By Dr. Apostolos Thomadakis, Research Fellow and Head of the Financial Markets and Institutions Unit, Centre for European Policy Studies (CEPS), and Head of Research, European Capital Markets Institute (ECMI)
For decades, globalisation was the default setting of economic policymaking. Open markets, free capital flows and integrated supply chains were not merely instruments of policy; they were articles of faith. From Washington to Brussels to Beijing, the conviction held that economic integration would deliver prosperity and secure peace—and ultimately bring political convergence.
That consensus has collapsed. What we are witnessing is not a tactical reorientation of trade policy but a rupture in the political economy of globalisation itself.
That consensus has collapsed. What we are witnessing is not a tactical reorientation of trade policy but a rupture in the political economy of globalisation itself.
The post-World War II order was built around institutions that presumed alignment (for example, the International Monetary Fund [IMF], the World Bank and the World Trade Organization [WTO]) and was later reinforced by the Washington Consensus of the 1990s, which prescribed liberalisation, deregulation and fiscal discipline. The optimism surrounding China’s WTO accession, the expansion of the European Union (EU) and the embrace of multilateralism underpinned a belief that markets would universalise norms in the early 2000s. But the Global Financial Crisis (GFC) of 2008 exposed the fragility of cross-border finance and the perils of deregulated markets. Instead of rebalancing, the aftermath brought retrenchment: austerity, regressive tax systems and wage stagnation. Financialisation accelerated. Inequality soared. Labour’s bargaining power eroded. And the gains from globalisation increasingly accrued to capital, not to citizens.
This discontent found political expression. Populist movements, once dismissed as fringe, became dominant electoral forces across advanced economies. They rejected the liberal economic consensus not only in tone but in substance. From Brexit to “America First”, from Italian and French electoral volatility to growing scepticism in Central Europe, these were not aberrations. They were symptoms of a deeper legitimacy crisis. Citizens no longer believed that free trade, open borders and investment treaties were delivering for them.
That breakdown in trust has paved the way for a more transactional and fragmented global economy. Strategic autonomy has replaced comparative advantage. Governments are no longer optimising supply chains; they are securing them. The United States is decoupling from China via targeted export bans, onshoring incentives through the Inflation Reduction Act of 2022 (IRA) and capital restrictions on critical technologies. Europe is scrambling to reduce its dependency on authoritarian regimes via its “de-risking” agenda and the European Critical Raw Materials Act. China is doubling down on self-reliance through Made in China 2025 and its dual-circulation strategy. India and Brazil are experimenting with trade protection and localisation. Multinational firms are redesigning value chains, shifting from just-in-time efficiency to just-in-case resilience. Globalisation is not ending, but it is becoming more conditional, club-based and politicised.
This is not a temporary detour. COVID and Russia’s invasion of Ukraine did not initiate this shift; they merely accelerated a deeper structural transformation. Global supply chains buckled under pressure. Economic interdependence, once assumed to be a source of peace, was weaponised. Energy, semiconductors and raw materials—they all became levers of geopolitical leverage. The illusion of seamless global flows, which had dominated since the end of the Cold War, gave way to the harsh realities of zero-sum competition.
However, the real rupture is ideological. The West’s grand bargain (in other words, that economic liberalisation would eventually lead to political liberalisation) no longer holds. China’s rise has demonstrated that it is entirely possible to integrate into global markets without converging politically. Its model of state-led capitalism, managed currency and expansive industrial policy has outperformed expectations. The Belt and Road Initiative (BRI), alternative financial infrastructures such as the Cross-Border Interbank Payment System (CIPS) and alliances through BRICS+ countries (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates) or the Shanghai Cooperation Organisation (SCO) offer developing countries genuine alternatives to the Bretton Woods order.
This fragmentation comes at a cost. Investment uncertainty has risen. Cross-border capital is becoming more cautious. Divergent regulatory regimes are increasing compliance burdens, particularly in financial services, ESG (environmental, social and governance) and digital markets. Technological bifurcation is accelerating. The EU is regulating artificial intelligence (AI) via the AI Act, while the US pursues voluntary guidelines and China mandates tight state controls. Data governance, cybersecurity and intellectual-property standards are diverging. For global companies, geopolitical risk is no longer an abstraction but a boardroom imperative.
For financial institutions, this fragmented landscape reshapes both risk and opportunity. Portfolio-diversification strategies must now account for geopolitical alignment, not just asset class or geography. Exposure to supply-chain disruptions, sanctions regimes and data localisation laws requires scenario planning. Compliance functions face growing burdens from divergent ESG standards, anti-money laundering rules and digital governance laws. The emergences of rival payment systems and de-dollarisation efforts have also introduced long-term currency and infrastructure risks.
Strategic positioning will increasingly depend on the ability to operate across regulatory spheres while remaining agile. Risk models must incorporate political unpredictability. Capital allocation should reflect not just return potential, but also resilience to systemic shocks. In this environment, reputational capital and stakeholder trust have become core assets, not peripheral concerns.
More worryingly, fragmentation is eroding our capacity to address global challenges. Climate change, pandemic preparedness, financial stability and digital governance all require collective action. Yet cooperation is paralysed by distrust. Climate finance remains contentious. Vaccine equity is unresolved. Regulatory approaches to digital taxation, data localisation and platform governance are splintering. The G20 (Group of Twenty), the United Nations (UN) and the WTO face gridlocks, while ad hoc coalitions and minilateral agreements proliferate, often outside transparent multilateral frameworks.
A key uncertainty lies in the future of multilateral institutions. Will they be reformed or bypassed? The IMF and the World Bank are under pressure to adapt their mandates to meet the needs of emerging markets and global public goods. The WTO faces erosion from bilateral trade deals and the rise of industrial policy. The Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) remain influential, but their legitimacy depends on their inclusiveness and relevance. Rather than dismantle these structures, financial leaders should advocate for pragmatic reforms—expanding representation, improving enforcement and embedding sustainability and resilience into their mandates.
The financial sector plays a critical role in supporting coordinated solutions. Climate-aligned investment standards, such as the EU taxonomy for sustainable activities or the International Sustainability Standards Board (ISSB) frameworks, must remain interoperable to avoid regulatory arbitrage and stranded assets. Fragmentation in digital finance—from diverging eID (electronic identification) regimes to incompatible central bank digital currencies (CBDCs)—could erode trust and hinder innovation. Institutions must invest in internal capacity to navigate these frameworks while pushing for standard-setting at the global level. Initiatives such as the Glasgow Financial Alliance for Net Zero (GFANZ), the Network for Greening the Financial System (NFGS) and the BIS (Bank for International Settlements) innovation hubs provide valuable platforms, but they require consistent political backing to shape outcomes.
Resilience, redundancy and strategic clarity must be the new watchwords. This requires a recalibration of policy frameworks that were designed for efficiency rather than durability.
The policy response must begin with intellectual honesty. We cannot return to the globalisation model of the 1990s. That architecture—based on frictionless trade, deregulated capital and just-in-time production—is unfit for today’s realities. Resilience, redundancy and strategic clarity must be the new watchwords. This requires a recalibration of policy frameworks that were designed for efficiency rather than durability.
This does not imply autarky or isolation. But we need a rebalanced globalisation grounded in fairness, reciprocity and legitimacy. Trade agreements must include enforceable labour and environmental standards. Investment policy must shift from short-term arbitrage towards long-term productive capacity. Technology partnerships should be pursued among trusted actors holding shared values while maintaining interoperability. And multilateral institutions must be updated to reflect the distribution of power and interests in today’s multipolar world.
Domestically, social cohesion is non-negotiable. Globalisation without redistribution was always politically unsustainable. Public investment in education, infrastructure, healthcare and labour-market resilience is no longer a matter of ideology but of national survival. Tax policy must address base erosion, wealth concentration and digital value creation. Industrial policy must be strategic, not merely reactive, aiming to build productive capabilities rather than protect incumbents. For example, Denmark and the Netherlands have combined open trade policies with strong social safety nets and active labour-market policies, helping to preserve public support for integration. Germany’s dual education system aligns skills formation with industrial needs. Conversely, the United Kingdom’s post-crisis austerity weakened public services just as global economic insecurity was rising—with visible political consequences. These examples highlight a core truth: Global engagement is only sustainable when underpinned by domestic fairness. Social resilience should be factored in as a key variable in achieving long-term economic stability.
Europe has a unique opportunity, and responsibility, to shape this agenda. As a polity built on law, democratic values and market integration, it can offer a model for a fairer globalisation. But that requires policy coherence. You cannot call for strategic autonomy while relying on Russian gas or Taiwanese chips. You cannot preach climate leadership while importing carbon-intensive goods. You cannot demand reshoring while clinging to fiscal rules that stifle public investment. You cannot promise simplification while hollowing out core sustainability commitments. The (Enrico) Letta and (Mario) Draghi reports have offered roadmaps; what is needed now is action.
A new consensus must also define the role of finance. Global financial markets—underpinned by dollar liquidity, investor-protection standards and prudential regulation—have long been channels of integration. But they are also a potential source of fragility. A less rules-based international environment raises questions for capital flows, sovereign-debt frameworks and systemic risk. If decoupling becomes disorderly, it may trigger volatility in bond markets and currency realignments. Policymakers must prioritise financial stability not only within borders but across them.
Equally, a more fragmented world demands new metrics of success. Gross domestic product (GDP) growth alone is no longer sufficient. Governments should be judged by their capacity to deliver inclusive prosperity, environmental sustainability and technological sovereignty. This means rethinking how we design and assess public policy. From green budgeting and mission-oriented innovation to social-investment compacts, the playbook must evolve.
Finally, this transformation must be communicated clearly. Technocratic language will not suffice. Political leaders must explain to citizens not only what is changing, but why and what is at stake. They must make the case for resilience over hyper-efficiency, for democratic accountability over geopolitical expediency and for solidarity in a world increasingly defined by division.
The age of global consensus is over. That is no reason for paralysis. But pretending we can return to the past only erodes credibility. The task ahead is clear: Build a new globalisation—strategic, democratic and resilient. Anything less invites chaos. And chaos is not a strategy.
Dr. Apostolos Thomadakis is Research Fellow and Head of the Financial Markets and Institutions Unit at the Centre for European Policy Studies (CEPS) and Head of Research at the European Capital Markets Institute (ECMI). His work focusses on European Union (EU) financial regulation, capital markets and sustainable finance. He regularly advises European institutions and contributes to academic, policy and media publications.