In a new report by The Atlantic Council, a former U.S. ambassador to the European Union and a former IMF expert offer a joint prescription for restoring confidence and economic growth to the 28-nation bloc.
The existential threat to the European Union comes neither from U.S. President Donald Trump nor the United Kingdom’s decision to exit the Union, but from persistently slow growth for decades — roughly 1 percent less on average than in the U.S. since 1992, along with high unemployment, inadequate capital markets, and a lack of innovation and entrepreneurial spirit in its member states.
These challenges, combined with a migrant crisis of historic proportions, have sapped public confidence in the E.U. and have fueled the rise of nationalist sentiment across the Continent. Elections this year in Germany, France and the Netherlands could produce victories for anti-E.U. populists. The solution is swift, decisive action by Brussels and E.U. member states to achieve higher levels of growth and employment, and create a more vibrant, integrated European market.
Stronger economic growth in Europe is also important for the United States. Even without the U.K., the EU-27 is the largest recipient of U.S. goods and services worth around $370 billion, and the U.S. and Europe are each other’s primary destination for investment.
Forty-one percent of U.S. foreign investment is concentrated in EU27 countries, compared to a mere 3 percent in China. This relationship is a two-way street, as the EU27 countries account for 44 percent of foreign investment in the United States, which has created over 7 million American jobs.
A new Report by our Atlantic Council EuroGrowth Task Force recommends concrete short-term responses, medium-term deliverables and a long-term plan for closer economic integration.
In the short term, Brussels and the United Kingdom need to put aside sore feelings and negotiate a mutually beneficial Brexit and new economic relationship; uncertainty will impede growth.
As the Trump Administration is proposing pro-growth tax cuts and infrastructure investments, the E.U. must recognize that its tight budgetary restraints have become an economic straitjacket.
With record low borrowing costs, now is the time for a one-time expansion of public investment by E.U. member states with a budget-deficit-to-GDP ratio below 3 percent, which will not put long-term sustainability at risk.
More broadly, EU member states, like Germany, that have persistently large current account surpluses, must adopt more domestic demand-driven growth to avoid the imbalances that are fueling resentment.
Another immediate pro-growth initiative would be to kick-start negotiations with the U.S. for a re-branded Transatlantic Trade and Investment Partnership (TTIP) by removing TTIP’s most controversial components, such as the investment dispute system and geographical indicators, and focusing on removing all tariffs, improving intellectual property protection, assuring data flows and making regulatory improvements, with more mutual recognition of products.
Given the mammoth size of the U.S.-E.U. commercial relationship, this should be an economic catalyst on both sides of the Atlantic that the Trump administration could embrace.
Read more from the source article published by Handelsblatt Global on Mar. 17 2017.