Germany sits in the midst of the EU region as the one still point through the trauma of the last few years. Chancellor Angela Merkel was accused of sitting on her hands during the worst of the crisis, and only moving when all other options were exhausted to help the ailing neighboring economy of Greece, where the whole euro contagion started. Politically, however, her strategy worked. While the UK's Prime Minister Gordon Brown, France's President Nicolas Sarkozy and Italy's Prime Minister Mario Monti were all swept away by electorates furious at their incompetence as the financial crisis in Europe spread, Merkel has remained the most formidable and secure leader, winning a third term comfortably in late 2013. Her ability to compromise, to put together coalitions and to choose the right time to act are now legendary, even if it seems likely this will be her last term in power. But Germany has also been accused of being structurally part of the whole problem, practicing mercantilist behavior, protecting its industries and largely supporting deflationary policies through its protection of the euro currency to the benefit of its own national economy. These at least were the criticisms made by the United States in 2012 and 2013.

Even with this list of issues across the EU, however, the largest problems as ever remain not economic, but political, and here the great uncertainty is the continuing ambiguity of the UK. Prime Minister David Cameron's government has committed to a referendum on the UK staying in the EU some time after the next national election in 2017, if his party is reelected. The expectation is that such a referendum will now need to be held no matter who wins power in 2017. With the looming plebiscite in Scotland this year about continuing membership of the UK, and a possible breakup after three centuries of the union, there is a tangible possibility that the UK might politically serve the same role as Greece did economically in 2009, posing hard questions, being a source of destabilization and generally creating uncertainty.

Business figures across the sectors in the UK have produced powerful arguments for why leaving the EU and rupturing the union between Scotland and England would have a negative impact on the UK as an investment environment and on its growth. But in these matters, emotion trumps logic. The public mood in the UK is largely antagonistic to Europe, and any amount of evidence that there are clear benefits derived from membership of it are largely brushed away. For populist politicians, blaming all local ills on the EU is simply good politics. The UK is in danger of simply sleepwalking into isolation and irrelevance if it does decide to opt out.

We may well have the utterly ludicrous outcome of an independent Scotland being a member of the EU, and England being out of it. Despite Cameron's soothing, largely vacuous rhetoric therefore, the simple fact is that the UK has never suffered such a profound crisis of identity in living memory. It is unclear at the moment if the current political elite have any real solution to this.

Crucial partnerships

For the whole of Europe, inside or outside the EU, the challenge of where to seek growth remains urgent. The vocabulary of needing to find sustainability, stability and certainty, which one hears in the United States, Asia, Africa and Latin America, is ubiquitous across European capitals, and so is the allure of the vast potential growth available within emerging markets, the most central of which is China. The harsh fact is that so far, as exporters, investors and investment seekers, Europe could have done a lot better. The challenge is that in the coming decade, as China continues the transition to a middle-income society and its domestic consumption rises, Europeans have to radically up their game as service providers, exporters and business associates in engaging with their Far East partner.

One of the most important instruments to do this would be a comprehensive free trade agreement, something the EU and China are now discussing. The strategic objective for the EU is to get the best possible access into the service and consumption sector in China. Engagement with the Shanghai Free Trade Zone established last year and the ongoing liberalization and internationalization of the renminbi are key here. But Europe also needs to get more, and better, Chinese inward investment, and needs to seek higher-value strategic partnerships with companies in China for work within and outside the country. The simple fact is that Chinese investment in the EU is good, but it also offers an excellent way of finding committed partners to work within China.

Despite the huge challenges negotiating such a deal will pose, the bottom line is that it is an opportunity neither can walk away from easily. They are each other's biggest trading partners, and while there is growth elsewhere, the simple fact is that for China and the EU, the likeliest root to long-term, sustainable good-quality growth is with each other. The relationship over the next year, therefore, will be dominated by the need to set the framework and terms for this agreement, and then find the political will to make it happen. The reality is that this will probably be easier for China than the EU.

The author is an op-ed contributor to Beijing Review and executive director of the China Studies Center at the University of Sydney

Email us at: yanwei@bjreview.com