Friday, March 9, 2012

Transatlantic Ties: Staying Strong, Remaining Aware

The EU Center is cosponsoring the Peoria Area World Affairs Council's 42nd Annual Central Illinois World Affairs Conference, taking place March 30-31. The following article, via peoriamagazines.com, provides a peek at the issues that the conference will cover.

by Angela Weck

The EU-U.S. partnership is enduring, but the debt crisis is obligating some member states to implement new measures.

What may be true for Las Vegas is certainly not true for Europe: what happens in Europe does not stay in Europe. The ties between the United States and the European Union have been forged by deep cultural and economic connections based on a common set of values and historical cooperation in global affairs.

Even as the number of its members has grown over the past 60 years, the EU and the U.S. continue to embrace the same core values, making transatlantic ties resilient and able to face the challenges of an ever-changing world. These values include a commitment to the democratic process, respect for human rights, a commitment to alleviate poverty, adherence to rule of law and the preservation of fair market economies.

The European Union and the United States are each others’ largest trading partners. More importantly, the EU is also a significant economic partner for the State of Illinois. Of the 50 states, Illinois is ranked fourth in exports to the European Union, sixth in jobs supported directly by EU investments and seventh in direct investments in the EU, according to the European Union Center at the University of Illinois at Urbana-Champaign. The International Trade Administration notes that nearly 20 percent of Illinois exports go to the 27 nations of the European Union.

New Challenges
The EU is currently working through some of the toughest challenges since its founding. It faces difficult austerity measures to address member states’ budgets and the viability of the euro zone. Recently, 25 of the 27 EU member states adopted a plan to deal with the underlying causes of the region’s debt crisis. The new fiscal pact obligates member states to implement strict new measures on sovereign budgets in order to prevent a recurrence of the overspending behind the current crisis.

In addition, EU leaders have reached an agreement to introduce a permanent bailout mechanism that will replace the temporary mechanism used to bail out Ireland and Portugal. With a lending capacity of 500 billion Euros, the European Stability Mechanism will be a permanent fund with paid-in capital, building a stronger firewall against the debt crisis.

Germany Reacts
Germany leads in these efforts to stabilize the region’s economies. It can boast of declining unemployment rates, its economy has grown faster than the U.S. economy since the mid-1990s, and German children have stronger math and science skills than their American counterparts. Its export-driven economy has weathered the global recession quite well, and its European neighbors are calling on Germany to lend them a helping hand.

But Germany is willing to help only up to a point. Chancellor Angela Merkel must still answer to her own citizens about how far the country is willing to risk its economic position to help the “Club Med” economies in its neighborhood. This contrast between German success and the failures of some of her neighbors is part myth, part reality.

Like many of her neighbors, Germany had long-established unemployment benefits that discouraged work. About a decade ago, Germany cut many of those benefits in both duration and level, reduced incentives to retire early and began programs to return the long-term unemployed to the workforce. Facing an aging population with a declining birth rate, Germany has nudged some of its reluctant workforce back to work.

At about the same time, Germany began to address its education system. These efforts have paid off, and German students now boast a national average in math scores higher than that in Massachusetts, the top state in the U.S.

A Tough Mindset and Stiff Regulations
It is important to understand that the German model is not all about austerity and hard work—it is a mindset. The Germans have demonstrated not only a willingness to cut and make their government more efficient, but they are equally willing to use government and regulations to an extent that many would find intolerable in a market economy. This is where the German model may have limitations for countries like the U.S.

The role of government in Germany involves significant regulation. For example, Germans maintain that the housing crisis had little effect there because of banking regulations on lending practices. They also feel that the laws and regulations which protect labor unions help the German middle class fare better than their global neighbors and preserve a purchasing power that bolsters their economy.

Germans don’t pay low taxes; it is the original welfare state, after all. Rather, Germans are willing to raise taxes with the expectation that they will, in return, receive the benefits they desire. Current deficit-reducing measures, both in Germany and in the plan adopted by the EU, will require sharp cuts in spending, and similarly drastic rises in taxes.

A Healthy Relationship
Whether the German model is something the U.S. can learn from or not will be the subject of many a debate. The U.S. has its own unique strengths, including an innovative and entrepreneurial society that maintains its status as the world’s immigration destination and the home of countless international corporations. These characteristics have kept the U.S. economy the strongest in the world.

The transatlantic partnership represents the most enduring relationship in the world. According to the Delegation of the European Union, the European Union and the United States combined account for nearly 40 percent of world trade and 80 percent of governmental development assistance worldwide. This partnership is clearly the cornerstone of security and economic prosperity for both the U.S. and the EU. Our futures are linked.

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