Economic Policy Program
Policy Brief
Summary: The foundation of the
world economy has rested squarely
on the shoulders of the transatlantic
economy for the past 60 years.
It is the largest, most powerful, and
most productive economy in the
world. And while the first decade and
a half of globalization was largely
driven and shaped by the United
States and Europe, the world of to-
morrow will be different. It will be less
U.S.-centric and more crowded as
new players, like China, Russia, India,
and Brazil, from the developing na-
tions reshape the global landscape.
There are many complementary and
convergent interests that can bind
together the transatlantic economy
and the rise of developing nations.
The task for the coming decades is to
identify these interests and construct
working relationships for all parties.
Failure to do so will come at a high
price. While the transatlantic economy
remains one of the most vibrant
components of the world economy,
maintaining this position will not be
easy. Avoiding the twilight means
the transatlantic partnership must
undergo a period of transformation.
1744 R Street NW
Washington, DC 20009
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The Shape of the Future: The Transatlantic
Economy by 2025
by Joseph Quinlan, Transatlantic Fellow, The German Marshall Fund of the
United States*
Executive Summary be those nations (in both the devel
oped and developing nations) that can
 Despite losing some ground to access and adapt to new technologies,
developing nations, the transatlantic and those nations that best align
economy —the United States plus the stakeholder interests with a more
EU-27—will remain one of the largest globalized economy.
and most powerful economic entities
in the world in 2025.  Notwithstanding some domestic dis
locations, globalization is not a zero-
 Today, the transatlantic economy sum game—the rise of the developing
remains a leader in many key metrics nations entails significant opportuni-
of global economic activity, including ties (as well as risks) for the
output, trade, investment, and transatlantic economy.
consumption.
 Globalization’s benefits are not
 During the next 17 years, we expect irreversible—governing bodies and
global economic power to gradu- policymakers in the United States,
ally shift —by 2025, developing Europe, and other parts of the world
nations will account for just over 60% need to educate and enlighten domestic
of world output in purchasing power constituents to the overriding benefits
parity (PPP) terms; the developed of greater global interdependence.
nations will make up roughly 40%
of the total. In 2000, the figures were  In 2025, China’s share of world GDP
reversed. (on a PPP basis) will be roughly equal
to the United States and slightly larger
 Globalization will continue, but it will than the European Union’s. A large
be less Westernized, less centered on part of China’s rise will come at the
the United States and Europe. The expense of other nations, notably in
biggest winners of globalization will Asia (Japan and others).
*
Joseph Quinlan, a non-resident transatlantic fellow with the German Marshall Fund of the United States (GMF) since 2003, is a
leading expert on the transatlantic economy and well-known global economist. His research centers on regional and global trade
and investment flows. He regularly debriefs and advises senior U.S. congressional leaders on global economic/financial affairs on
Capitol Hill, and has testified before the European Parliament on transatlantic trade issues. The views expressed here are those
of the author and do not necessarily represent the views of GMF. A side note on GDP measurements: In general, comparisons at
market exchange rates overestimate the average incomes in rich nations relative to poor countries, since non-tradable services are
much cheaper in poor nations. Exchange rate fluctuations can further muddle calculations. PPP rates correct for inter-country price
differences and therefore allow for more meaningful comparisons of levels of real output and expenditures. GDP at PPP measures
the volume of goods and services produced at a common set of prices.
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Policy Brief
 Still, there is nothing preordained about the rise of China —
the Middle Kingdom faces intense social, political, and
economic pressures over the next 17 years (widening income
inequality, environmental destruction, massive corporate
restructuring, and demographic imbalances among them).
The same is largely true of India.
 Global manufacturing output will continue to shift toward
developing nations, although the United States and the EU
will collectively remain a key source of high-end, advanced
manufactured products. As more production shifts toward
the developing nations, high-end, sophisticated manufacturing
and service activities will become increasingly important to the
economic health of the transatlantic economy.
 The future strength of the European Union will pivot on its
large market, single currency, stable democratic governments,
and unified trading bloc. Further territorial enlargement will
help determine the EU’s global clout, as will the ability to
adapt to rising opportunities and risks associated with the
ascent of the developing nations. A more flexible micro-
environment will be critical to Europe’s future success. The
EU will face two key challenges: an aging population and a
shrinking labor force.
 Aging populations in Europe, Japan, and even key emerging
markets—notably China—will emerge as critical issues
affecting economic growth.
 New and stronger corporate players will emerge from the
developing nations, challenging many U.S. and European
corporate leaders in a number of sectors (think autos, phar
maceuticals, telecom, banking, steel, and capital goods).
Trade and investment protectionism will remain a constant
threat to the global economy.
 Critical economic inputs (capital, natural resources, and
labor) will increasingly be concentrated outside the United
States and Europe, and in the rest of the world (ROW). The
ROW will seek more weight and influence to govern and
influence multilateral institutions and shape the global
economic agenda.
 The global demand for skilled labor and talent will intensify
during the next 15–20 years. Attracting this talent will be
critical to the economic success of the transatlantic economy.
 Demand for fossil fuels will remain intense; resource
nationalism could become more prevalent in the medium
term.
 The rise of developing nations will force domestic adjustments
in the United States and Europe — how well both parties
adapt to these changes (especially through their social welfare
systems, immigration, and labor force flexibility) will deter
mine the health of the transatlantic economy.
 The rise of China, India, Russia, and Brazil may usher in an era
of new international alignments, both in foreign policy and
economics. Money talks—hence the rising power of sovereign
wealth funds from developing nations.
 Other wildcards: the spread of radical Islam, the potential for
catastrophic terrorism, and the impact of religion on the
political/economic structure of the global economy.
 A final thought: “Just as the world accommodated the
rejuvenation of Europe in the post-War world, it must now ac
commodate the rise of new Asian economies in the years
ahead. What this means is that we need global institutions
and new global “rules of the game” that can facilitate the
peaceful rise of new nations in Asia. It also means that
existing global institutions and frameworks of cooperation
must evolve and change to accommodate this new reality.”
Manmohan Singh, Prime Minister of India, December 2006.
The Primacy of the Transatlantic Economy
The foundation of the world economy has rested squarely on
the shoulders of the transatlantic economy for the past 60 years.
Since the end of World War II, the United States and Europe
have been the world economy’s standard-bearers — the rule
makers, regulators, and enforcers, controlling global institutions
(including the World Bank, the International Monetary Fund,
the World Trade Organization, and its predecessor, the General
Agreement on Trade and Tariffs) that have long shaped and
controlled the global economic agenda.
For more than a half century, the United States and Europe have
also been the main engines of global growth and wealth creation,
leading the world in consumption, innovation, and competition,
and accounting for a disproportionate share of global production,
trade, and investment.
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Even today, the transatlantic economy remains the global
leader by many key metrics of economic activity. For instance,
the transatlantic economy (the United States + the EU-27)
accounted for nearly 57% of world GDP last year, based on
market exchange rates. Based on purchasing power parity (PPP)
rates—a better indicator of average living standards or volumes
of outputs and inputs—the transatlantic economy still ranked as
the largest in the world in 2007, representing 44% of world GDP.
The equivalent figure for developing Asia was roughly 24%.
On the trade front, the transatlantic economy accounted for 47%
of total world exports in 2007 and 52% of world imports. On a
standalone basis, Europe remains the largest trading entity in the
world. Notwithstanding all the talk about the rise of China and
India and their seemingly unstoppable ability to export, Europe’s
share of world exports has actually increased this decade, rising
from 40.8% in 2000 to 42.5% in 2007. Germany remains the
world’s top exporter of goods, with a global share of 9.5% last
year, up from 8.6% in 2000. The United States, for its part, re-
mains the second-largest exporter of goods in the world. When
exports of goods and services are combined, the United States
emerges as the largest exporter in the world, a little-recognized
fact among policymakers. What the United States exports in
goods and services a month, roughly $155 billion in April 2008,
is equivalent or greater than what some countries (Turkey, Indo-
nesia, Nigeria, South Africa, and Hungary, to name a few) export
in a year.
In terms of foreign direct investment, both the United States
and Europe remain popular recipients of investment as well
as key suppliers of capital. In any given year, the United States
attracts more foreign direct investment than China; cumulative
FDI inflows to the United States of $1.2 trillion were more than
double inflows to China, at $463 billion, between 2000 and 2007.
EU enlargement, contrary to popular expectations, has not led
to a large-scale diversion of FDI within the EU from high-cost
nations like Germany and France to low-cost producers like
Hungary and the Czech Republic. The combined inflows to the
accession nations totaled roughly $40 billion in 2006, half the
level of inflows to France and roughly 30% of inflows to the U.K.
Since 1995, FDI inflows to the accession members have been a
fraction of total EU inflows, amounting to just 7.3% in 2006,
down from a high of 11% in 1995.
Against this backdrop, more than 60% of the world’s total FDI
inward stock was sunk in the transatlantic economy in 2006, up
modestly from the beginning of the decade. The percentage of
global outward FDI stock in the United States and Europe was
even higher, at 71%. The transatlantic economy accounted for
71% of world merger and acquisition (M&A) sales last year and
74% of global M&A purchases.
By three other key metrics — personal consumption, house-
holds wealth and private fixed capital formation — the United
States and Europe are at the forefront of the global economy.
The United States and Europe accounted for more than 60%
of total global personal consumption outlays last year, which
is more than $19.2 trillion out of $32 trillion total. The United
States and Europe also accounted for nearly half (49%) of global
private capital investment last year. Finally, the transatlantic
economy has opened up a substantial gap in household wealth
with the rest of the world. The average net worth per house-
hold in China ($18,000 in 2007), Russia ($31,000), and Brazil
($44,000) are a fraction of the average net household worth in
the U.S. ($565,000), France ($518,000), and the United Kingdom
($599,000).
The transatlantic economy remains the largest and most dy-
namic economic entity in the world. Individually, the United
States and Europe rank as economic heavyweights in their own
right. They have different economic strengths and weaknesses,
and they benefit from different endowments. Combined, there
is little doubt that, early in the 21st century, the transatlantic
economy is the largest, most powerful, and most productive
economy in the world.
The Rise of Rest of World (ROW)
While the first decade and a half of globalization (from about
1990 through 2005) was largely driven and shaped by the United
States and Europe, the world of tomorrow will be different. It
will be less U.S.-centric and more crowded as new players from
the developing nations reshape the global landscape.
Powerful new players like China, Russia, India, and Brazil define
this multipolar world. Led by these developing juggernauts, the
emerging markets represent a potent new force in the global
economy. As part of this process, the world economy is under-
going another profound period of integration — an unsettling
transition whereby a new, large economic entity is born, upset-
ting the existing economic order.
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We have been here before—between 1870 and 1913, the world
economy was forced to adjust to the emergence of Germany
and the United States; in the quarter century after 1950, Japan
emerged as a new powerful global entity. Early in the 21st cen-
tury, China, India, and the emerging markets in total are at the
forefront of shaping a new economic order, which has applied
new pressure to points of tension around the world.
As a group, the developing nations have nearly achieved eco-
nomic parity with the developed nations on a purchasing power
parity basis. By this metric, the developing nations accounted for
more than 47% of world output in 2007, up from a share of 39%
in 1990. Based on market exchange rates, however, the develop-
ing nation’s share of GDP is small yet expanding, coming in at
roughly one-third of total GDP in 2007, up from 25% in 1990.
Looking forward, the following trend is hardly preordained but
a reasonable prediction—the global economic influence of the
developing nations is expected to expand and rise relative to the
developed nations. Developing nations will increasingly drive
real output growth and the pace and direction of cross-border
trade and investment, reflecting the new global spread of eco-
nomic power.
Today, the global influence of the developing nations is already
evident in the global currency, commodities, and credit markets.
The doubling of the global workforce, courtesy of the developing
nations, has had a direct bearing on global wages, prices, interest
rates, and profits, all of which, in turn, has challenged and ben-
efited the United States and the European Union.
Emerging markets have increased their geopolitical influence
in such areas as the Middle East, Central Asia, Africa, and Latin
America in parallel to their growing economic clout. These
regions no longer walk in step with the United States and Europe.
Witness the failure of Doha, the nuclear stalemate in Iran, China’s
rising influence in Africa—each one of these developments has an
element of “Us” versus “Them.” “Us” represents the developed na-
tions and the status quo of the past half century. “Them” encom-
passes the developing nations, their growing economic clout, and
their desire to reshape the world economic order.
Preventing the divide between “Us” and “Them” from widen-
ing is a critical challenge for the global economy over the next
decade. Notably, it is critical for the United States and Europe to
maintain access to the basic inputs to economic growth that are
increasingly controlled by developing nations—capital, natural
resources, and labor.
The Growing Economic Might of the Developing Nations
If economic power and potential are determined by the posses-
sion and availability of critical resources, then the developing
nations have emerged as an economic force to be reckoned with.
In a global economy that runs on fossil fuel, with a premium
attached to crude oil and proven oil reserves, the developing na-
tions are clearly in the driver’s seat. While oil production in the
developed nations fell by nearly 13% between 2000 and 2007,
production in the developing nations rose nearly 16% during
the same period. Thanks in part to new production coming on
line in such places as Russia and West Africa, oil production in
the developing nations rose from more than 57 billion barrels in
2000 to 66.2 billion barrels in 2007. World oil production is now
even more concentrated in the developing nations: the latter ac-
counted for more than 81% of global oil production last year, up
from a share of 76.3% in 2000.
In terms of proven oil reserves, the developing nations’ global
advantages verges on monopoly. The developing nations sit atop
nearly 94% of proven oil reserves, with reserves rising 12.6%
between 2000 and 2007. During the same period, reserve levels
in the developed nations rose only 4.5%.
Capital is another key input increasingly under the domain of
the developing nations. While Europe and Japan do put their
savings to work in the global markets, the bulk of the world’s ex-
cess savings resides with the oil-rich nations of the Middle East,
Africa, and Russia, as well as with the trading powers of Asia.
The developing nations accounted for over 70% of total global
international reserves at the end of 2007, giving this group ex-
traordinary influence when it comes to global capital flows and
purchasing power.
The United States is the world’s largest consumer of oil and
largest debtor nation, so America’s economic dependence on the
developing nations has increased significantly during the past
two decades. So, to a degree, has Europe’s. The region remains
vulnerable to resource nationalism, namely from Russia, which
has flexed its muscle in the past by cutting energy supplies to
European customers.
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While Europe is not as dependent on the developing nations
for capital, the EU and the United States have grown increas-
ingly wary of the size and clout of sovereign wealth funds — the
massive pools of investment capital controlled by state govern-
ments in the developing nations. A key risk of sovereign wealth
funds is that these state-owned firms use their financial clout to
buy strategic companies in the United States and Europe, plac-
ing flagship companies under the direct or indirect control of
foreign governments.
Finally, developing nations don’t just control natural resources
and capital, they also possess another critical input — people,
or more specifically, workers. The bulk of the world’s labor force
and future consumer base—roughly nine out of every 10 people
in the world—resides in developing nations. In many cases, these
people represent both a blessing and a curse, an economic input
and economic cost.
Although the earnings of many workers in the developing na-
tions remain meager, consumption among the emerging middle
classes of China, India, Brazil, Turkey, and others is becoming
more pronounced. Global imports in the developing nations
have soared during the past few years. The developing nations’
share of global imports surpassed 41% of the total last year, and
by 2025, that share will be comfortably above 50%. The baton of
global consumption is slowly being passed from the developed
nations, notably from the United States, to millions (potentially
billions) of consumers in the developing nations.
In a world where the developing nations claim the bulk of the
world’s critical inputs, the economic tables have turned on the
transatlantic economy. The well-worn assumption that the
developing nations march to the beat of the developed nations is
outdated. Europe and the United States are increasingly ex-
posed to and dependent on the developing nations for markets,
resources, capital, and labor.
Mutual interdependence will become the norm over the next de-
cade. And because of this interdependence, the growing chasms
between the developed nations and developing countries on a
number of fronts represent a key risk and challenge to the global
economy during the next few decades. Some of the widest or
most challenging chasms come to us courtesy of China.
China’s Effect on the Global Economy
In the past quarter-century, no nation in the world has done
more to alter global trade flows, shift global foreign direct invest-
ment patterns and reconfigure global demand for commodities
than China — and that is just at the macro level. At the micro
level, China’s rapid economic rise and reintegration into the
global economy has directly affected employment, wages, and
income levels worldwide, including in both the United States
and Europe.
In many cases, China’s global economic influence has produced
contradictory and countervailing results. The mainland’s capac-
ity to produce and export massive volumes of consumer goods
has helped lower the relative costs of household goods in the de-
veloped nations, while simultaneously pushing up prices for the
critical ingredients of China’s industrialization — basic materials
like aluminum, steel, copper, and petroleum. While cheap goods
exports from China have largely been deflationary, the main-
land’s soaring demand for raw materials has been inflationary.
Similarly, while low-cost imports from China have been highly
beneficial to U.S. and European consumers, surging Chinese im-
ports have been blamed for job losses in some nations in Europe
(notably Italy) and parts of the United States. China’s reintegra-
tion into the global economy has greatly expanded the global
labor force during the past two decades, putting a huge new
pool of skilled and unskilled labor into the reach of American
and European firms. Unsurprisingly, outsourcing and leverag-
ing low-cost labor in China have become key strategies for many
U.S. and European multinationals.
The Threat and the Opportunity
Like America’s global economic emergence in the late 19th
century, China’s ascent and integration into the global economy
represent a huge boost to both global supply and demand.
China’s boost to global supply is well documented, with the
mainland increasingly characterized—ominously—as the
“factory to the world.” To a large degree, the description fits:
Chinese factories now assemble and manufacture 70% of the
world’s toys, 60% of its bikes, half of its shoes, and one-third of
its luggage. Among other consumer items, China builds half of
the world’s microwave ovens, one-third of its televisions and air
conditioners, and one-quarter of its washing machines.
Against this backdrop, “Made in China” has become one of the
most common and visible labels in the world, spawning protec-
tionist sentiments in the United States and Europe. However,
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“Made in China” needs to be clarified and quantified. While
China’s rapid industrialization and surging export prowess have
been nothing short of breathtaking, they have been underpinned
and underwritten by large inflows of foreign direct investment.
Since opening its economy to the outside world in the late
1970s, China has attracted more FDI than any other developing
economy, the majority of it in various manufacturing sectors.
On a cumulative basis, China has absorbed more than $600 bil-
lion in FDI since the start of this decade, with more than 36%
originating in Hong Kong.
(As a side note, investment inflows from Hong Kong to China
tend to be inflated by the so-called “round-tripping” of capital
in and out of the mainland; hence the figures need to be treated
carefully.)
Thanks to foreign investment-led growth, China’s exports have
soared since the late 1970s, creating a great deal of friction with
the United States and Europe. However, many policymakers in
the United States and Europe fail to recognize that a great deal of
what China exports to the United States and the world are goods
from so-called foreign-invested enterprises — foreign subsid-
iaries of various global multinationals. That is, many goods
stamped “Made in China” generate profits that eventually accrue
to the balance sheets of multinationals based in the United
States, Europe, and elsewhere.
Indeed, the contribution of foreign enterprises to China’s export
ascendancy is nothing short of staggering. From a share of 2% in
1985, aggregate exports of foreign-owned subsidiaries accounted
for more than half of China’s total exports in 2006. In products
like computer parts and consumer electronics, the foreign share
is even higher.
China the Consumer
China the consumer is not nearly as powerful as China the
producer, although it is on the rise. While much has been written
about low-cost Chinese labor, the bulk of China’s labor force
desires the same material goods and services many in the West
take for granted. By lifting more than 200 million people out of
poverty since 1978, China has created a fresh supply of consum-
ers. China’s middle class remains small relative to the overall
population, but the World Bank estimates that it currently num-
bers 56 million people — a consuming cohort greater than most
populations in Europe. What’s more, the World Bank estimates
that the mainland’s middle class will swell to more than 360 mil-
lion people by 2030.
While China the producer of labor-intensive goods has squeezed
the incomes of lower income workers in the developed nations,
China the consumer has sparked growing demand for more
capital goods, aircraft, software services, and similar goods
and services. It has helped create jobs and raise the incomes of
many highly skilled workers in the developed nations. Across a
variety of sectors, China has emerged as one of the fastest-grow-
ing markets in the world. China ranking as the second-largest
automobile market in the world in 2006, surpassing Japan, is just
the latest example of this trend. However, the economic chal-
lenge before China is to rebalance growth — moving away from
exports and investment and embracing personal consumption.
The Shape of the Future: The Transatlantic Economy at a
Glance in 2025
The next decade and a half will bring massive change to the
global economy. This change, though, is expected to gradual and
orderly, albeit with fits and starts. Globalization will proceed, but
will become less Westernized.
The transatlantic economy (the United States + EU 27) will
remain one of the largest and most powerful economic entities
in the world in 2025, accounting for roughly 33% of global GDP
on a purchasing power parity basis. This assumes an annual real
GDP growth rate of 3% in the United States and a slower pace
of growth in the European Union of around 1.7%. Owing to its
more flexible labor market, entrepreneurial culture, and favor-
able demographic profile, the United States will outpace the EU
and Japan. The latter confront significant structural barriers to
growth and demographic challenges.
Similar to the past quarter-century, the developing nations will
continue to grow at a faster clip than the developed nations. We
assume 6% annual real GDP out to 2025 for the developing na-
tions, led by China, India, and similar levels of growth in parts of
Africa, the Middle East and South America. Based on these rates
of growth, the developing nations will account for just over 60%
of world GDP in 2025.
While the combined output of China and India in nominal dol-
lar terms is expected to be on par with the EU 27 in 2025, at 14%
of the total, China, India, and many other developing nations
will remain far poorer than many developed markets. This will
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limit and constrain the wealth, power, and prestige of the devel-
oping nations and open the door for cooperation and collabora-
tion between the developed and developing nations.
There are multiple risks to the outlook — the baseline assump-
tion is for global trade and foreign direct investment to remain
relatively unbound, but this is hardly a given. If trade or invest-
ment protectionism takes hold and becomes embedded in vari-
ous countries and regions, global growth will slow and trigger
other negative, unintended consequences for all parties. Energy
and food security will remain key priorities and tension points
for nations over the near-term.
Finally, a vibrant and robust global economy in 2025, with the
transatlantic economy benefiting from such a backdrop, assumes
a rising degree of mutual interdependence between the devel-
oped and developing nations, which is not a foregone conclu-
sion. Greater global interdependence requires the developed
nations to display a more accommodating and accepting stance
and mindset about the rise of the developing nations, as well as a
more collaborative spirit from the developing nations on trade,
investment, and such specific issues as energy security, intellec-
tual property rights, and industrial deregulation.
In the end, in the face of growing domestic opposition, pro-
moting and championing global interdependence is one of the
greatest challenges before the United States and Europe. Making
this process a success requires a three-prong strategy on the part
of the United States and Europe.
The Transatlantic Economy: Twilight or Transformation?
The transatlantic economy remains the largest and most dynam-
ic commercial artery in the world. However, there is a general
feeling, as well as mounting evidence, that the primacy of the
transatlantic economy is in its twilight.
Unsurprisingly, this backdrop has triggered a wave of angst in
the United States and Europe, long the standard-bearers of the
global economy. On both sides of the Atlantic, alarm bells are
ringing over the potential for lost jobs, lower incomes, and a
flood of imports courtesy of the new global economic hierarchy.
The benefits of globalization are increasingly being questioned,
with a powerful undertow slowly eroding support for a pro-
cess that has been hugely beneficial to stakeholders in both the
United States and Europe.
Globalization’s demise would produce only losers. The challenge
before the transatlantic economy, quite simply, is to dispose of
the mentality that the developing nations’ rise goes hand-in-
hand with the decline of the Unites States and Europe, and to do
so quickly. Transatlantic peoples must develop a more dynamic
and forward-looking mindset that embraces the core principle
that integrating nations from Poland and Turkey to South Africa
and Vietnam into the global economy will benefit all parties
involved.
The transatlantic economy needs to transform its thinking and
actions. The United States and Europe need to follow a three-
pronged strategy:
1. Identify and cooperate in areas of mutual interest
The United States and Europe should engage and work with the
developing nations in a number of key areas that are mutually
beneficial to all parties, including global climate change and the
environment, energy security, and the challenges associated with
rapidly aging populations.
Where possible, the United States and Europe should col-
laborate on how best to tackle these issues. The transatlantic
partnership needs to actively engage China, India, and others
on creating new energy technologies, tapping renewable energy
sources, and setting global warming regulations that steadily
reduce carbon emissions. Virtually every nation in the world
confronts a rapidly aging population, so joint efforts should also
be directed at securing the future for the global elderly.
In addition to the above, the United States and Europe should
work to increase the participation and involvement of China
and other key developing nations in the deliberations of vari-
ous multilateral organizations, such as the G-8, the Organisa-
tion for Economic Co-operation and Development, the World
Trade Organization, and the International Energy Agency. Such
a strategy would help facilitate and coordinate global macroeco-
nomic policies.
2. Continue to strengthen the transatlantic partnership
The stronger the transatlantic economy, the better positioned the
United States and Europe will be to meet the challenge poised by
the rise of the developing nations. In this respect, strengthening
the transatlantic partnership is critical to ensuring a smoothly
functioning global economy.
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Among all the commercial arteries in the world, the transatlantic all parties. Failure to do so will come at a high price. While the
economic ties are the deepest and thickest. However, various transatlantic economy remains one of the most vibrant compo-
transatlantic tariffs and non-tariffs, regulations and bilateral nents of the world economy, maintaining this position will not
industry impediments have slowed the pace of transatlantic be easy. Avoiding the twilight means the transatlantic partner-
integration, notably in service areas. The transatlantic economy ship must undergo a period of transformation.
could become even more competitive and dynamic if various
protectionist layers on both sides of the Atlantic were removed,
allowing for an even deeper level of integration across various
sectors. The task for policymakers is to find mutual areas of
cooperation and convergence that will ultimately strengthen the
overall transatlantic economy.
The German Marshall Fund of the United States (GMF) is a
Above all else, the United States and Europe need to work dili- nonpartisan American public policy and grantmaking institution
dedicated to promoting greater cooperation and understanding
gently so as not to allow specific bilateral tension points to fester,
between North America and Europe. GMF does this by supporting
thereby precipitating a transatlantic split. Neither party can
individuals and institutions working on transatlantic issues, by
afford a divorce. Such a scenario would devalue the global influ-
convening leaders to discuss the most pressing transatlantic themes,
ence of the transatlantic partnership; it would undermine joint and by examining ways in which transatlantic cooperation can
efforts to integrate others into the global economy and would address a variety of global policy challenges. In addition to its head-
represent a leap backward in fostering global prosperity. quarters in Washington, DC, GMF has seven offices in Europe: Berlin,
Bratislava, Paris, Brussels, Belgrade, Ankara, and Bucharest.
3. Get things right at home
www.gmfus.org

Adjusting to the competitive challenge of China and other de-

veloping nations requires that the United States and Europe get
their own economic house in order, which would help boost the
confidence and competitiveness of the transatlantic partnership
relative to the rest of the world.

The “to-do” list in the United States includes increasing the na-
tional savings rate, reconciling unsustainable Medicare and Med-
icaid payments, reforming Social Security, addressing America’s
energy deficit, strengthening America’s public school system and
cutting the federal budget deficit.

In Europe, creating the right conditions for sustainable eco-

nomic growth is imperative. Toward this end, the EU should
implement measures that would lead to labor market reform,
the creation of a pan-European capital market, the deregulation
of the service economy, and the implementation of the Lisbon
Agenda.

The Bottom Line

In the end, there are many complementary and convergent

interests that can bind together the transatlantic economy and
the developing nations. The task for the coming decades is to
identify these interests and construct working relationships for