In search of business, Europe changes tone in Latin America


Five years ago during the closing speeches of a summit in Chile, Spain's king told Venezuelan President Hugo Chavez to "shut up" in an exchange that epitomised the fruitless meetings between Europe and Latin America at the time.


Dominated by leftist rhetoric and instability in the Andes, the summits were sideshows to the rapid economic growth in Europe that followed the introduction of the euro a decade ago, and the concerns of Madrid and Brussels lay elsewhere.

But a debt crisis in Europe has turned the relationship between former imperial powers and their colonies on its head. EU leaders meeting in Santiago for a summit with Latin American heads of state last weekend were frank about their eagerness to piggy-back onto the region's impressive economic growth.

"This is now a strategic relationship between equal partners," said German Chancellor Angela Merkel, leading a huge delegation of European Union leaders and business executives.

With so many bilateral meetings during the two-day summit, Merkel had barely finished delivering her remarks before she rushed off to Santiago's business district to try to arrange investments and seal trade deals.

"We invite you to invest in Germany," she said, echoing Spanish premier Mariano Rajoy, who the day before made his plea from Chile's presidential palace.

With 60% of young Spaniards unemployed, and the German economy, Europe's biggest, struggling with the impact of a public debt crisis that nearly broke up the eurozone last year, Latin America clearly has the upper hand.

Latin America's economic output is expected to grow almost 4% this year, while the 17-nation eurozone will probably contract. Europe wants Latin American companies to follow Mexican businessman Carlos Slim, who has invested in Dutch telecoms company KPN.

European governments also want to ensure their companies win big infrastructure contracts for ports, highways and airports in Latin America, including those for the 2014 World Cup and 2016 Olympics in Brazil.

'Never been better'

Diplomats at the Santiago summit spoke of a new, relaxed mood among the more than 60 countries represented, helped by a big dose of humility from the Europeans.

"Latin America likes the idea that the European Union has problems too," said one EU diplomat who worked closely with Chilean colleagues during the summit.

Clearly anxious to get the message across, two of the European Union's most senior officials, Herman Van Rompuy and José Manuel Barroso, gave five speeches each in less than two days, vaunting Latin America's successes and speaking of the "intertwined destinies" of the two regions.

That went down well with leaders such as Argentine President Cristina Fernández, who praised Europe's change of tone: "The Europeans have finally realised … we need a relationship where both sides win."

While the threat of a eurozone break-up was overcome last year, EU leaders in Santiago addressed questions about the future of the wider, EU after British Prime Minister David Cameron announced plans last week to hold a referendum on British membership if he wins re-election.

Meanwhile, summit host Chilean President Sebastian Piñera and his Colombian counterpart Juan Manuel Santos appeared to revel in the turnaround in a continent once synonymous with hyperinflation, dictatorships and guerrilla violence.

"We've never been so well off," Santos said, trumpeting his pro-business drive that has experienced soaring foreign investment and a 30-month run of falling unemployment in Colombia. "Every one of our citizens coming out of poverty is a potential new consumer and a consumer for Europe."

Promise to revive stalled trade talks with Mercosur

This flurry of diplomatic activity seems to have paid off.

On Saturday (26 January), EU leaders won a promise from Argentina and Brazil to revive stalled talks on a free-trade deal with the Mercosur bloc that is made up of Argentina, Brazil, Paraguay, Venezuela and Uruguay.

"A tremendous effort has been made to install new momentum into the discussions," the EU's Trade Commissioner Karel De Gucht told Reuters during the summit. Asked if there had been a breakthrough, he said: "I think we have to be careful with that word. It's moving on the political front."

Both sides have now agreed to exchange offers by the end of the year on how far they are willing to go in opening up sectors ranging from services to agriculture and De Gucht said the European Union will reciprocate Mercosur's offers.

"We need to have open markets in terms of free trade and not protectionism," Merkel told a meeting of business leaders. "History taught us that in the '20s and '30s," she said, flanked by the pro-free trade presidents of Mexico and Chile.

Negotiations on a trade pact with Mercosur began in the 1990s and were relaunched in 2010. If successful, the accord would encompass 750 million people and $130 billion of annual trade.

But talks have yet to make real progress due to disputes over European farm subsidies and moves by Brazil and Argentina to shield local industry from cheaper, foreign-made imports.

In a further complication, Venezuela became a member of the bloc last year. Its president, Hugo Chavez, is an outspoken critic of free trade.

In the meantime, Brussels has signed free-trade deals with a number of Latin American countries, including Mexico, Peru and Chile, exposing a split between the free-trade advocates on the Pacific side and the more closed economies, such as Brazil, Argentina and Venezuela, on the other side of the continent.

>> Read: EU lawmakers approve trade deals with Latin America

The EU and the Latin American trade group known as Mercosur re-launched negotiations for a Free Trade Agreement at the Madrid Summit in May 2010.

The Summit gave political approval to FTA's between the EU, Peru and Colombia and Central America, which were concluded in December 2012.

>> Read: EU lawmakers approve trade deals with Latin America

Prominent NGOs and trade unions have attempted to block the deal that was officially signed 26 June, protesting that the region does not meet human and labour rights requirements and that the opening of free trade between the two regions could worsen the situation.

  • By end 2013: EU and Mercosur to exchange offers on how far they are willing to go in opening up sectors ranging from services to agriculture.

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