Letter from Paris: Cities, Europe, and the Global Economy

My first experience with the intersection of foreign policy and domestic urban issues occurred about twenty-three years ago when I was chairman of New York’s Municipal Assistance Corporation. At the end of November 1975 to be exact, the first of the Western Economic Summits took place in Rambouillet, France under the co-chairmanship of President Valéry Giscard d’Estaing of France and Chancellor Helmut Schmidt of Germany. New York City had been teetering on the edge of bankruptcy for the previous six months, and President Gerald Ford consulted the two European leaders about the possible impact of a New York City bankruptcy. Without hesitation, they both told President Ford that this ran the risk of causing an international financial crisis and would foster the impression that America itself was not creditworthy. President Ford, previously famous for the New York Daily News headline: “Ford to City: Drop Dead,” returned to Washington and signed the legislation that provided the final elements of the New York City rescue package.

I mention this episode for two reasons: it was the first real expression of the globalization of finance coming from the highest levels; and it dealt with the economic life and death of a city, albeit a very great city, threatened by the flight of business and the loss of credit. The globalization of the economy is no longer a new phenomenon. It is our present world, driven by forces that lie outside the realm of traditional foreign policy. I am ambassador to France today because global economics and foreign policy are increasingly interrelated.

Globalization is a process driven by the mobility of capital, ideas, and technology which, whether we like it or not, will accelerate. It has benefited people all over the world by increasing their standard of living, and it has also wreaked havoc in a number of developing countries, as in the recent Asian financial crisis, with serious long-term social consequences. It has created a dynamic that pushed eleven European countries to create a single currency, the Euro, on the road that they set out on fifty years ago with the Marshall plan and Jean Monnet’s idea of a European Common Market, and which will now lead to the further political and economic integration of Europe. It has obliterated frontiers, and it has caused action anywhere in the globe to have an effect on every other place. Public officials who ignore this do so at their constituents’ peril.

The European Union has become a single market of 374 million people with a combined GDP of 8 trillion dollars)—more than the United States. The eleven countries introducing the Euro will form the largest economic and monetary union in the world, alongside the United States. Europe is America’s major trading and investment partner, and ours is quite a balanced relationship. Trade between Europe and the United States amounts to over 400 billion dollars annually divided almost equally. We each have over one trillion dollars invested in each other’s economies. The United States and Europe employ directly between 3.5 and four million of each other’s citizens with a further 1.5 million American jobs supported by exports to Europe. For our states and for our cities, European investment is critical since it supports hundreds and thousands of jobs. European companies are the number one international investors in Colorado, Kansas, Kentucky, and thirty-eight other states, and number two in the other nine.

By increasing the mobility of capital within Europe, the advent of the Euro is likely to accelerate other changes that are already altering the economic and political map of the continent. Cities and regions are becoming major players in the European economy, as American cities are now in the U.S. economy. As John Newhouse recently wrote in Foreign Affairs, “Two parallel and related processes have emerged. One is regionalization and the other is globalization; instead of working through the national capitals, European regions are linking themselves directly to the global economy and authority is drifting down from national capitals to provinces and cities. Regionalism...