2013 Annual Conference: Looking Beyond the Political Gridlock in Washington and Economic Woe in Europe
5th annual Bertelsmann Foundation-Financial Times Conference explores options for “re-booting” the global economy
WASHINGTON, DC (April 18, 2013) – The US economy is back to form, but domestic political gridlock, volatile job numbers and shaky financial markets threaten to unravel the recent success story. On the other side of the Atlantic, the eurozone has overcome its existential crisis, but the path to future growth and further fiscal and monetary integration is unclear. And the trans-Atlantic partners could improve their fortunes by seeking closer cooperation on issues such as free trade or global financial governance, according to the participants at the 5th annual Bertelsmann Foundation-Financial Times conference, held in Washington, DC on April 18, 2013.
“System Upgrade: Time for a Global Economic Re-boot” brought together high-ranking stakeholders from both sides of the Atlantic, among them members of Congress, US government advisors and the finance ministers of France, the Netherlands and Sweden, and the deputy prime minister of Turkey.
Most participants saw the US economy, for which the IMF predicts 1.9 percent GDP growth in 2013 despite higher tax rates and budget cuts, on a positive trajectory in the short and mid term. Still, President Barack Obama’s former auto czar, Steve Rattner, and former Federal Reserve Chairman Paul Volcker argued that the government could do more to improve middle-class wages and to rein in the financial sector. On the other side, former HP Chairwoman and Republican Party advisor Carly Fiorina saw the uncompetitive tax and regulatory structure as the main impediment to a healthy economy. One point on which they all agreed was that investments in innovation and education were prerequisites for a sustainable re-boot.
Concerns about the impact of America’s political gridlock on its ability to restructure its long-term entitlement obligations abounded. The Bertelsmann Foundation’s International Non-profit Credit Rating Agency (INCRA), which was launched at last year’s annual conference, certified the US with AA+ in its first analysis and said that it did not deserve the top rating AAA – mainly due to the political system’s insufficient conflict management as seen in the debt-ceiling debate in 2011 and the fiscal-cliff debate in 2012. Among the first six countries rated by the agency, only Germany was rated AAA.
Germany was mentioned as a model for the US at several points during the conference – mostly with regards to its vocational training system, which US and European politicians credit as contributing to its economic competitiveness. But Germany and the US also share many problems – from unsustainable entitlement programs to declining living standards for the middle class. “The so-called German miracle came at the cost of wages,” Rattner said.
The US currently has one major advantage over Germany: It is not directly affected by the ongoing woes in the eurozone. All the European participants were relieved that the latest acute crisis over Cyprus had been resolved, and they stressed that the completion of the banking union would be the next step towards stabilization. The Dutch Finance Minister and Eurogroup Chairman Jeroen Dijsselbloem said that he hoped to have rules for the restructuring and recapitalization of banks in place before the summer. French Finance Minister Pierre Moscovici added that “We want a full banking union, and we want it fast.” However, Germany’s insistence on changing European treaties to allow the restructuring of insolvent banks could slow the completion of this project.
While Europe is still struggling with its internal integration, the US and the EU should also work towards a convergence of global rules. During a panel on global financial governance, World Bank Chief Economist Kaushik Basu called for closer coordination among the world’s central banks to prevent currency wars and to control inflation. Japan’s recent unilateral move towards aggressive monetary easing was seen as an open-ended experiment. The panelists conceded that efforts to impose global fiscal and monetary supervision would collide with concepts of national sovereignty and democracy. But they still agreed that global finances required a regime of rules similar to those of trade.
Trade is an area where the US and the EU want to forge ahead. Both sides hope to start negotiations about a Transatlantic Trade and Investment Partnership (TTIP) this year. In a new survey conducted by the Bertelsmann Foundation and the Atlantic Council, a majority of stakeholders was optimistic that both sides would have at least a moderate agreement in place by 2016. Deputy US Trade Representative Miriam Sapiro described the main goals as a full elimination of remaining tariffs, regulatory harmonization and “solutions for emerging global trade challenges”.
The trans-Atlantic partners hope that the TTIP will contain rules for state-owned enterprises and labor and environmental standards that could serve as a benchmark for dealing with trading partners such as China. At the same time, Sapiro stressed that the aim was to create a global model, but not to discriminate against third countries. Or, as Bertelsmann Foundation President and CEO Aart De Geus put it: “Creating a wall between the Transatlantic Trade and Investment Partnership and the rest of the world would be wrong.”