Narcissism of Minor Differences or Major Economic Rifts? The Political Economy of (Post) Financial Crisis Management in the United States and the European Union
No transcontinental partnership is more deeply integrated than the transatlantic economy. The United States and the European Union not only conduct roughly 20 percent of their trade in goods with each other, they are even more deeply integrated when it comes to investment. Approximately 52 percent of U.S. foreign direct investment (FDI) abroad (stocks, figures for 2008) is located in the EU; the EU accounts for 63 percent of U.S. inward FDI stocks. The transatlantic partnership rests on a solid foundation, including many common interests and ideas in the economic and political spheres as well as a general overarching consensus about the structure of the international economic architecture. Nevertheless, the last years have, at times, demonstrated remarkable differences on a wide range of policy issues: trade imbalance targets, bank and transaction fees, and growth strategies to name just a few. In this paper, the authors explore the drivers of convergence and divergence. They present three short case studies to gain a better understanding of the glue and centrifugal powers in the transatlantic economy: immediate crisis management (spending and austerity fiscal policy), macroeconomic imbalances (trade imbalance targets), and financial regulation. After highlighting the key similarities and differences of the respective policy approaches, the authors discuss possible root causes, which can be economic and financial realities, perceptions and historical experiences, ideas, and institutional and structural constraints — as well as obviously politics. They derive two conclusions from this analysis. First, the analysis of immediate crisis management and fiscal policies, as well as of macroeconomic rebalancing in particular, underlines the importance of various economic starting points: differences in growth projections, saving rates, and unemployment to name just a few indicators. Second, ideas drawn from the countries’ historical experiences about the proper role of the government in the market and fiscal experiences (for example low inflation and stable prices) have also been an important factors in guiding policy responses.
The United States, the EU, and its member states will remain key partners in tackling current and future global economic policy challenges. But only thorough knowledge of a partner’s domestic constraints, a far-sighted assessment of the benefits of cooperative behavior, and a joint strategy in the global fora will allow for substantial progress.