Investing (Literally) In the Transatlantic Partnership: Why Europe Should Look Westward For Sources of Financing
Europe suffers from a systemic ailment: underinvestment. Investment relative to gross domestic product is low even in Germany and Sweden. Southern Europe faces fiscal consolidation at the expense of investment. Simultaneously, European banks hesitate to finance private projects thanks to regulations advocating prudent lending. The time is ripe for Europe to build on its recent economic progress by seeking new sources of investment. In particular, European private and public initiatives would benefit enormously by actively courting American and international investors who are in eager pursuit of new, growing opportunities. Noting muted signs of investment during my European travel as a Marshall Memorial Fellow, I found it curious that institutions at all levels, particularly small private enterprises, have not considered international financing sources such as the global fixed income market or the private equity network. Indeed, in parts of Southern and Eastern Europe it is quite the reverse— Italian tourism bureaus eschew foreign financing, Italian entrepreneurs note poor access to local bank loans but do not seek foreign angel investors, and the Romanian government is a less active communicator and issuer on the international markets than its neighbors.
Ironically, Europe is now ideally placed to court investors eager for new opportunities. The European Central Bank's accommodative monetary policy has lowered borrowing costs and has boosted worldwide sentiment towards European growth. With trepidation regarding imminent U.S. monetary policy changes, global investors now seek ventures that are profitable but are also backed by stable monetary policy and fiscal rectitude. Europe possesses that combination. The union is committed to prudent finances, and countries like Romania have attractive, higher potential growth rates than in Western Europe. This is therefore an optimal time for European private and public enterprises to obtain inexpensive, long-term international financing. Ideal opportunities for investment might include Italian tourism promotion, support for Romanian small enterprises, or funds for upgrading Europe-wide transportation systems. And especially key for private European firms, global financing could supplement the constrained capacities of European banks.
Plans for more inclusion of the foreign investor community are best begun transatlantically. Courting American private investors is critical for European institutions to acquire credibility in international capital markets, especially for provincial governments or small firms that have never tapped global financing. American support could initiate more global inflows and may even increase European participation in much-needed public-private partnerships.
Doubtless, there are headwinds complicating U.S. and global financial appetite in Europe. Many are aware that economic crises were precipitated by burgeoning debt and investor exuberance. Moreover, revising the legal terms of transatlantic investment can be contentious, as evidenced by the fraught negotiations over TTIP. Further, traditional European sectors may advocate protectionism. Still, today's host of financial instruments can and should contain appropriate clauses that can help alleviate such concerns.
Europe today is healing well from the economic crisis, thanks to supportive monetary policy, sensible fiscal decisions and renewed consumer confidence. Yet Europe needs still more reinforcements in the form of more American (and subsequently other foreign) investors. Through a more proactive financial marketplace where all tiers of public and private enterprise interact closely with foreign investors to tap diverse sources of funding, the European project can employ transatlantic assistance to build further on its successes.
Tara Hariharan, a Spring 2015 American Marshall Memorial Fellow, is Director of Global Macro Research at NWI Management, LP in New York City, New York.
The views expressed in GMF publications and commentary are the views of the author alone.