U.S.-EU: RIVALRY OR COOPERATION? (THE EUROPEAN VIEW.)

– October 14, 2006

* The following essay is an English translation of an article by Ms. ALEKSANDRA KORYCKA, which received an award of excellence in a writing contest organized in April, 2006, by the Center for International Relations (Warsaw, Poland), the Polish Ministry of Foreign Affairs, and The Portal of Foreign Affairs– an online magazine published by the Institute of Foreign Affairs in Warsaw. Its re-publication is made possible through the courtesy of these copyright holders.

The discussion of whether the United States and the European Union remain partners or become rivals in the years ahead, may seem to be a debate between political liberals and realists. But how the two most important economic and political centers in the world behave toward each other will not be determined by current doctrines or by today's decision-makers. It will be a process far more complex, and will be heavily influenced by coming changes in the global economy. The purpose of this essay is to speculate on how transatlantic relations may unfold by analyzing current trends.

I will examine not only bilateral relations between the Old and the New World, but will also look at the substantially different problems the U.S. and the EU face in dealing with other countries. These differences may strongly influence how the two transatlantic entities come to see each other. While presently we primarily observe the connections between the U.S. and the EU, in the future we may expect to see the beginnings of a rivalry. What will it look like?

FOREIGN POLICY:

The current political situation may be described thus: the United States is the only universal global empire, overshadowing the EU economically and militarily. Its conventional arsenal allows the U.S. to intervene and conduct military operations in every part of the world, though not always successfully, as has been proved in Iraq. American ideology, which defeated communism, has contributed to American pride and the belief that the U.S. has the historical mission of spreading democracy around the world. Paradoxically, as Emanuel Todd notes: “The more the world understands democracy and learns to live without America, the faster America is becoming undemocratic [Witness the disputed election of George Bush in 2000.] and understands that it cannot exist apart from the world”. Francis Fukuyama sees the problem in similar ways, praising the global triumph of democracy and economical liberalism, while pronouncing the "end of history" and the irrelevance of America.

Beside the colossus of the Western Hemisphere stands the European Union. Politically often divided, it possesses human capital and economic potential matching that of the U.S.  European integration owes a lot to American political initiatives made after World War II. Though disagreements between the U.S. and the EU happen, especially in defense policy or trade (ex. recent disputes involving the  steel industry or disputes with Canada over fisheries in the Atlantic Ocean), the American Big Brother is satisfied to finally be able to deal with a stabilized, united Europe, free of military conflicts and militant nationalism. Several European countries have supported American foreign policy, for example in the Middle East or in U.S. military interventions.  Dispatching U.N. troops to the former Yugoslavia did not raise objections and the bombing of Kosovo was only criticized by Russia and Greece.

However, just a few years later, only Great Britain, Poland and Spain sent their troops to participate in a second war with Iraq.  Only one European country – Great Britain, has promised to contribute its military forces in the event of a war with Iran.  Has the transatlantic partnership lost its energy and effectiveness? As far as supporting U.S. foreign policy, it has. Fundamental approaches to international relations are changing as well. War as an instrument of foreign policy has been being rejected by numerous countries around the world. Barring regional ethnic conflicts, the U.S. alone has been prepared to engage in unilateral military conflict around the world. American and European approaches toward this issue differ considerably. The United States, trying to justify its own imperialism, repeatedly seeks out and invents new enemies, fights against an “axis of evil” and seeks to democratize the world by force. The European Union doesn't seem to be aiming at political or military imperialism.

The EU does try to create its own sphere of influence by admitting new member states, by entering into association agreements, conducting negotiations, and by maintaining economic cooperation with other countries. In this way a new economic network is being created, which soon may comprise MERCOSUR, North Africa, neighbors of Israel and countries in South and East Asia. If Turkey, and possibly the Ukraine become members of the EU, peaceful normalization of relations between the West (Europe) and Islam may occur.  If that happens, European leaders will find themselves under great pressure to be cautious in their relations with Russia. How then, would Europe deal with its transatlantic partner, which has been actively establishing military bases in the post-soviet republics and jeopardizing Russian security? Or which after its failure in Iraq, is seriously considering military intervention in Iran? Especially when the war in Iraq was justified by false evidence that Iraq possessed weapons of mass destruction. Such plans and actions have hampered dialogue with the Islamic world. While Islamic countries are to be blamed for religious radicalism, for having undemocratic social systems, and lower levels of education, military interventions only postpone the establishment of bilateral tolerance and cooperation with Islamic countries. The outcome of such a militaristic policy can be seen in the parliamentary elections in the Palestinian National Authority won by Hamas. In Iraq, religious Shiites won the elections. In Iran, power is vested in the hands of the enemies of the U.S. and Israel; and in Egypt, the Muslim Brotherhood has strengthened its influence. So the question arises, is the support by the Muslim countries for fundamentalist groups a natural response to feeling threatened militarily by the West?  Are moderate Muslim politicians unable to gain power in their countries because they are identified as supporters of U.S. policies?

If the U.S. decides to bomb Iran, such a step would most likely ruin relations with the Muslim world. Iran would seek closer relations with China, which since the mid-1990’s has been the main partner in Iran's nuclear energy program. Such an outcome is not desired by anybody. How will the EU see its transatlantic partner, which allows leaks of top secret State Department plans for using nuclear weapons, solely to deter its potential enemies, and creates the image of an unpredictable and hair-trigger country?

Turkey deserves one more comment here. There is a clear contradiction between Turkish membership in the EU and its close relations with Israel and the United States, which are conducting their own unilateral policy in the Middle East. If this Muslim state joins the EU, the Union will need a carefully balanced policy in the region.

Last but not least, more and more people are immigrating to France from North Africa, Turks are immigrating to Germany and Pakistanis to Great Britain. In the short term, these cultural and religious differences cause tensions, though in the long run immigration can be beneficial for European countries, whose populations are aging and diminishing in numbers. How will Muslim immigrants in Europe react to the anti-Arab policy of the U.S.?

For these reasons, the EU will adopt a completely different approach toward the Middle East and will offer less support for U.S. foreign policy in that region. More differences are being seen in policies toward China, which is far from implementing democracy or observing human rights, and the Islamic states. Are American decision-makers really convinced of a deadly threat from Muslim countries, or are they merely securing American interests connected with: (a) the economic potential of the Chinese market, which is far greater than the markets of the Muslim world, (b) the impossibility of political and military domination over China, (c) and the desire to control global strategic oil resources? Certainly the European states do not identify with the above tasks, except perhaps with the first one. The EU desires to be a democratic role model for such states as Belarus or Ukraine. But what if after, or instead of tackling Iran, the American government chooses to identify Belarus, the last dictatorship in Europe, as its number one enemy? Then Europe and the United States will part ways, as neither the EU nor Russia would allow any military intervention along their borders.

After the disintegration of the Soviet Union, a communist threat ceased to exist, and the U.S. thereby lost its status as the global defender of freedom and civil liberties. As a result, neither the EU nor other countries feel a deep need anymore for closer military relations with the U.S. How much the EU relies on NATO’s military forces depends on how well European countries can develop a common defense and foreign policy. Nevertheless any predictions that the European countries of NATO will further develop their own military capacity or that the Western European Union (WEU) will be incorporated in the structure of the EU are uncertain. Such a process may take a long time or may never occur.

In 1997, the United States refused to sign the Ottawa Treaty (The Convention on the Prohibition of Use, Stockpiling, Production and Transfer of Anti-Personnel Mines, and on Their Destruction). In 1998, the U.S. rejected the treaty establishing the International Criminal Court, and did not ratify the Kyoto Protocol to the United Nations Framework Convention on Climate Change even though the U.S. had been a global leader in the emission of greenhouse gases to the atmosphere. The EU may replace the U.S. as the moral leader and role-model of international politics. The loss of such a status may be hard for American politicians to cope with. The main center of international attention may well shift from Washington to Brussels within the next few decades.

If U.S. foreign policy priorities do not change, the U.S. and the EU will go their separate ways. The best evidence that Europe seeks to develop its own foreign policy, independent from American strategy, is the Seville Declaration on the Middle East Peace Process adopted July 22, 2002, which formulates a different plan of settlement for the Israeli-Palestinian conflict. The scale of potential rivalry between the U.S. and EU depends on the intensity of American endeavors to regain its dominant position.

ECONOMY AND FINANCE:

Defending your country’s interests often requires making political decisions that harm other countries. The European Union, with its harmonization of laws, Common Agriculture Policy, Internal Market, or Economic and Monetary Union, eliminates much of the need for such decisions. Security is being achieved through the synchronization of economic policy. But analogous cooperation does not exist in transatlantic relations, and nothing indicates that similar mechanisms connecting America and Europe will be created. If a major economic crisis occurs, neither of the parties will be willing to sacrifice its own prosperity to help the other. Moreover, it seems that the greatest problems may take place in the U.S. rather than in the EU.

Since the end of World War II, the global financial system has been based on the American dollar. The majority of international transactions were conducted in dollars, which also has been the basis for savings and financial reserves. American political and economic domination has largely been founded on this dollar-based system. U.S. domination continues to date, but we need to take notice of two important factors, which may bring about its end.  The first is the appearance of the euro as a common currency for twelve European states. Eventually it will be the common currency of up to 28 countries, depending on the admission of Romania, Bulgaria and Turkey to the EU, and the accession of Denmark, Sweden and Great Britain to the Economic and Monetary Union. The euro has strengthened to become the third most important currency in the world next to the dollar and the Japanese yen. The second factor is a huge U.S. trade deficit, coupled with an enormous public debt and budget deficit. In 2004 the appropriate indices were as follows: the budget deficit came to 4.7% of the U.S. GNP; public debt equaling 64% of the GNP and balance of payments deficit equal to 5.72% of the GNP. The above indices warn of serious problems in the public financial sector, and may be a sign of a forthcoming crisis in the U.S. economy. Another symptom of weakening of American potential is America's shrinking share of the international trade in services in comparison to the EU:

Percentage share of international trade in 2004 (Source: WTO)

Despite the fact that America imports more than it exports, the value of the dollar has not dramatically fallen. This is due to Japan, China and other Southeast Asian countries buying up American currency in large quantities to build their own financial reserves. Demand for the dollar is also buoyed by foreign direct and portfolio investments. The balance of payments deficit is being financed by the influx of $1 billion a day in foreign capital (Exactly how much the U.S. needs to pay daily for the import of goods).  In 1990, foreign direct investment accounted for as much as 55% of the foreign capital coming into the U.S.  However in 2001, up to 58% of incoming capital was used solely for the purpose of short-term investments, which are always dangerous to the economy because of their speculative nature and the possibility of rapid withdrawals. Japan, which is one of the most important U.S. partners, in the 1990’s began shifting a greater proportion of its foreign direct investments to Europe. So, is there another bubble economy growing, this time in the center of global economic power? The U.S. situation is analogous to the typical economic crisis scenario: problems with the current account, and a large public deficit financed by the influx of the short-term capital. The difference remains however in the trust shown in American economy, which is far greater than investors’ confidence in Latin American or Asian economies. But if more scandals, such as with Enron or Arthur Andersen occur, this trust may easily disappear.

The consolidation of a united Europe and the growing importance of its euro currency may undermine the position of dollar. The developing euro-zone economy may become as competitive as the U.S. economy or even more so if it acquires the fast growth rate of the new EU member states. If the new member states accomplish macroeconomic reforms such as eliminating bureaucracy, the economic dynamism of these countries may contribute positively to the EU as a whole. The majority of new members’ foreign trade is conducted with other European countries. For example, as much as 70% of Polish foreign trade is with other EU members. Dynamic, developing Eastern and Central European countries will force the EU to defend its competitiveness. As a result we may expect significant reforms in Western Europe, mainly in modernizing its social security system, lowering taxes, and liberalizing the labor market. Europe is therefore heading toward a long period of dynamic development.  The investors may choose to invest their funds in European stocks and bonds rather than financing American public or private debts. If that happens the demand for the dollar will decrease. If the value of the dollar declines, the cost of imported goods will rise, while American exports will become more profitable. However, the U.S. has a positive balance of trade in services, while it mainly imports manufactured goods. There is less price flexibility in the provision of services than in the sale of manufactured goods, as it is strictly connected with the reputation of service providers, trust in local service providers, or simply the impossibility of international transfer of certain kinds of services. As a result, the necessity of cutting back high internal consumption may be painful for the U.S. and its citizens. Additionally, if the euro replaces the dollar as the currency of international financial reserves, a major sell off of American currency will create a great financial crisis in the U.S.

Let’s assume that the U.S. tries to rebuild its position in the global economic and financial system. Would the U.S. want a strong dollar or a weak dollar, a strong euro or a weak one?  A strong dollar relative to the euro might rebuild the reputation and trust in American currency and re-establish high demand for dollars. On the other hand there would not be a renewed trust in the dollar without structural changes in the American economy. The U.S. may try to reduce its trade deficit by stimulating exports with a weak dollar. China will not be saving forever, and one day will become a great consumer. Someone will have to meet the forthcoming surge in demand by the Chinese economy. A cheap dollar and low prices might then be beneficial. As Emanuel Todd has said: “The euro undermines U.S. interests both when its value decreases and when it increases”.

Great Britain, Poland and Turkey, which are the most loyal partners of the U.S. in Europe, do not belong to the euro-zone. What will happen if these countries adopt the common European currency? Their national interests will have to be redefined.

As a result the U.S. will face, if not a crisis, then at least a decline of the dollar’s value. In the short term this may shake the U.S. position in the global economy, in the long run it may benefit U.S. exporters. The policy of a weak dollar, which would improve U.S. competitiveness, would affect the EU members, which at the moment supply 18% of global demand for manufactured goods and 30% of global demand for services. It may also reduce the present European trade surplus with the U.S. Such a situation would jeopardize the EU’s interests and produce a fierce economic rivalry.

DEMOGRAPHIC FACTS:

The differences and disagreements in relations between the U.S. and EU might become of secondary importance if there is strong political support for cooperation between the U.S. and EU.  But there are significant demographic issues, which may harm the prospects for potential cooperation. In Europe cooperation with the U.S. may significantly change, primarily because of the difficult situation in the Middle East.

Europe's population is aging. Older voters usually express conservative political views and are deeply interested in maintaining social security and public assistance benefits. Their interest in foreign policy issues is relatively small. The future player on the European political scene will be the youth of today, which no longer associates America with freedom, economic reconstruction, and the military security provided by NATO. Moreover Europe's Muslim population will significantly increase, due to growing immigration and the high fertility rate of Muslim ethnic groups.  The attitude of European Muslims toward the United States will be more hostile.

Many changes will also occur in America. The U.S. was established by European settlers and has always had close bonds with Europe. The situation is analogous to a family. Members of a family may argue with each other; however the will to compromise with one’s brother or sister is a lot stronger than the willingness to compromise with outsiders.  Considering the family-style relationship between the U.S. and Europe, one may assume that the transatlantic partnership will last. But what will happen if the U.S. and EU are not one family anymore? According to demographic projections, by 2050 White, non-Hispanic citizens of the U.S. will account for merely 50% of the American population, compared to 70% today.

Demographic projection for the U.S. (Source: U.S. Census Bureau, 2004)

As shown above, the year 2050 will be significant for transatlantic relations and for how the U.S. and Europe perceive each other. For the newly dominant Latino ethnic group, Europe may not seem as culturally connected. This may result in either an American policy of isolationism, or a reorientation of its relations toward Latin America.  Whether or not this happens will depend on the pace of demographic changes, and on structural criteria, where the objective factor is which ethnic group is dominant, and the subjective factor is that group’s national identity.

COOPERATION WITHIN NATO:

There is also a military aspect to transatlantic relations. Though NATO and the EU are separate entities, the majority of the European members of NATO are also members of the EU. NATO presently faces the dilemma of re-establishing its purpose and re-defining its scope of activities. The issue of dissolving NATO entirely has been often discussed. There is no question that such a step would thoroughly undermine U.S.-EU relations. Fortunately, there are other options. The first option is to maintain the status quo. This however frustrates Americans who point to the inequality of military effort and the lesser contribution of Europe to NATO forces. The U.S. accuses Europe of doing too little. European military spending constitutes only half the military budget of their American ally. On the other hand, Europe is not being militarily threatened by anyone. Why would it want to double its military budget? Such a move would reduce funding for European investments in infrastructure and social security benefits. Europe is unwilling to militarize for the sole purpose of taking part in military interventions in the Middle East or in other parts of the globe. The main motive for European integration was to prevent future wars. For this reason, Europe disapproves of militarization as its political goal. Also, how would the “axis of evil” react to a sudden militarization of NATO members? As a consequence, U.S. demands for Europe to militarize will not be fulfilled by its European allies.

The second option is for Europe to increase its military spending in order to satisfy U.S. wishes. But if that happens, Europe may feel strong enough not to continue its dependence on NATO forces. It would change the military balance within NATO and would diminish U.S. importance. Would the U.S. agree to such scenario?

SUMMARY:

Open rivalry or at least a deterioration of the present good relations between the U.S. and EU is very likely. What would the international scene look like if these two global giants became true rivals? The emergence of a new bipolar (U.S.–EU) international system is unlikely. But instead of hearing one unified Western voice we may witness the establishment of two distinct political centers, each competing for global influence. The rest of the world will still consider us to be one culturally unified civilization. If China and other Southeast Asian states finally begin to coordinate, a tri-polar system of international relations may develop, with a third political and economic center in Asia. It is also possible that the West, troubled by the rapidly growing importance of Asia, will re-establish close transatlantic cooperation.

by Aleksandra Korycka

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The Author of the article is a Master of International Relations candidate at Warsaw School of Economics in Poland. She is associated with the Portal of Foreign Affairs. Her interests are in the U.S. foreign policy, the Middle East conflict and democratization processes in Africa.

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