the world should not respond only bilaterally to the Trump administration’s initiatives. US leadership was instrumental in building a rules-based system and addressing global problems. As the current administration openly repudiates the global responsibilities taken on by the US, the world, and especially Europe, cannot afford to stand by.
Editors’ note: This column first appeared on the Bruegel and PIIE websites. Reproduced with permission.
See original post for references
