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Fri October 28, 2011
In Europe's Crisis, U.S. Mostly An Observer
When Columbus sailed west in the late 15th century, he launched a long and lucrative relationship between Europe and the Americas. Family ties, economic bonds and shared military goals continue to knit us together.
But as the European debt crisis has deepened, it has highlighted this early 21st century shift: The United States is becoming more of a Pacific Rim country and less of a North Atlantic partner.
"President Obama's focus has been anywhere but on Europe, and I think there's good justification for that," said Benn Steil, director of international economics for the Council on Foreign Relations.
Steil, speaking with reporters on a conference call Thursday, said the United States, once the architect of Europe's postwar economy, no longer has much influence when it comes to financial matters. That's because Americans are seen by Europeans as having done a poor job of regulating markets in the run-up to the 2008 financial crisis, triggered by U.S. mortgage defaults.
"I don't see any reason for President Obama to waste precious international political capital trying to publicly influence this debate," Steil said.
Sebastian Mallaby, a senior fellow for international economics at the Council on Foreign Relations, agreed, saying that because the United States has been unable to solve its own debt problems, "the natural postwar leader has its hands tied behind its back."
Mallaby, also on the conference call, said that when it comes to helping shape European fiscal and financial policies, "lecturing from American leaders at this point simply doesn't work. We don't have the moral standing to say to people, 'Listen guys, we know how to run an economy and here's how you do it.' "
Europe's Crisis Has Limited U.S. Impact
But having the United States relegated to the role of observer in Europe's crisis may not worry U.S. business leaders very much. Given Europe's aging population, debt overhang and diminished economic prospects, U.S. corporations and farmers are turning more and more of their attention to China and other rapidly developing nations along the rim of the Pacific Ocean.
Mallaby noted that only about 13 percent of U.S. exports go to Europe. Slower growth in Europe would put a relatively small dent in U.S. prospects.
Joao Vale de Almeida, the European Union's ambassador to the United States, agrees that the White House has become more interested in strengthening relationships with developing nations than with Europeans. "If I look at the speeches and meetings, I could come to that conclusion," he said.
But Vale de Almeida says he also sees the tremendous value of routine corporate interaction, military cooperation and diplomatic coordination between Americans and Europeans. "If I look at what happens every day, then I see the relationship is like an iceberg: What lies below the surface is what's important," he said.
Vale de Almeida said it might surprise Americans to realize that Europeans also are focused on deepening ties with China. Given the slow pace of U.S. growth, as well as the rapid rise of federal debt, Europeans are eager to tighten ties to Asia, he said. "In the EU, more people are talking about China" than about the United States, he said.
Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics, said Americans may not realize that the 27-nation European Union is China's single biggest trading partner.
"Germany exports a lot to China," he said. "General Motors is doing very well in China, but the biggest car producer in China is Volkswagen. In terms of the trade relationship, they are doing much better than we are."
China Hasn't Intervened
Europeans also are hoping the cash-rich Chinese will help with the EU debt crisis. French President Nicolas Sarkozy spoke by phone Thursday with his Chinese counterpart, Hu Jintao, about the bailout. So far, the Chinese government has not made any commitment to contribute to Europe's bailout fund.
Few observers expect that it will. "The idea that the Chinese will pour money into a bailout is pure fantasy," Kirkegaard said. "They are going to be way too risk averse to get involved at this time."
Still, the Chinese can afford to invest directly in Europe, which could help with economic growth, he said. For example, the China Ocean Shipping Co., or Cosco, took full control of the container terminals at Piraeus, Greece's largest port, in a deal worth almost $5 billion. Piraeus serves as a gateway to bring Chinese goods into Europe.
Even though both Americans and Europeans are scrambling to strengthen ties to Asia, Kirkegaard agrees with Vale de Almeida's image of the U.S.-EU relationship as an iceberg, moving slowing and mostly below the surface.
"Asia is where the growth is, so that's where the focus is," Kirkegaard said. "But if you look at the depth of the relationship, Europe is where more than 70 percent of American foreign direct investment is. The relationship with Europe is much, much deeper" because it stretches back so far.
Both Americans and Europeans tend to take each other for granted because "98 percent of the trans-Atlantic relationship proceeds very, very smoothly," he said.
As the years roll by, economic relationships will shift as countries chase growth, he said. "We should work hard to have the strongest possible trans-Pacific relationship, but before it will rival the trans-Atlantic relationship, it would be more than a decade," he predicted.