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

Parliamentary Testimony

European Parliament

The role of independent expertise in legislative process

Testimony before the European Parliament Committee on the Internal Market and Consumer Protection (IMCO).

By: Zsolt Darvas and J. Scott Marcus Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: July 18, 2018
Read about event More on this topic

Past Event

Past Event

Designing a new institutional framework for UK-EU relations

Finding the right way forward for the EU and the UK.

Speakers: Raphael Hogarth, Jill Rutter and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 13, 2018
Read article More on this topic More by this author

Opinion

Ubu ou Machiavel?

L'administration Trump veut imposer une approche transactionnelle des relations économiques gouvernée par le rapport de force bilatéral en lieu et place du contrat multilatéral. Un défi d'une ampleur inédite pour l'Europe.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: July 6, 2018
Read article More on this topic More by this author

Blog Post

EU income inequality decline: Views from an income shares perspective

Over the past decade, the income share of low earners has increased in the EU while that of top earners has slightly declined. Although the upward convergence of the impoverished central European population is impressive, the southern European poor have faced a major setback while the southern European rich have hardly suffered.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: July 5, 2018
Read article More on this topic More by this author

Blog Post

Beyond Nord Stream 2: a look at Russia’s Turk Stream project

Since 2015, Nord Stream 2 has been at the centre of all European discussions concerning the EU-Russia relations. But as endless political discussions in Europe are being held on this pipeline project, the pipes of another similar Russian pipeline project – Turk Stream – are already being laid by Gazprom at the bottom of the Black Sea. This piece looks at these developments, analysing their strategic impacts on Europe.

By: Simone Tagliapietra Topic: Energy & Climate Date: July 4, 2018
Read about event

Upcoming Event

Sep
3-4
08:30

Bruegel Annual Meetings 2018

The 2018 Annual Meetings will be held on 3-4 September and will feature sessions on European and global economic governance, as well as finance, energy and innovation.

Speakers: Maria Åsenius, Richard E. Baldwin, Carl Bildt, Nadia Calviño, Maria Demertzis, Mariya Gabriel, Péter Kaderják, Joanne Kellermann, Jörg Kukies, Emmanuel Lagarrigue, Philippe Lespinard, Montserrat Mir Roca, Dominique Moïsi, Jean Pierre Mustier, Ana Palacio, Jean Pisani-Ferry, Lucrezia Reichlin, Norbert Röttgen, André Sapir, Jean-Claude Trichet, Johan Van Overtveldt, Margrethe Vestager, Reinhilde Veugelers, Thomas Wieser, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Brussels Comic Strip Museum, Rue des Sables 20, 1000 Brussels
Read article More on this topic More by this author

Opinion

Griechenland braucht einen Neuanfang

This was first published by Die Zeit. Acht Jahre nach Beginn des ersten Hilfsprogramms für Griechenland ist es soweit – Griechenland soll wieder auf eigenen Füßen stehen. Die Eurogruppe soll heute das Ende des dritten Hilfsprogramms beschließen und die Modalitäten für die Zeit danach definieren. Ziel sollte es jetzt sein, einen tragfähigen Ausstieg aus dieser für alle Seiten […]

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: July 3, 2018
Read article More on this topic More by this author

Opinion

Can Multilateralism Adapt?

Global governance requires rules, because flexibility and goodwill alone cannot tackle the hardest shared problems. With multilateralism under attack, the narrow path ahead is to determine, on a case-by-case basis, the minimum requirements of effective collective action, and to forge agreement on reforms that fulfill these conditions.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: July 3, 2018
Read about event More on this topic

Past Event

Past Event

Trade war trinity: analysis of global consequences

Analysis of the long-term impact of the trade war and its three key players: EU, US, and China.

Speakers: Alicia García-Herrero, Ignasi Guardans and Carl B Hamilton Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 28, 2018
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: The drama of the EU and euro area

Bruegel's director, Guntram Wolff, is joined by Ashoka Mody, visiting professor in international economic policy at Princeton University to discuss topics from his latest book, Euro tragedy: a drama in nine acts.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: June 27, 2018
Read about event More on this topic

Past Event

Past Event

Euro tragedy: a drama in nine acts

This event will feature a presentation by Ashoka Mody of his new book, which argues that the Euro is at the root of the problems the European Union faces today.

Speakers: Maria Demertzis, Ashoka Mody and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 27, 2018
Read article Download PDF More on this topic More by this author

Working Paper

EU financial services policy since 2007: crisis, responses and prospects

This paper presents a holistic overview and assessment of the European Union (EU)’s financial services policy since the start of its financial crisis in mid-2007. Its emphasis is on public policy initiatives and developments at the European level, including those specific to the euro area.

By: Nicolas Véron Topic: Finance & Financial Regulation Date: June 21, 2018
Load more posts