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: and Date: July 28, 2017 Topic: Global economy and trade

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 [email protected].

Read article
 

External Publication

European Parliament

Tailoring prudential policy to bank size: the application of proportionality in the US and euro area

In-depth analysis prepared for the European Parliament's Committee on Economic and Monetary Affairs (ECON).

By: Alexander Lehmann and Nicolas Véron Topic: Banking and capital markets, European Parliament, Macroeconomic policy Date: October 14, 2021
Read article More by this author
 

Opinion

European governance

The inconsistency in global strategic relations

All of this talk on strategic retrenchment and autonomy is the language of escalation, not of appeasement and collaboration.

By: Maria Demertzis Topic: European governance, Global economy and trade Date: October 13, 2021
Read article More by this author
 

Blog Post

Inclusive growth

Making antitrust work for, not against, gig workers and the self-employed

Policymakers should act to deal with labour-market concentration trends that potentially harm workers, especially gig workers and the self-employed.

By: Georgios Petropoulos Topic: Digital economy and innovation, Inclusive growth Date: October 11, 2021
Read article More by this author
 

Podcast

Podcast

Is tech redefining the workplace for women?

Laura Nurski, Sabine Theresia Köszegi and Giuseppe Porcaro explore the relationship between artificial intelligence and job transformation and ask whether the impact differs by gender.

By: The Sound of Economics Topic: Digital economy and innovation, Inclusive growth Date: October 6, 2021
Read article More on this topic More by this author
 

Opinion

The pandemic’s uncertain impact on productivity

The pandemic has certainly permanently affected our way of working. Whether this is for the better remains to be seen.

By: Maria Demertzis Topic: Macroeconomic policy Date: September 28, 2021
Read article More on this topic More by this author
 

Blog Post

Germany’s foreign economic policy: four essential steps

Germany and the EU need to develop a strong and proactive agenda to manage foreign economic relations, which are essential for German and European prosperity.

By: Guntram B. Wolff Topic: Macroeconomic policy Date: September 23, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Unboxing the State of the Union 2021

In this Sound of Economics Live episode, Bruegel experts look at the State of the Union address delivered by Ursula von der Leyen, President of the European Commission.

By: The Sound of Economics Topic: Macroeconomic policy Date: September 15, 2021
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: Unboxing the State of the Union 2021

In this Sound of Economics Live episode, we look at the State of the Union address delivered by Ursula von der Leyen, President of the European Commission.

Speakers: Grégory Claeys, Maria Demertzis, Alicia García-Herrero and Giuseppe Porcaro Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 15, 2021
Read article More on this topic More by this author
 

Opinion

EU climate plan should involve taxing pollution, not borders

Climate change and taxes may be some of the only true certainties in life. To protect ourselves better, we should make careful choices on how they interact.

By: Rebecca Christie Topic: Green economy Date: September 6, 2021
Read article More on this topic More by this author
 

Opinion

The end of globalisation as we know it

The tension between the unprecedented need for global collective action and a growing aspiration to rebuild political communities behind national borders is a defining challenge for today’s policymakers.

By: Jean Pisani-Ferry Topic: Global economy and trade Date: July 1, 2021
Read article Download PDF More on this topic
 

Policy Contribution

Commercialisation contracts: European support for low-carbon technology deployment

To cut the cost of decarbonisation significantly, the best solution would be to provide investors with a predictable carbon price that corresponds to the envisaged decarbonisation pathway.

By: Ben McWilliams and Georg Zachmann Topic: Green economy Date: July 1, 2021
Read article
 

Opinion

Relaunching transatlantic cooperation with a carbon border adjustment mechanism

The best way for the EU and the US to jointly introduce carbon border adjustment would be to form a ‘climate club’.

By: Simone Tagliapietra and Guntram B. Wolff Topic: Global economy and trade, Green economy Date: June 11, 2021
Load more posts