Latin America and Europe are growing closer

Generally speaking, Latin America is not doing so well. Nevertheless, the continent has become more significant for us Europeans.

Let’s not kid ourselves. The majority of Latin America is currently experiencing a serious political, social and economic crisis. One similar to that of the 1980s. This does not go for all states equally. But the bottom line isn’t looking good at present. The economic boom of the past decade did indeed increase markets and reduce poverty in the region. But these gains are now again being threatened by crises. Furthermore, the region is increasingly failing to link into the global economy. Most Latin American companies lag behind their global competitors in terms of productivity. Digitisation or industry 4.0 are not even starting to take root in the region. Instead of driving on industrialisation, the region is losing ground and again becoming a supplier of raw materials.

Of course there are happy exceptions to this bleak picture, but the trend is undeniable and an end to this lean period is not in sight. With a few exceptions, such as Argentina, the necessary economic reforms are not on the agenda. The reason being, most governments are also in crisis, are extremely unpopular, and are fighting for survival. There is no energy available for reform. As a result, the administerial crisis is being further exacerbated, for politics, and not just the economy, has left much unattended to and failed to address existential problems. For example, the growing prevalence of crime in the region; the world’s greatest income-disparity; the low level of education, despite improvements in recent years; the still broadly decrepit state of the continent’s infrastructure.

Despite its current weakness, we must not abandon Latin America. On the contrary. The region has rarely been as important to our own interests in the world as it is now. Given the changing global framework due to the new politics of the USA, Latin America has become in many matters a partner to Germany and Europe. We might all-too easily make the mistake of equating Latin America’s economic fragility with political insignificance. But that would be wrong. At the G20 Summit, for example, Mexico, Argentina and Brazil are three Latin American member states among the leading industrial and emerging countries. And Latin America’s importance in this group is bound to grow: Chancellor Merkel will handing the G20-presidency on to Argentina at the end of this year. Since taking office, President Mauricio Macri has been working hard for a united Latin American presence in the G20 and thereby increased its influence.

In the United Nations, Latin America and the Caribbean make up seventeen percent of total votes. In trade, in climate-related issues, in norms and standards, but above all with regard to democracy as a political system, Germany and Latin America act in concert. This explains, too, why Federal Chancellor Angela Merkel has made a tour to Argentina and Mexico to agree on joint approaches prior to the G20 summit in Hamburg.

We should bear in mind that Latin America’s 650 million inhabitants on the one hand form a significant market, and on the other are largely individuals with a broadly positive attitude towards Germany and Europe. Exchange between Europe and Latin America has increased heavily in the last twenty years. We now interact more closely than ever, not only in commerce, investment and politics, but also socially, culturally and academically. The risk we currently face is that we will lose this proximity and trust if we do not work to maintain it. For in China, an extremely forceful world power is afoot in Latin America, one that adroitly fills the growing vacuum the US is leaving behind. For a long time now, China has no longer just been an acquirer of the continent’s raw materials. The concerns of Cathay are currently buying into the industrial DNA of the continent: electricity suppliers, ports, power stations, urban and interurban railways are increasingly controlled from the Far East. For some time, Chinese banks have been on site to finance these takeovers. With their investments, Chinese companies are opening and securing the Latin American market for machinery and equipment, the very fields that are the German economy’s strengths.

And yet, German suppliers are increasingly rare in large-scale projects: on the one hand, there are no longer any German consortium leaders prepared to take such risks, on the other, the financing is lacking and the projects are not afforded sufficient political support. This is what the Federal Ministry for Economic Affairs and Energy means to change. A separate administrative office has been established as the central point of contact for strategically important large-scale projects worldwide. Financial latitude is to be extended to the limits of the OECD’s capabilities. Should it be required, a task force is to offer interdepartmental coordination on important projects. Now would be a good time to vitalise the initiative in Latin America.

Alexander Busch

Correspondent for Handelsblatt, Wirtschaftswoche, Neue Zürcher Zeitung in Latin America

Sunday Brief °5

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