The beginning of a European denouement

Published in Business Spectator (Melbourne), 31 January 2013

Even political leaders used to hopping from conference to conference do not often fly halfway around the world and back for a weekend meeting. It’s even more remarkable when most of Europe’s political leaders go on such a journey together – but it happened last weekend. And it revealed Europe’s dwindling global political and economic influence.

In Santiago de Chile, the 27 members of the European Union and the 33 members of the Community of Latin American and Caribbean States got together for their biannual summit on Latin America-Europe relations.

Among the delegates were the presidents of Chile, Argentina and Brazil, the German and Austrian chancellors, the prime ministers of Spain, France and Portugal, the heads of the EU Commission and the European Council, as well as chief executives and chairmen of multinationals from both continents.

Similar bi-regional summits have been held since 1999, when Latin Americans and Europeans first met in Rio de Janeiro. What has changed since then are the roles of both continents. Once upon a time the Latin Americans were the weaker partners in this relationship; now the Europeans are taking their turn.

Thinking back to the late 1990s, much of Latin America was still recovering from the South American debt crisis. In fact, Argentina’s great economic crisis was still in full swing, resulting in the country defaulting as recently as 2002. Europe on the other hand had just overcome the division of the Cold War, established its common market, and was optimistically preparing for the enlargement of the EU the start of its monetary union.

Nothing in the late 1990s suggested that both continents would meet at eye level anytime soon. On the one hand, there were the rich, first-world and industrialised countries of Europe. On the other, there were the poorer, struggling, developing countries of Latin America. An EU-Latin America dialogue was a nice gesture but certainly not a strategic partnership.

Macroeconomic figures underline how different the world looked back then compared to today. According to business research group The Conference Board, between 1996 and 2005 Europe contributed a third of all global economic growth. Over the same period, Latin America only accounted for 11 per cent. Last year, however, Europe’s economy contracted by 0.2 per cent while Latin America expanded at a rate of 3.1 per cent.

The forecast for the coming years points in the same direction. As a result, Europe’s share of global economic output will fall from its current level of 20.2 per cent to 17.4 per cent in the year 2025, whereas Latin America’s share will only moderately decline from 7.7 per cent to 7.2 per cent – which is not a bad result considering Asia’s strong rise.

In a nutshell, Latin America has made good economic progress over the past decade, whereas Europe is experiencing its most severe structural economic crisis since World War II. Consequently, it is now the Latin Americans seeking reassurances about the Europeans’ economic reforms, not the other way around.

However, there is another factor in the changing dynamics between Europe and Latin America: Asia.

Traditionally Latin America looked to North America and Europe for trade opportunities and foreign investment. With the rise of Asia, both these traditional trading partners have declined in relative importance. Latin America once needed Europe for its development but not necessarily so any longer.

Meanwhile, Asia’s rise has made Latin America more important to the Europeans. China’s hunger for resources is anxiously watched in Europe, and with the Chinese engaged in Latin America the Europeans fear being left behind. Unsurprisingly, German chancellor Angela Merkel took the opportunity of her visit to Santiago to sign an agreement giving Germany access to Chile’s giant copper reserves.

At the Santiago summit, it was obvious that the Latin Americans were not supplicating to try and attract European investment but the other way around. As Chilean President Sebastian Pinera proudly told the summit in his closing statement, investment was no longer a one-way street. Over the past decade, Europeans invested €340 billion in Latin America but in the other direction there were flows of €87 billion.

An improved trade and investment relationship between the two continents will ultimately benefit both. In this sense, it is positive that despite remaining disagreements, particularly over Europe’s agricultural protectionism, the summit saw both sides try and move their economic relationship forward.

On the other hand, the Europeans would have good reasons to take the experience of this summit as an occasion for reflection.

Just as the Europeans had to see how at international climate change negotiations they have been sidelined by the US, India and China, they now have to recognise that even to Latin America they matter less and less. The time when Europe was a dominant force in the world are long gone, and now even Europe’s status as an important economic and political factor is being called into question.

When the Latin Americans and Europeans meet for their next big summit in 2015, it will be interesting to see how many South American leaders will actually bother to make the long journey to Brussels.

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