In Crisis and Prosperity, Europe and the US Are Bound Together
As President Obama takes the podium for this year’s State of the Union, America faces no shortage of crises. A plethora of challenges will compete for attention, and the president will be under pressure above all to address the continued weakness of the US economy.
He will surely tackle the raft of fiscal emergencies looming just over the horizon, which already threaten our brittle recovery. After feverish negotiations to avoid the “fiscal cliff” of tax increases and spending cuts, lawmakers succeeded only in kicking the can down the road. If Congress doesn’t act by March 1, the “sequester” of draconian across-the-board cuts will kick in.
If this happens, economists estimate it will cost the economy 0.7 percent of GDP growth and a million fewer jobs. This, combined with the debt ceiling fight – the US government is only authorized to continue paying its bills through March 19th – and urgent reforms on gun control, immigration and climate policy will occupy much of the speech.
Missing, however – as it was through most of the 2012 election season – is the importance of the transatlantic partnership between Europe and the US. This relationship has receded from the headlines as well as the attention of policymakers as the worst of the EU crisis appeared to subside, and the Obama administration set about making its “pivot” towards Asia. Yet the US and Europe need each other more than ever, despite – or, indeed, because of – their respective crises.
The European project is at a crucial stage of development. The acute panic of the past summer, when bond yields were surging to unsustainable levels and Greece’s political collapse seemed imminent, has settled into an uneasy economic stasis. The European Central Bank calmed the markets with a commitment to unlimited sovereign bond-buying, and governments were able to push through unpopular fiscal reform measures.
The underlying issues, however, have not yet been resolved. Renewed signs of political turmoil in Southern Europe show just how fragile the status quo is. Spain’s Prime Minister, Mariano Rajoy, is facing calls to resign over illegal use of political funds, while in Italy the iconoclastic former Prime Minister Silvio Berlusconi is threatening a political comeback. These events are causing bond yields to rise again, and a protracted recession will continue to break balance sheets: the IMF estimates that the Eurozone’s output will shrink 0.2 percent in 2013.
Given this reality, failure to forge a clear, credible and timely pact in the direction of a political union may mean a smaller Eurozone and, eventually, a smaller Union – for all intents and purposes, the failure of the European experiment. Not only must Europe find a way to return to growth, but it must also demonstrate a commitment to deeper integration necessary to make a united Europe sustainable.
The implications for the US are enormous. In matters of national security, a strong NATO is a linchpin for a secure America and a stable world. From terrorist threats to complex logistical operations in Afghanistan and Libya, the US has benefited from working closely with its NATO allies, and must continue to do so.
Economically, for both the US and Europe the path towards expanded prosperity lies in closer cooperation, and the president should push the US-EU Free Trade Agreement currently under discussion. Transatlantic trade accounts for over $600 billion – some 40 percent – of global commerce, and the European Commission estimates that eliminating tariffs could increase it by 50 percent.
Not only would such an agreement go far towards President Obama’s goal of doubling US exports, but it would also increase transatlantic GDP by nearly 2 percent. In tying the two economies – and currencies – more closely together, such an agreement would be a major step towards a renovated Bretton Woods-style framework to lay the foundation for a new era of growth and stability.
The US can take other mutually beneficial steps to bolster the European economy – and improve its own. The Visa Waiver Program, for instance, streamlines the ability of our closest allies to visit the US. Key NATO allies, such as Poland, Bulgaria, Romania and Croatia, have completed the security requirements to join the program.
Congress, however, has put the program’s expansion on hold. This delay has unfortunate implications not only for our allies, but also for the US economy – in 2010, visitors traveling on visa waivers spent nearly $61 billion, directly supporting over 400,000 jobs and generating $9 billion in taxes.
Nor is this politically controversial – to the contrary, European and US publics appreciate the importance of this partnership. The 2012 Transatlantic Trends survey shows that a full two-thirds of Americans and Europeans think that the regions’ shared values and interests should mean closer cooperation. Europeans continue to support the Union, and publics on both sides of the Atlantic agree that the US-EU relationship is more important to their respective national interest than any other.
Amidst all of the pressing priorities, President Obama’s address should clearly recognize that support for the European project is critical for our shared prosperity. While Europe struggles to develop a credible long term path for its future, US support is as critical now as it was at other crisis points of the past century. Our fate – and potential for success – continues to be bound together.
Sally A. Painter is on the Board of Directors of the Truman National Security Project and is Co-Founder and Chief Operating Officer at Blue Star Strategies, LLC.