Underlying past failures to agree on transatlantic trade liberalization are strong vested interests in the U.S. and in the EU—issues that have not vanished over the years. For negotiations on the recently proposed Transatlantic Trade and Investment Partnership (TTIP) to become successful, greater engagement with such interests is needed to achieve more than yet another failure. Furthermore, instead of convincing those peers that are already aware of the value of greater transatlantic economic convergence and hailing the TTIP on the basis of more or less diffuse expectations about the benefits of a still-to-be-known negotiation package, supporters of a TTIP should refocus their initiative on issues that are known but that remain unresolved.

It is true that stimulating economic growth at significantly lower material and political costs than those needed to agree on stimulus packages and/or the loosening of austerity measures is attractive on both sides of the Atlantic. However, with both U.S. and EU negotiators still in the phase of securing their respective negotiating mandates, it is not a bad thing to also stress the many obstacles towards actually agreeing on a comprehensive package. Indeed, drawing on lessons learned from past initiatives, there are not many promising signs: political gridlock in the World Trade Organization (WTO) and subsequent lack of progress in multilateral negotiations; failed past attempts of the U.S. and the EU to move ahead alone; major trade disputes between the two on important issues; and lack of political engagement among leaders on both sides of the Atlantic to move ahead.

In a report that triggered the joint initiative of U.S. and EU leaders to launch negotiations, the U.S.-EU High Level Working Group on Jobs and Growth promises that they will work, among other things, towards an “ambitious ‘SPS-plus’ chapter”. As with any other part of the negotiation package, the exact contents are still unknown; the report only provides an overall framework for future negotiations. However, Max Baucus, chairman of the powerful Senate Finance Committee, has already raised the bar rather high for Congressional approval to any negotiation results. Alluding to the preconditions for Congressional support to the envisioned “ambitious, comprehensive, and high-standard TTIP”, Baucus, in his capacity “as a senator from a large agricultural state,” wrote in an article for the Financial Times: “Congress will not settle for an agreement that fails to address the areas likely to yield some of the most significant economic gains—in particular, the elimination of barriers to agricultural trade and ensuring that regulatory processes are streamlined and based on sound science.”

In a push to overhaul Europe’s lagging economies, the German government has tried to sell fiscal rectitude and a sped up version of its own reforms as a model to emulate. Many Europeans have opted to follow Berlin’s example. For instance,  former Italian Prime Minister Mario Monti has introduced a pension reform that almost mirrors the German system. He also tried to introduce German inspired labor market reforms.

Against this backdrop, it is not surprising that despite a two month long inability to form a government, senior German government officials remained steadfast in their confidence that the main Italian political parties would eventually forge a compromise and stick to German inspired economic policies. Indeed, after much political wrangling, Italians started doing exactly what Berlin wanted them to do all along: they forged a grand coalition. The inaugural speech of Italy’s new Prime Minister Enrico Letta offered even more reassurances. He presented a laundry list of promises suggesting that Italy has had it with austerity and would soon tell Berlin enough is enough. However, Letta’s core message was one of continuity. He promised he would not ignore common European fiscal rules. Despite his planned tax reductions, including the much-hated home property tax, Letta said his budget deficit would stay below the European mandated 3%. Berlin should feel pretty confident that, at least for now, the new government will stick to Monti’s course.

What is causing true headaches in Berlin as of late is the situation in France. Paris is the last European bastion obstructing the spread of a German styled overhaul of the euro zone’s economies. In fact, French resistance to rein in public spending, along with its timid approach in initiating structural changes in the pension system and in its rigid labor market, could soon tempt other European nations currently applying ‘growth friendly consolidation’ to slow down their own process of adjustment, thereby isolating Chancellor Angela Merkel in her push to quickly apply the German cure to an ailing continent. Indeed, the so-called austerity versus growth debate could soon reach a tipping point

French President Francois Hollande should not back down. Attempting to repackage Germany’s actions from a decade ago into a remedy for France in a short period of time is no guarantee for success. In fact, it could prove to be a recipe for disaster. Combining fiscal austerity and structural reforms is hard under any circumstances. In the present environment, it could prove self-defeating.

Further Analysis on the future of transatlantic cooperation:

This recent Atlantic Memo on “Security in the Sahel: Regional Initiatives in Pursuit of Long-Term Stability” is part of the Atlantic Community’s theme “How should the United States and Europe respond to threats to peace and security in the Sahel region of Africa?” Bringing together experts from both sides of the Atlantic, this memo provides crucial policy recommendations for both Germany and the EU as a whole with regard to their stance in the Sahel.

As a DAAD/AICGS Research Fellow, Mr. Krueger will work on U.S. and EU trade relations with China, which are a hot issue on both sides of the Atlantic. In light of the global financial and economic crisis, the opportunities and challenges arising from China for businesses and policy makers in America and Europe are exceptional in many respects. Policy responses take place in a highly complex environment, touching upon important concerns in various policy areas. In this situation, the U.S. and the EU are partners and competitors at the same time: on the one hand, closer transatlantic cooperation is widely expected to offset what are viewed by many as unfair Chinese trade practices; on the other hand, as economic operators in America and Europe try to gain further access to the Chinese market or seek domestic protection, transatlantic relations are only one out of several considerations.

In the past, U.S. and EU trade actions towards China have occasionally been strikingly analogous and coordinated, e.g. regarding WTO dispute settlement proceedings on Chinese export restrictions of raw materials. The recent stepping-up of efforts to conclude a transatlantic free trade area can also be interpreted as a coordinated effort to alleviate Chinese economic predominance. At the same time, the U.S. and the EU also try to find solutions individually: both are negotiating free trade agreements that have at least potentially important consequences for their trade relationships with China – U.S. efforts to conclude the Trans-Pacific Partnership are the most important example here. The U.S. has initiated more than twice as many disputes against China in the WTO; it has also had to defend itself against Chinese claims more often. Finally, whereas the EU appears more preoccupied with its internal crisis, U.S. economic relations with China feature prominently in recent U.S. public and electoral debates.

Mr. Krueger’s work at the AICGS sets out to learn more about these (and other) converging and diverging trends in U.S./EU economic relations with China. From the perspective of domestic trade policy making, much is at stake for American and European economic operators and their competitiveness in the global marketplace. The stakes are also high from a broader international perspective, as the successes and failures of individual and concerted U.S.-EU actions towards China have transatlantic repercussions as well. A better understanding of the dynamics underlying trade policy choices on both sides of the Atlantic is needed to evaluate the consequences resulting from them and, in turn, to find more appropriate responses for the future.

Mr. Seeringer looks at examples from the U.S., Germany and the EU to examine how such organizations adapt to different climates when expanding abroad, as well as how their policies and decisions must be altered to fit within the framework of unfamiliar, non-domestic environments.

Read the full study here: Political Strategies for a Globalized World

The views expressed in this case study are solely those of the author and do not necessarily reflect the opinion of AICGS, its staff and contributors.

“Politics in Washington has become far worse than the traditional partisan to-and-fro inherent in any democracy. It now presents a danger to orderly day-to-day governance of the country. Politics is no longer the art of the possible; it is bad theater. We are lurching perilously close to becoming Italy, where citizens appear to have given up on being self-governing citizens and instead have cynically chosen reality TV. Criminally implicated tycoons and comedians vie for the presidency; these candidates appeal to many Italians because they provide a diversion from a government in perpetual crisis. We laugh at the Italians, but give us another four years of fiscal cliffs, government shutdowns and debt limits, and the famously optimistic and forward-looking American people may surprise us with their cynical response to Washington’s refusal to govern rationally.”

While the author is lamenting the current gridlock in Washington, the reference to Italy suggests that the loss of confidence in politics leads to a general cynicism undermining trust in leaders and institutions. And there is lots of evidence that this trend is growing—not only in Italy but  also throughout Europe and the U.S.

Beating up on Washington, DC is a political hobby as old as the country. Ever since the District of Colombia was created, it has been the target of critique from all sides of the political spectrum. Despite the early warnings of George Washington about the perils of political parties, the clashes between them have been part of the fabric of Washington culture for over two centuries. They have evolved on various forms and with changing champions and platforms. But with all their faults, political parties have also been able to sustain and serve the American political system.

Yet the feeling today is that, to borrow a title from a current analysis of the problem, the situation “is even worse than it looks” (taken from It’s Even Worse Than It Looks: How the American Constitutional System Collided With the New Politics of Extremism, by Thomas Mann and Norman Ornstein).The stalemate over sequestration now appears to be the symbol of a deeper malaise in which the efforts to find common ground across the political debating fields are fruitless. Hence the reference to the Italian elections as a benchmark of political alienation among voters heralds a dangerous trend toward a declining denominator in political culture. Governability itself becomes a casualty when political leaders and their parties become caricatures of themselves.

In the U.S., both the structure and the process of decision-making in Washington have been weakened by the very components on which both were built. The incentives and rewards among a large and diverse group of elected representatives have been so altered that the forces of confrontation can outweigh those of compromise. The American system of government has morphed into a more parliamentary style of organization without the basis for it to successfully create coalitions across party lines. The result is the stalemate we now have over the sequester policy.

Germany Must Decide the Power it Wields, by Ulrich Speck, Financial Times (February 19, 2013)

In his State of the Union speech, U.S. President Barack Obama finally confirmed that he is prepared to find a way to bridge differences with Europe. A few senators from both sides of the isle have even signaled that Obama could be granted the all important fast track authority that expired in 2007. This is needed to speed up passage of trade deals through Congress and avoid potentially disruptive amendments. For now, the ambitious deadline for an agreement with Europe is 2014.

Many commentators have pointed out how important a deal would be, not only in terms of added growth for the respective economies but also politically. In an age of protracted fiscal restraint, trade is quickly turning into a convenient substitute for stimulus. Furthermore, a transatlantic free trade area would not only boost the partners’ respective economies, it would also set standards that emerging powers, and in particular China, could not ignore. By choosing to reengage with each other, the U.S. and Europe are demonstrating a sense of urgency now that was absent in the past.

For Europeans, Obama’s commitment to seek a grand bargain with Europe finally mitigates widespread fears about the much-hyped pivot to Asia. In European capitals, the president’s announcement is interpreted as the sign that he is reaffirming the centrality of the transatlantic partnership.

A more mundane interpretation could be: Europe and the U.S. are trying to lock in past gains before it is too late. The U.S. and Europe recognize that the global landscape is changing quickly, and that it might soon become impossible to impose a western way of doing things on an increasingly reluctant world. In fact, this specific argument won over Chancellor Angela Merkel. She is obsessed by the rise of China. In the past, she preferred a global approach to trade because of fears that bilateral agreements could lead to trade blocks and protectionism. But about a year ago recognizing that the DOHA round was stalled and that time was running out, she felt compelled to endorse the American approach. Lately, even French officials have started paying lip service to the need for a transatlantic deal, but probably not for the same reasons as Merkel.

Few can argue with the fact that both the U.S. and Europe are acting out of a sense of growing weakness. But is this enough to avoid new transatlantic rifts on thorny issues such as access to public procurement markets and agriculture, just to name a few? Only time will tell. It is certainly true that pre-negotiations must have been quite encouraging, and political endorsement at the highest level is both necessary and promising. But now that everybody seems to agree on the shared goal, the real journey starts in earnest.

Obama chose to speak to both of those options. He warned Iran about its nuclear weapons ambitions and mentioned North Korea’s recent nuclear tests as provocations that call for a forceful response. However, on a more positive note he announced efforts to create a new trade framework between the U.S. and Europe to promote more growth on both sides of the Atlantic.

The new trade initiative was no surprise to most of those who have been preparing for this effort for quite some time. In fact, the thought behind the creation of a transatlantic marketplace has been on the agenda in Brussels and in Washington for many years. Chancellor Merkel tried her hand at pushing the agenda forward back in 2007 by introducing the so-called Transatlantic Economic Council—which then sat, for the most part, in limbo as the economic crisis began to take full hold of the governments in Europe and in Washington over the next few years.

So now we have another chapter in an ongoing saga which stretches back for several decades to push for a more unregulated and more inclusive opportunity to enhance trade and investment across the Atlantic. No one doubts the benefits of achieving a greater synergy by allowing millions of Europeans and Americans to engage in a more robust economic relationship. However, one can raise the question of why such an opportunity has not been able to be realized already. The answers here are fairly straightforward. The interests involved in such a complex equation are extremely difficult to synchronize, from food regulation to agricultural subsidies to standards across a wide range of products.

The response to this pronouncement has been well orchestrated in Brussels and Berlin, being labeled a win-win equation for Europeans and Americans. The negotiations will inevitably be long and hard, with the U.S. side pressing for progress in “one tank of gas,” as Vice President Biden recently put it in Munich. Whether two or three tanks are required is unclear—but probable.

The stakes in this initiative are high on both sides of the Atlantic. One important dimension mentioned by the president is the challenge of increased competition in an enhanced transatlantic market place and the corresponding need to upgrade the educational capacity of the labor force in all countries involved.