The European Union (EU), a vital partner for the United States, is facing numerous challenges, including massive migration flows, the UK’s vote to leave the EU (Brexit), and rising support for anti-EU and populist parties in upcoming elections in several European countries. In Charting the Future Now: European Economic Growth and its Importance to American Prosperity, the Atlantic Council’s EuroGrowth Initiative proposes pragmatic steps to restore European economic growth, safeguard the European project, and reinvigorate the transatlantic alliance.
Backed with rigorous data, the report highlights the crucial importance of the European economy for the US and proposes ways to galvanize the transatlantic relationship. Focusing on feasible projects and reforms, the report then looks at various policy proposals to increase growth and create jobs in the short, medium, and long term.
Praise for the report includes: “In a turbulent world, there is a serious need for insightful examination of complex problems and the provision of effective solutions; the Atlantic Council report delivers both.” – David Abney, Chairman & CEO, UPS “The EuroGrowth Task Force Report chaired by Jose Manuel Barroso and Stuart Eizenstat is extremely important and timely. It successfully addresses the main challenges that face the European economy, and it outlines a concrete and well-reasoned set of policies for achieving sustainable economic growth. It should be highly welcomed by policy makers, and by political and economic analysts. It should provide the basis for a far reaching blueprint for European Policy.” – Jacob A. Frenkel, Chairman, JPMorgan Chase International, Chairman, Board of Trustees of the Group of Thirty (G30) and Former Governor, Bank of Israel “The report is remarkable. It provides a refreshing view on the main European issue: i.e. how to unlock its economy and rekindle growth. The background is based on well-documented data. The diagnostic is clear and uncompromising. The authors propose pragmatic and staged reforms for a better future to a still divided Union. The concept of ‘concentric circles’ is appealing. Lastly, this document stresses how much a stronger and more stable Europe is important for the US and the world at large.” – Jacques de Larosière, Former Managing Director of the International Monetary Fund (1978-1987), former Governor of Banque de France (1987-1993), former President of the European Bank for Reconstruction and Development (1993-1998)
Chapter 1: Why European Growth is Relevant for the United States
A stronger Europe benefits the United States for multiple reasons.
US investments, trade, and financial flows with Europe are far larger than with any other part of the world. Economic ties are so close that even small increases of the EU’s GDP immediately have positive spillover effects on corporate profits, portfolio investment, US exports, and, ultimately, on US jobs.
Secondly, the EU and the United States share responsibility for global economic governance. Following thirty years of globalization, the world economy needs guidance in key areas such as financial markets and trade. The United States and the EU can play this role and promote their shared values and principles across the globe.
Finally, without sustainable economic growth, European leaders are unlikely to have the necessary political capital to address external geopolitical crises, and their ability to meet defense spending commitments to NATO may be compromised. Repercussions in defense and security would clearly impact both NATO and the United States.
Chapter 2: Deal with the Short Term
The next twelve months will set the stage for the sustainability of the European project. Decisive leadership is required to address Brexit negotiations, the refugee surge, the outcomes of several election cycles across the continent, and to keep the ambitious Transatlantic Trade and Investment Partnership (TTIP) alive.
For the short term, we recommend:
- Negotiate Brexit wisely. Once the timing of Brexit is confirmed, negotiations should take place through a transparent process and with a long-term perspective. The UK and EU need each other to promote common values and to continue to play key roles in global governance.
- Increase human and financial resources to tackle the refugee crisis and build a binding policy for all member states to share the political and economic burden, while strengthening anti-terror coordination among members.
- Preserve the goal of deepening and widening the transatlantic marketplace and build on the work done so far with TTIP for a new version of the agreement.
- Identify circumstances under which the window of opportunity presented by low interest rates can be used for an extraordinary public investment plan. The EU should pursue the proposed expansion of the “Juncker Investment Plan for Europe.”
Chapter 3. Deliverables in the Next Twenty-Four Months. Toward a Fully Integrated Internal Market
Growth will not materialize if member states do not make their economies more innovative and competitive vis-à-vis the rest of the world. Most of the policies need to be implemented at the national level; however, the EU as a whole has a responsibility to set the stage for allowing member states to put forward the necessary country-specific reforms and to implement EU-wide reforms to complete the internal market.
To accomplish this, the EU should complete the internal market for services with fewer and better regulations, create a true Digital Single Market that removes digital barriers, diversify energy supplies by finalizing the Energy Union, and attract more capital and investment by completing the Capital Markets Union, with particular focus on creating the right environment for innovation and venture capital to thrive.
Meanwhile, member states must play their part by liberalizing rigid labor markets and enforcing country-specific reforms that ease the burden of private business.
Chapter 4. Charting the Future: EU Economic Governance by 2022
Long-term vision is needed to surmount the many challenges facing the EU. We propose to build a Europe of concentric circles, with an inner circle of deeply integrated nations sharing a common currency, common public debt (in part), and a common fiscal policy. External concentric circles would then allow different degrees of integration for other countries. The challenge for the more-integrated countries is to demonstrate that integration is not a zero-sum game, but rather a way to achieve a stronger, harmonized framework in the benefit of all.
For these reforms to take place, we recommend exploring the political consensus to:
- expand the scope and size of the EU budget.
- create a European Fiscal Authority among member states that are ready for stronger integration; and
- allow the issuance of Eurobonds for growth to finance infrastructure, human capital, and R&D in those countries that agree on the European Fiscal Authority.