PREVIEW: Mexico seeks economic support in Europe

By Franz Smets Jan 23, 2007, 1:30 GMT

Mexico City - The first few days of newly inaugurated Latin American governments in recent months could hardly be more different.

While the leftist presidents of Nicaragua and Ecuador - led by Venezuela - turned away from the United States and actually courted Iran, Mexican President Felipe Calderon is seeking the solidarity of Europe.

Calderon is already very close to the US, having visited there before his December inauguration. His January 25-30 visit to Europe will include Germany, the World Economic Forum in Davos, Switzerland, Britain and Spain.

Mexico has had a free trade agreement with the EU since 2000, and the trip represents Calderon's first journey outside of Latin America as president, where he has already paid official calls on El Salvador and Nicaragua.

German Chancellor Angela Merkel - whose country currently holds the rotating presidency of the EU and the G-8 - and German President Horst Koehler are both scheduled to host the Mexican president on Thursday.

Calderon is expected to be in Davos on Friday and Saturday, where he is set to attend among others a round table discussion on Latin America. He plans to speak about Mexico's participation in the global economy, and about his idea that there should be 'more of the world in Mexico and more of Mexico in the world.'

The tour is set to continue Sunday and Monday in London, where Calderon plans to meet Prime Minister Tony Blair, Foreign Minister Margaret Beckett and Chancellor of the Exchequer Gordon Brown - considered a probable successor to Blair.

The Mexican president's foreign trip is set to end Tuesday in Spain. In Madrid he will meet King Juan Carlos and Prime Minister Jose Luis Rodríguez Zapatero.

Calderon is a conservative politician. His National Action Party (PAN) is traditionally linked to Merkel's christian-democratic CDU. The Konrad Adenauer Foundation, politically close to the German party, gave advise to PAN in 2000, when former president Vicente Fox won the election and put an end to over 70 years of government by the Revolutionary Institutional Party (PRI).

That was the beginning of Mexico's democratization process, but the consolidation of democracy is still not to be taken for granted. Calderon himself won an extremely close election last year against leftist populist Andres Manuel Lopez Obrador, who continues to contest the results.

Lopez Obrador has made himself some sort of shadow president, and just like new heads of state in South America and Nicaragua, he also questions so-called neoliberalism, in reference to capitalim and cooperation with the United States.

However, Mexico's economy is highly dependent on the US. Around 82 per cent of its foreign trade is with its northern neighbour, while the rest is scattered across the rest of the world.

Trade with Europe only amounts to about 8 per cent - a level that Calderon would like to expand.

Germany is, after Spain, Mexico's main trade partner within the EU. Experts estimate that trade with Europe's largest economy grew by around 20 per cent in 2006, although the balance remains negative for Mexico.

German-Mexican trade grew from 11 billion dollars in 2005 to 12.6 billion dollars in 2006, when German exported 9.6 billion dollars worth of goods and services to Mexico.

'Mexico is like a sponge,' an expert explained.

Due to its numerous free trade agreements, Mexico attracts investments from across the world, produces goods and sells them into the world's largest and wealthiest market, the United States. Thus, Mexico manages to balance its trade evenly by compensating for its deficit with the EU and other countries with a surplus of trade into the US.

Germany's Volkswagen is a good example. The firm imports capital goods, machinery and parts for its factory in Puebla, then sells most of the cars to the US.

Most other large German firms - like Bayer, BASF, MAN, Siemens and numerous companies in the supply industry - follow a similar pattern. German firms, with around 1,000 employees, account for over six per cent of Mexico's Gross Domestic Product (GDP).

According to Mexico's Finance Ministry, Spain in turn accounts for 9.3 per cent of foreign investment in the North American country. It comes second only to the US.

In 2005 Spain's exports to Mexico reached a record of over 3.2 billion dollars, 15.3 per cent more than on the previous year. Mexico is in fact the tenth largest market for Spanish products, and the third outside the EU - behind the United States and Turkey.

Spain in turn imported from Mexico over 3.1 billion dollars of goods in 2005, 45 per cent above the 2004 figure. Spain ranks third - behind the US and Canada - as a destination for Mexican products, while oil accounts for most of these imports.