The large Donald Trump victory, at variance with the poll opinions which had estimated that the result will be very narrow, and the creation of a Republican majority in the Senate have allowed to give a real visibility to the prospects of the American economy for the coming years. In Europe, to the contrary, when the worries about growth were becoming worse, Germany, after France, was entering into an uncertainness period after the breaking off of the coalition which is governing the country and the call for snap elections at the Bundestag. If nothing is done, the spread already observed between the United States economy and the European one so has all the chances to become larger, both regarding growth and level of life.
This spread is the consequence of past rules and of different choices regarding economic policy and environment. In Europe, due to the divisions between States, nothing allows in the short term, to be able to cope with the new American orientations. In the U.S., the electoral commitments of the elected president do not leave us to hope, to the contrary, any rapprochement with the Old World.
The first difference regards public finances. The U.S. do not consider that the budget deficit and the public indebtedness constitute a threat for the country. In 2024, the public deficit will overpass by large 7% of the GDP and the indebtedness 120%. The euro zone has, since its creation, imposed strict criteria. The States which do not respect them are denounced and restrictive measures, according to the excessive deficit procedure, can be taken against them. It is the 3% culture regarding public finances deficit and the 60% one for the public debt. Nothing like that exists in the U.S. which have no problem to find on the markets the resources to cope with these deficits and to finance their debt.
We so dictate, in Europe, constraints which do not exist on the other side of the Atlantic. France situation is revealing. Despite a very low growth, tax increases and public expenditures reductions will be applied in 2025 to be in conformity with these rules, which will even more curb the activity. Germany has an indebtedness and deficits much lower and will know a recession for the second consecutive year. But a quite large share of the country and of its political class are obsessed by the budgetary rigor and no party proposes to adopt rebound measures through public expenses to make the country recovering from its recession.
The argument frequently put forward is the advantage offered by the dollar which would protect the country against any financial crisis. But that protection has not impeached the sub-primes crisis. Especially, Europe, and as a minimum, the members of the euro-zone, have at their disposal a currency which has acquired on the world market a sufficient credibility in order the financial risks are mastered, even when a country knows a slippage, as it was the case with Greece and Ireland. That ideological vision, compared to the pragmatic American one, constitutes a first factor of the breakdown.
The second one regards monetary policy. When the inflation the European countries have known was coming from external factors and the activity has difficulties to recover from the covid-19 crisis and from the consequences of the invasion of Ukraine by Russia, the European Central Bank has thought it was appropriate to proceed to strong rate increases which, at the worst time, have slowed the investments, have made heavier the States debt charge and have incited household to save. The inflation external causes having been attenuated, and the prices increase having fallen back to a level conform to the past trends, the ECB has only slightly reacted and so has not brought an efficient support to the growth and to the employment.
In the U.S., the economy had restarted with a 2.4% forecasted growth in 2024 and was near full employment. Tensions could appear on wages and pass on prices. The Federal Reserve so has employed rates increases in conformity with the monetary policy principles but moderate enough in order that doesn’t affect growth at a significant level. It has even just started to reduce them when inflation has reached 2.6% in October and unemployment rate at 4.1%, by far lower to what was observed as an average in the euro zone. But this slight reduction has not impeached a dollar rise of more than 3% since the result of the elections. The currency rate impact on the created wealth so will again increase the gap between the two sides of the Atlantic.
Third factor, energy. The U.S. have chosen to develop their production capacities of oil and natural gas; that allows them to offer to consumers and to enterprises an access to power in much more favorable price conditions than in Europe which suffers from the consequences of the German disastrous strategic choices: to choose Russia as the natural gas supplier and to close nuclear power plants to protect the production of coal. Supported by the Netherlands, the country made a pressure on Brussels in order France reduces its capacities and is adopted a regulation of the electricity market which was for it very unfavorable. State-members enterprises now are hurt by an energy cost twice higher than the one paid by their American competitors which threats many of them and constitutes a handicap for growth.
Last explanatory factor of the European breakdown, environment. Through the multiplication of norms and regulations, European enterprises have seen their competitiveness strongly downgraded. The Biden administration had taken commitments to reduce its greenhouse gas emissions and took profit from the use of natural gas to produce electricity which is much less polluting than coal. But the regulations remained less constraining than in Europe. The Trump administration will even go further and could even leave the Paris Agreement. To that must be added the crisis which is going to affect the car industry. As the U.S. have not taken any commitment regarding electric vehicles, they are few concerned. To the opposite, the decision to forbid in 2035 the sales of new vehicles with a thermal engine opens to Chinese carmakers huge opportunities which, there too, will affect the growth and the employment of the European countries which produce them.
The period which is opening is going to be affected by a free-trade decline and a rise of tariffs. China is the first targeted country by the increases announced by the next American administration. Europe, certainly will not go as far and the risk is high that Chinese exports will be more and more headed for it. To the opposite, the European Union, which has a trade surplus with the U.S. of more than 150 billion euro, will see its exports made more difficult, which will constitute another breakdown factor. The disagreements between the States and especially between France and Germany make, until now, impossible the adoption of retaliation measures which could incite Washington and Beijing to have a more conciliatory attitude.
The Donald Trump election so is not good news for the European economies. At a time when the two main economies of the continent are looking for governments able to get closer in order to adopt at last common positions and to answer to these new challenges, the rules of the world trade are being disrupted. That will make their mission even more difficult but that shows to which point the reconstruction of the Franco-German alliance is indispensable and urgent.