Merkel Calls for Stronger U.S.-EU Ties

In her keynote speech at Davos, the German Chancellor stresses the trade benefits of greater cooperation within Europe and across the Atlantic

by Andy Reinhardt

Angela Merkel is at the top of her game. After a rocky start, the German Chancellor has achieved international respect on the back of a solid domestic economic rebound. Her leadership skills will be further tested in the coming months now that Germany has also assumed the six-month rotating presidency of the European Union and taken over as president of the G8 group of leading global economies.

Given this unprecedented confluence of power, Merkel's keynote speech on Jan. 24 to the World Economic Forum in Davos, Switzerland, assumed even greater importance. Merkel didn't disappoint, issuing a passionate call for the world's leading nations to cooperate in addressing problems ranging from trade barriers and economic imbalances to energy and climate change.

Perhaps Merkel's most surprising comment was a call for Europe to strengthen its historic "transatlantic" relationship with the U.S. This is perhaps indicative of her growing concern over Russia's growing clout. Moscow has taken to using its oil and gas riches as a tool to punish wayward neighbors and exert greater influence over policymaking in Western Europe. At the same time, Merkel went out of her way to note that U.S. cooperation wasn't mutually exclusive with her equally urgent desire for closer European cooperation.

Seminal Events

A new transatlantic partnership, said Merkel, offers many opportunities, ranging from reduction of nontariff trade barriers to development of common standards to better global protection of intellectual property. "Deeper integration will be helpful to all countries that support free trade," she said.

Recent signs of improved cooperation between the U.S. and Europe also create the possibility of a breakthrough in the Doha round of international trade talks, the failure of which, she said, "would be a tremendous setback" (see BusinessWeek.com, 7/25/06, "Why Doha's Derailment Matters").

Merkel began by identifying what she said have been the three seminal global events of the last two decades: the fall of the Berlin Wall and subsequent reintegration of the Eastern bloc countries into the West; the technology boom, exemplified by the global Internet explosion; and the rise of China and India from "static, controlled economies to active participants on the global stage." She urged that their economic power be matched by participation in global policymaking.

More European Integration

These macro trends afford huge new growth opportunities but invariably produce anxiety and fear among the citizens of the old guard, Merkel acknowledged. The only solution, she said, is for Europe to engage with the world—not to turn inward. To focus only on its internal market or erect external trade barriers would be disastrous. "Globalization is liberalization," she said.

Merkel's prescription for Europe includes continuing integration, such as an additional 25% reduction in the cost of internal trade within the bloc over the next decade. Equally important, she wants to reinvigorate the process of enacting a new European constitution. "We can't go it alone," she said. "We must stand together and act together."

That applies as well to the G8. The group's motto under Merkel will be "Growth & Responsibility," which she explained as the need to mitigate capital market risks with adequate protections. A particular source of concern is hedge funds, which the Chancellor called a "headache" in the struggle to balance risk and equity.

A Reminder for Russia

Clearly, another area where she sees risk is in energy and the environment. Recent moves by Russian President Vladimir Putin to squeeze out Western partners in big energy projects have underscored the perils outside investors face in working with Russia (see BusinessWeek.com, 1/9/07, "Russia's Latest Energy Scuffle"). What's more, the early-January squabble over both natural-gas and oil shipments from Russia via Belarus has highlighted Western Europe's dependence on Russian energy supplies. "We will try to convince our Russian partners to live by the rules," Merkel said crisply.

The German Chancellor also thinks Europe must boost its commitment to alternative-energy sources and reduce its output of carbon emissions 30% by 2020. She sees hopeful signs in recent moves by the U.S. that suggest greater willingness to also attack the problem.

All in all, it's an ambitious agenda for somebody whose hold even on the federal government of Germany was mighty shaky when she won the job. But Merkel's commitment to setting big goals and her tenaciousness in achieving them has already overcome doubters in Germany and Europe. In 2007, she has the chance to win over the rest of the world.

Reinhardt is Europe channel editor for BusinessWeek.com.
Edited by Cristina Lindblad