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

Blog Post

The Iran nuclear deal crisis: Lessons from the 1982 transatlantic dispute over the Siberian gas pipeline

A US president taking a unilateral decision that affects European interests; European policymakers outraged at US interference in their affairs; European businesses fearing losing access to some international markets – sound familiar? This is the story of a crisis that took place in 1982 regarding the Siberian gas pipeline project; its outcome should inspire optimism in the Europeans’ capacity to counteract Donald Trump’s decision to withdraw the US from the Iranian nuclear deal.

By: Emmanuel Mourlon-Druol and Angela Romano Topic: Energy & Climate, European Macroeconomics & Governance Date: May 23, 2018
Read article More by this author

Blog Post

The EU should not sing to Trump’s tune on trade

The US threat of trade sanctions has put the EU in a difficult position. Nevertheless, the EU must respond decisively – not just to protect its own interests but those of the multilateral trading system, and to demonstrate to the US and other partners that trade is not a zero-sum game.

By: Maria Demertzis Topic: European Macroeconomics & Governance, Global Economics & Governance Date: May 17, 2018
Read article More on this topic

Blog Post

Completing Europe’s banking union means breaking the bank-sovereign vicious circle

Several euro area leaders, including the German chancellor, her finance minister, and the French president, have recently referred to the need to “complete the banking union.”. These public calls echo those made in more formal settings, and inevitably raise the question of what criteria should be used to assess the banking union’s completeness.

By: Isabel Schnabel and Nicolas Véron Topic: Finance & Financial Regulation Date: May 17, 2018
Read about event More on this topic

Past Event

Past Event

EU budget post 2020: the next MFF

This is a closed-door event where we will discuss the EU budget post-2020.

Speakers: Barbara Balke, Giacomo Benedetto, Grégory Claeys, Zsolt Darvas, Marcin Kwasowski, Stefan Lehner, Antoine Quero-Mussot, Esperanza Samblas Quintana, Salvatore Serravalle and Laurent Zylberberg Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 16, 2018
Read article More on this topic

Blog Post

How large is the proposed decline in EU agricultural and cohesion spending?

Cohesion spending is proposed by the Commission to increase by 6% in the next MFF, but inflation is expected to reduce the real value of such spending by 7%. The gradual convergence of the least developed regions to the EU average reduces the need for cohesion spending. Common agricultural spending is proposed to be cut by 4%, while if we consider inflation too, the reduction in real value is 15%.

By: Zsolt Darvas and Nicolas Moës Topic: European Macroeconomics & Governance Date: May 4, 2018
Read about event More on this topic

Past Event

Past Event

Protecting EU firms without protectionism

Do we need more effective support for EU companies, more targeted to threatened sectors of strategic importance to the EU? Do we need to revise our competition policy rules on state aid to allow for a more strategic industrial policy support? Do we need new policy approaches to prepare for a changing global environment?

Speakers: Vincent Aussilloux, Tomas Baert, Paolo Casini, Gert-Jan Koopman, André Sapir, Reinhilde Veugelers and Focco Vijselaar Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 3, 2018
Read article More on this topic More by this author

Blog Post

European income inequality begins to fall once again

Following almost a decade of relative stability, income inequality within the EU recorded a sizeable decline in 2016, reaching its lowest value since 1989. The fall of both within- and between-country inequality contributed to the 2016 reduction in overall EU inequality.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: April 30, 2018
Read article More on this topic

Opinion

Germany’s export-oriented economic model is caught in a US-Chinese squeeze

The new Merkel government has to reduce the dependencies on exports by stimulating domestic growth forces in Germany and Europe. At the same time, Berlin should push for a more ambitious national and European innovation policy as well as a robust European foreign trade policy.

By: Sebastian Heilmann and Guntram B. Wolff Topic: Global Economics & Governance Date: April 30, 2018
Read article Download PDF More on this topic

Policy Contribution

Making a reality of Europe’s Capital Markets Union

It is high time to make the CMU project real.The authors of this publication suggest that capital markets will only transform with concrete action and that ESMA reform should be a priority but cannot be the only one. Policymakers need to set priorities that will move the project forward.

By: André Sapir, Nicolas Véron and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: April 27, 2018
Read article More on this topic More by this author

Blog Post

Trade Wars: what are they good for?

Following the US announcements in early March of their intent to impose steel and aluminum tariffs, and the subsequent threats from China to retaliate with their own tariffs, the global trade picture remains uncertain. The IMF and the World Bank Spring Meetings set off amid US-Japan bilateral negotiations and Trump’s hot-and-cold approach to the TPP. This week we review blogs’ views on tensions over international trade and how they can impact world economic growth.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: April 23, 2018
Read about event

Upcoming Event

Sep
3-4
09:00

Bruegel Annual Meetings 2018

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates, lectures and invitation-only sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe. The sessions on the first day will be livestreamed […]

Speakers: Richard E. Baldwin, Maria Demertzis, Mariya Gabriel, Bruno Le Maire, Philippe Lespinard, Dominique Moïsi, Jean Pierre Mustier, Emma Navarro, Ana Palacio, Lucrezia Reichlin, André Sapir, Jean-Claude Trichet, Margrethe Vestager, Reinhilde Veugelers, Georg Zachmann and Guntram B. Wolff 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

Blog Post

Global income inequality is declining – largely thanks to China and India

Income inequality among citizens of 146 continues to fall, though at a somewhat reduced pace, according to the updated Bruegel dataset. Income convergence of China and India accounts for the bulk of the decline in global income inequality from 1988-2015.

By: Zsolt Darvas Topic: Global Economics & Governance Date: April 19, 2018
Load more posts