CHARTING the FUTURE NOW European Economic Growth and Its Importance to American Prosperity
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Atlantic Council EuroGrowth Initiative GLOBAL BUSINESS & ECONOMICS PROGRAM CHARTING THE FUTURE NOW European Economic Growth and Its Importance to American Prosperity A report from the EuroGrowth Task Force With an introduction by José Manuel Barroso and Stuart E. Eizenstat CHARTING THE FUTURE NOW European Economic Growth and Its Importance to American Prosperity ISBN: 978-1-61977-432-2 This report is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The authors are solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions. March 2017 The Atlantic Council is a nonpartisan organization that promotes constructive US leadership and engagement in international affairs based on the central role of the Atlantic community inmeeting today’s global challenges. © 2017 The Atlantic Council of the United States. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Atlantic Council, except in the case of brief quotations in news articles, critical articles, or reviews. Please direct inquiries to: ACKNOWLEDGEMENTS This report was coordinated by Andrea Montanino, C. Boyden Gray fellow on global finance and growth and director of the Global Business and Economics Program of the Atlantic Council, and Ambassador Stuart E. Eizenstat, co-chair of the EuroGrowth Initiative. The main contributors were Anders Aslund, senior fellow of the Atlantic Council and member of the EuroGrowth Task Force, Thanos Catsambas, nonresident senior fellow at the Atlantic Council, Steve Hanke, Johns Hopkins University and member of the EuroGrowth Task Force, Andrea Montanino, C. Boyden Gray fellow on global finance and growth and director of the Global Business and Economics Program of the Atlantic Council, and Earl Antony Wayne, nonresident senior fellow at the Atlantic Council and member of the EuroGrowth Task Force. Specific contributions were prepared by Marie Kasperek, associate director at the Atlantic Council, Zdenek Kudrna, Salzburg Centre of European Union Studies at the University of Salzburg, Ole Moehr, program assistant at the Atlantic Council, and Dante Roscini, Harvard Business School, nonresident senior fellow at the Atlantic Council. Editorial coordination was provided by Alvaro Morales Salto-Weis, project assistant at the Atlantic Council. John Butler and Lu Ding, interns at the Atlantic Council, provided additional assistance. The report benefited from comments by Moreno Bertoldi, Thomas Cunningham, Lorenzo Forni, Jacob Frenkel, and Peter Schechter. ABOUT THE EUROGROWTH INITIATIVE The Atlantic Council EuroGrowth Initiative was established in March 2016 to stimulate thinking on how the current challenges of the European economy can be transformed into opportunities to achieve a more sustainable growth path. In its first year, the Initiative published five papers, hosted six European commissioners, finance ministers, central bank governors, and leading European experts to identify practical solutions. The initiative aims to energize key stakeholders on both sides of the Atlantic to design the right approaches for growth, taking into consideration the unique European institutional setting. The initiative is made possible through the generous support of Beretta, the European Investment Bank, JPMorgan Chase & Co., Moody’s Investors Service, Pirelli Tire North America, United Parcel Service, Ambassador C. Boyden Gray, and Ambassador Stuart Eizenstat. DISCLAIMER This report represents the conclusions of the task force, whose members have participated in their individual, not institutional, capacities. Their acknowledgment here does not necessarily represent an endorsement of all parts of the report. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for any of this publication’s conclusions. CHAIRS José Manuel Barroso Former European Commission President Stuart E. Eizenstat Former US Ambassador to the European Union Former Deputy Secretary of the US Treasury MEMBERS Anders Åslund Enrico Letta Resident Senior Fellow, Atlantic Council Dean of the Paris School of International Affairs (PSIA) at Sciences Po in Paris; Gordon Bajnai Group Chief Operating Officer, Meridiam; Former Prime Minister of Italy Former Prime Minister of Hungary Sir David Manning Former UK Ambassador to the United States Thomas C. Barrett Director & Chief Representative, Andrea Montanino European Investment Bank; C. Boyden Gray Fellow on Global Finance Minister of the EU Delegation to the United States and Growth Director, Global Business and Economics Neil R. Brown Director, KKR Global Institute Atlantic Council Courtney Geduldig Richard L. Morningstar Executive Vice President, Former US Ambassador to the European Union; Public Affairs, S&P Global Founding Director & Chairman, Global Energy Center, Atlantic Council C. Boyden Gray Former US Ambassador to the European Union Bart Oosterveld Managing Director, Chief Credit Officer, Americas, Steve Hanke Moody’s Investors Service Professor of Applied Economics, The Johns Hopkins University Peter Scher Chairman of the Washington, DC, region, Stefano Itri and Head of Corporate Responsibility Vice President, BDT Sales, Beretta JP Morgan Chase & Co. Maureen Kline Earl Anthony Wayne Vice President, Public Affairs and Sustainability, Fellow, Atlantic Council; Former US Ambassador; Pirelli Tire North America Former Assistant Secretary of State for Economic Andrius Kubilius and Business Affairs Former Prime Minister of Lithuania Laura J. Lane President of Global Public Affairs, UPS Contents Introduction by José Manuel Barroso and Stuart E. Eizenstat 1 Chapter 1: Why European Growth is Relevant for the United States 5 Chapter 2: Deal with the Short Term 12 Chapter 3: Deliverables in the Next Twenty-Four Months 33 Chapter 4: Charting the Future: EU Economic Governance by 2022 54 Conclusions: A Check List for the European Union 66 Introduction by José Manuel Barroso and Stuart E. Eizenstat Short-term responses to populist concerns, medium-term deliverables, and a long-term plan for better integration. This Task Force report is unique. We have gathered the United States. While there are multiple reasons experts from both sides of the Atlantic in a year-long behind the lack of growth, many European citizens detailed study of how Europe can restore confidence now associate economic integration and the common through higher economic growth. currency with comparatively worse economic outcomes. Euroskeptic parties are gaining strength in Europe’s current sluggish economic performance can many member states, and local populations in some be explained by a number of factors, some of which countries now favor national, not EU-wide, solutions. require action at the national level, and others that can best be achieved by the member states working Relatively favorable economic conditions including together at the European Union (EU) level: inflexible lower oil prices, quantitative easing by the European labor markets; lack of innovation and culture of risk- Central Bank, a depreciating euro, and slightly taking; capital markets that lack the depth, breadth, positive world growth projections, allowed the EU and flexibility to provide funds to start-ups and small- to grow at a decent rate in 2016, indeed above that and medium-size enterprises (SMEs), and that rely of the US, and likely in 2017. But economic headlines too heavily upon commercial bank debt financing; low are still dominated by debt crises, bank bailouts, levels of public investment; over-regulation. unemployment, stagnant growth, and low inflation, all of which threaten to undermine long-term investment, The report, looking mainly at what the EU as a whole entrepreneurial spirit, innovation, and market can do, recommends short-, medium-, and long-term confidence. actions, with a sense of urgency, reflecting our view that the European project is threatened by recent Europe also wrestles with a tempest of geopolitical developments internally and externally. The result tensions. Notably, the Russia-Ukraine conflict to of the Brexit referendum in June 2016 has raised the east and severe turmoil in the Middle East that fundamental questions about the durability and future has resulted in a migrant crisis and terror attacks, of the European construction. Other developments are underscore the fragility of Europe’s economy and will also raising questions about the long-term viability continue to do so for the foreseeable future. of the vision articulated by Jean Monnet and Robert Schuman in the 1950s. This report wishes to communicate strongly five messages that are key to improving growth in Europe The first blow was the outbreak of the eurozone debt and for the continuation of its close partnership with crisis in 2010. Later, the refugee crisis, which affects the United States. The agreement around these five most European countries, tested solidarity between messages is time sensitive and critical. EU members. As economic and political crises raged across Europe, nationalist and populist movements 1. The Time For Action Is Now. Brexit Shows rose to prominence in many member states and That Europe Needs To Provide Responses to produced unpredictable consequences and clear Legitimate Concerns. pressures to perform better on EU leaders. The results Europe is at the precipice of a dangerous