EconoGraphics

The global economic and financial crisis, which originated in the United States in 2008, ultimately triggered a sovereign debt crisis in Europe in 2010. As a result of sky high debts, economies lacking in competitiveness, and over lenient banking regulations, the credit ratings of the Eurozone members Cyprus, Greece, Ireland, Portugal, and Spain plummeted. These countries began facing prohibitively high interest rates when they attempted to borrow from international credit markets. As the situation worsened, Greece effectively lost access to international bond markets, and the European Commission established the European Financial Stability Facility (EFSF) to prevent sovereign defaults of Eurozone member states and to protect the common currency.

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This EconoGraphic is the final edition of a three-part series on why the United States and Europe need each other. The series highlights excerpts from the EuroGrowth Task Force’s inaugural report on European economic growth and why it matters for US prosperity. The Global Business & Economics Program launched this timely report on March 10, 2017 at the Atlantic Council. If you would like to learn more about the report, please visit: http://www.atlanticcouncil.org/publications/reports/charting-the-future-now.

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US economic ties with the European Union (27) generate the largest global bilateral trade flows, worth an estimated $2.4 billion per day. The massive volume of US-EU (27) bilateral trade promotes prosperity on both sides of the Atlantic.

In 2015, the total value of US goods and services trade with the EU (27) reached $869.5 billion. The United States had $589.7 billion in total bilateral goods trade with the EU (27), its second largest goods trade partner. US trade in services (exports and imports) with the EU (27) was $279.8 billion.

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The United States is the world’s largest recipient of global foreign direct investment (FDI). On a current-cost basis, the US FDI stock was more than three times larger than that of the second largest destination country in 2014, the most recent year from which statistics are available. Despite the current fragile global economy and great political uncertainty, foreign investment in the United States remains strong. Total FDI stock in the United States grew an average of 6 percent annually from 2009-2014. Meanwhile, FDI in the US in 2015 reached a record of $348 billion, rebounding from 2014 ($172 billion), and well above 2013 inflows ($201 billion).

The United States and Europe are each other’s primary source and destination for FDI, with the US providing the largest source of third-country FDI in the European Union (EU) on the basis of stock and flow. In 2015, the FDI net inflow accounted for 2.1 percent of US gross domestic product (GDP) and 3.4 percent for the European Union.

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On December 4, Italian voters rejected former Prime Minister Renzi’s constitutional reform referendum. The result of the referendum renewed concerns about the economic recovery in Italy, stability of the Euro, broader European economic integration, and rising populism across Europe. In the week following the referendum, global markets have focused their attention on the ailing Italian banking sector. The Italian banking system is undergoing a serious restructuring in an effort to raise capital and increase profits. The €360 billion in non-performing loans (NPL) on Italian banks’ books – about one-third of the Eurozone’s total – underscore why shares of Italian banks have declined by ca. 50 percent since the beginning of 2016.

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Over the last decade, China’s large holdings of US debt have helped the Bank of China keep the value of the renminbi artificially low. This strengthened China’s competitive position in the global markets, allowing for cheaper Chinese exports and contributed significantly to China’s large trade surplus, which now accounts for about half of the total US trade deficit.

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On October 14th, the regional parliament of Wallonia, a French-speaking region of 3.6 million people in Belgium, voted to block the Comprehensive Economic and Trade Agreement (CETA), a proposed trade agreement between the European Union (EU) and Canada, which has been negotiated for over 7 years. To implement the agreement, it must be ratified by 28 national parliaments and 10 other regional assemblies and upper houses in the EU; Belgium cannot sign the agreement without Walloon support. At the end of last week, the EU issued an ultimatum urging Wallonia to end its objection to the agreement before Monday. Wallonia, which calls for stronger safeguards on labor, environmental, and consumer standards, rejected the ultimatum, threatening to cancel an EU-Canada summit planned for Thursday (October 27) to sign the accord.

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The European Union’s (EU) Stability and Growth Pact requires Eurozone countries to annually lay out their fiscal plans for the following three years. The European Commission (EC) then compares the member states’ reports with its own projections and those produced by independent bodies, such as the International Monetary Fund (IMF), to evaluate whether the member states are on track to reach their Medium-Term Budgetary Objectives (MTOs). It is important to note that Eurozone countries’ macroeconomic forecasts usually diverge, sometimes significantly, from the reports produced by the EC and the IMF. 

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On the occasion of Myanmar’s State Counselor Aung San Suu Kyi’s recent visit to the United States (U.S.), President Obama announced that executive sanctions on Myanmar would soon be lifted. This will grant Myanmar greater access to the U.S. market and encourage U.S. companies to invest in the country. Trade between the two countries remains at relatively low levels (i.e. $225 million in 2015), with U.S. investment to Myanmar accounting for only 0.2% of the country’s Foreign Direct Investment (FDI). Lifting the sanctions would remove a number of trade and investment barriers, which in turn would strengthen Myanmar’s competitiveness and foster growth across its economy. It would also allow the country to diversify its range of trading partners (e.g. only 2% of its exports end up in non-Asian economies).

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As the most export-driven major economy in the European Union (EU), Germany stands to benefit greatly from a robust Transatlantic Trade and Investment Partnership (TTIP) agreement.

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