Six reasons why Europe matters to U.S. businesses
Posted on April 5, 2012
Over the last half year or so that I have lived in Washington, D.C., I have regularly found myself in the situation where I explain to my esteemed U.S. friends and colleagues why and how the future of Europe and of transatlantic relations should matter to them and their organizations.
Beyond intellectual curiosity, I believe there are several good reasons why any major American business should have a close eye on what happens on the other side of the Atlantic. The six most important ones, it seems to me, can be summarized as follows:
1) Growth in Europe is good for U.S. business
Our economies are profoundly intertwined. Europe and the U.S. are each other’s best and most stable foreign market as well as each other’s best supplier. When the European economy slows down, it deeply impacts U.S. exports. Some economists suggest that “the European crisis will subtract around one percentage point from U.S. growth.” At the very least, it is certain to have significant effects across the Atlantic that directly influence U.S. growth prospects. Furthermore, structural reforms in the EU following the financial crisis will impact the business strategies of American companies, as they adjust their future risk assessments to the evolving political, institutional and economic reality in Europe.
2) Europe is more and more a regulatory standard-setter
The EU set a regulatory milestone in 2006 with the REACH legislation, which requires the global chemical industry to comply with far-reaching regulation of firms that produce or market their products in the EU. Environmental legislation is yet another example of ambitious rulemaking by the EU with global consequences – for example when it requires all airlines to buy permits for its CO2 emissions for flights into and out of Europe.
Refuting the idea that such regulation stifles the European economy, EU leaders see these moves as increasing Europe’s competitiveness in the long run. Beyond the immediate concerns for health, safety and environment, Europe hopes to trigger more innovation as well as more consumer demand through higher confidence in its marketplace and its products.
The financial crisis has accelerated this trend. European financial services regulation is aimed at creating a marketplace that inspires confidence – with the hope that the European standard progressively spills over to its trading partners and raises the bar internationally.
3) Europe’s voice in international forums
Ever since its creation and by its very nature, the EU has been a champion of multilateralism. Over the past few years of financial crisis aftermath, Europe has taken a more proactive role in international discussions about the regulatory agenda. During its 2011 G20 presidency, France, for instance, built on an early endorsement by the EU for its initial proposals in order to substantially influence the international debate on fundamental issues such as commodities trading, financial derivatives and trade policy – all issues which will directly impact American businesses.
4) European media matters
Today, a company’s reputation is shaped by media outlets that are global in nature. With online media, a good or bad story crosses the pond in the blink of an eye. A major European newspaper, blog post or even Twitter user will have the potential to alter the way companies are perceived by key audiences on both sides of the Atlantic. It is critical for businesses to understand how Europeans perceive them. Doing so will allow corporations to spot potential crises and opportunities quickly.
5) The role of EU competition policy
Given market integration, no company that operates on both sides of the Atlantic can afford to neglect the importance of European competition policy. The European Commission has the power to block a merger if it would significantly impede competition in the EU. This is exactly what happened in 2001, when the EU blocked the takeover of Honeywell by GE and derailed what would have been the largest industrial merger in history.
Even smaller American firms can be impacted by Europe’s policy, particularly as the EU controls the legality of governmental subsidies for key industries designed to level the transatlantic playing field under World Trade Organization (WTO) obligations.
6) Common future challenges
U.S. businesses and European businesses sit in the same boat. They are tied to each other through a very close and mutually beneficial relationship, being each other’s best trading partner. Likewise, they will face similar uncertainties and challenges in the next few decades. They will both be affected by increasing competition from fast-growing economies, dependence on foreign countries for raw materials, and the need to remain competitive through innovation and productivity gains. The U.S. and Europe will be better equipped for these challenges if they continue to cooperate closely on finding solutions together.