Sharing the Growing Economic Burden of World Order: How to strengthen the economic base of foreign and security policy in the Atlantic Alliance?

Internationale Konferenz des Arbeitskreises Europäische Integration e.V., der Stiftung Wissenschaft und Politik (SWP) und des Institute for International Economics (Washington, DC)

Ort: Berlin

Datum: 11./12. Mai 2006

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Thema der Tagung

This is the second conference of a transatlantic working group „Redefining the Economic Role of the State in a Changing International Environment: Challenges for Policy-Makers“ which in January 2006 met for an initial workshop „Between Underperformance and Overstretch – Assessing the politics of economic reform and the economics of foreign and security policy“ in Washington at the Institute for International Economics.
The working group was set up to discuss the linkage between economic and foreign & security policy performance in the United States and Europe at a time of growing economic as well as security challenges.
A report of the January workshop is available on the project website (www.tfpd.org). Building on our Washington discussions our forthcoming Berlin conference will expand on the following core theses and ensuing policy choices that the United States on the one hand, Europe (and Germany in particular) on the other hand face:

1. As the ultimate provider of the global public good „secure and stable world order“ the United States continues to devote increasing budgetary resources to defense and international relations, thus bearing most of the costs of hedging against major global security risks, while Europe enjoys the economic cost advantage derived from the global security environment that America provides. The U.S. has so far been able to incur those costs and at the same time maintain above-average growth fuelled by domestic consumption, thanks to its ability to sustain an ever growing current account deficit. Foreign capital has kept flowing into the US economy, attracted by America’s role as the ultimate political safe haven as well as by the attributes of the primary global economic power, among them the dollar and a singularly deep and efficient financial market.
2. These political and economic attractions, however, may be about to weaken substantially, endangering US economic and political predominance/hegemony. This is not in Europe’s interest. The EU countries, therefore, will have to prepare to shoulder a greater part of the American political/security as well as economic burden. The United States, on the other hand, will have to rely less on the sustainability of its external deficit.

 As a consequence, policy makers face the following economic challenges:

1. Major budgetary restraints on both sides of the Atlantic from spiraling burdens of social security and healthcare expenditure increasingly question the sustainability of the current precarious macroeconomic imbalances.
   In social security, health care and regulatory reform, as well as in consistent, growthstimulating macroeconomic policies, both sides can and should apply best practice, learning from each other's experiences and thus opening the way for greater economic policy convergence.
2. Growing American global indebtedness on the one hand, inflexible macroeconomic policies and structural rigidities in Europe are leading to an increasing transatlantic productivity and growth gap that has put a strain on the Atlantic Alliance. To the extent that the economic burden is increasingly felt domestically in the U.S., condescension about European security free-riding („Europeans are from Venus“) is about to give way to resentment.
3. To prevent the US from taking measures to unilaterally shift its security hedging costs and it costs of macroeconomic adjustment to others in an economically disruptive way, e.g. through protectionism or exclusionary bilateralism, Europe might explicitly endorse a macroeconomic burden sharing arrangement that lets America recoup some its costs of hedging against global security risks as well as its economic adjustment costs.
4. Alternatively – or, better still, in addition – European countries, foremost among them Germany will have to revitalize their own growth performance. In that way they will not only raise their share of global demand, thus easing US macroeconomic adjustment. Higher growth would also allow them to contribute significantly higher budgetary resources to – and thus have a greater say in – hedging against global security risks and thus to ensuring global stability.

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Programm

Welcome and Introduction
Dr. Stefan MAIR, Mitglied der Institutsleitung, SWP
Dr. Jens VAN SCHERPENBERG, Leitung, Forschungsgruppe Amerika, SWP

The challenge: The U.S. as the provider of last resort of global security – which place for Europe?

The political reasons for global economic imbalances: Why Europe finances American military activities abroad and economic consumption at home
Dr. Henry NAU, George Washington University, Washington, DC
Comment: Karl-Theodor ZU GUTTENBERG, MdB

Overcoming rising budgetary risks and their foreign and security policy implications

Guns and butter – How long can it work? The political economy of U.S. security policy
Dr. Peter DOMBROWSKI, Naval War College, Newport, RI

How to win votes with sound budgetary and tax policies?
Dr. Kevin HASSETT, American Enterprise Institute, Washington, DC
Comment: Dr. Bernhard SPEYER, Deutsche Bank Research

When the U.S. current account deficit cannot be sustained anymore

Who is going to foot the bill? Economic consequences of a disorderly dollar adjustment for the U.S., Europe and Asia
Dr. Sebastian DULLIEN, Financial Times Deutschland

Adjustment challenges for the United States
Dr. Adam POSEN, Institute for International Economics, Washington, DC
Comment: Prof. Dr. Carl-Ludwig HOLTFRERICH, Freie Universität, Berlin

How resilient is the U.S. Economy?

The United States as net debtor: how much longer the „Exorbitant Privilege“?
Dr. Catherine MANN, Institute for International Economics, Washington, DC
Katharina PLÜCK, Institute for International Economics, Washington, DC

The attractiveness of U.S. financial markets: the example of the housing sector
Martin MÜHLEISEN, International Monetary Fund, Washington, DC

Can technology power American leadership: meeting the challenges of the 21st century
Dr. Kent HUGHES, Wilson Center for International Scholars, Washington, DC
Comment: Stormy MILDNER, M.Sc., Freie Universität, Berlin

Paying up to share responsibilities: Europe's role and realities – a mixed picture with a silver lining?

Burden-sharing and strategic policy options for Europe
Dr. Stefan COLLIGNON, Harvard University, Cambridge, MA

Foreign Policy spending in the EU – Recent trends and explanations
Dr. des. Daniela SCHWARZER, SWP
Comment: Dr. Tilman BRÜCK, Deutsches Institut für Wirtschaft, Berlin

Conclusion: The task – Forging a new transatlantic burden sharing consensus

How much scope for shared responsibilities in the Atlantic Alliance?
Dr. Steven SZABO, Johns Hopkins University School of Advanced International Studies, Washington, DC

Redressing the world's imbalance? European public discourses and the prospects for transatlantic burden-sharing
Prof. Dr. Reinhard WOLF, Ernst-Moritz Arndt Universität, Greifswald

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