Bulletin n. 2/2008
September 2008
CONTENTS
  • Section A) The theory and practise of the federal states and multi-level systems of government
  • Section B) Global governance and international organizations
  • Section C) Regional integration processes
  • Section D) Federalism as a political idea
    • Naím Moisés
    The Coming Euroinvasion
    in Foreign Policy , Issue 166, May / June ,  2008
    I am not worried about rich Arabs; it’s the French who worry me.” This was the response from a businessman in Clovis, California, reacting to my comment that the U.S. government was concerned about the influence of foreign-owned sovereign wealth funds. “Why are you worried about the French?” I asked. “They just bought the largest company here,” he replied. “Life will now change for all of us—that company has been an important part of this community for years.” He was referring to Pelco, a Clovis-based manufacturer of video security systems that was recently acquired by Schneider Electric, a French company. There is nothing special about Pelco’s sale; foreign companies buy American ones all the time and vice versa. This transaction was far smaller than the United Arab Emirates’ $7.5 billion investment in Citigroup or China’s $3 billion investment in the Blackstone Group, a major financial company. Except that this transaction is part of a trend that, though still largely unnoticed, will soon rear its head: The United States is poised to receive a massive—perhaps unprecedented—inflow of large- and medium-size European investors. Everything from corporate behemoths to family-owned companies are about to come to America on a corporate buying spree. Call it the Euroinvasion. Not only will many U.S. companies now have European owners, but the American marketplace will witness an infusion of new foreign competitors that will manufacture their products in the United States. They will use their new American base both to export to the world—including back to their own European market—and to serve the U.S. market from inside its borders. Such a trans-Atlantic shift will have an enormous impact on Europe’s levels of employment and exports. Inevitably, the move will also ignite a political firestorm on both sides of the Atlantic. European politicians will denounce the companies for “exporting jobs” to America, while U.S. politicians, already rattled by the threat of foreign competition, will be infuriated by what they will brand as “the foreign takeover of America.” CNN anchor Lou Dobbs will be foaming at the mouth. Why is this happening now? The plummeting U.S. dollar has made the move across the Atlantic affordable for many European companies. And this may be a once-in-a-lifetime chance to relocate: American companies have rarely been so cheap. Five years ago, a German or Spanish company that coveted a U.S. competitor worth $500 million needed roughly 430 million euros to purchase it. Today, it would take just 316 million euros to buy a company worth half a billion dollars. European companies are not just being pulled to America by a cheaper dollar. They are also being pushed away from Europe by a business environment that is not as attractive as that in the United States. For many companies, moving across the Atlantic is the fastest and cheapest way to cut costs and become more competitive. The average hourly manufacturing wage in Europe is 16 percent higher than in the United States. Social insurance and payroll taxes are far steeper in Europe. As are energy costs: the average price of a kilowatt-hour for industrial usage in Europe is roughly 60 percent more than in the United States. Transportation costs are higher, too. And the cost advantages of operating in the United States don’t stop there. Land is still far cheaper in the United States. An acre of rural land in the United States will cost you an average of $1,900. The same plot of land will cost you $5,700 in Germany, $6,650 in Spain, and $14,600 in Denmark. Every year, competition in the global economy becomes fiercer. Although some European companies may set up shop in Asia or Eastern Europe—which can be even cheaper than the United States—most still view the United States as the corporate Mecca. As the CEO of an Italian manufacturing company recently told me, “I cannot afford not to move to the U.S. if I want my family’s company to survive. It will not only be cheaper, but it will also place me and my engineers in the middle of a large cluster of leading-edge technology companies and in the largest market in the world. We will keep some design operations in Italy, but everything else goes to Massachusetts.” Some manifestations of the Euroinvasion are already visible. Germany’s ThyssenKrupp is investing $3.7 billion in a steel plant in Alabama. France’s Alstom, a manufacturer of high-speed trains and turbines, is building a major factory in Tennessee. Other European companies like Italy’s Fiat have decided to reenter the U.S. market after a 13-year hiatus, and BMW is substantially expanding its manufacturing presence. Recently, the market value of Spain’s Banco Santander surpassed the value of Citigroup, the standard bearer of the U.S. banking industry. It will be only natural for European banks like Santander to expand their presence in the United States by taking advantage of the fact that many U.S. financial institutions have become far cheaper as a result of the subprime crisis. But the Euroinvasion will be much more than a few headline-grabbing mega-deals. It will consist of thousands of smaller transactions in which midsize European companies swoop in to buy American companies for what will seem like a bargain. It is going to be impossible for American politicians to stop the Euroinvasion. European politicians will be equally helpless in preventing their companies from moving to the United States. While stopping a few large investments by foreign government-owned funds in American ports, defense industries, and oil companies may be possible, preventing thousands of private companies from investing in the United States is not. Although difficult economic times always create political opportunities for demagogues and populists, America is far from ready to repeal capitalism. And stopping the Euroinvasion would require nothing short of that.
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