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The two Americas: prospects for economic recovery

    Presentation of Aspenia 59
    • Rome
    • 5 February 2013

          At this event to launch the latest edition of Aspenia, the focus of debate was the fact that diverging trends in the world’s major economies have been made more patent than ever before by the financial crisis that erupted in 2008, and which, particularly in Europe, has since transformed into a sovereign debt crisis. Chief among these divergences are the almost opposite trajectories of emerging markets compared to those of traditionally advanced economies, the divide between Europe and the United States, and glaring disparities within the European Union. Against this backdrop, the dynamism of Latin America is a somewhat new development in the global scenario which, it was suggested, needs to be taken fully into account on both sides of the Atlantic, especially in the context of any efforts to revitalize transatlantic ties by expanding them into the southern Atlantic region.

          It was noted, in the first instance, that the US response to the challenge posed by the crisis has been characterized by the Federal Reserve’s proactive expansionary policies, which have also impacted on the current outlook for recovery, the prospects of which are quite positive given the overall adaptability of the North American economy, even if the timing and manner of such recovery remain uncertain. The expectations for an upturn are amply exemplified by trends in the energy sector, where the US is on the road to becoming substantially independent of imports and capable of exerting great influence over global markets as a major producer. This is accompanied by a wider process of re-industrialization, which could facilitate a comprehensive renewal and modernization of the country’s infrastructure. Viewed from this angle, even the serious public debt problem is less dramatic than might otherwise seem, and in any case manageable without any severe repercussions for taxpayers and for growth. In particular, the Obama administration is focusing much of its efforts on insulating a middle class still suffering the consequences of the crisis. Indeed, the relative decline of the middle class is a phenomenon shared by all advanced economies (in contrast with the trend in emerging countries), as a result of which there have been various attempts at “nation-building at home” – based, in the case of Obama, on a sort of progressive populism.

          Turning to consider the situation in Europe, it was observed that the EU is hampered by its multi-tiered decision-making structure and the need for broad intergovernmental consensus, but also by the absence of a genuine single market in the crucial services sector – from which it is presumed most growth in the coming years will stem. The launch of a debate in the UK over its possible exit from the EU carries many risks: if Britain were to take a backseat position, it could end up reducing its influence in the European Union, without however producing any real benefits for the country. A less EU-integrated Britain could also be indirectly detrimental to transatlantic relations.

          It was felt that at this juncture, it is worthwhile seriously exploring every opportunity to further transatlantic exchanges, including putting in place a major trade and financial liberalization agreement between the US and EU, based on the established premise that their relationship of interchange continues to be the most intensive in the world, notwithstanding the growth of emerging markets.

          In an international scenario that is likely to remain volatile, many Latin American countries seem to have embarked on a path of growth and consolidation, with a potential that is undeniably great. Examined more closely, the continent presents quite a diverse mix, in terms of social conditions, available resources, and prevailing policies. But what they share in common are endogenous factors of growth, which it was emphasized must be managed with care and flexibility during the phases of transition, to avoid falling into the “middle income trap” before making decisive steps towards ensuring widespread prosperity. Brazil and Mexico were cited in particular as possessing sufficient critical mass to serve as catalysts for regional processes. In this regard, it was observed that while organizations for regional cooperation and integration are destined to become increasingly pivotal, they are currently making only gradual and arduous progress. It was suggested that the EU could have an important part to play in this respect, as both a partner (especially in high growth and hi-tech sectors, such as energy and infrastructure) and illustrative model.

          A specific problem highlighted in the discussions as one which Brazil, Colombia and Argentina in particular need to tackle is the overvaluation of their currencies, resulting from the high prices of raw materials they export. For these and other countries, there is a risk of relying too heavily on enriched raw materials rather than manufactured goods, especially as exports to Asian markets. Indeed, it was noted that, productivity-wise, Latin American economies are not competitive with Asian markets, and this poses a challenge for the sustainability of their growth. Counting in their favor, however, are structural factors such as positive demographic trends, low levels of (public and foreign) debt, ties with North America facilitated by geographic proximity, and lastly, the ample availability of resources (certainly a great comparative advantage when used appropriately).

          On a global level, the outlook for 2013 was seen as indicating a return to growth in world trade – a recovery in which several Latin American countries are set to be major players. A multilateral dialogue platform would have advantages over a bilateral “hub and spokes”  scenario, both in terms of boosting European influence and overcoming certain historical obstacles in relations between the United States and key Latin American countries.

          Looking beyond this “expanded” transatlantic framework encompassing the South, it was stressed in conclusion that the coming years will see other major economies, starting with China, driven by internal needs to focus on national priorities, and hence taking an often introverted stance. The governance of issues of global and transnational consequence will accordingly require at least a solid consensus around a core set of rules that are both clear and rigorously complied with.

          • Maurizio Caprara, Marta Dassù and Fulvio Conti
          • Robin Niblett and Ian Lesser
          • Fulvio Conti and Gianfelice Rocca
          • Maurizio Caprara and Charles Kupchan
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