Thank you Ambassador Lintu for hosting tonight’s event; I wish your country success as the incoming president of the EU. I appreciate the invitation to speak tonight by Ambassadors Paemen and Eizenstat. Among his many distinctions, Ambassador Eizenstat served as my predecessor in the position of Undersecretary of Commerce, and he knows the challenges and opportunities of this role better than anyone. Tonight’s gathering is a reminder I am building on that legacy. Most of all, thanks to Mike Maibach for his work with the European American Business Council. Mike, we are grateful for your leadership.

Good News

Ladies and gentlemen, I am pleased to report to you tonight the good news that the U.S.- EU bilateral economic relationship remains the largest and most successful in the world, with bilateral investments topping $2.4 trillion and more than $600 billion in trade last year. These economic ties reinforce, invigorate and are an integral part of a much larger relationship. Keeping our trading relationship strong despite political distractions is a core goal of this Administration. I congratulate the business leaders of Europe and the U.S. who have brought about this success and I congratulate the political leaders of Europe and the U.S. who managed to avoid undermining it.

Challenges

There is a lot of good news in the picture, but if you will allow me to speak as a friend of Europe and a supporter of the trans-Atlantic relationship, we must admit there are economic challenges as well. And if these fundamental economic challenges are not addressed, they risk feeding political issues.

Some of my more cynical friends look at the economic news that we occasionally see from Europe and ask me, “Isn’t Europe in a sort of slow decline?” And there is certainly some superficial evidence that could support that point of view.

But the reality, and the problem, stems from precisely the opposite set of circumstances. Europe is not in decline, be it slow or otherwise. Europe is in slow motion ascendancy. Growth is stable, but modest. And to my mind that is the nub of the challenge. Because the rate of growth is high enough to keep broad segments of the population satisfied and inure leaders to a need for reform, but it is sufficiently low that Europe will have trouble dealing with its job creation, social mobility, and aging populations. The paradox is that Europe is more prosperous than it ever has been in its history, yet it risks playing a decreasing role in the world economy.

May I share a few statistics with you? The U.S. economy grew at 5.6 percent last quarter; exactly double the 2.8 percent growth in the Euro zone. As a percentage of America’s global trade, U.S. exports to the EU 15 ten years ago is almost the same as it is for the EU 25 today: 20.43% vs. 20.58%. This reflects the impact of the fast growing Asian economies.

Slow growth in Europe penalizes Europeans with high unemployment and limited opportunity, and it also potentially affects Europe’s political role. I am of the belief that a capable, engaged Europe is in America’s interest, even though we will have disagreements. Sustained economic underperformance threatens Europe’s reach and influence. And some analysts see a weaker Europe as more susceptible to anti-Americanism. The more success one enjoys, the less likely one is to resent the success of others.

Needed Actions

What to do about this challenge? First and foremost Europe needs to pursue policies that create economic growth. There is a formula that works: smaller governments, flexible labor markets, innovation, and competition. This formula was first invented in Europe but nowadays it seems more widely accepted in Asia. It seems that while you went swimming, they stole your clothes.

Second, the EU and the United States must develop smarter regulations. Regulators must fully understand the practical business costs of their initiatives. We have to make it as easy as possible for European businesses to enjoy success in the U.S., and as easy as possible for American businesses to be successful in Europe. We need business environments that are less complex, clearer and more efficient. When we come together the results are global standards that benefit everyone.

Lastly, success with Doha is one way, right now, where the U.S. and the EU can show leadership. Trade liberalization is the single greatest tool for economic growth. Yet many of those who would benefit most by a successful round are the most resistant to an ambitious outcome. Success depends on how far we can go. Do we only want some marginal improvements, or genuine progress? The governments represented in this room tonight will determine the pace of economic growth through their work in the Doha round.

Conclusion

In conclusion, the United States, Europe and the world are safer, better places when we stand together. We have a rich and successful history that has been at the core of unprecedented prosperity and stability. The Bush Administration is steadfastly committed to Europe’s success so that our relationship is not just sustained, but dynamic, growing and ever stronger. Thank you for letting me share some thoughts.