EUROPEAN FOREIGN POLICY SCORECARD 2015

Trade liberalisation and overall relationship

17 - Relations with the US on economic issues

Grade: B-
Unity 3/5
Resources 3/5
Outcome 6/10
Total 12/20
Scorecard 2012: B- (12/20)
Scorecard 2013: B (13/20)
Scorecard 2014: C- (7/20)

Although differences on economic philosophy continue to divide the US and EU, there was agreement on the need for sanctions against Russia.

Since the financial crisis, differences in economic philosophy between the US and some European nations have been laid bare. The US has generally favoured a more expansionist fiscal policy and quantitative easing on monetary policy, an approach influenced by Keynesian ideas. Under German leadership, and in the face of considerable internal opposition, the EU has pursued fiscal austerity, structural reform, and a tight monetary policy. Thus, the West is divided on how to sustain an economic recovery.

In 2013, it appeared that this divide would matter less as the European and American economies recovered, or so political leaders hoped. Unfortunately, 2014 did not bring a sustained recovery in Europe – instead, the eurozone economy flirted with deflation and a triple-dip recession. The US has its own economic problems but it performed better overall. Within Europe, advocates of Keynesian economics have gained ground everywhere except Germany, with many pointing to the US as an example to partially emulate. The divide has, therefore, reasserted itself.

The split is not as damaging as it was at the height of the crisis, primarily because the risk of a eurozone breakup has receded. Nevertheless, Americans and like-minded Europeans worry that Europe might face a “lost” decade, while Germany and its allies become ever more exasperated at what they see as a flawed Anglo-Saxon framework. Setting aside the differences in economic philosophy, 2014 saw one major achievement. After much initial argument, Europe and the US agreed on how to design and implement sanctions against Russia. This was far from guaranteed. The EU has a much greater stake in the Russian economy than the US does, which meant it was correspondingly more sensitive to sanctions. However, if the sanctions push the EU back into recession, divisions could re-emerge.