Tag Archive for: Europe

Switzerland’s Brexit moment

The Swiss government’s recent withdrawal from long-running negotiations on a framework agreement with the European Union has triggered a deep crisis in relations. For the EU, the fallout is manageable: economic relations will erode but the union will carry on. For Switzerland, the consequences could be more dramatic. With Switzerland’s future access to the EU’s single market in jeopardy, its walkout might now require a Swiss rethink of its relationship with the bloc almost as fundamental as the United Kingdom’s after the 2016 Brexit referendum.

Switzerland is not an EU member state, but in many respects it comes close. Through some 120 bilateral agreements, Switzerland is a member of the border-free Schengen Area, is closely integrated with the EU in areas such as transport, research and the Erasmus student-exchange program, and enjoys full access to the single market in sectors from finance to pharmaceuticals.

All told, Switzerland probably benefits more from the single market than any other European country—and pays little in return. A 2019 Bertelsmann Stiftung study found that the single market boosts Swiss annual per capita income by €2,900 ($4,576) per year—well above the EU average of €1,000 ($1,578) —whereas Switzerland’s corresponding financial contribution (when it is paid) in effect cost the Swiss less than €14 ($22) per capita per year.

Switzerland’s free lunch is not only economic. The main problem with the ‘bilateral way’, cherished by the Swiss since they voted ‘no’ to the European Economic Area (EEA) in a 1992 referendum, is the lack of continuous updating of single-market law in Switzerland. Swiss public opinion has long held that ‘foreign judges’ should have no role in interpreting the country’s laws. Yet, this clashes with the single market’s requirement of uniform application of supranational rules.

The Institutional Framework Agreement (IFA) that the EU and Switzerland reached in 2018, after five years of negotiations, was a belated attempt to put bilateral relations on a sustainable footing and pave the way for further Swiss access to the EU market. To secure it, the EU again made significant concessions in the face of Swiss sovereignty concerns.

Rather than requiring automatic incorporation of single-market law, the EU allowed for three years of internal Swiss procedures to adopt it (including possible referendums). And instead of insisting on sole jurisdiction for the Court of Justice of the European Union, the EU agreed to an arbitration-based dispute-settlement mechanism that would seek the CJEU’s intervention only for interpreting concepts of EU law.

Significantly, the EU also conceded that the IFA would cover only five market-access agreements, from transport to free movement of persons. The 1972 bilateral free trade agreement remained off-limits, with the two sides issuing only a statement of political commitment to its future modernisation.

But despite these concessions—which would place at risk the single market’s level playing field—the Swiss government never signed the IFA, or even defended it. On the contrary, the Swiss strategy was always to come back for more—until they walked away.

The talks had been made difficult because of disagreements over state-aid rules. Under the IFA, the EU offered a two-pillar arrangement whereby the EU rules would apply in Switzerland but would be implemented through an autonomous Swiss surveillance mechanism with powers equivalent to the European Commission’s. But when the EU negotiated its post-Brexit relationship with the UK, some in Switzerland thought that the UK received a ‘better’ state aid deal.

This ‘Brexit envy‘ is entirely unjustified. Whereas Brexit involved the UK’s complete departure from the single market, the entire purpose of the IFA was for Switzerland to remain within it.

The even bigger thorn in the EU’s side has been Switzerland’s remonstrations against the bloc’s citizens’ freedom-of-movement rights to Swiss social security benefits, and its concerns about downward pressure on domestic wage levels. Here too, the Swiss have a weak case.

Following the Swiss 2014 referendum ‘against mass immigration’, the EU conceded that Swiss law could require Swiss employers to give priority to domestic job seekers. The IFA grants exceptions—provided these are non-discriminatory and proportionate—to protect Swiss wage levels. And the CJEU has recognised that freedom of movement is not absolute and that economically inactive EU citizens may be excluded from other member states’ social benefits.

The EU could not concede more. Precisely because these tricky issues are not unique to Switzerland, the EU cannot give the Swiss a free pass. Treating all countries alike matters not only for the integrity of the single market, but also for the EU’s political viability. If the EU were to give non-members privileges that even members don’t have, more might head for the exit. The EU and Switzerland must find solutions within a common framework of rules, not outside them.

Many in Switzerland fail to recognise their exorbitant privileges vis-à-vis the EU, and that this cherry-picking cannot continue after Brexit. The Swiss government has shown little interest in a fair single-market settlement with the EU and, having broken off talks, now faces some immediate economic consequences.

For starters, future single-market access in electricity and health is off the table. And on 26 May, Switzerland lost access to the EU market for new medical devices, because the EU–Switzerland mutual recognition agreement was not updated. Machinery and chemicals are next in line. Bit by bit, the two economies will decouple in these sectors, at an estimated cost to Switzerland of up to €1.2 billion ($1.9 billion) per year.

The EU must soon make other hard choices, not least concerning Switzerland’s participation in the bloc’s Horizon Europe research program. Research cooperation is obviously mutually beneficial. But with the Swiss holding up their financial contributions and spurning efforts to find viable institutional solutions, the EU seemingly has little choice but to put its foot down.

The EU–Switzerland rupture comes as the UK government also is brazenly confronting the union by stepping away from key provisions of the Ireland – Northern Ireland protocol and asking the EU to adapt. With Norwegian support for the EEA increasingly unstable, several of the EU’s wider economic partnerships are in play.

But it’s the Swiss who face the most difficult choices. A recent opinion poll showed that more than 60% of Swiss are in favour of the IFA. But similar majorities support the EEA model, or even the model of EU–UK and EU–Canada agreements.

As the commission reminded the Swiss government after it broke off the talks, the bilateral relationship urgently needs modernising. Instead, it’s entering the unknown.

Climate cooperation between China and the West may be a mirage

Climate change has emerged as a rare zone of cooperation and civility between China and the West this year, but it remains to be seen if this will last through to, or beyond, the 26th UN Climate Change Conference in Glasgow in November.

Where US Secretary of State Antony Blinken had a shouting match when he met his Chinese counterpart in Alaska in March, President Joe Biden’s climate envoy, John Kerry, was welcomed warmly in his visit to Shanghai in April with a joint communique promising cooperation and concrete action.

The 2016 Paris climate agreement allows nations to set their own targets and pursue their own methods of getting there, subject to the common goal of keeping the rise in global temperature to no more than two degrees above pre-industrial levels, and subject to parties increasing their ambition at each negotiation.

However, the different paths pursued by the US, Europe and China create the potential for conflict.

The first flashpoint is likely to be the European Union’s carbon border adjustment mechanism—essentially a carbon tax on imports—the details of which are to be announced in coming weeks.

President Xi Jinping flagged China’s concerns about the proposal in a video meeting with Germany’s Angela Merkel and France’s Emmanuel Macron in April. Climate change ‘should not become a geopolitical chip, a target for attacking other countries or an excuse for trade barriers,’ he said.

China, which notoriously torpedoed the 2009 Copenhagen climate summit leading then prime minister Kevin Rudd to label their negotiators as ‘ratfuckers’, has more recently moved to the fore of emerging nations in global climate politics. Xi used his address to the United Nations last September to commit China to achieving carbon neutrality by 2060 and a peak in emissions before 2030.

It was a commitment that put China ahead of the United States, which had abandoned its emissions mitigation commitments under Donald Trump, although Trump’s challenger Biden was promising to make climate change his central mission.

Xi followed what the Chinese had billed as a ‘climate summit’ with Merkel and Macron by attending Biden’s own ‘climate summit’ alongside 40 world leaders held on Earth Day a week later.

Biden used that gathering to announce that the US would reduce carbon emissions by 50% to 52% below 2005 levels by 2030. This was a lot more ambitious than the commitment under Barack Obama’s administration to a 26% to 28% cut by 2025.

By calling the summit, Biden was asserting US global leadership of the fight against climate change, but the recency of the switch in policy enables others to reserve judgement.

Xi said China welcomed the US ‘return to the multilateral climate governance process’ and, in a carefully worded comment, said ‘we must maintain continuity, not reverse course easily; and we must honour commitments, not go back on promises.’

A Chinese foreign ministry spokeswoman, Hua Chunying, was less diplomatic, saying the US return to the Paris climate agreement was not so much an exercise in global leadership as ‘a truant getting back to class’.

Both China and the US face questions about the credibility of their climate commitments. Biden has eschewed a price on carbon, to which Republicans are opposed, in favour of a mixed regulatory and government investment plan to achieve his target, which includes a carbon-neutral power sector by 2035 and a big push to electric vehicles.

However, the administration’s US$2.3 trillion ($3 trillion) climate change and infrastructure bill also faces an uncertain path through Congress, with Republicans, many of whom are sceptical about climate change, arguing it will put electricity prices up and kill jobs.

China has been running pilot carbon trading programs since 2013 and is due to start a formal scheme in the electricity sector this month, including 2,225 power companies, with trading in both Shanghai and Wuhan. Companies have to buy emissions permits if their generators exceed carbon intensity benchmarks. It’s not clear that those benchmarks will be set low enough to drive meaningful reductions in coal consumption.

An analysis by the Peterson Institute for International Economics says China’s latest five-year plan, released in March, sets binding targets for reducing carbon emissions per unit of GDP by 18% and energy use per unit of GDP by 13.5% by 2025, however it does not spell out how these are to be achieved beyond simply calling on government agencies to formulate plans.

China has indicated that it expects its carbon trading scheme will suffice to exempt it from the EU border tax, however this is unlikely to be the case. The border tax, which is to apply from 2023, is expected to impose a levy that would raise the cost of imports to the level that would apply if the foreign suppliers had paid for the embodied carbon in their goods at the going European carbon price.

The tax will be introduced gradually but is likely to be imposed first on high-carbon-intensity goods like steel, aluminium and cement. China accounts for about a quarter of the embodied carbon in goods imported to Europe. This reflects both the relatively high use of coal in China’s power generation and its manufacture of energy-intensive goods.

A Bank of Finland study estimates that the proposed border tax would add between 2% and 5% to the cost of China’s annual €380 billion ($598 billion) in exports to Europe. Analysts expect that unless China gets the exemptions it seeks, it will take the EU’s tax to the World Trade Organization as a breach of trade rules and an exercise of protectionism.

All parties are expected to have details of how they plan to achieve their carbon reduction targets by the Glasgow summit in November. China is expecting that along with other emerging nations, it will be held to a lower standard of ambition than the advanced countries. Xi told Biden’s climate summit that the principal of ‘common but differentiated responsibilities’ in climate governance put the onus on advanced nations to assist developing countries in reducing emissions.

Europe and the US will argue China is making this claim to shirk its responsibilities. While China points to the global stock of greenhouse gasses and per-capita emissions, which put the advanced nations—led by the US—at the top, those nations argue China has the highest emissions in total and that its emissions are growing the fastest.

Indeed, the latest data shows China’s emissions are growing at the fastest rate in a decade. The record 12 billion tonnes of carbon dioxide emitted in the past year was 5% ahead of pre-Covid-19 levels seen in 2019. Coal-fired power rose by 12% and delivered 73% of the increase in total electricity generation in the past year.

Steel was the biggest industrial driver of emissions, with 90% of China’s production using coal. China’s plan calls for the use of scrap to rise to 40% of steel production by 2030, but it’s unlikely to achieve that target.

Economic challenges in Europe’s push for strategic autonomy

When it comes to economic growth, Europe has been lagging behind the world’s other major economic powers—the United States and China—for some time. No surprise, then, that the old continent’s relative weight in the global economy is declining fast. How vulnerable does this leave the European Union—and what should EU leaders do about it?

When the Iron Curtain fell in 1989, the countries that comprise today’s EU, plus the United Kingdom, accounted for 27.8% of global GDP (in terms of purchasing power parity). For the US, that share was 22.2%. China, with a share of 4%, hardly registered as an economic power.

Thirty years later, the EU, together with the UK, accounted for 16% of global output, still slightly ahead of America’s 15%. The big shift was in China’s position, which had surpassed its Western counterparts with a share of 18.3%.

The Covid-19 pandemic is set to accelerate these trends. Despite a brief recession, the US is on track to surpass pre-crisis output levels as early as this year. More impressive, China’s economic output could be 10% higher in 2021 than in 2019. The EU, by contrast, will not return to pre-pandemic GDP levels until 2022 at the earliest.

In principle, the robust recovery in China and the US is good news for Europe: industry in the EU, especially in Germany, is benefiting from strong demand from the world’s two largest economies. Nonetheless, Europe’s diminishing economic weight relative to the US and China raises serious questions about its ability to defend and advance its core interests.

Already, many fear that EU countries are being forced to make risky compromises. For example, Chinese investors have been buying up companies in Europe and even taking over critical infrastructure, such as ports, in countries like Belgium, Greece and Spain. Germany has been accused of being slow to condemn Chinese human-rights abuses, in an apparent bid to protect its economic interests.

Europe’s dependence on the US—particularly in security matters—has of course been viewed less critically. Yet, as former US president Donald Trump made clear, this also carries significant risks. And, indeed, calls for Europe to increase its ‘strategic autonomy’—that is, to reduce its dependence on outside powers—have been growing louder.

But all dependencies are not created equal; only those that are one-sided are truly problematic. Identifying which of the EU’s economic dependencies fit into that category will require more careful analysis than has so far been carried out.

For starters, in international trade, is the importer dependent on the exporter, or vice versa? For goods and services with large fixed costs and high margins, the seller’s dependence on market access is greater than for goods with lower margins. Importers are more dependent on supplies from a particular country if the goods are essential and difficult to obtain elsewhere.

In 2020, the EU (excluding the UK) imported €383 billion ($602 billion) worth of goods from China—more than from any other country—and exported €203 billion ($319 billion) worth of goods to China. We don’t know which partner earns higher margins or can substitute imported goods more easily. But the volume of trade in both directions suggests that there is considerable interdependence—certainly enough to provide some protection against aggressive trade policies.

The same is true with the US. When Trump threatened to impose tariffs on goods from the EU to address America’s bilateral merchandise-trade deficit, Europeans pointed out that the US had a similarly sized surplus in services and primary income (for example, from licensing). And those US exports had high margins. With US companies highly dependent on the European market, the US could not have won a trade war with the EU. That’s probably a major reason Trump ultimately didn’t pursue one.

Dependencies can also arise from cross-border investment. But here, too, it can be difficult to determine which side is better off.

Overall, European companies invest much more in China than Chinese companies invest in Europe, despite Beijing’s stricter regulations. The main concerns, it seems, relate to the types of investments Chinese companies are making in Europe.

If Chinese investors buy a European port company, have Europeans become dependent on China? Not necessarily. Given the vital importance of port facilities, it is relatively easy for a national government to bring them under its control, or even to expropriate them, if the operators are deemed to be in breach of their duty to run it properly.

Technological dependencies raise further questions. For example, does Chinese companies’ participation in building telecommunications infrastructure, such as 5G networks, create serious risks for the EU? Again, the answers are not cut and dried, not least because they may depend on factors, such as political influence, that are opaque and difficult to control.

There is no doubt that excessive dependence can carry risks. So, in principle, the EU is right to strengthen its strategic autonomy. But, rather than rely on simplistic assumptions, it should carry out a comprehensive analysis of its economic relationships and the associated mutual dependencies, to identify which need to be reduced.

The EU must also consider carefully its options for doing so. Engaging less might not be the solution. In fact, Europe might balance the scales—or even tip them in its favour—by deepening ties. For example, promoting Chinese investment in Europe could help to reduce European investors’ disadvantages in China by giving the EU more leverage.

Europe’s share of the global economy may be declining, but the EU remains a major economic power with strong ties to the rest of the world. If its pursuit of strategic autonomy devolves into a push for protectionism or even autarky, it risks losing that status. If that happens, Europe really would be vulnerable.

The explosive reset of Czech–Russian relations

The Czech Republic has endured one of its most dramatic fortnights since the Velvet Revolution in 1989, following the government’s announcement that two Russian agents were responsible for explosions at a munitions depot in the Moravian village of Vrbetice in 2014, in which two people were killed. Former prime minister Bohuslav Sobotka expressed the public’s shock perfectly: ‘I would say that this is the largest Russian attack on Czech soil since the invasion in 1968. It is a historic moment, and we must react.’

And we have reacted. The Czech government expelled 18 Russian spies working at Russia’s embassy in Prague, provoking a predictable tit-for-tat expulsion of Czech diplomats in Moscow. More important, it may be a turning point for the Czech Republic, if not for Central Europe.

The geopolitical situation in the region has long seemed clear. Poland is firmly opposed to the Kremlin, the Slovaks try to remain invisible, the Hungarians under Prime Minister Viktor Orban are the Kremlin’s placemen in Europe, and the Czechs zigzag, trying not to alienate either Russia or NATO. As early as the end of the 19th century, the poet Josef Svatopluk Machar captured the Czech stance: ‘And we balance our sympathies / from the East in the West, from the West in the East / with the faults of both, but none of their strengths …’

After 1989, when the anti-communist dissident hero Vaclav Havel was president, it seemed clear that we were part of the West and that we wanted to be active members of NATO and the European Union. But Havel’s shining narrative blinded us to what would follow. The Czech elite that emerged in the post-communist 1990s was much more pragmatic. Where Havel spoke of values, others spoke of money. Business and the economy were everything; foreign policy must adapt.

Czech governments weren’t pro-Kremlin. The local mindset reflected more a refusal to commit. We wanted to be in the EU because it meant money, and we wanted to be in NATO because we would be protected. But as soon as we had to show any kind of solidarity, we started walking backwards and grousing. Whereas Roman Catholicism is deeply intertwined with Polish politics, and historical ressentiment still has a powerful influence in Hungary, it’s materialism that plays this animating role in the Czech Republic, whether the government is left or right.

The current prime minister, Andrej Babis, exemplifies this dispensation. Babis wants only money from the EU. When it comes to following European rules, he refuses, saying the Czech Republic isn’t a ‘colony of Brussels’. Paradoxically, this approach weakens our position vis-à-vis Russia, because it creates the impression that we don’t belong anywhere and will go along with whoever pays more.

This stance is enticing to Moscow. Among our leading politicians, two openly advocate pro-Russian politics: former president Vaclav Klaus and his successor, Milos Zeman. After Russia’s invasion of Ukraine in 2014, Klaus apologised for the Kremlin, writing, ‘Ukraine was born after the downfall of Communism as an essentially non-historical state.’ Klaus, the driving force of Czech politics and post-communist economic reform in the 1990s, wants the Czech Republic to leave the EU, and he strongly condemned the government’s response to the revelations about the attack in Vrbetice.

Whereas Klaus is a man of the right, Zeman, the former leader of the Social Democratic Party, revived the non-communist left after 1989. Nevertheless, Zeman, too, has been a staunch defender of Russian interests. Since his presidency began in 2013, he has cast doubt on Russia’s involvement in the invasion of Crimea and eastern Ukraine; attacked Czech intelligence agencies that warned against Russian influence; promoted Russia’s role in completing a local nuclear power plant; and called for the removal of both former foreign minister Tomas Petricek, who was critical of Russia, and former health minister Jan Blatny, who refused to buy Russia’s unapproved Sputnik V Covid-19 vaccine. The list goes on and on.

After the government announced that Russian agents were behind the 2014 attack, Zeman, the country’s head of state, fell silent for seven days. When he finally resurfaced, it was as a Russian propagandist. Nothing is proven, he sneered in a televised appearance. The police are exploring two possible scenarios of the attack, he claimed. They just started investigating everything in the past few weeks.

In fact, the intelligence agencies and police are looking into just one possibility: Russian involvement. Zeman is simply hell-bent on downplaying the importance of the case, and he will happily seek to discredit Czech institutions to do it.

We are nearing a turning point. Many Czechs now understand that we have no choice but to engage with geopolitics and the values that underpin our alliances. We simply have to adopt a clear stance towards Russia. We are a part of the West, which Vladimir Putin’s Kremlin views as an enemy. And this voice of realism is growing in neighbouring Slovakia as well.

Czechs are also beginning to understand that our dependence on Russia is much smaller than we thought. Mutual trade is minimal; our energy supplies are diversified. There is hope that Czechs will realise that, because their own security isn’t at stake, they can be active members of the EU and NATO.

But that will also depend on what others do. Initial Western reactions to the announcement of Russian involvement in the attack on the munitions depot were underwhelming. Pro-Russian websites and politicians seized on this immediately: no one cares, no one believes it, and so forth.

This response strikes a powerful nerve with Czechs. The painful memory of British and French appeasement at Munich in 1938—after which Czechoslovakia found itself facing Hitler alone—persists here. We have learned to observe other countries’ reactions carefully, so that we can judge how great an interest our allies take in us. That is why it was very important that both the EU and NATO soon expressed support for our country, with several NATO members symbolically expelling Russian diplomats.

Parliamentary elections will take place in the northern autumn, and opinion polls suggest a majority for parties that have no love for Zeman and the Kremlin. As the campaign heats up, no one expects Zeman—or the Kremlin—to remain neutral.

Why Europe’s ‘digital decade’ matters

On 9 March, the European Commission presented its vision for a European ‘digital decade’. With policy targets for 2030 focusing on the four cardinal issues of skills, infrastructure and capacities, public services, and the digitalisation of business, the European Union aims to be at the forefront of today’s digital revolution.

To ensure that technology empowers citizens and businesses to build a more prosperous and inclusive society, we will need open and competitive markets. Enterprises of all sizes must have an equal opportunity to innovate and deliver their products and services to consumers.

More broadly, digitalisation is now the key to building economic and societal resilience and exercising global influence. Our shared  future is already taking shape in the digital domain. In a world marked by geopolitical competition for technological primacy, we must ensure that the EU’s vision of digitalisation—based on open societies, the rule of law and fundamental freedoms – proves its worth over that of authoritarian systems that use digital technologies as tools for surveillance and repression.

By boosting its own capabilities, the EU can help shape the world’s digital transformation for the better. The success of Europe’s digital decade will require the EU to forge strong alliances and working relationships with like-minded countries, both bilaterally and multilaterally. After all, reaping the full benefits of technological innovation requires maintaining an open digital economy in which investments can flow freely. And whether we are deploying digital health solutions, fighting terrorism, mitigating climate change, protecting biodiversity or using technology to predict natural disasters and future pandemics, we will need much more international technological collaboration.

But digitalisation carries serious risks, ranging from mass surveillance and cyberattacks on critical infrastructure to the spread of state-sponsored disinformation designed to polarise societies and undermine democracy. This means we must strike a balance between openness and our other core interests and values.

Specifically, we should adhere to three overarching principles: a level playing field in digital markets, security in cyberspace, and freedom online (including protections for free speech and assembly, and against discrimination and violations of privacy).

In keeping with our determination to strengthen the EU’s bilateral relationships, set clearer standards and establish more resilient digital supply chains, we have already approached US President Joe Biden’s administration with a proposal to create a joint trade and technology council.

The EU is also seeking to form a global coalition around a shared vision of human-centric digitalisation. We must join with others who are willing to cooperate to provide effective democratic governance over technology and the digital economy. Any such coalition should be open to all who are ready to defend an open, decentralised model of the internet and the principles of fairness in digital markets, security in cyberspace and individual freedoms online.

By working together, we can set standards for artificial intelligence and other emerging technologies on the basis of shared values, reaping the fruits of one another’s innovations and building stronger protections against cyberattacks. A coalition of like-minded partners can ensure that the interdependence of our digital supply chains becomes a source of security and resilience rather than added risk.

Equally important, the digital decade is our last chance to follow through on the 2030 Sustainable Development Goals. We know that digital technology has the potential to facilitate inclusion and access to public services around the world. In Africa, the share of the population with internet access has increased from 2% in 2005 to 40% in 2019, enabling more children to be educated and more women to secure employment. Until we close the global digital divide, however, we will not be realising the full potential of new technologies.

To that end, the EU will soon propose an initiative combining financial resources and technical assistance to help its partners develop their own digital governance frameworks, including in areas such as cybersecurity and data protection. For example, a new digital connectivity fund could underpin these efforts; together with our partners, we will be exploring the feasibility of such ideas in the coming months.

Finally, preserving a safe but open internet requires that we develop a more inclusive model of multilateralism, bringing together not just governments but also representatives of civil society, the private sector and academia. This model can then guide our actions within international organisations—from the United Nations and the World Trade Organization to the International Telecommunication Union—to ensure that international rules are fit for purpose.

Through it all, a common thread, woven from shared principles, will guide our efforts to achieve a more human-centric digital transformation that maximises the benefits of technology and minimises the risks it poses. In cyberspace as in the physical world, Europe will continue to stand up for core global values. The 1948 Universal Declaration of Human Rights established the dignity of the individual, the right to privacy and to non-discrimination, and the freedoms of speech and belief. It is our common duty to make sure that the digital revolution lives up to that promise.

The crisis of American power

The United States is suffering from a double crisis. Headlines in recent months have focused mainly on America’s crisis of democracy, but its crisis of global power may turn out to be more consequential in the long run.

America’s crisis of democracy has been personified in the figure of former president Donald Trump, the defeated ‘divider-in-chief’ who still commands leadership of the Republican Party. His successor, Democrat Joe Biden, has embarked on a political project to reunite the country and has already revived many of the institutions that Trump attacked while in office. But reversing America’s deepening polarisation and spiralling inequalities will not be easy in a political environment driven by demographic change, media fragmentation and electoral gerrymandering.

As difficult as it will be to repair America’s democratic institutions, it will be harder still to refurbish America’s global image. Following the Cold War, the US enjoyed a power premium. Because friends and foes alike routinely overestimated American interests, the US enjoyed outsize influence around the world.

But thanks to the Iraq War, the 2008 financial crisis and the Trump presidency, the world no longer places a premium on US power; if anything, it now applies a discount. After all, rather than maintaining an interest in the crises of the Middle East, Eastern Europe, Africa and other regions, the US has pulled back and other powers have filled the vacuum.

In Latin America, the US can still fulminate against Venezuela’s government, but to little effect. In much of sub-Saharan Africa, China has become the most important player. In Syria, Libya and the disputed Nagorno-Karabakh region of the South Caucasus, it is Russia and Turkey that are shaping the future. But most shocking of all are developments in Europe.

With the Covid-19 pandemic killing millions worldwide, it was easy to miss the fact that the European Union and China concluded negotiations on a Comprehensive Agreement on Investment in late 2020. After seven years of negotiations, the CAI was pushed over the line just weeks before Biden’s inauguration, with the Europeans dismissing public pleas by the incoming US national security adviser, Jake Sullivan, to consult with the new administration first.

By pressing ahead, the EU publicly undercut the Biden administration’s top foreign-policy priority of re-engaging with allies to manage the China challenge together. The EU thus squandered the trust of the new US administration (as well as that of Japan, India and Australia), and emboldened China to pursue a divide-and-rule strategy vis-à-vis the democratic world. The signal sent by Europe’s brazen disregard for US interests should send chills down American policymakers’ spines.

It’s no less striking that it was German Chancellor Angela Merkel who negotiated the CAI. Merkel is a committed Atlanticist who would not oppose the US even when it decided to invade Iraq in 2003. Many Europeans back then were unhappy with President George W. Bush’s administration and worried that America had too much power. Today, the problem is inverted: Europeans are happy with Biden and his China agenda but fear that America is too weak to pull it off.

In this respect, European leaders are simply acting on what their citizens think. A recent pan-European survey by the European Council on Foreign Relations finds that a majority of Europeans were delighted to see Biden elected, but have deep doubts about America’s capacity to come back as a global leader. Similarly, a majority fears that the US political system is broken and that Americans can no longer be trusted after having elected Trump in 2016.

Moreover, across the 11 countries surveyed, six out of 10 respondents think China will become more powerful than the US within the next 10 years, and at least 60% of respondents in each country surveyed say they can no longer rely on the US to defend them.

The implications for European policymaking are radical. Most Europeans think they should be investing in their own defence, rather than relying on the US; and many now see Berlin, rather than Washington DC, as the ‘go-to’ capital for leadership. Most alarmingly, most Europeans are not interested in the Biden team’s goal of developing a common transatlantic approach to China. A majority in each country wants to remain neutral in any future conflict between the US and China. This shocking finding first emerged in polling conducted a year ago, when many could dismiss it as a reflection of Europeans’ revulsion toward Trump. That explanation no longer works.

Opinion polling offers only a snapshot of views at a given moment and it’s possible that European attitudes will evolve as Biden and his team bring America back to the world stage. Biden has brilliant advisers in Sullivan, his ‘Indo-Pacific tsar’ Kurt Campbell and many others, and his administration is crafting a tough China strategy that is far more inspiring to US allies than Trump’s bullying bluster ever was. As Campbell and Sullivan explained in a 2019 Foreign Affairs essay, they envision ‘competition without catastrophe’—co-existence without compromising on core values. That is a strategic doctrine all Europeans should embrace.

But a bigger challenge than selling US allies on a China strategy will be restoring faith in America’s might and staying power. As the Chinese economy grows and its links with the rest of the world become more important, America’s own prospects will increasingly depend on its international alliances. Securing a balance of power that favours open societies in every part of the world will be at least as important as preserving an open society in America itself.

Europe’s faith in US wavers despite Biden’s win

A sigh of relief swept across Europe when it became clear that Joe Biden would replace Donald Trump in the White House. New leadership in the United States would mean that after four years of disruption to the transatlantic relationship, an era of constructive cooperation on bilateral and global issues was at hand.

But in recent weeks, that previous sense of relief has given way to nervousness as the US political scene has plumbed new depths of dysfunction. America’s democratic institutions have withstood assaults unlike anything seen since the Civil War. The ransacking of the US Capitol on 6 January—broadcast live to a stunned world—will not soon be forgotten.

The hatred and disdain for democracy exhibited by the insurrectionists will not disappear with Trump’s departure. Millions of Trump supporters around the country will maintain the false belief that the election was stolen. Trump has left American society deeply wounded and Europe with an abiding sense of nervousness and concern for its longtime ally’s future.

Much has changed since early December, when the European Commission released a document outlining its vision for renewed EU–US cooperation. ‘With a change of administration in the US, a more assertive Europe and the need to design a post-corona world’, EU leaders saw a ‘once-in-a-generation opportunity to design a new transatlantic agenda for global cooperation’. Hopes were high. Biden and his impressive team of advisors have made clear that they will reach out to friends and allies to address pressing global challenges such as climate change, threats to public health and the rise of China.

But while European institutions and governments will remain ready to answer America’s call, they should not assume smooth sailing. The winds have changed. A poll of 11 EU member states commissioned by the European Council on Foreign Relations (ECFR) shows that European attitudes towards the US have shifted substantially during the Trump era. A majority of respondents in EU member states believe that the US political system is broken, that Europe can’t rely on the US for its defence, that China will be more powerful than the US within a decade and that Europe should not take sides in a conflict between the two.

Across the countries polled, 51% of people do not think that the US can overcome its internal divisions and invest in addressing key global issues that concern the future of Europe. Though there are of course differences between countries, they are small. Even in the United Kingdom, with its ‘special relationship’ with America, 81% of respondents believe that the US political system is completely or somewhat broken. Only in Hungary and Poland do a majority believe otherwise.

And while other polls show that attitudes towards China have hardened across Europe, 60% of Europeans would prefer that the European Union stay out of the Sino-American rivalry. Only 22% of respondents in the ECFR poll think that Europe should back the US, while 6% think it should side with China. Attitudes about the US are far more reserved than in the past, and confidence in Europe’s ability to shape its own future has grown (whether that outlook reflects reality is another matter).

This clear shift in European attitudes could not come at a worse time. In a world of changing power relationships, US–EU cooperation is urgently needed. There is no way for either side to prevail against global challenges by going it alone. The transatlantic link is the foundation on which wider global cooperative networks must rest.

But Europeans’ nervousness following the recent events in the US cannot simply be willed away. It will linger, implying at least some impact on diplomacy and policymaking. The immediate risk is that America’s political turmoil will bolster those who are already calling for Europe to blaze its own trail, build new barriers or retreat from the world. If Europe’s traditional and natural ally is no longer reliable, what other choice is there? That’s the question now hanging over European policy and strategy debates.

Biden, of course, will be welcomed with near-universal jubilation across most of Europe. But it will take much longer to settle the question of whether Trump was an historical aberration or a harbinger of what is yet to come.

As such, the shift in European public opinion will pose an ongoing challenge for US and European leaders alike. The Biden administration must do whatever it can to restore trust in US society and policymaking, and European leaders must convince a sceptical domestic audience that it should support measures to restore transatlantic ties. The ECFR poll suggests that European leaders have their work cut out for them. But failure is not an option. With new leadership in Washington DC, now is the time to ensure that the nightmare of the past four years is never repeated.

Europe after Brexit

The United Nations ‘was not created to take mankind to heaven, but to save humanity from hell’, the UN’s first secretary-general, Dag Hammarskjöld, once said. The hell he had in mind, of course, was World War II and the Holocaust, next to which most of today’s challenges pale in comparison. Nonetheless, disruptions like the Covid-19 pandemic and Britain’s withdrawal from the European Union have called into question many beliefs that Europeans previously took for granted.

Thanks to German Chancellor Angela Merkel’s leadership within the EU, Europe survived 2020 relatively unscathed. In fact, her stint in the European Council’s rotating presidency during the second half of the year will probably be remembered as one of the great political masterstrokes of post-war European history.

When the pandemic erupted last spring, it looked as though it would be every EU member state for itself. Germany, for example, temporarily banned exports of medical aid and equipment, despite the horrific, rising death toll in nearby Italy. But since then, Europeans have shown impressive solidarity in facing down the pandemic.

More recently, the emergence of a highly contagious strain of the coronavirus in the United Kingdom gave Britons and Europeans a small taste of what would have happened had a final Brexit deal not been agreed on Christmas Day. Border crossings between Europe and the UK were suddenly closed, leaving trucks lined up for miles on decommissioned airfields.

The trade agreement that did emerge can be described as the best of a set of bad options. That it was reached at all owes something to the US presidential election. Having cosied up to US President Donald Trump (and having previously insulted President Barack Obama in racist terms), British Prime Minister Boris Johnson knows President-elect Joe Biden’s administration will not be eager to do his government any favours. In the absence of a deal with Europe, the UK would have found itself utterly alone.

For their part, EU leaders welcomed the agreement because they understand that Brexit has already damaged the union. Given the UK’s considerable geostrategic experience and capabilities (not least its nuclear arsenal), it was crucial for Europe to avoid a full rupture.

But, Brexit aside, the EU is also divided internally over economic policy, the rule of law and the separation of powers. And as if these challenges were not great enough, developments in recent weeks have revealed a deepening divergence between France and Germany. These two traditional motors of European unification pushed through the EU’s new recovery fund, thereby securing cohesion between southern and northern member states. But the EU’s ongoing debate about foreign and security policy, led primarily by French President Emmanuel Macron, has opened a rift over the question of Europe’s strategic position.

Calling for ‘strategic autonomy’, Macron is reacting to America’s disengagement from Europe and its re-orientation towards the Indo-Pacific and China. He is right to conclude that an American withdrawal from the neighbourhood will force Europe to assume significantly more responsibility for its own security. The implication for Germany is that it is approaching a moment of truth. Though it is the EU’s economic powerhouse and its most populous member state, Germany—mindful of its responsibility for the unimaginable suffering of WWII—has refrained from acting strategically for 75 years.

To be sure, German strategic abstention is what enabled the European project in the first place. But things have changed since 1945, and the fact is that the EU cannot become a credible geopolitical force without Germany contributing its full economic, political and, yes, military weight. The problem, of course, is that too many Germans themselves remain suspicious of ‘geopolitics’—or are clinging to a sense of moral superiority that leaves them disinclined to defend European interests.

In this context, the French were fully justified in initiating a debate about European strategic autonomy. The ball is in Germany’s court. Would a future German government consisting of the conservative Christian Democratic Union/Christian Social Union and a pacifist Alliance 90/The Greens grouping respond to pleas from a Libyan government of national unity asking Europe to use force to dismantle the human-trafficking camps that have been set up in militant-controlled areas there? France would certainly answer the call, but it would expect Germany and others to join in.

With his push for European strategic autonomy, Macron is vying to fill the leadership gap that has been created by the UK’s departure and Germany’s ongoing refusal to engage with geopolitical issues. As Europe’s remaining nuclear power and permanent member of the UN Security Council, France is obviously the most appropriate candidate for the job; but it cannot go it alone.

Germany has at least pulled its weight when it comes to internal political issues, particularly concerning the preservation of European unity. Merkel demonstrated this recently by brokering a compromise with Hungary and Poland, which had threatened to veto the recovery fund and the seven-year EU budget over a new ‘rule of law mechanism’ for the disbursement of EU funds. The German government has also repeatedly stressed that any push for strategic autonomy must complement and strengthen, rather than jeopardise, the transatlantic partnership.

Brexit raises long-dormant strategic questions about Europe’s internal unity and external position, and few of these are likely to be decided quickly. As such, France and Germany must seek out common paths for Europe, seizing on the opportunities that autonomy offers while remaining mindful of the limits. Even the most starry-eyed Euro-optimists cannot reasonably claim that Europe can succeed in the 21st century without a close strategic partnership with the US.

Merkel’s last chance

This week’s meeting of the European Council has rightly been called a ‘doomsday summit’. It is overshadowed not just by a ghastly winter wave of Covid-19 infections and the prospect of a chaotic no-deal Brexit, but also by a showdown with the governments of Hungary and Poland, which have taken hundreds of millions of people hostage by threatening to veto the European Union’s 2021–27 budget and the pandemic recovery fund.

Hungary and Poland are trying to block the enactment of a new ‘rule of law’ mechanism that would prevent EU money from being siphoned off for corrupt purposes—a practice for which Hungarian Prime Minister Viktor Orban’s kleptocratic regime is notorious. As the longest-serving head of government in the EU, German Chancellor Angela Merkel has stepped in to try to break the impasse, calling on ‘all sides’ to prepare ‘to compromise to some extent’.

But why should the EU compromise on a fundamental value like the rule of law (which is enshrined in the Lisbon Treaty), and why should EU taxpayers consent to having their hard-earned euros enrich authoritarians and their cronies? Rather than trusting Merkel to broker a deal, Europeans should remind her that this is her last chance to prove that she really cares about democracy and the rule of law.

After all, it was Merkel’s own Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union, that enabled Orban to create his autocracy in the first place. And it is her pick for the European Commission presidency, Ursula von der Leyen, who has failed to protect the independence of the Polish judiciary from the country’s chauvinistic, populist and increasingly defiant Law and Justice (PiS) party government.

Europe’s simmering ‘rule-of-law crisis’ has always seemed more abstract and less urgent than other challenges during Merkel’s long reign, which has spanned the euro crisis, the 2015 refugee crisis and now Covid-19. Yet it is the former issue that most threatens the EU’s moral core—and its day-to-day operations.

While the EU is often caricatured as a distant and aloof super-state, it works closely with and through its members to implement EU policy. Even more to the point, the EU functions primarily as a legal community in which national courts double as European courts. This arrangement cannot work without mutual trust because it depends on national courts recognising the decisions of other member states’ courts. If a judiciary has been captured by an authoritarian government that is targeting politically unreliable judges (as in Poland), other courts cannot be expected to recognise its arbitrary rulings.

The European Commission is supposed to be the ‘guardian of the treaties’ that enshrine fundamental European values. But their enforcement in the face of member states’ violations has usually amounted to too little, too late. Even after years of bad-faith conduct by Poland and Hungary, the commission still naively calls for more ‘dialogue’, which simply allows aspiring autocrats to consolidate their power by co-opting their judiciaries and creating other facts on the ground.

Given the commission’s failure to act, member states have taken matters into their own hands. For example, the European Arrest Warrant is becoming a dead letter, because countries are starting to refuse to extradite anyone to Poland, where fair trials can no longer be guaranteed. Just this month, the Netherlands’ parliament called on the Dutch government to take Poland to court over its rule-of-law violations, potentially precipitating a bilateral confrontation that never would have been plausible had the commission been doing its job.

Meanwhile, in a recent interview, Orban charged Germany with ‘intellectual indifference’, by which he apparently means an inability to see the larger historical picture and insensitivity to the experiences of smaller member states. Orban has things backwards: where Germany has been indifferent, it has been with respect to the preservation of democracy and the rule of law in Hungary under his rule.

Germany’s neglect of core European values is best explained by Orban’s faithful service to the German auto industry, creating what critics have called an ‘Audi-ocracy’. To be sure, some members of Merkel’s CDU have long made noises about ‘red lines’ that Orban must not cross, even occasionally calling for his Fidesz party to be expelled from the supra-national European People’s Party, the umbrella grouping of conservative parties in the European Parliament.

Orban, however, has never paid a meaningful political or financial price for his behaviour. The result of this appeasement, as astute observers have pointed out, is that he now treats his European ‘partners’ with the same brutality as he does his own country, accusing them of making the EU into something akin to the Soviet Union.

Merkel has deservedly earned praise for her opposition to outgoing US President Donald Trump’s assaults on shared liberal-democratic values and international institutions, and for her determination in dealing with the pandemic. She has also acted courageously in agreeing to some form of debt mutualisation under the new recovery fund, which is putting the EU on a more robust financial footing.

But when Merkel steps down next year, she will have left behind no coherent framework to support either the eurozone or Europe’s aspirations of becoming a global ‘normative power’ capable of promoting democracy and the rule of law. Its advocacy of such values will ring hollow as long as it tolerates member states that no longer meet democratic criteria.

Merkel’s legacy would look different if she were to face down Europe’s self-declared illiberals. If she does not, she will have shown that values are negotiable and that the EU is easily blackmailed.

A German-initiated vote on the rule-of-law mechanism in the Council of the EU would likely be approved, because Hungary and Poland cannot block a decision that requires only a qualified majority. After that, it is unlikely that Orban and the PiS government would persist in holding up €1.8 trillion (A$2.9 trillion) in desperately needed funds.

Whatever happens, European taxpayers will remember that these governments would rather inflict pain on everyone than receive funds that must be accounted for properly. Orban claims that accepting the rule-of-law mechanism would be political ‘suicide’ for him. Perhaps. But that certainly isn’t Europe’s problem.

Europe’s double bind

Covid-19 has made a mockery of the world’s great powers. US President Donald Trump promised to ‘make America great again’, but his administration’s handling of the pandemic has been anything but great. Chinese President Xi Jinping has often spoken of a ‘Chinese dream’, yet his own response to the crisis has relied on algorithmic authoritarianism. And Europeans who often pay lip service to multilateralism have met the pandemic with closed borders and national solutions, rather than leading a global response.

In fact, in Europe’s case, Covid-19 is forcing a deeper reckoning. The post–Cold War dream of a rules-based international order with Europe at the centre is in tatters and the European Union is now being buffeted by both philosophical and geographical shocks. Philosophically, Europeans are confronting the fact that raw power, not rules, is the main factor determining today’s global dynamics. Over the past three years, Europeans have watched their two biggest trading partners transform from champions of globalisation into the leading exponents of ‘decoupling’.

Because neither America nor China wants a conventional war, both have taken to weaponising regional and global institutions. While the United States has politicised what were once seen as public goods—including the financial system, interbank transfers, the World Trade Organization, the International Monetary Fund and the internet—the Chinese are increasingly using state aid and strategic investments to manipulate markets and undercut the West in key areas.

The geographic shock is that global politics is now centred around Asia rather than Europe. During and immediately following the Cold War, Europe’s regional order and the Western-led global order seemed to reinforce one another. There was a genuine sense of transatlantic community and shared values, with Europe serving as the front line in the competition between the US and the Soviet Union. Europe mattered—and successive US presidents were highly attentive to European concerns.

But the Sino-American rivalry has shifted attention away from European issues, and American disengagement in the Middle East, Eastern Europe and the Balkans has created a vacuum that Turkey and Russia are rushing to fill. In the 1990s, Europeans assumed that these other powers could be accommodated within the European regional security order, with NATO and the EU serving as the main pillars. But, particularly during the last decade, the dream of European unipolarity has given way to the realities of multipolarity.

These twin shocks—the abrupt shifts from rules to power and from Europe to Asia—have shaken Europe’s conception of order. No longer are European plans for regional and global arrangements mutually reinforcing. Instead of the European legal order being nested within a broader Western security framework, the two domains are now increasingly in conflict with each other.

Europeans thus find themselves in a double bind. On the one hand, they still depend on the US to uphold the global security order, and sustaining this arrangement seems to require that Europeans assume more responsibility for their regional defence, as well as align closely with America in its confrontation with China. In the short term, China may well be the glue that holds the transatlantic partnership together, given that Americans and Europeans share many of the same concerns about that country’s state-led economic model and human-rights violations.

But, on the other hand, the global competition between China and the US puts pressure on Europe’s regional order. The US is increasingly absent from the geopolitical theatres that pose the greatest threat to Europe. And, under Trump, America no longer bothers to consult European governments on its foreign policy, even concerning countries like Iraq where European militaries have deployed troops. Worse, the US has come to regard many of the institutions and rules that were developed for a Europe-centric world as impediments in its confrontation with China.

For example, the Trump administration has essentially made a bonfire out of longstanding multilateral arms-control treaties, on the grounds that these constrain the US while allowing China to do what it wants. In the coming months, European leaders may be forced to choose between upholding such arrangements and preserving the relationship with the US on security (arms control), the economy (trade rules), technology (5G, semiconductors and more) and climate negotiations.

The US presidential election on 3 November could be a game-changer in the transatlantic relationship. A Trump victory would leave Europe even more on its own. But even if Trump loses to Democratic challenger Joe Biden, allowing for a restored transatlantic bargain, the arrival of a new administration would not alter the long-term shift in US priorities, nor would it loosen the American public’s attachment to national sovereignty.

Last year, when French President Emmanuel Macron issued his controversial warning about NATO’s ‘brain death’, he was channelling a fear that many European leaders privately hold: that the unipolar, Eurocentric, rules-based order is being replaced by a quadrangle of chaos comprising China, Russia, Turkey and Trump’s America. In preparing for this possibility, European leaders will have to abandon the notion that geopolitics is a realm of permanent alliances and institutions. To defend EU values and interests, they will have to assume more diplomatic responsibility for regional security, pursuing a mix of deterrence and dialogue vis-à-vis Russia and Turkey.

In developing a new strategy, the EU will need to make room for a robust military component, even though its foreign-policy strength will continue to depend largely on weaponising assets such as trade, technology and regulation. Instead of asking Germany to increase its defence spending to 2% of GDP, for example, the EU should be asking Germans to use the remaining 98% of their economy as a means of securing European interests in trade and other issues of concern.