Summer 2009

From Lisbon to Lisbon: How Europe Can Be Less of a Loser

Charles Grant

The arrival of both the economic crisis and Barack Obama are transforming the geopolitical landscape, notably to the benefit of the US and China and to the cost of Europe. But the Europeans’ loss of influence is not inevitable, if they can find the right leaders and policies.

One problem in the EU is complacency. Many Europeans still say (as do some Asians) that the US will be more damaged by the recession than most other powers. They point out that across much of the world the American model of capitalism is being blamed for the crisis. They believe that the rapid rise of government debt in the US will, in the long term, have dire effects. European leaders such as Angela Merkel and Nicolas Sarkozy regard lax Anglo- Saxon financial regulation, rather than global economic imbalances, as the principal cause of the recession. With the Chinese and Indian economies coming through the economic crisis with quite strong growth rates, many commentators argue that the long-term consequence of the recession will be a power shift from the US to Asia.

But such arguments are unconvincing. The latest economic figures suggest that the US will lead the world out of recession. The mountain of American government debt need not be a problem, so long as borrowing is curbed when economic growth picks up. The track record of American businesses on innovation is unrivalled in any other country. Furthermore, the heavy involvement of the federal government in the US economy is showing other countries that the American model of capitalism is no longer so different or so redundant. Meanwhile Obama’s fresh approach to foreign policy is generating much good will. All of this suggests that US soft power will grow rather than decline. Less plausible than a power shift to Asia is a growth in the authority of both the US and China.

Beijing’s proposals for a new international reserve currency reflect not only concern about future US inflation eroding the value of its dollar holdings, but also greater confidence about playing a global role. Relations between the Chinese leadership and a pragmatic Obama administration that has downplayed the importance of human rights are warm. But the economic crisis could cool this relationship. Economic nationalism in China is growing: this year the competition authorities recently blocked Coca-Cola’s purchase of a Chinese drinks company, foreign companies have been excluded from bidding for contracts linked to the government’s stimulus package, and Google’s activities have been severely constrained to the benefit of its rival Baidu. This could lead to pressure for retaliation in the US. Furthermore, a China that is more focused on trying to shore up growth rates may be less willing to go along with the plans of Obama (and the EU) for an effective deal on curbing carbon emissions in Copenhagen in Decemb er. However, many other countries will also be reluctant to sign up to anything that could impose burdens on their industries, and China will not want to be seen as the cause of a breakdown in the climate talks. Furthermore, both Obama and the Chinese leadership seem intent on preventing serious conflicts disrupting their trade and investment relationship.

Another reason why the crisis may strengthen the relative power of the US is that the countries it has most problems with are doing particularly badly. Russia, Iran and Venezuela are suffering not only from the recession but also from the low oil price (notwithstanding its rise in the second quarter of this year). Furthermore, Obama has reached out to both Moscow and Tehran, disconcerting hardliners in both places. Yet this new American approach carries risks. Although their economic woes could make Russia and Iran somewhat more willing to co-operate, they may well give Obama little of what he wants, in which case he will be attacked at home for weakness and for dealing with unsavoury regimes. In Iran, the clerical leadership’s sometimes brutal assertion of power, following the apparently flawed presidential election in June, will make it harder for Obama to pursue his policy of engagement.

In Russia the economic crisis has pushed the leadership to adopt a softer style, but the fundamentals of foreign policy have not yet changed. Obama has indicated that although he is willing to go slow on missile defence and NATO enlargement, he cannot accept that Russia should have a sphere of influence over its near abroad. Yet the Kremlin seems to be trying to use the economic problems of its neighbours to extend its sway over them (for example, in Azerbaijan, Kyrgyzstan and Moldova). A major clash over Georgia or Ukraine would destroy any rapprochement between Moscow and Washington.

So could rows over Iran. Obama wants Russia to help dissuade Iran from pursuing its nuclear programme. US officials say that if the current diplomacy – including Obama’s offer to talk to Iran’s leaders – does not yield results by the late autumn, only one diplomatic option remains: very tough economic sanctions. Russia and China see little value in further sanctions against Iran, and if they refuse to follow the US (and the EU, which is likely to support tough sanctions) down that path, their relations with Obama will suffer. American officials believe that a failure to agree on tougher sanctions would greatly increase the risk of Israel attacking Iran.

There seems little prospect of the recession enhancing Europe’s power and prestige. Europe’s recovery looks like being very slow, with the German economy shrinking by perhaps twice as much as the US economy this year. Europeans will be preoccupied with the need to prop up the badly hit economies of Eastern Europe, both within and beyond the EU. And in the longer run they may have to worry about the ability of Southern European countries to stay in the euro: several of them suffer from chronically poor productivity, excessive government debt and political classes that seem unable to undertake painful but much-needed structural reforms.

The EU’s enlargement process has virtually stopped, while uncertainty over the fate of the Lisbon treaty means that the Union remains focused on its institutions. All of this pushes Europeans to introversion. They are also divided over key foreign policy questions such as how to deal with Russia, and unwilling to send many soldiers to the dangerous parts of Afghanistan. Obama is learning fast about the limitations of the EU’s foreign and defence policy. Both economically and politically, the transatlantic relationship looks like becoming increasingly unbalanced.

Yet until recently the EU seemed to be a power on the rise. Ten years ago Javier Solana was appointed High Representative for foreign policy, while Tony Blair and Jacques Chirac invented the European Security and Defence Policy (ESDP). There have of course been some real achievements. The Europeans have generally spoken with one voice in the Balkans and in the diplomacy surrounding Iran’s nuclear programme. Many of the two dozen ESDP missions have made a difference, for example peacekeepers in Bosnia and Eastern Congo, law officers in Kosovo, and peace monitors in Georgia and Aceh in Indonesia.

But in the past few years the EU’s failings have become increasingly evident. That Balkan unity was shattered when, last year, Spain and four other member-states refused to recognise the independence of Kosovo. Now Slovenia is blocking Croatia’s accession because of a border dispute, Greece won’t allow Macedonia to start talks on EU membership because of its name and the Netherlands has stopped the implementation of Serbia’s new agreement with EU because of the non-capture of war criminal Ratko Mladic.

Nor do the 27 think alike on the Middle East peace process: the Germans, Czechs, Poles, Dutch and Italians boycotted a UN Conference on racism in April this year, on the grounds that it was biased against Israel, while their partners showed up. Israel’s closest friends in the EU are also pushing for a new and upgraded EU-Israel relationship, while many others argue that the Palestinians should first win a better deal.

The most glaring failure of the EU’s embryonic foreign policy has been over relations with Russia. The 27 have very similar interests – they all want Russia to be prosperous, stable and liberal, and at peace with its neighbours – but cannot agree on how to handle it. Some like to stand up to Russia’s attempts at intimidation (such as the Baltic states, which have been occupied by Russia comparatively recently), some believe in treating Russia with kid gloves (such as Germany and Italy, which view Russia as a crucial export market and whose gas companies have struck bilateral deals with Gazprom), and some are in the middle (such as Britain).

The Russians are masters at exploiting the divisions among the Europeans. Only when Russia does something really egregious, like invade Georgia, do all 27 governments come together to condemn it. The rest of the time Russia can count on its allies within the EU to prevent the Union as a whole from becoming critical. For example, when the EU considers developing much closer relations with Belarus or Ukraine, Russia’s friends can be relied upon to oppose any measure that might provoke Moscow.

Why is the EU not achieving more with its common foreign and defence policies? A number of structural problems are weakening Europe’s potential. One is the impact of the enlargement of the EU from 15 countries to 27, in 2004-07. Enlargement has been a great success, helping to cement market capitalism and democracy in the new member-states. But it does make decision-making harder, especially in foreign policy, where any decision requires unanimity. Lining up 27 governments in the same direction is not easy. Furthermore, some of the new members (such as Cyprus) have not yet learned the spirit of compromise that is essential to effective EU decision-making.

Another problem is the lack of a common strategic culture. Some countries believe in intervening to solve security problems, and in using force to do so, while some do not. One of the purposes of the ESDP was to encourage other countries to adopt the Franco-British, robust approach to the use of force. But this has not worked: the majority of member-states will not send troops to the dangerous parts of Afghanistan. The same countries fail to spend adequately on defence or invest in the most useful military capabilities. Many member-states seem to wish they lived in a big Switzerland, that is to say they like living in a prosperous and safe country that does not get too bothered about problems in other parts of the world and feels little responsibility for solving them.

Many German leaders have Swiss’ tendencies. Of course, Germany contributes much more to international security than it did in the days of Helmut Kohl; German peacekeepers have done useful work in places like Afghanistan, Kosovo and Congo. However, the fact that most German soldiers are not allowed to engage in combat constrains what the EU’s largest member-state can contribute to international security.

In fact the way that Germany’s role in the EU is evolving is yet another problem for the Union’s strength and cohesion. Until quite recently Germany assumed that what was good for Germany was good for Europe and vice versa. But on a broad range of issues the Germans are increasingly likely to perceive their interests as being different to those of the EU as a whole: on climate change, where the interests of German heavy industry required Commission proposals to be watered down; on energy policy, where Germany is reluctant to cede a greater role for the EU; on Russia policy, where Germany can be relied upon to take a soft line; and on Iran, where Germany is unenthusiastic about tough sanctions that could hurt its companies. In short, the Germans are becoming more like the British and the French.

The final problem is that the institutions with which the EU makes foreign policy are woefully inadequate. The Lisbon treaty – if implemented – should tackle the worst points of the current system, notably the rotating presidency that moves from one country to another every six months, and the split between the High Representative (currently Javier Solana) and the commissioner for external relations (currently Benita Ferrero-Waldner, Austria’s former Foreign Minister) and their respective bureaucracies. Under the Lisbon treaty, a single High Representative would take on the roles now performed by Solana, Ferrero-Waldner and the foreign minister of the rotating presidency, and a single external action service’ would give him or her support.

All these structural problems were weakening Europe even before the economic crisis struck. But the recession will probably make the task of building common foreign and defence policies even more difficult. Hostility to imports, foreign investment and immigration is on the rise. The crisis has certainly increased opposition to further EU enlargement. Budgetary constraints will further weaken Europe’s military capabilities. And the more that populist and nationalist politicians profit from the adversity, the harder it may be to achieve compromises at EU level.

So is Europe condemned to be a loser in the new geopolitics? Of course, Europe’s soft power is already substantial and respected in many parts of the world: the EU economy is bigger than that of the US, it leads the international negotiations on climate change, it gives more than half the world’s official development assistance, its welfare systems are studied with interest in places such as China, and its commitment to multilateralism makes it a strong player in many international bodies, including the UN.

My own manifesto for action is summarised below. But what should European leaders say? The argument used by an earlier generation, that the EU has banished warfare from the continent, no longer resonates with many Europeans. Today’s leaders need a new narrative. Talking about Europe’s role in promoting multilateralism is hardly a vote-winner. They may simply have to focus on how the EU can help to tackle issues like climate change, energy security, the need to regulate financial markets, the Middle East peace process, the resurgence of Russian power, illegal migration and terrorism. Hardly stirring stuff, and very prosaic, but member-states on their own cannot do a great deal to solve such problems.

Twenty-seven cooks in the kitchen is too many

  • Europe’s problem is hard power and there is little chance of it becoming a more powerful geopolitical actor any time soon. However, Europe’s leaders could take certain steps that would increase the EU’s clout. Here are some suggestions.
  • Don’t forget the two Lisbons – the Lisbon treaty and the Lisbon agenda’. Implement the foreign policy provisions of the Lisbon treaty. Many countries outside Europe would be delighted if the rotating presidency was replaced with a single, permanent institution to speak for the EU. And get serious about the Lisbon agenda of economic reform that EU leaders signed up to in 2000, and is due to end or be renewed in 2010. Europe’s soft power depends on its economy being perceived as successful. That means EU governments should do more to promote innovation, competition, services deregulation and centres of excellence in higher education, among other things. In a deep recession most people focus on the lack of demand. But when growth returns Europe’s failings on the supply side of its economy will once again become apparent.
  • Use smaller groups of member-states to bring about a more effective foreign and defence policy. Building EU defence with 27 countries won’t work; too few of them care about defence. When it comes to missions that may require the use of force, those countries with robust strategic cultures should form their own organisation. Such a defence club would, like the euro, impose stringent criteria on would-be members. Smaller groups could also be useful on foreign policy, though on an informal basis. Twenty-seven cooks in the kitchen is too many. On particular issues, the EU should delegate the task of drawing up policy to the most interested countries, as it currently does on problems like Iran or Ukraine. It is true that few countries would want to delegate the task of policy-making on really important subjects like Russia or China. But even in these cases informal co-operation among the larger countries may be a necessary – though far from sufficient – condition for substantive policies.
  • Maintain an open door, rather than allow the enlargement process to stall. If the EU tells its neighbours that they can never join it loses influence over them. However, the EU has to recognise that enlargement is going to move very slowly for a number of years. It therefore needs to devise a stronger neighbourhood policy that offers the countries around the EU closer political contacts, more liberal visa regimes, and greater opportunities to participate in EU policies. The recently launched eastern partnership’ is a step in the right direction but far too timid.
  • Make a common energy policy an absolute priority. This is crucial for the EU’s single market, its ambitions in climate change and its foreign policy, especially with regard to Russia. If the EU can follow the Commission’s lead in building a truly single market in energy, a pipeline network that provides more diverse supplies of gas, an emissions trading scheme that encourages much greater energy efficiency, and infrastructure that allows for greater use of renewable sources of energy and for the capture and storage of carbon emissions, its foreign policy stands a better chance of being independent and united.
  • Finally, remember that leaders should lead. The EU would never have achieved anything without the vision of men and women who looked beyond the immediate interests of their countries and institutions. Of today’s political leaders, few are prepared to spend political capital persuading voters that the EU is part of the solution to many problems. But without that kind of leadership, Europe will stay where it is – wobbly and splintering.

Leaders could also talk about the values the EU stands for. One reason the Union may want to intervene in foreign climes is to support the principles that most Europeans believe in. Europeans want the global order to be based on their liberal internationalist values. And values also matter for the debate on enlargement: Europeans will welcome a neighbouring country into the Union if and when its people seem to share their values.

One of the EU’s weaknesses is that many Europeans have little interest in it, and of those that do take an interest, a fair number are hostile. Public indifference or hostility limits the scope for national governments to strengthen EU institutions and accept more co-operation at EU level. So if Europe’s leaders can string together a new and better narrative for the EU, they will help to underpin the Union’s global role – even if it is the US and China that take the lead on many issues.

Charles Grant is Director of the Centre for European Reform