The United States Needs German Economic Leadership

by Adam S. Posen, Peterson Institute for International Economics

January 2006

Adam S. PosenOnly together can the United States and Germany keep the global economy integrated—by removing agricultural roadblocks to a WTO deal, coordinating on relations with China, and securing the flow of international investment. The new German chancellor, Angela Merkel, could save the Doha Round by reinterpreting the budget deal just made on agricultural support funds at the EU summit, something US pleas and attempts to shame France cannot achieve. Both countries have an interest in making a common front toward China. If the United States continues to face China alone, the Chinese government is unlikely to move the yuan peg meaningfully. Chancellor Merkel should take advantage of the American bad cop role to play good cop. In particular, under German urging, the eurozone can offer to shift several percent of its shares in the IMF and World Bank to China and other Asians in return for a revaluation of the yuan and a eurozone seat at the institutions. Both President Bush and Chancellor Merkel could also cooperate to defuse mounting economic nationalism that hampers cross-border investment. Merkel should secure opportunities for the export-dependent German economy and advance European integration, and the Bush administration should welcome German leadership and thus validate European partnership in international policy.

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