Global economic and political conditions have never been this fluid and dangerous. And don’t look for any quick resolutions: Uncertainty will be the norm for many years to come.
The Arab Spring has lead to the fall of dictators in Tunisia, Egypt and Libya. Syria and Yemen appear next in line and the winds of change will not spare Saudi Arabia and the rest of the Middle Eastern monarchies. Yet no one can foresee the final outcome of these events and, as importantly, it may take years before these countries reach a new political and economic stability.
Elsewhere the European union is in the midst of its own internal difficulties as it attempts to deal with the significant fiscal imbalances in its member states. And the United States faces these crises as a weakened nation still dealing with a difficult economy brought about by the financial excesses of the early 2000.
From an economic standpoint, the crisis in Europe is much more relevant to Connecticut: a large number of European companies have offices in our state; Europe is our largest export market and a large number of Connecticut companies have operations there. In 2010 total exports from our state to Europe totaled over $7 billion or almost 50 percent of all our export sales. Through September, export sales totaled almost $5 billion, 5 percent less than the comparable period last year. What happens in Europe over the next several months will have a significant impact on our state’s economy.
What is going on in Europe and what kind of response, if any, should we formulate?
There are key differences between our country and the European Union which must be understood: We are one nation made up of 50 states and we have one currency, while in Europe they have one currency, the Euro, but also 27 independent countries and parliaments and no real European nation. In the U.S., the Federal Reserve and U.S. Treasury can and do act quickly and in cooperation with each other. In Europe, there is no central Treasury function and the Central Bank is limited in what it can do.
In a way, what is happening now had to happen in order for Europe to become truly one nation. More power, fiscal and monetary must be delegated to central, European wide organizations in order to be able to respond quickly and efficiently to crisis such as the current one.
The above also explains why solutions are so slow in coming. No one is empowered to make system wide decisions but rather each independent nation must approve proposed steps.
Companies should focus on the basics: continue to manufacture a competitive product; continue to meet customer needs; hedge the weakening Euro to remain price competitive; review alternative financing strategies to overcome potential illiquidity of European banks; focus on the long-term objectives and ignore as much as possible short-term gyrations.
The Department of Economic and Community Development however should not ignore the opportunities the present crisis may afford us in recruiting European companies to our shores. Yes, the U.S. has its own problems but they pale in comparison to other countries and European companies may consider moving to a market which offers more relative stability.
DECD continues to focus on facilitating the business opportunities for our companies by supporting participation at the important European aerospace trade show: we must continue those worthwhile efforts but we need to do much more than that.
We need to upgrade our European marketing efforts. We need staff that can travel to Europe to visit the European headquarters of the many companies based in our state to say thanks, we appreciate your business and to leverage those contacts to attract more companies and jobs into our state.
The governor is placing added importance on Bradley International Airport as a source of economic development and correctly so. How much more viable would a request for a European flight be if backed by the presence of more foreign companies whose executives and employees may generate additional travel?
We can do all of the above for a fraction of the cost of other initiatives and produce more permanent and longer term benefits!
In the short term, I expect continued instability as the European Union deals with important changes to its structure but I am optimistic that they will do so and that Europe will continue its evolution into a U.S.-type economic and political unit with positive long term benefits to our state.
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Paul Pirrotta is president of Paul Pirrotta International in Glastonbury and writes on global trade issues. Reach him through the company’s website at: http://italy-usatraderep.com/aboutus.html
