The U.S.-European Relationship: Past Perspectives and Future Prospects

Robert D. Hormats
Under Secretary for Economic, Energy and Agricultural Affairs 
American Academy in Berlin
Berlin, Germany
October 1, 2010

I am grateful for the opportunity to speak before the American Academy in Berlin, hosted here at Deutsche Bank. I am pleased to appear here today to highlight America’s relationship with Europe as an important part of our shared interest in a robust global economy, and our work with the EU in response to the changed international geography. Germany, as the largest economy in Europe, is crucial to that relationship.

This occasion has a special meaning for me. During the Cold War, I was a summer intern in the Economic Section of the U.S. Embassy in Bonn. And on numerous occasions some colleagues and I drove through the DDR to West Berlin. So I ended up getting to know this city well, including East Berlin and especially the Pergamon. However, The Wall also left a searing impression on me – as did the barbed wire and the crosses that marked the last moments of men, women and children desperately seeking their freedom.

And in 1989, I took a train from Prague to the DDR and Berlin one week after the fall of the Wall – noting the flags flying with the “Hammer und Zirkel” cut out of the middle. And I was able to participate as an eyewitness of “Friheit” that was palpable in Berlin on both sides of the Mauer during that period of energetic and extreme joy.

It is important to reflect on the history of unity, as it is easy to forget how controversial it was in Germany at the time. Did the more highly developed West want to take on the financial burden of subsidizing the east, potentially destabilizing Germany’s hard-won gains of macroeconomic stability? Would a unified Germany renew fears of dominance in Europe? I recall the Prime Minister of Great Britain at the time expressing her doubts very strongly. It is therefore important to look back and understand the process of how Germany came to be unified, as it provides important lessons for us today.

As my mentor and first boss Henry Kissinger told me a week after the fall of the Berlin Wall, “when German unity became possible, it became inevitable.” And when it became possible to bring the capital back to Berlin, it was inevitable.

Similarly, the controversy and uncertainty surrounding German unity reflect similar conflicted emotions in the U.S. on the Marshall Plan and the rebuilding of Europe, which ultimately served as the basis for Europe’s remarkable postwar miracle and the foundation of US-European economic relations today. Many, even in the U.S., do not understand this point, and that there is nothing inevitable about history. It takes vision, unity of purpose, and great leadership. It is important to look back at the successes, the people who made them possible, and what they stood for.

In my remarks, I’d like to focus on the importance of our economic relationship with Europe in the past, and posit that for the future we need similar vision and courage to forge a path together to meet the challenges of the 21st century.

History of the U.S.-European Relationship

It was only after the destruction of much of Europe by the end of World War II that the seemingly impossible dreams of European unity were able to take root. While the war provided what some call “the action forcing event,” two other essential ingredients were necessary: 1) Europeans with the vision and courage to embark on this experiment, (starting with the European Coal and Steel Community); and 2) the financial and political backing of the United States.

It is important to pay tribute on this occasion to the great leaders on both sides of the Atlantic who made this all possible, who they were and what they stood for. Jean Monnet – whom I had the pleasure and honor of meeting on three occasions, including once when Henry Kissinger and I went to Europe to solicit his views on how to improve US and European relations in the mid-1970’s. Robert Schumann – one of the great men of that era, who dreamed of a Europe at peace. One should not forget William Clayton, who, as Under Secretary of State for Economic Affairs, the position that I now hold, was the primary drafter of the Marshall Plan. And of course the visionary leadership of George Marshall and of President Harry S. Truman.

With the economic stagnation of Europe in the mid-1970’s, European visionaries such as Jacques Delors took another gamble in proposing European monetary union as a way to push Europe to compete globally against the rising economic power of Japan and the United States. The signing of the Maastricht treaty in 1992 was the embodiment of this era and gave birth to the European Union as we know it today.

In addition, it is important to recall that the success of the European Economic Community and later the EU, played a vital force in ending the Cold War. Robert Schuman proved prescient when he declared in 1956 that, “We must make Europe not only in the interest of the free countries, but also to be able to welcome the peoples of the East who, freed from the subjection that they have suffered until now, will ask to join us and request our moral support.” Schuman saw the EU not just as a goal in and of itself but a magnet that would inspire others to join in the future. In 2004 the Athens Treaty welcomed 10 new EU members, including nations to the east that had been part of the former Soviet sphere – a remarkable step forward in achieving our shared vision of a Europe that is whole, free and at peace.

The 2009 Lisbon Treaty further advanced the EU integration process on the political side, with the establishment of a permanent President of the European Council as well as a High Representative for Foreign Affairs and Security Policy.

We welcome these new developments, along with the European External Action Service, the new diplomatic service that the EU is building, as efforts to increase continuity and coherence in EU policy. In addition, the role of the European Parliament has been strengthened, including new Parliamentary authority over agriculture and trade agreements. As with so many other areas impacted by the Lisbon Treaty, the relationships and the dynamics are essentially being rewritten as we speak. As Secretary Clinton recently stated to the Council on Foreign Relations in Washington, “The post-Lisbon EU is developing an expanded global role, and our relationship is growing and changing as a result. And there is no doubt that a stronger EU is good for America and good for the world.” The U.S. deeply believes this.

The United States also took a similar gamble with the Marshall Plan. The Marshall Plan, or the European Recovery Program, contributed to Europe’s own efforts to rebuild and create a strong economic foundation, through addressing trade barriers and infrastructure needs. It produced the Organization for Economic Cooperation and Development which celebrates its 50th anniversary next year.

The United States and Europe were also key partners in creating the original GATT to address trade barriers hampering the growth of trade, and in later establishing the WTO’s more far-reaching disciplines opening additional cross-border trading opportunities in goods and services based on commitments to address tariff and non-tariff barriers. Jean Monnet once said, "Nothing is possible without men; nothing is lasting without institutions." And the United States and Europe have worked together to help create many important institutions that have advanced regional and global economic prosperity. Monnet was right that these institutions were monuments of success to the leaders of the era. They also served as the foundation of the global post-war order that those on the other side of the Cold War aspired to join, to share in our mutual prosperity.
The U.S.-EU Economic Relationship Today

This same commitment to enhancing global prosperity through U.S.-EU cooperation is evident today. The U.S.-European economic relationship remains the central driver of the world economy. To put it in perspective, the value of U.S. goods and services exports to the EU is over five times the value of our exports to China. We think a lot about China, as it is growing in importance to the world economy, and of course it is, but is important to underscore that the U.S.-EU trade currently is much bigger than that of China.

From 2000 to 2009, over half of total U.S. foreign direct investment (FDI) was in Europe. The U.S.-German trading relationship alone is the fifth largest such relationship in the world. The stock of U.S. FDI in Brazil, Russia, India, and China (the BRICs) combined in 2008 accounted for only 7% of the total U.S. investment stock in the EU. The public does not have this impression from the popular press – people think that trade and investment relationship is much bigger with China. So it is important to remind ourselves of the enormous interrelationship between the US and the EC.

These percentages and figures are likely to change as the economies of the BRICS and other emerging economies grow and as their role in the world commerce increases. But for the moment and for some time to come, they will underscore the enormous economic importance of Europe to the United States -- to American jobs, exports, profits, and overall prosperity.

Looking specifically at Germany, we find that this country is in fact the second largest European employer of Americans with 670,000 Americans working for German companies. And these are good paying jobs, with estimates of salaries 13-18 percent above the average.

We need to build on this strong transatlantic foundation as we continue to construct a new set of international economic rules and an architecture to meet today's challenges.

The United States and European Union need to work together on a number of levels – strengthening our bilateral foundation for further trade and investment growth, spurring multilateral liberalization in our globalized world, and promoting good trade, regulatory, and IP policies in third countries, especially the major emerging economies.

The Potential of the Transatlantic Economic Relationship

Given the importance of transatlantic trade and investment in supporting high-quality jobs in the United States and Europe, I cannot emphasize enough the need to make further efforts to remove our remaining barriers to trans-Atlantic commerce. And this is not only in America's interest -- it is in Europe's as well. If we can cooperate more robustly on the economic front, especially on regulatory and standards matters, we can help each other meet today’s global economic and competitive challenges, and compete with others in the world, in effect continuing the vision for U.S. and European cooperation into the 21st century.

-- The Bilateral Economic Relationship

As I noted at the beginning of my remarks, the transatlantic economic relationship is the world’s deepest and broadest by far. Given the absolute size of this relationship, even small gains in any sector can mean significant new opportunities for working people on both sides of the Atlantic.

In the past three years, we have coordinated important parts of our bilateral economic agenda with the EU through the Cabinet-level Transatlantic Economic Council." The Transatlantic Economic Council provides a way for our most senior economic policymakers to engage in joint work to promote economic growth and job creation, in particular by addressing regulatory barriers and fostering innovation.

As tariffs have fallen in recent decades, non-tariff measures, including divergent standards, can prove to be more significant barriers to our transatlantic trade. Regulators in both Europe and the United States aim essentially for the same results – strong protections for the health and safety of our citizens, for our environment, and for our financial systems.

Different approaches to regulation and to the development of standards can inadvertently slow the growth of trade. Reducing such differences can therefore make business and trade more efficient. For example, one study demonstrated that a European effort to harmonize standards in the electronic sector to international norms resulted in increased U.S. exports to Europe – due largely to new, particularly smaller, companies finding it easier to enter the market.

One way we are seeking to minimize the impact of unnecessary regulatory divergences on trade and investment is to examine closely our respective regulatory processes. The Transatlantic Economic Council has spurred new discussions on our respective approaches to risk analysis, cost-benefit analysis, and the assessment of the economic impact of regulation on economic activity. We have also discussed our regulatory approaches in specific sectors, including the food, drug, chemical, automotive, and electronics sectors.

A principal goal of the Transatlantic Economic Council is to encourage our regulatory agencies to collaborate routinely so that sound regulation that does not create unnecessary barriers between our economies.

Looking forward, we will sharpen our focus within the Transatlantic Economic Council on promoting innovation in emerging sectors, possibly including nanotechnology and e-health, which will be critical to our competitiveness in a globalizing world. The Transatlantic Economic Council has recently launched a high-level Innovation Action Partnership to further these efforts.

We also place enormous weight on collaborating with our European partners on developing energy technologies, both to reduce demand for hydrocarbons and to cut greenhouse gas emissions. Last year we inaugurated the U.S.-EU Energy Council, under the leadership of Secretaries Clinton and Chu and their European counterparts.

The Energy Council is working to address energy security issues and to stimulate transatlantic cooperation in energy research. The Council also works on policy and regulatory issues to promote trade, as our alternative technology continues to grow and responsible energy use continues to progress. A prime example is the issue of the interoperability of standards for the range of electronic devices communicating on the "Smart Grid," as we continue to modernize the electrical grids in the United States and Europe.

-- Multilateral Liberalization

Achieving a successful outcome in the WTO’s Doha Round would be an excellent step towards multilateral liberalization of markets. The United States and the EU have relatively open markets: we want other markets to be more open as well. And the most effective way to achieve this is through the WTO. We need the Europeans to help us promote an ambitious, balanced conclusion to the WTO talks.

Similarly, we want to work with our European partners and the European Union on numerous other multilateral fronts: from coordinating rules that regulate and supervise the global financial system utilizing the G-20, Basel Committee and Financial Stability Board, to promoting effective cooperation on development assistance with the EU. We are the world’s two largest donors, making sure our development resources are most effectively used would be a big platform for global development and we can facilitate global trade by improving supply chain security through the World Customs Organization.

And as the climate change talks underscore, it is incumbent upon us to find common ground with our European partners in many areas. Through the Major Economies Forum, the United States and Europe are working side by side with emerging countries to address climate change challenges, including a successful Copenhagen commitment to curb carbon emissions and report with transparency on their mitigation efforts.

-- Third Countries

Even as we focus on achieving strong multilateral results, the United States and the EU have every interest in extending economic cooperation to the rising economic powers of the 21st century by promoting strong market-based, rules-based economic policies, in particular in Russia, China, Brazil, and India. If the U.S. and EU can agree on common approaches to regulation, these approaches can serve as a model for other nations. Together we can provide an incentive for others to embrace our approaches rather than impose regulatory standards that could be less rigorous or more nationalistic in order to impede American and European access to their markets. This is an important point. Many don’t share our regulatory principles. Many are inclined to put their own in place and shut our companies out of their markets, making our companies less competitive.

The United States and Europe can both benefit if we work together to promote the adoption of market principles and internationally-accepted rules governing trade, finance and investment. Better economic policies in third countries will increase the openness needed to generate exports and jobs in the United States and the EU. Both sides of the Atlantic have a direct interest in the development of stable and prosperous societies, which comes only with economic growth.

Both the EU and the United States also believe that strong intellectual property rights protection fuels innovation, leading to economic growth. By working together in this area, we can help encourage other countries to prioritize intellectual property rights protection as a strategy that encourages the development and marketing of new ideas, as well as ensuring that U.S. and European IP is not used illegally in products that are sold in their markets, our own markets, or in third countries. Again, this is a very important point. The U.S. and Europe agree on this. Most new jobs in our regions are based on innovative intellectual property. Forced transfer of know-how or piracy undercuts and is a disincentive to the innovative process. We need to work together to protect this important source of our job creation.

Another area for potential cooperation is in the global commons or domains of sea, air, and space, and now increasingly cyberspace. The United States and Europe need to work to promote stability in this area. As the spread of technology causes these connections between international actors to multiply further and faster, they are becoming increasingly vulnerable to disruption. Not only will disruptions in one domain cross over into others, but United States and European entities deeply integrated with global trade and communications networks will be unable to isolate themselves from significant disruptions in the air, sea, space or cyberspace that originate far beyond our sovereign territory. Solving challenges in all these domains increasingly requires collaborative approaches and cooperation among nations.

Within this broader set of issues, there is tremendous opportunity to strengthen America’s already significant economic relationship with Germany. Apart from core manufacturing industries, service sectors such as tourism and educational exchanges, as well as R&D collaboration, also provide great mutual benefits. In education, some 30,000 German and American high school and university students study in each others’ countries annually. And in R&D, Germany is a critical U.S. trading partner in advanced technologies such as biotech, life sciences, information and communication. In fact, German affiliates in the United States account for almost 3% of all R&D spending in the U.S.


The United States seek to build a network of alliances and partnerships, regional organizations and global institutions that is durable and dynamic enough to help us meet today’s challenges. We worked after the Second World War to construct the pillars of US-European cooperation that rebuilt destroyed lands and lifted millions of people out of poverty, and worked with Europe to build the GATT, IMF, World Bank. Now we must work together to build a global architecture that reflects and harnesses the realities of the 21st century, including helping to integrate emerging powers into an international community with clear obligations and expectations. Both Europe and the United States recognize this priority.

We have consistently turned to our closest allies in Europe, the nations that share our fundamental values and interests: democracy, pluralism, respect for different opinions, religious tolerance, a free press, a concern for those less fortunate than ourselves, and our commitment to solving common problems. We need to renew and deepen these alliances that are the cornerstone of global security and prosperity.

As Secretary Clinton recently affirmed, “The bonds between Europe and America were forged through war and watchful peace, but they are rooted in our shared commitment to freedom, democracy and human dignity. Today, we are working with our allies to deal with all these issues and global challenges.”

A core principle of our alliances is shared responsibility. The United States is proud it could play a role in the past working with Europe to build the post-war global order, and is proud to work with Europe today to help develop the capacity for the next 50 years to promote sustainable progress and prosperity. Our vision of the future is to build a global architecture in which Europe and Americans enjoy greater opportunities for prosperity and security for ourselves and our children – and for others to have that same opportunity as well. Neither the U.S. nor Europe can do this alone. Together we have the best chance of succeeding, not just for ourselves but for the world that looks to us for political and moral leadership.