The Great Divergence

June 23, 2015

AGI held its annual Symposium in Germany on June 23, 2015 on “The Great Divergence: Are U.S. and European Economies Growing Apart?” The Symposium focused on the state of play of transatlantic relations with regard to the economic growth in both jurisdictions.

Anthony Gardner, the U.S. Ambassador to the European Union, made a compelling case for closer cooperation, from trade to the digital economy. He stressed how crucial it would be to reach an agreement on the Transatlantic Trade and Investment Partnership (TTIP) and appealed to European governments to go on the offensive in explaining the strategic importance of TTIP for citizens on both sides of the Atlantic. Various groups have sought to portray this partnership in a negative light, but the Ambassador argued that the benefits far outweigh any costs. Globalization is going seen as a fact, and agreements like TTIP are the only measures available to shape this world-changing force.

Furthermore, Ambassador Gardner remarked that recent Russian aggression in Ukraine has solidified the U.S.-EU relationship, strengthening the ties that the two entities have to each other and shared values like openness, democracy, and representation. This also includes the arena of privacy and security. Despite recent issues of trust, the U.S. Congress has introduced or passed pieces of legislation, including the USA Freedom Act and the Judicial Redress Act of 2015, which attempt to address recent concerns about trust among Atlantic allies.

Download Keynote Speech by Anthony Gardner, U.S. Ambassador to the European Union

Panel I
Are Central Banks Still the Only Game in Town?

The central part of the conference explored the diverging trajectory of monetary policies and their initial impact on growth. All speakers agreed that the paths of central banks’ policies will remain on diverging paths for some time. The European Central Bank (ECB) representative reminded the audience that diverging paths in the real economies of the U.S. and Europe are nothing new, and that what is currently happening is not a surprise when you look at the historical perspective. The EU economy is based off of controlled credit and lending through banks, and the U.S. is more market-based. One concern is the unemployment rate, which seems to be tamed after the crisis by the U.S. labor market but remains high in the EU, and both regions’ economies are slower in the recovery process than anticipated.

Meanwhile, the representative of the U.S. Treasury stressed that the economic systems are so vastly different that you cannot truly compare them, but that credit growth is slower in the EU and the European banking sector remains fragile. It was pointed out that there is a need in Europe for a solid resolution recovery framework, similar to the Single Resolution Mechanism (SRM) but stronger, and a playbook for 24-hour resolution in case of a crisis, like the one currently in Greece.

It was also pointed out that financial institutions in the U.S. and Europe are kept alive at times when there is no proof that they produce positive results, and the crisis in the U.S. can be seen as a result of country-wide mortgage sub-prime borrowing. In Europe, banks are the source of some of the biggest problems.

Panel II
The Tortoise and the Hare: Why This Recovery Is No Sprint

In the last panel, speakers expressed opposite views on the benefits of the ECB’s latest unconventional monetary policy program, also known as quantitative easing (QE). One panelist maintained that QE masks real deficits in the structural strength of stressed economies in the periphery of Europe. In other words, we should not expect the economy to significantly respond to QE.

The other panelist offered an alternative interpretation, saying that QE is helping some countries to reap early benefits of ambitious structural reforms that have been implemented in past years and are helping the euro zone to find a path back to growth. One suggestion was to further product market integration and governance in order to be able to compete with the U.S., which has a single market. Ultimately, both sides of the Atlantic are on a parallel track of low growth and low productivity growth with a lag in investments.

Recovery in Europe is still weak, fragile, and not completely recovered. It remains to be seen whether the recovery will continue, should the standoff between Greece and its creditors falls through. On the other hand, financial markets are less exposed and more educated than in 2010, and we are not on the brink of a disaster—although the cost to taxpayers will be substantial. In the long run, the euro zone can be strong without Greece and Greece is no longer able to destabilize the common currency.

Keynote Speech
The Great Divergence: Challenges and Opportunities from the European Perspective

The keynote speaker for this panel was the Italian Finance Minister Pier Carlo Padoan, who ultimately could not attend the Symposium in Frankfurt, due to unfolding events in Brussels and Rome. However, he offers his views in the form of a video, available below. In essence, Minister Padoan argued that the EU has a window of opportunity for job creation and growth. Structural reform programs, namely those targeted at removing impediments to investment by making markets more accessible, are key to this job creation as well as growth. Additionally, the Juncker Plan, coupled with quantitative easing, will promote more private investment in both the short and long term. Other instruments at the EU’s disposal are the energy, digital, and service industries within the single market, which can be used to improve the economic strength of the EU as a whole by focusing on internal markets. Finally, Minister Padoan argued for more global integration, which will build upon the work of European integration and combat an aging Europe. A shrinking workforce must become more efficient and productive to keep the EU relevant and competitive. Maintaining a strong EU into the future will be beneficial not only for Europeans, but for the world.

This summary was written by Gray Barrett and Kimberly Hauge.

Symposium Pictures
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Please contact Kimberly Hauge at with any questions.


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Deutsche Börse AG
Börsenplatz 4
Frankfurt 60313