ANALYSIS/OPINION:
Hidden in all of the discouraging public discussion of Europe’s financial difficulties is a little green shoot of economic hope that could provide the basis for a turnaround in productivity growth, not only in Europe, but in the U.S. as well.
That little ray of hope is the Transatlantic Economic Council (TEC), which was created with considerable early success at the request of German Chancellor Angela Merkel in 2007 and which held its first meeting under the Obama administration on Dec. 17 in Washington.
The overriding purpose of the TEC is to address a gaping hole in economic relations between the U.S. and the European Union. The trans-Atlantic community has long benefited from a very strong NATO relationship, which has proved singularly effective in dealing with the threat of the Soviet Union and the Warsaw Pact. As NATO’s successes continued to reduce military threats, there was nothing established to begin to address the growing economic issues posed by globalization. The U.S. had, of course, established the Marshall Plan for European economic recovery two years before NATO was created, but the Marshall Plan was so successful that it went out of business altogether.
But economic difficulties have obviously re-emerged with greater and greater frequency in the context of a very important relationship. It has become fashionable in some circles effectively to “write off” the EU and focus instead on the Pacific.
Yet the trans-Atlantic relationship includes nearly 60 percent of world GDP, 40 percent of world trade and 70 percent of capital flows. If collectively the U.S. and EU do not get the regulatory rules right for the promotion of economic growth, including but not limited to financial rules, they will be set by China for China’s advantage. Who knows what will then happen to the shared values that the U.S. and EU have enjoyed since the Scottish Enlightenment gave us free markets and a big boost for our Constitution?
Some appear to think that “it might teach those socialist-leaning Europeans a thing or two” to let the euro go. But the better part of wisdom might be to try to instill a more pro-market approach in Europe to promote higher productivity and more innovation. After all, lack of competitiveness outside of Germany is at the core of Europe’s difficulties. Improving competitiveness improves not only Europe’s fortunes, but those of the U.S. as well. Conversely, if Europe fails, the U.S. loses one of its biggest export markets, its main financial partner, and its biggest source of world support for our core values. (Whatever the differences on economic issues between politicians, there are virtually no such differences within the trans-Atlantic business community.)
This is where the TEC comes in. The operational idea is to harmonize as much as possible the non-tariff regulations that inhibit trade and investment between the two continents and that burden innovation and competitiveness.
The need to get the rules standardized is most evident in manufacturing and agriculture — think of cars, chemicals and cosmetics on the manufacturing side, for example, and genetically modified seeds on the agriculture side to increase farm productivity. Improvements in these fields should return jobs from Asia back to the Atlantic, to the benefit of both continents. Agriculture right now is one of America’s export champions; it should be Europe’s as well.
We have already seen the risks of ignoring the trans-Atlantic economic relationship. Back in 2007, the EU and U.S. agreed in the TEC on common accounting standards that would have disclosed weakness in the banking systems of both continents. This might in turn have softened the blow of the initial crash in September 2008 and provided better warning for the problems that are causing so much difficulty today in Europe (which could come and haunt the U.S. as well.)
But the agreement fell apart when changes in partisan political control on both sides of the Atlantic (accompanied by the need to adjust to a new treaty) forced suspension of the TEC for two years.
The TEC is now back on track to fill the gap, focusing especially on innovation. This development could not have come at a better time. It will not in the short run alone solve Europe’s financial problems. But it is critical to the improved competitiveness that will be essential to the preservation of the euro and ultimately the EU itself.
As important as NATO is to the EU-U.S. relationship, it cannot deal with these economic issues that, for the moment at least, are at the core of what matters to the EU and U.S. And if the economics don’t work, there is ultimately not enough to fund NATO and the security that goes with it.
• C. Boyden Gray has served as White House counsel and as ambassador to the EU, and is now the founding partner of Boyden Gray & Associates.
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