Opinion

The EU and the US: a relationship in motion

Europe’s post-crisis recovery has been disappointing in comparison with the USA. But lower rates of inequality are staving off populism and bolstering support for globalisation. With the USA an increasingly unpredictable partner, the EU must address internal imbalances and build alliances to defend the multilateral order.

By: Date: July 28, 2017 Topic: Global Economics & Governance

This piece was originally published by the Clingendael Institute

The legacy of the financial crisis has left a different trail in the EU economy by comparison to that of the US. Almost a decade after the start of what was undoubtedly the worst financial crisis in the last 50 years, the US has managed to restore financial stability and deliver a convincing path back to growth. The EU, by contrast, has not achieved a credible return to economic vigour. It is true that Europe has seen some renewed growth recently, but it remains weak and precarious. This is in part due to the EU’s weaker institutional resilience. High unemployment, particularly for the young, an excess of non-performing loans on banks’ balance sheets, and an incomplete banking union, all help explain the precarious nature of the stability and growth that we observe.

Despite these major economic challenges, Europe does have one important strength. Most European countries have always maintained relatively low levels of income inequality, certainly in comparison with the US. As the benefits of opening up their economies were shared more evenly, citizens found it easier to accept and endorse the benefits of globalisation. As a result, there has on the whole been support in Europe for closer cooperation between nations. In contrast, in the US and to some extent also the UK, the benefits of globalisation accrued only to a few. These societies became distinctively more polarised, giving rise to deep discontent. And this is, in my view, an important reason behind the electoral outcomes that we saw since 2016.

Nevertheless, there is no doubt that on both sides of the Atlantic the political trail of this last 10 years has been a rise in populism, inwardness and ultimately even protectionism. However, the way the two sides have dealt with such tendencies has been quite different.

In the US, the unexpected election of Trump has accelerated an earlier US trend, bringing its role as an anchor of the global system into question.  And it is not just about withdrawing from a leadership position. Trump’s ‘America first’ rhetoric openly challenges a core tenet of multilateralism. This new philosophy was manifested in the recent withdrawal from the Paris agreement and the TPP, and also inspires the threat to impose indiscriminately high tariffs.

There are parallels in the UK, which voted in July 2016 to withdraw from the EU in order to craft its own trade agreements and find different ways of engaging with the rest of the world. The rhetoric of ‘taking back control’ is in line with this tendency to look inwards, protect one’s turf and adopt an antagonistic rather than cooperative position with others. Naturally, there are many difference with the US, but the UK’s decision to pursue Brexit fits this tendency to simply ‘withdraw’, as a way of doing better.

From the European perspective, the US election outcome and Brexit have changed geopolitical dynamics and challenged what the European Union considers its ‘natural alliances’. At the same time, however, the latest electoral outcomes in the Netherlands and France, along with the expected result in Germany, have shown an ability to contain populism. This has in turn brought new impetus to the debate on Europe’s need to unite. As a result, Europeans are now engaging in wide-ranging policy discussions on how to promote integration and improve the European Union’s world standing.

What should be the reinvigorated EU’s response to a more protectionist US? While economic and cultural ties with the US are very close, the EU also has strong relationships with the rest of the world. It has therefore a clear economic and political interest in preserving the multilateral trade system that has allowed all countries, big and small, to benefit from common rules and standards ensuring a level playing field.

However, though the EU is the largest trading bloc in the world, it cannot sustain a multilateral system on its own. In order to protect its interests, it will have to do more both inside and outside its borders. Externally, it needs to collaborate with partners around the world in defence of World Trade Organisation rules and fight to ensure international compliance. At the same time, the EU needs to foster relations with China and others, increasing diversity in its partnerships. Internally the EU also needs to do more. Implementing important reforms at both the national and EU level will be necessary to redress destabilising imbalances. And it is paramount to build up institutional resilience the lack of which has prevented the EU from taking quick and decisive action during the crisis.

Last, while the US position at the world stage remains uncertain and possibly antagonistic, the EU needs to be prepared for all possible outcomes. On the one hand, Europe must be capable of retaliating with tools that could be deployed bilaterally if the US imposes WTO-incompatible measures; on the other hand, Europe should also try to nurture a trans-Atlantic alliance that has always been the most natural of partnerships.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read article More on this topic More by this author

Blog Post

Green bonds: who is to certify ‘sustainability’?

Poland’s issue of a green bond earlier this month was the country’s second financing of this type, and the first ever repeat issue by a sovereign. It has revived the debate as to whether there should be a single regulatory standard to certify the environmental quality of financial assets. This will be a key issue for the EU’s sustainable finance strategy which is due to be released shortly.

By: Alexander Lehmann Topic: Finance & Financial Regulation Date: February 19, 2018
Read about event More on this topic

Past Event

Past Event

Is there life After TTIP? The future of transatlantic economic relations

The partnership between North America and Europe is becoming unsettled and uncertain. How can we deal with this new situation that threatens the prosperity and ultimately the position of North America and Europe in the global economy.

Speakers: Maria Demertzis, Daniel S. Hamilton, Luisa Santos and André Sapir Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: February 19, 2018
Read article More on this topic More by this author

Blog Post

Is it a Transatlantic, Transpacific or Eurasian global economy?

A look at the data on bilateral trade, services, investment and protectionism between Asia, Europe and the US in recent years gives some indication of the future shape of the world economy.

By: Nicolas Moës Topic: Global Economics & Governance Date: February 14, 2018
Read article More on this topic More by this author

Blog Post

Trust in the EU? The key obstacle to reform

The challenges that Europe faces both from within and from outside require immediate, concerted counter-efforts. While efforts to advance the European economic architecture are desirable and useful, can Europe realistically attempt to integrate further on the basis of such little trust?

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: February 9, 2018
Read article More on this topic More by this author

Opinion

Climate policies risk increasing social inequality

The aggressive political interventions needed to effectively counteract climate change will make the rich richer and the poor poorer, if social concerns are not given greater prominence in policy debates.

By: Georg Zachmann Topic: Energy & Climate Date: February 8, 2018
Read article More on this topic More by this author

Podcast

Podcast

European Parliament: More representative post-Brexit?

Bruegel director Guntram Wolff features in this episode of 'The Sound of Economics', highlighting how a reallocation of seats in the European Parliament following Brexit provides the opportunity to make the institution more representative of EU citizens.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: February 5, 2018
Read article More on this topic More by this author

Blog Post

Difficulties and opportunities in reallocating European Parliament seats after Brexit

The European Parliament must carefully consider the reallocation of seats after Brexit, allowing for a potential shift in political alignment and working within parameters already agreed with Member States.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: February 5, 2018
Read article More on this topic More by this author

Opinion

The International Economic Consequences of Mr. Trump

What has fundamentally changed with the Trump administration is not that it behaves more selfishly than its predecessors, but that it seems unconvinced that the global system serves US strategic interests. For the rest of the world, the key question is whether the global system is resilient enough to survive its creator’s withdrawal.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: January 31, 2018
Read article Download PDF More on this topic

Blueprint

People on the move: migration and mobility in the European Union

Migration is one of the most divisive policy topics in today’s Europe. In this publication, the authors assess the immigration challenge that the EU faces, analyse public perceptions, map migration patterns in the EU and review the literature on the economic impact of immigration to reflect on immigration policies and the role of private institutions in fostering integration.

By: Uuriintuya Batsaikhan, Zsolt Darvas and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: January 22, 2018
Read article Download PDF More on this topic

External Publication

Analysis of development in EU capital flows in the global context

The monitoring and analysis of capital movements is essential for policymakers, given that capital flows can have welfare implications. This report, commissioned by the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union, aims to analyse capital movements in the European Union in a global context.

By: Grégory Claeys, Maria Demertzis, Konstantinos Efstathiou, Inês Goncalves Raposo, Pia Hüttl and Alexander Lehmann Topic: Finance & Financial Regulation Date: January 15, 2018
Read article More on this topic More by this author

Blog Post

Bad News and Good News for the Single Resolution Board

A first report on a key plank of the European Union’s banking union reflects on shortcomings thus far, but also suggests that recent improvements might ultimately lead the SRB to be successful in its critical missions.

By: Nicolas Véron Topic: Finance & Financial Regulation Date: January 15, 2018
Read article More on this topic More by this author

Blog Post

A few good (wo)men – on the representation of women in economics

Last week, the American Economics Association Annual Meetings held a session on Gender Issues in Economics and later announced that a new code of professional conduct is in the pipeline. In this blogs review we revise the recent contributions on female representation and perception in economics.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: January 15, 2018
Load more posts