The New Old Europe: A U.S. Perspective

What a difference a couple of years make.

Two summers ago, it felt like Europe’s wheels were coming off. Gerhard Schröder lost a vote of confidence that eventually led to Angela Merkel’s election as Chancellor. London was bombed — not by foreign aggressors, but by homegrown malcontents. Jacques Chirac was so frustrated that his vision for France and for the world lacked a following that he resorted to lowest-common-denominator quips about British food.

This summer, we find Nicolas Sarkozy capturing his mandate for reform in France (including longer work weeks, tax cuts and less rigidity). As one Wall Street commentator recently said, this will be the France of “[Liberty], Equality and Profitability.”

Meanwhile, a respected Angela Merkel is ensconced on the international stage and is positioning Germany to be Europe’s economic engine once again — and Tony Blair has passed the reins to Gordon Brown.

Politically and diplomatically, there is hope that old Europe’s new guard will be willing participants in repairing a fractured transatlantic relationship. But what will the new guard mean for U.S. businesses operating in the continent?

In short, not as much as one would hope, but not as little as one might fear.

Merkel has ushered in a reform agenda. She came to power committed to repairing the frayed U.S.-German relationship that was the leitmotif of her predecessor’s tenure.

In the United Kingdom, Brown served as chancellor during the country’s recent financial rise. He is unlikely to do anything that would jeopardize London’s role as the emerging global financial hub — a title that London is only too happy to take from New York amid the regulatory hurdles that the United States continues to place on itself (such as Sarbanes-Oxley and long visa wait times for foreign workers and students).

At the same time, no one should doubt Sarkozy’s penchant for economic nationalism. That said, he desperately wants to bolster France’s stature in the global economy — and can’t stomach France lagging in world competitiveness rankings.

Look to Sarkozy as well to lower barriers to the commercialization of French innovation and to find a way to address the disparity between the low levels of R&D investment that France and Europe set aside as a percentage of GDP, compared to Japan or the United States.

R&D dollars attract top students and researchers, which leads to innovation and private sector investment. How could any leader of France feel proud watching French entrepreneurs make London their home, as they have done in droves over the past decade? Sarkozy wants them back.

Sarkozy may also provide a surprise on the socio-economic front when it comes to Muslim integration in Europe. More cars are likely to burn in France, but the same candidate who once called rowdy Muslim teenagers in an immigrant neighborhood “scum” — and who took votes from Jean Marie Le Pen in the national election — may ironically turn out to be the politician in Europe with the courage and political acumen to put progressive policies in place on this issue.

To date, Europe’s politicians have been deer in the headlights on Muslim integration — perhaps Europe’s most pressing dilemma at the dawn of the 21st century. Sarkozy appears to understand the dangers of inaction and the economic hit that France and Europe will take if the continent fails to get this right.

Finally, expect Merkel and Sarkozy to embrace their Eastern European neighbors — rather than belittling them, as Chirac was particularly adept at doing.

Europe’s new political guard is eager to put old ideas to rest. That doesn’t mean Europe is becoming more American — or that the European desire for social democracy will be abandoned. It means that Europe is beginning to move on from the bruised relationship it has had with the United States over the past several years, and that’s good for everyone.