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China, Europe, United States: the global adjustment

    • Rome
    • 30 November 2012

          Opening proceedings at this International Workshop was the observation that complex challenges lie ahead for the world’s three major economic engines, namely China, Europe, and the United States. These challenges stem from the slowdown in global growth and the partial readjustment that this has entailed, but they are also the result of the various internal contradictions or inefficiencies from which each of these players suffers. Indeed, it was stressed that their main policy and institutional choices cannot be separated from those of an economic nature. Yet while they may be facing a common problem, it was suggested that their situations vary significantly and in many respects.

          In the first instance, China today – having only recently completed the first phase of a delicate state and Party leadership transition – is marked by a political and administrative system that does not guarantee the rule of law, nor does it permit open debate of the country’s strategic choices. This state of affairs is increasingly at odds with China’s growing exposure to and interdependence with the rest of the world, thereby reducing to some extent the economic dynamism of Chinese firms. It was thus suggested that in order for the country to pursue its global ambitions, the corporate governance of these firms will require a major overhaul, and the entire financial sector will need to be rebuilt according to modern and international standards.

          Europe, in turn, was seen as not currently presenting as a clearly-defined entity, in part because of the growing complexity of the relationship between the 27-member European Union and the 17-member eurozone. The single currency has evidently reached a critical point at which fiscal and budgetary policies need to be better integrated into a more coherent structure. It was felt, however, that the move towards a single market – the very backbone of the entire integration venture – is far from complete, and that the stimulus of the financial and debt crisis could itself help overcome resistance to taking decisive steps towards accomplishing a single services market. The key issue here remains that of growth, a necessary precondition for the debt problem to be resolved with the least amount of social hardship. Indeed, it was stressed that a cloud will continue to hang over the political and social sustainability of the European model unless there is a revival in the economic dynamism of the eurozone.

          The challenge facing the United States, on the other hand, is that it must urgently address the issue of the so-called “fiscal cliff”, with all its sensitive political implications in a very polarized system. In particular, a medium- to long-term strategy needs to be formulated with a view to managing evolving health and welfare trends. The infrastructure and education sectors also require significant investment if the overall competitiveness of the American economy is to be maintained. Furthermore, there are now well-founded doubts regarding the future of the dollar as the international reserve currency, although this and the United States’ other comparative advantages (such as its demographic dynamism, and its military supremacy, which has economic ramifications in its own right) were seen as set to continue at least in part.

          Against this changing backdrop, one particular problem is the differences in the respective perceptions of the three major economic players. Beijing’s long-term global ambitions stretch way beyond the country’s actual potential and the relative decline of Western economies, taking China’s return to a prominent position on the world stage as a given. As regards Europe, the continent’s ambition to increase its combined influence, in an international arena that is becoming more and more competitive, is intricately bound up with the persistence of national prerogatives that its member countries staunchly defend, as well as with its privileged historical relationship with the United States. One recurring fear is that an informal Sino-American “G2” grouping might emerge, which would shift global power balances even further towards the Pacific. Finally, the American vision springs from the status it continues to enjoy today as a superpower, or at least as a “first among equals”, based on a combination of economic, monetary and military might and wide-ranging diplomatic and cultural influence. Those in attendance underlined that the way the country’s traditional alliances (whether bilateral or of the “hub-and-spokes” variety) are managed will be key to determining the direction taken by the entire global governance system, which relies as much on formal institutions as on informal arrangements.

          In rounding off their discussion, the participants addressed the implications for business of the unfolding global readjustment outlined. In this regard, a fundamental conclusion reached was that relations between China, Europe and the United States are a crucial factor shaping the business climate, even leaving aside the effects of direct trilateral trade and short-term fluctuations. It was felt that, among other things, the market resilience shown by the dollar and the euro – even during the most acute phases of the crisis – is testament to this. In the final analysis, it was suggested that the numerous challenges which lie ahead for these three macro-economic powers, ranging from those related to the global monetary framework through to those pertaining to investment flows, will still see them bearing a key responsibility in determining the future of the global political, economic and security system.

          • Vittorio Grilli and Joaquín Almunia
          • Marta Dassù and Linda Yueh
          • Athar Hussain and Stapleton Roy
          • China, Europe, United States: the global adjustment, Rome, November 30 – December 1, 2012
          • Athar Hussain, Joaquín Almunia, Vittorio Grilli, Angelo Maria Petroni, Daniel Gros and Edward Tse