Tag Archive for: European Union

The future of transatlanticism is up to Europe

Politicians who don’t know what to do when confronted with new or difficult circumstances often resort to empty phrases. This certainly appears to be the case for Europe and its changing relations with the United States.

For example, German Chancellor Angela Merkel now argues that transatlantic relations need a ‘fundamental’ reappraisal, and German Foreign Minister Heiko Maas insists that there is an ‘urgent need for action’. But what does this mean? Where are the concrete proposals specifying what such action should entail?

The fact is that we Europeans—especially we Germans—long took comfort in the assumption that the post-war order would more or less maintain itself after the Soviet Union’s disintegration. After all, the US was the only remaining superpower, and it happened to be our closest friend. While we looked after ourselves at home, the US (with a little help from its nuclear-armed French and British friends on the United Nations Security Council) would assume responsibility for the wider world.

But since the geopolitical upheavals of the 1990s, the US—unlike most Europeans—has actually reflected on the changing world. It concluded that in the 21st century it would have to think more about Asia—namely China—which meant that there would be less focus on Europe and the transatlantic world. Hence, while seeking to curtail America’s involvement in the Middle East and Europe, US President Barack Obama announced a ‘pivot to Asia’, which has since evolved into a loosely defined ‘Indo-Pacific’ strategy under Donald Trump.

Now that China has replaced the Soviet Union as America’s main geopolitical rival, there’s growing talk of a new cold war, and not just among Trump’s more hawkish Republican allies and advisers. Still, Trump is certainly the first US president to have openly demanded both loyalty and compensation from Europe. For the past three and a half years, the message from the US has been that if Europe—particularly Germany—doesn’t pay up, it won’t be able to count on US protection under Article V of the North Atlantic Treaty.

In Trump’s view, the world is a simple place where the strongest actor always prevails. He doesn’t recognise the fact that America’s alliances are what reinforce its power and distinguish it from China and Russia. To Trump, all US partners and allies are merely potential marks for extortion.

It should be obvious by now that Europe must stop being the rabbit to the US serpent. America will do whatever it thinks best, and if Trump wins a second term in November, not even NATO will be safe. But even if Trump’s presumptive Democratic challenger, Joe Biden, prevails, the US won’t suddenly snap back to post-war form. With or without Trump, the US still will look less to the Atlantic and more to the Pacific. And, in a few years, Americans of European heritage will no longer constitute the majority of US citizens.

Two-thirds of Americans already think that their country ‘is playing the role of world policeman more than it should be’, which suggests that any future administration will feel pressure to curtail the US military presence in the Near and Middle East. That, in turn, will further reduce Germany’s longstanding importance as a forward base for US operations in the Middle East, Africa and elsewhere.

Under these circumstances, Europe must start to define its own interests for itself and clarify the means (military, economic, political) by which it will advance them. For example, Germans shouldn’t let the US president’s views influence their internal debates about defence spending.

The same applies to European relations with China. How does the European Union intend to prevent each member state from pursuing its own China policy? Answering that question—and devising a strategy for dealing with China more broadly—will be far more important for the transatlantic relationship than NATO contributions, troop reductions or trade issues.

Fortunately, given the geopolitical dynamics of the 21st century, even the US will soon realise that going it alone is a dangerous game. Global threats like climate change, nuclear proliferation and pandemics can be tackled only collectively, and the need for a strong transatlantic partnership will become obvious as these issues come to the fore. But renewing the relationship will be possible only if Europe is united on key issues. An internally divided EU can’t be a serious partner to anyone.

For Europe, the transatlantic relationship will remain something of a default position. Europe decided to align with the US 75 years ago, and that is where it will remain. There’s no possibility of ‘equidistance’ vis-à-vis the US, China and Russia, because the latter two hold fundamentally different ideas about non-negotiable issues of governance.

‘The West’, after all, is not a geographical term; it is a universally applicable political project built around the rule of law, judicial independence, freedom of speech, an independent press and other core liberal values. Notwithstanding Trump, Europe and the US together are still the leading exponents of these ideas.

Europe’s challenge now is to show that a balance can be struck between individual freedom and mutual responsibility. As the initial phase of the Covid-19 crisis showed, this is easier said than done. But since then, Merkel and French President Emmanuel Macron have taken a step in the right direction with their joint proposal for a European recovery fund.

Europeans should recognise that when they speak of ‘fundamentally’ rethinking their attitude towards the US, they are actually revealing a change in their own self-perception. There is indeed an ‘urgent need for action’. Europeans need to act by themselves and for themselves. Gone are the days when we could sit back and allow US aircraft carriers to project our interests.

Europe’s self-help moment

When Covid-19 struck Europe and forced millions of people into internal exile, many were overcome by a deep sense of loneliness. This reflected not only a craving to be reunited with friends and family, but also a broader feeling that their countries had been helpless and abandoned in the face of the global pandemic. This sense of rejection is profoundly affecting the individual psyches and worldviews of Europe’s citizens.

That is the main finding of a recent European Council on Foreign Relations poll of 11,000 people across nine European countries—Bulgaria, Denmark, France, Germany, Italy, Poland, Portugal, Spain and Sweden—that together represent two-thirds of the EU’s population. Paradoxically, the poll shows that the absence of European Union help for member states during the first phase of the crisis has led to an overwhelming demand for concerted EU action—both to help countries recover from the crisis and to equip them to survive in the world the pandemic is creating.

The ECFR’s survey reveals that Europeans have felt completely let down during the crisis by EU institutions, multilateral organisations and Europe’s closest partners. Some 63% of respondents in Italy and 61% in France said that the EU did not rise to the challenge posed by the pandemic.

Moreover, the percentage of respondents who felt that the United States had been a key ally for their country in this crisis was vanishingly small, with Italy having the largest share, at just 6%. In three countries—Denmark, Portugal and Germany—a majority of the citizens said that their opinion of the US had worsened during the crisis, a view held by a large minority in Italy, Poland and Bulgaria.

This worsening of perceptions of the US seems to reflect more than just disapproval of President Donald Trump. Many Europeans are no doubt looking at America’s chaotic Covid-19 response and asking themselves how a country that is struggling to help itself can be relied upon to protect the West.

At the same time, more than 60% of French and Danish respondents, and almost half of those surveyed in Germany, claim to have cooled on China. Indeed, except in Spain and Bulgaria, a plurality of respondents in each country blame China for the outbreak of the coronavirus crisis in Europe.

But Europeans’ current anxiety about being left alone is fuelling a new desire for joint action. Some 63% of all respondents (including a majority in each of the nine countries surveyed) think that the current crisis has shown the need for more cooperation at EU level.

Before the pandemic, European politics often seemed to be defined by opposing camps of nationalists and globalists. But our polling suggests that the Covid-19 crisis has scrambled the distinction between the two. Many nationalists have come to realise that a nation-state cannot rescue itself by standing alone, while globalists increasingly recognise that there will never be a perfect international order while Trump, Russian President Vladimir Putin, and Chinese President Xi Jinping are in power.

As a result, both groups are increasingly exploring the possibility of building a rules-based Kantian utopia in Europe. Because neither nationalist retrenchment nor global cooperation will help to avert the next crisis, a new space for finding European solutions is opening up.

Indeed, 52% of respondents in the ECFR poll want a more unified EU response to global threats and challenges, 46% support increased controls over the bloc’s external borders and 41% favour pushing firms to produce more medical supplies within the EU, even if this results in higher prices. And in all nine countries, the proportion of respondents who support more action on climate change as a result of the pandemic exceeds the share who favour less.

Across Europe, people recognise that if a Sino-American trade and technology war jeopardised globalisation, then greater European unity—including in the form of the EU’s proposed recovery plan—offers the best hope of safeguarding their economies and values. Rather than just preaching the merits of a greener economy, Europe can set a price for carbon and use border adjustment taxes to persuade others to meet its standards or absorb the costs. Likewise, the EU’s digital agenda and plans for a digital-services tax may yet force global tech giants to abide by European rules.

National governments and Brussels-based EU institutions realise that the Covid-19 crisis has created an opening for stronger collective European action. But policymakers must understand that the demands of voters across the continent for greater cooperation do not reflect an appetite for institution-building, but rather a deeper anxiety about losing control in a perilous world.

Europe is now a community of necessity rather than choice. And voters increasingly see the EU as a tool to strengthen, rather than weaken, national sovereignty.

The Franco-German recovery plan presented in May could mark the start of a crucial new chapter of the European story. But building a more powerful and unified Europe will require the bloc’s leaders to tailor their arguments in a way that connects with—rather than repels—European voters.

Salvaging the European Union

As Winston Churchill once observed, too many people who ‘stumble over the truth’ will ‘pick themselves up and hurry off as if nothing had happened’. But in the case of Covid-19, the world has been confronted with uncomfortable facts that are impossible to ignore. Like the 2008 financial crash and the 2015 refugee crisis in Europe, the pandemic has fully exposed a deep vulnerability to systemic threats.

The ultimate role of the state—the very meaning of sovereignty—is to provide its citizens with adequate protection from existential risk. Yet globalisation appears to have undermined the modern state’s ability to cope with low-probability, high-impact scenarios. Just as the 11 September 2001 terrorist attacks in the United States forced people to rethink security, the Covid-19 crisis compels us to take a fresh look at how we manage interdependence.

It’s tempting to ask whether this crisis will be resolved more effectively by nationalism or through international coordination. But that is the wrong question. The real issue is whether interdependence can be compatible with and complement the continued existence of nation-states. In today’s political environment, lectures about the need to maintain open markets and borders simply will not cut it. As soon as the novel coronavirus was recognised as a global threat, most national leaders’ first instinct was to close their borders. Calls for international coordination through forums like the G20 were an afterthought.

And yet, while the initial spread of the virus owes much to interdependence, the health crisis it has created within individual countries won’t admit of nationalist or autarkic solutions. Once the virus is being transmitted within communities, closing borders will do nothing. In the world wrought by Covid-19, Jean-Paul Sartre is absolutely correct: ‘Hell is other people.’

The pandemic has struck an international order that was already in crisis. It has been obvious since at least 2008 that, contrary to what was long claimed, not everyone wins from globalisation. A more open and interconnected world is conducive to strong economic growth and prosperity, but also to rising inequality and ecological destruction. The freer movement of people has provided new opportunities for millions, but it also has increased the upward pressure on public services and downward pressure on wages in host countries, while fuelling a brain drain from the places left behind.

Long before the pandemic, these trends had provoked a backlash, particularly in developed countries, where populist parties and leaders have seized the political agenda from the mainstream parties that defended the post-war liberal international order. Most dramatically, under President Donald Trump, the US has gone from leading the international order to dismantling it, on the claim that both US allies and rivals such as China have been exploiting America for their own gain.

Against this background, it is inevitable that the current crisis will remake globalisation one way or another. But how?

The pandemic represents an opportunity for a number of different political groups, from environmentalists who have long demanded more sustainable development to those who are worried about inequality or the fragility of global supply chains.

For their part, Europeans should use the occasion to rethink their notion of sovereignty. The challenge is to figure out how European integration itself could serve as a backstop for national sovereignty, rather than pose a threat to it. As this and other recent crises have shown, European governments must be allowed to protect their citizens from the threats introduced by interdependence, be they environmental, cyber, contagious, migratory or financial in nature.

To that end, Europe’s leaders need to develop a vision of ‘European sovereignty’ that mitigates the need for autarchy by creating channels for national governments to make certain fundamental decisions for themselves, and to bargain effectively within broader frameworks of interdependency. Specifically, such a vision must transcend the divide between the ‘open’ and ‘closed’ camps in three areas.

First, in the debate between self-sufficiency and more efficient, diversified supply chains, the EU can blaze a middle path. It’s not realistic for small member states to return to self-sufficiency, but it should be possible for the EU to produce and store key resources, from ventilators and food supplies to 5G networks and energy supplies, and then ensure their availability within the single market. This would offer protection to smaller countries that are more vulnerable to being bullied in the 21st-century global economy.

Second, in the battle between autocracy and democracy, Europe must demonstrate how democratic principles can be preserved even in a state of emergency. Here, one promising option is to create a judicial framework to ensure that data collected for Covid-19 tracking and other purposes are not kept in perpetuity. EU leaders also should be thinking about new mutually agreed standards governing the use and duration of emergency powers adopted by member states.

Third, in navigating the gap between national sovereignty and multilateralism, Europe can adopt an approach that satisfies both impulses, while also charting a course that leads to a different destination from the approach taken by Trump, Chinese President Xi Jinping and Russian President Vladimir Putin. By reaching out to likeminded countries, the EU can shape the international order in ways that reflect its own core values and interests.

For example, on climate change, the EU could use a border adjustment tax to force its many trading partners to internalise their own carbon costs. On migration, it can work more closely with third countries to manage the movement of people. And on global public health, it can use aid and other instruments to help vulnerable countries strengthen their healthcare systems, thereby minimising the likelihood—or at least the impact—of future pandemics.

Ultimately, the Covid-19 crisis could allow the European project to return to its roots: reconciling the prerogatives of the nation-state with the realities of interdependence, rather than sacrificing national sovereignty on the altar of neoliberal dogma. Better yet, developing a coherent vision of European sovereignty would help to prepare for the next crisis of interdependence. Will Europe’s leaders pass Churchill’s test and confront the truth that Covid-19 has pushed into their path, or will they pick themselves up and return to business as usual?

The end of the EU’s Brexit bounce

After the United Kingdom voted in 2016 to leave the European Union, policymakers and political leaders across Europe feared that they too would soon face a similar crisis. They worried about a domino effect in which populist movements and politicians would lead other member states out of the EU one by one, effectively reversing a decades-long process of European integration.

But, at least until recently, Brexit had the opposite effect. Much to everyone’s surprise, the EU in the years after the UK’s referendum enjoyed a Brexit dividend. Europeans watched the UK descend into political chaos, with Britons literally stockpiling food and medicine for fear of what the future might hold. EU member states that typically agree on very little suddenly found themselves united behind the European Commission’s negotiating strategy. Support for the EU among Europeans soared. The new joke was that thanks to US President Donald Trump and Brexit, America and Britain had saved the Europeans from themselves for the third time in a century.

But, rather than averting an EU-wide crisis, the Brexit dividend may have merely deferred an inevitable reckoning. In speaking with European presidents, prime ministers and foreign ministers at this year’s Munich Security Conference, one could detect a palpable fear that the costs of Brexit would soon start to outweigh the benefits. Many national politicians and EU-level policymakers are now worried that the dividend will become a liability.

Having reached an agreement on the transition period, British Prime Minister Boris Johnson’s government finds itself in the strange position of being able to claim that it ‘got Brexit done’ without actually having made any of the sacrifices necessary for leaving the EU. Until 31 December 2020, British companies will continue to have full access to the EU single market, Britain will remain in the customs union, and British citizens will be able to travel freely across Europe.

So far, then, the real-world costs of Brexit have been essentially nil. Hence, on the day after Britain’s formal withdrawal from the EU, the pro-Brexit journalist Daniel Hannan could gloat on Twitter that: ‘One day in and so far: No food riots; No medicine shortages; No gridlocked motorways; No migrant camps in Kent; No collapse in house prices; No emergency tax rises; No world war. Weren’t we told that “It’s not Project Fear, it’s Project Reality”?’

With a massive 80-seat parliamentary majority, Johnson has been able to present himself as more statesman-like and dynamic than his European counterparts, many of whom are dealing with political crises of their own. In Germany, the two biggest political parties are in the grips of an ongoing psychodrama, owing to challenges from the Greens on the left and Alternative for Germany on the (far) right. In France, President Emmanuel Macron is pursuing a difficult pension reform, and will likely have his nose bloodied in local elections next month. Spain and Italy, meanwhile, have weak and divided governments.

Moreover, Johnson is preparing a populist economic policy package, complete with fiscal stimulus and Trump-like handouts to favoured constituencies. The hope is to engineer an economic upswing that will position the UK to outperform the eurozone, at least in the short term. If the gambit succeeds, populist parties in other EU member states will once again see Britain as a model (rather than a cautionary tale) for their own Eurosceptic causes.

Making matters worse, European leaders will now find it much more difficult to maintain the impressive level of intra-EU unity achieved by Michel Barnier, the EU’s chief Brexit negotiator, during the first phase of the talks. Once the EU begins to negotiate the details of a trade and investment deal with the UK, the divergent economic models and security needs of northern, southern, eastern and western member states will be much harder to reconcile. Johnson’s government, embracing the role of Perfidious Albion, won’t hesitate to exploit these divisions.

And yet, there can be no doubt that Brexit will hasten the UK’s decline in the medium and long term, leaving the country poorer, more insecure and less influential than it otherwise would have been. Although the transition has been designed specifically to avoid a cliff edge or a single moment of crisis, it will inevitably be remembered as a period of missed opportunities for slowing Britain’s steady slide into middling provincialism. For now, though, this decline will be obscured by Johnson’s infectious bonhomie and public grandstanding, touting the political benefits of Brexit while ignoring the looming costs of leaving the single market.

In the next round of talks, worries French Foreign Minister Jean-Yves Le Drian, the UK and the EU will be trying to ‘rip each other apart’. Whereas Johnson’s political fate rests on making Brexit look like a cost-free success, the EU’s interests run in exactly the other direction. The worse Brexit looks, the easier it will be to fend off Eurosceptic challenges from within the EU.

European leaders are now weaving a new narrative to show that Britain will suffer from its decision. Even with so many other mounting crises—from trade and technology wars to climate change and the re-emergence of Islamic State—the need to convince European voters that Brexit was a bad idea is once again rising to existential importance.

Europe needs to make some hard choices in 2020

For the first time since 1957, Europe finds itself in a situation where three major powers—the United States, China and Russia—have an interest in weakening it. They may squeeze the European Union in very different ways, but they share an essential hostility to its governance model.

The European model, after all, is based on the principle of shared sovereignty among states in crucial areas such as market standards and trade. That liberal idea is antithetical to the American, Chinese and Russian view of sovereignty, which places the prerogative of states above global rules and norms of behaviour. Shared sovereignty is possible only among liberal states; unalloyed sovereignty is the preserve of populists and authoritarians.

But today’s anti-EU hostility also owes something to Europe’s undeniable economic weight in the world. Without the EU, the US under President Donald Trump would likely have succeeded already in forcing Germany and France to surrender to its trade demands. Had it been on its own, France wouldn’t have been able to reject bilateral negotiations with the US over agricultural issues. The EU, as a ‘common front’, works as a power multiplier for its constituent parts in all areas in which sovereignty is shared.

China’s view of Europe is not so different from Trump’s. While the Chinese have taken advantage of the European single market by acquiring footholds in key EU countries, the last thing they want is for Europeans to share sovereignty in controlling foreign investment, such as through the new screening mechanism launched last April. China has been cultivating financial dependencies in the Balkans, knowing full well that if these countries become EU members, they will be subject to stronger transparency requirements.

Beijing would much prefer the model underpinning the Belt and Road Initiative, its massive effort to build trade and transport infrastructure linking China with Africa and Europe. How China and participating countries finance BRI projects is notoriously opaque. In fact, more than half of all Chinese loans to developing countries are not even listed publicly.

Russia, too, resents European unity. Although some EU member states oppose continued sanctions against Russia, all have respected them. Still, Europe is hardly a monolithic bloc when it comes to Russia. Despite Europe’s energy-independence objectives, Germany is cooperating with Russia in building the Nord Stream 2 gas pipeline. For a while, Germany also stood in the way of a firmer EU policy vis-à-vis China, owing to the German auto industry’s reliance on the Chinese market. But Germany’s position has changed since 2017, and its leaders are finally taking stock of the risks posed by Chinese takeovers in sensitive industrial sectors.

The frequent claim that Europe is incapable of playing a global role is thus simply incorrect. Compared with a more isolated developed country like Japan, Europe is quite strong indeed. While Japan has been at the mercy of US tariffs on imported steel, the EU has retaliated in kind. And while Japan has had little choice but to accept a bilateral trade deal with the US (‘in principle’), Europe has stonewalled the Trump administration’s attempts to overhaul the US–EU trade arrangement.

To be sure, the EU is still a long way from achieving strategic and economic autonomy. But that doesn’t mean it’s incapable of doing so. Europe has many assets with which to defend multilateralism and international norms. Given its creativity and massive market, it could play a critical role in setting the standards for digitalisation and artificial intelligence—both of which are at the heart of today’s global economic battle. Lest one forget, it was Europe that took the first step in regulating the platform economy, through the General Data Protection Regulation, which has already set a new world standard.

But Europe still needs to develop its monetary, industrial and military capacity. The EU must expand the international role of the euro so that it can serve as a safe asset and a standard currency for cross-border trade. Internationalising the euro will require a deep capital market, comparable to that of the US, and there’s already a consensus among eurozone member states in favor of heading in that direction.

Establishing the euro as a safe asset—that is, making a Eurobond equivalent to a US Treasury bill—is more controversial. Germany is staunchly opposed to any proposal that implies risk-sharing across the eurozone. But if foreign investors are not confident that the European Central Bank will defend the value of the euro in any eurozone country, they will never see the single currency as a rival to the dollar.

On the second point, Europe needs to create its own industrial ‘champions’. That will require deepening the internal market, which remains far too fragmented with respect to services. It also may call for a reconsideration of EU competition rules. Following EU antitrust authorities’ decision to block a number of large mergers last year—not least that between Alstom and Siemens—there’s a growing debate within Europe about how competition policies can be improved.

Finally, Europe desperately needs to build up its military capacity, to lend credibility to its exercise of commercial and soft power. For example, a new European protection force deployed in the Strait of Hormuz would signal to both the US and Iran that Europe can defend its own interests without having to take sides against its allies. The capacity to project power is a fundamental source of global clout.

Europe does not need a ‘grand strategy’, which is a pompous term that fails to account for local and global constraints. Rather, it needs the determination and political will to develop new commercial, diplomatic and military strategic assets. In a world of sabre-rattling and muscle-flexing, effective modesty is preferable to vacuous ambition.

The Green Deal will make or break Europe

European Commission President Ursula von der Leyen’s ambition to lead a ‘geopolitical commission’ has faced its first big test. European heads of state met last week to discuss her proposed European Green Deal, a sweeping project that could either unite the European Union and strengthen its position on the world stage, or generate a new intra-European political cleavage that leaves the bloc fractured and vulnerable.

The need for concerted action is clear. The Green Deal is a response to accelerating climate change, which poses an existential threat not just to Europe but to the entire planet. The problem doesn’t observe national borders, and thus requires collective global action. But the transition to a carbon-neutral economy also offers far-reaching opportunities. With the right strategy in place, Europe can boost its own technological innovation and deploy carbon pricing and other fiscal policies to protect European labour markets from being undercut by lower-cost production in China and elsewhere.

Moreover, through the European Investment Bank, the EU already has a tool for mobilising massive stores of capital for investments in infrastructure, research and development, and other essential areas. And, as Adam Tooze has argued, by issuing green bonds and other ‘safe assets’, Europe can secure greater economic dependence from other powers and start to establish the euro as a global currency.

But alongside this positive vision are more dystopian scenarios in which the climate-policy debate creates geographic and socioeconomic divisions and fuels a populist backlash. Although climate change touches everyone, its effects are asymmetric, as are the costs of undertaking a transition to a carbon-neutral economy. The danger for Europeans is that the unequal distribution of the costs and opportunities will fuel a culture war between east and west, urban and rural, and so forth.

This European debate is an echo of a broader global challenge. Many Eastern European countries still depend heavily on coal for energy generation, and thus fear that the push for carbon neutrality is an underhanded form of protectionism by advanced economies like Germany. Poland’s energy minister, Krzysztof Tchórzewski, dismissed as ‘a fantasy’ the notion that Poland—which relies on coal for 80% of its electricity—could achieve carbon neutrality by 2050, and estimated that the costs of such a transition would approach €1 trillion. For now, Warsaw has secured an exemption; all other heads of state agreed to move forward with the plan. The next leaders’ summit is scheduled for June 2020.

But, in addition to the east–west divide, the Green Deal could also create political rifts within every EU member state. French President Emmanuel Macron has tried to position France as a global climate leader. But his government’s attempt to raise taxes on fuel last year backfired when millions of gilets jaunes, the ‘yellow vests’, took to the streets in protest late last year.

The European Council on Foreign Relations has conducted in-depth polling to understand policy preferences across Europe, and we have found climate policy to be a particularly divisive issue. On the surface, around two-thirds of Europeans in most countries polled think that tackling climate change should be a priority, even if it means curtailing economic growth. But up to one in four people don’t think that climate change is a real threat and are far more worried about Islamic radicalism and the rise of nationalism.

The gilets jaunes aren’t an isolated phenomenon. Recent elections have shown how a program like the Green Deal could become a useful punching bag for populists and parties like Alternative für Deutschland (AfD) in Germany and Rassemblement National (National Rally, formerly the National Front) in France.

Critically, once you move from asking people whether climate change is a problem to how it should be addressed, concerns about socioeconomic fairness and the distribution of costs prove hugely divisive. Even in the European Parliament, where 62% of MEPs were elected on green-inspired platforms, only 56% agree that the EU should be pursuing a rapid transition to a low-emissions economy. And only one-third of MEPs are prepared to take tough action against companies with large carbon footprints.

Generally speaking, then, there are two possible futures for European climate policy. The Green Deal could become Europe’s chief new cause, lending momentum to European integration and strengthening the EU’s global position vis-à-vis China and the United States. Or, it could become the next ‘refugee crisis’, a singularly potent issue that divides Europe between east and west, and that mobilises populist forces within countries across the bloc.

To make the first scenario more likely, EU leaders need to listen less to moralists like the young climate activist Greta Thunberg, and more to pragmatic realists who understand that paying off reactionary forces has long been part of the price of progress. The only way to shepherd the Green Deal to successful implementation will be to offer large fiscal transfers to the laggards, so that they, too, will have a stake in the clean-energy transition. Without European unity, there can be no effective European response to climate change.

Which way for Europe on China?

Recognising that the European Union is facing a number of vexing challenges on the world stage, Ursula von der Leyen, the new European Commission president, has promised to lead a ‘geopolitical’ commission. Echoing this sentiment, Josep Borrell, the new high representative for foreign affairs and security policy, has challenged the EU to decide whether it wants to be a global ‘player’, or just a ‘playground’ for other powers. So, which way will Europe go?

Of all the challenges Europe faces, few are as important as forging a strategic policy for managing its relationship with China. The stakes are enormous. The EU is China’s largest trading partner, and China is the EU’s top trading partner after the United States, with bilateral trade exceeding US$1.1 billion per day.

Over the past few years, the US has adopted an increasingly aggressive approach to China. In fact, ‘confronting’ China seems to be one of the few things that unite Americans politically nowadays, even though no single factor is driving US policy. President Donald Trump seems primarily concerned with the bilateral trade deficit, whereas the US security establishment worries about China’s ongoing military and technological development, which could eventually position it to challenge US strategic supremacy.

No one doubts that China’s rise poses a challenge to individual countries and the global balance of power. A world in which the Chinese economy has grown to twice the size of the US economy will be a very different place indeed, even without accounting for rising Chinese military spending. It’s understandable that Americans are worried about no longer being the pre-eminent global power—a position they have enjoyed since supplanting the British empire a century ago.

Nonetheless, how the US intends to confront this emerging new reality remains unclear. Some seem to believe decoupling with China, and pressuring other countries to do the same, can frustrate the growth of the Chinese economy, potentially creating the conditions for political or even regime change. Others are sceptical of this strategy and would prefer more narrowly defined policies geared towards changing specific aspects of Chinese domestic and foreign policy. This approach is less glamorous, but it’s also more traditional.

In any case, gut reactions have so far been winning out over careful deliberation, and they probably will for some time. The US wants the EU to fall into line with its position, but, other than making that demand clear, it has pursued almost no strategic dialogue with Europe on the issue.

Meanwhile, the debate over China within the EU has been heating up. China may no longer have a Marxist economy, but it certainly still has a Leninist political system. For good reason, many Europeans are sensitive to issues of human rights in Hong Kong, Xinjiang and elsewhere. Europeans are also rightly worried about economic issues. As the European Commission warned earlier this year (under its previous leadership), China is ‘an economic competitor in pursuit of technological leadership, and a systemic rival promoting alternative models of governance’. This language represents a sharp departure from that of previous EU communiqués.

The next year will be critical. In addition to a regular EU–China summit in Beijing in April, Chinese and European heads of state will hold a special meeting in Leipzig, Germany, next September. An important test for the relationship will be whether the two powers can conclude a comprehensive investment agreement more than six years after starting negotiations. Given these looming opportunities for dialogue, the EU could pursue strategic engagement, rather than broad confrontation, with China. But it takes two to tango, and much will depend on how Chinese policies develop in the meantime.

Putting aside trade and investment questions, the EU must be less complacent with respect to the security challenges that China poses. EU member states should step up their freedom-of-navigation tours in the South China Sea and the Taiwan Strait. And there clearly needs to be more scrutiny of Europe’s growing technological dependence on China in critical areas like 5G infrastructure.

That said, Europe’s best response to China’s growing technological might is to become more competitive in its own right. Should the EU fail at that, no barrier will be high enough to shield it from China’s growing influence. That applies not just to Europe, but also to the US over the long run.

Few observers expected China to transform suddenly into a full-fledged democracy following its accession to the World Trade Organization in 2001. But the country’s repressive turn over the past decade has nonetheless been disappointing to witness. State-owned enterprises are still favoured, books are burned, and the communist party continues to assert its primacy in every domain of Chinese life. How long this will last is anyone’s guess. Dynasties come and go, but in 2021 the CCP will mark the centenary of its founding. Under its rule, China has swung between starkly different models of development.

Whatever happens, China is not going away, and tackling issues from climate change to the unravelling of the global trade system will require its participation. Accordingly, a policy of critical and constructive strategic engagement seems like the most sensible way forward for the EU. Pursuing such a policy in dialogue with the US would redound to everyone’s benefit. But, at the end of the day, the EU must choose its own path.

EU and Japan push back against Belt and Road

In September, Japan and the EU launched the EU–Japan Partnership on Sustainable Connectivity and Quality Infrastructure, partly in response to escalating tensions between the United States and China over trade. This significant agreement builds on the 2015 EU–Japan Connectivity Partnership, the 2017 EU–Japan Economic Partnership Agreement and the 2018 Strategic Partnership Agreement.

The new agreement serves as an integral aspect of the Europa Connectivity Forum, which is designed to build much closer ties between Europe and Asia. In particular, it seeks to protect Europe and Japan from the consequences of Washington’s decision to push for a new export control regime for emerging technologies. The US Export Control Reform Act of 2018, which comes into effect in 2020, will adversely affect the European and Japanese economies because they still rely on the Americans. Brussels and Tokyo clearly recognise that many emerging technologies are potentially dual-use and could be affected by the act, so they’re trying to take measures to deal with possible blowback.

Concern is growing over the possibility of a worsening US–China trade war, which has already had a negative impact on the Japanese, German and Dutch economies, among others. The Dutch medical technology company Philips, for example, has issued a profit warning due to deteriorating Sino-American trade relations.

Clearly, Tokyo and Brussels are frustrated with Washington for actions they believe are undermining the post–World War II rules-based order. They recognise that because they have common interests and values they should work more closely together as international financial, economic and defence institutions such as the World Trade Organization, the International Monetary Fund and NATO teeter on the brink of paralysis.

The agreement further highlights that the EU and Japan want to extend their presence in the information and communication technologies sector, which, in 2015, provided 9% of Japan’s GDP and 4% of the EU’s GDP, and 7% of employment in Japan and 3% in the EU. European and Japanese policymakers are probably hoping that the partnership will help paper over some of the limitations of earlier agreements and improve their access to ICT. Yet it barely refers to China and makes no reference to Chinese President Xi Jinping’s signature Belt and Road Initiative. It also provides little in the way of strategic guidelines.

To extend their engagement in ICT, Japan allocated US$110 billion to its High-Quality Investment Initiative and the European Union earmarked €60 billion for its 2018 EU–Asia connectivity strategy. The US, meanwhile, has provided US$25 million to finance the Digital Connectivity and Cybersecurity Partnership, aimed at augmenting regional state digital infrastructure. The Americans, it would seem, remain committed to relying on private industry to provide what’s needed, which seems rather short-sighted.

Tokyo and Brussels are increasingly showing unease over the Belt and Road Initiative and specifically its ICT component, the Digital Silk Road (DSR). The DSR is of special concern for Japan and Europe because it’s about hard infrastructure: the construction and expansion of ICT networks. A key aim of the DSR is to establish business operation exchanges such as digital marketplaces by advancing e-commerce and e-payment systems, which are becoming important in the development of ‘smart cities’. Alibaba, Tencent and other Chinese tech and social media companies are betting their futures on DSR, as they seek to dominate the international system by offering cheap and reliable network connections. It’s therefore notable that the agreement makes it clear that the EU and Japan are focused on the Western Balkans, Eastern Europe, Central Asia, Indo-Pacific, and Africa—all priority areas for the BRI.

The EU–Japan Partnership on Sustainable Connectivity and Quality Infrastructure is intended to address the many strategic limitations that undermined the 2018 strategy. Digital connectivity, in particular, has given EU policymakers many headaches as they try to balance economic needs, wants and demands with rights to privacy, while having to contend with China, whose regulatory regime is more lax, giving it a competitive edge. The new agreement covers issues that the other agreements didn’t, such as energy and people-to-people exchanges, while building on digital connectivity and transportation.

Tokyo and Brussels are hoping that through this agreement they are sending a clear message to Beijing and many BRI participating countries that the EU and Japan are interested in an approach to digital connectivity that emphasises financial sustainability, transparency and quality.

China has clearly noticed what Brussels and Tokyo are trying to do and there’s increased concern in Beijing about perceptions of the BRI. The ‘Debt sustainability framework for participating countries of the BRI’, released by China’s Finance Ministry in April, appears to be an attempt to show it is committed to preventing participants in the program from falling into a debt trap. It was unsurprising that the announcement came as China hosted the second Belt and Road Forum, in which it acknowledged some mistakes in the first iteration of the BRI and raised the prospect of a BRI 2.0.

The challenge for Tokyo and Brussels is how to contend with, and compete against, Beijing’s growing influence, while also seeking to work with Beijing. Much of their prosperity flows from China. For Brussels, an added challenge is that many European countries signed a memorandum of understanding with China on BRI cooperation. The Japanese have accepted that they simply can’t compete with a rising China, which is why they are searching for allies. That is seen most clearly with Prime Minister Shinzo Abe’s commitment to working towards a free and open Indo-Pacific.

Will the Iran conflict break the West?

Before last month’s G7 summit in Biarritz, France, it was a toss-up whether the greater disruption would come from US President Donald Trump or British Prime Minister Boris Johnson. Yet the attendee who had the biggest impact was someone who wasn’t expected to be there at all: Iranian Foreign Minister Javad Zarif.

Although media coverage of the summit focused on trade wars, fires in the Amazon and the looming danger of a no-deal Brexit, the discussions about Iran were probably the most consequential. The fate of the 2015 Iran nuclear deal could determine not only whether the world’s most combustible region descends into a nuclear-arms race, but also whether the Western political alliance can survive.

In Biarritz, French President Emmanuel Macron opened the way for a US–Iranian détente. And in recent days, the main players in the Iran drama have all pulled back from the brink. The United Kingdom released the Iranian tanker (Grace 1) that it seized in Gibraltar. And, more important, Trump expressed a willingness to meet with Iranian President Hassan Rouhani, even suggesting that he wouldn’t object to Iran’s receiving a ‘short-term line of credit or loan’.

Nonetheless, several factors could derail de-escalation. For starters, the Trump administration remains convinced that the more pressure it puts on Iran (and on America’s European allies), the better. US National Security Advisor John Bolton, in particular, wants to asphyxiate the Iranian economy, and believes that cutting off any lifelines from Europe is the way to do it. He and other US officials will use all means at their disposal to chip away at European unity, with the most obvious pressure point being the UK. Worse, beyond applying economic pressure, some in the US—and in the region—also want to set a trap to lure Iran into a military conflagration.

There’s also the problem of Iran’s hardliners, many of whom feel as though they have gotten nothing from adhering to the nuclear deal, and that the way to build leverage is to become a bigger nuisance. That reasoning has led Iran’s leaders to dial up its disruptive activities in a number of theatres, not least by seizing a British tanker in the Strait of Hormuz in July (they, too, have noticed that the UK is Europe’s weak link).

Iran’s increasing aggressiveness has already raised hackles in Israel, which is reportedly targeting Iranian assets in Iraq (having already launched strikes against Iranian forces in Syria). The danger now is that Iran or its proxies in the Middle East will misread the situation and cross a red line.

Iran has been understandably frustrated by Europe’s slow progress in launching INSTEX, a bartering mechanism designed to allow for some trade between Europe and Iran despite US sanctions. But those in Iran who claim they have gotten nothing from Europe are simply wrong. If the European Union were to abandon its current approach and join Trump in squeezing Iran, they would certainly notice the difference. In fact, by continuing its policy of escalation, Iran risks losing the moral high ground, and thus the support of Europeans who have gone out on a limb to decouple their Iran policy from that of the US.

Europe’s ability to maintain support for the Iran deal in defiance of US pressure has surprised many. Even the British government has adhered closely to the EU position so far. But that could change. If Iran were to seize another British ship and hold UK citizens hostage, it could prompt Johnson to break from the EU and adopt the Trump administration’s stance.

Given this risk, it’s disappointing that France, Germany and the UK haven’t launched a joint European mission in the Persian Gulf, so that an attack on one would be an attack on all. If the UK breaks from the EU line, Germany will be the next target for hardliners (in both Iran and the US) to peel off. In the meantime, the US may ramp up its diplomacy in Central and Eastern Europe, where it has a higher chance of pulling EU member states over to its side.

To head off these risks, Macron is asking Trump to consider sanctions exemptions if Iran complies once more with the nuclear deal by curtailing its enrichment activities and opens the door to further talks with the West. He has pointed out that Trump’s leverage will diminish over time as Iran builds its stockpile of enriched material and develops ever more ways to circumvent US sanctions. At this point, further escalation by the US could push the Iranians away from the negotiating table for good, raising the possibility of a military confrontation in the middle of Trump’s re-election campaign. In this context, it’s worth remembering that in his first campaign, Trump promised to end America’s endless wars and pointless adventures abroad.

The Europeans also must persuade the Iranians not to overestimate their own power. Macron’s proposal for a new credit line to Iran could strengthen the position of Iranian moderates, but his credibility in Iran will be diminished if the Europeans can’t get INSTEX up and running. The goal, in any case, should be to encourage Iran to hang on until after the US presidential election in November 2020. Europe should continue to offer financial support, but it also must make clear that further Iranian attacks on European interests could force the EU to adopt the US’s containment strategy.

Finally, Europeans need to keep a close eye on the Persian Gulf. Even if they aren’t going to organise a joint naval force, they should be developing a de-escalation strategy in case the US or Iran provokes a confrontation. Organising a naval conference that includes Iran could be a prudent first step.

In broad terms, this is the agenda that Macron will be pushing in the run-up to the UN General Assembly meeting later this month. If the strategy succeeds, the Biarritz summit may turn out to be the first successful G7 gathering of Trump’s presidency—whether he knows it or not.

Trump’s Iran sanctions are disrupting the global financial system

In today’s world, access to global networks is a critical source of power, but the resulting interdependence can also generate vulnerability. The power flows from centrality: being a hub that connects all (or most) other nodes. The threat of denying access to such hubs can be a powerful sanction against bad actors. But if that power is abused—if asymmetrical interdependence is weaponised—participants in a network may decide to create alternative networks of their own.

That is the risk the United States is currently running. It holds the world’s principal reserve currency and enjoys a central role in global financial networks. But it is using that position to pursue foreign-policy goals that are likely to weaken its centrality, and thus its leverage over the long term.

A prime example is the mounting crisis with Iran, which started in May 2018, when the US unilaterally withdrew from the 2015 nuclear deal, known officially as the Joint Comprehensive Plan of Action. Worse, the US has since imposed its decision on the other signatories to the JCPOA—Britain, France, Russia, China, Germany and the European Union—by threatening secondary sanctions against third parties that honour the agreement.

In theory, the remaining parties to the JCPOA should have been able to continue doing business with Iran. But the US, invoking a cooperation agreement with the EU that was originally designed for the fight against al-Qaeda, has been able to enforce its secondary sanctions through the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT).

Under pressure from the US, SWIFT has had to bar Iranian banks from the global payments system it oversees, effectively locking Iran out of the global financial system and curtailing its ability to conduct business even with countries that have not sanctioned it.

Like many European companies, SWIFT has a legal presence and a data centre in the US. Had it refused to comply, it could have faced significant fines, the loss of US visas for its staff, or a denial of access to US dollars.

France, Germany and the United Kingdom then announced plans to create a special-purpose vehicle called INSTEX, which, by netting exports and imports, allows goods to flow between Europe and Iran without direct bilateral money flows. Yet, in practice, INSTEX transactions have been limited to humanitarian goods that aren’t subject to US sanctions. The US has effectively frozen participation in the deal.

But, regardless of whether it succeeds in bending Iran to its will—an outcome that currently looks highly unlikely—the Trump administration has strengthened other countries’ incentives to bypass the US financial system altogether. In response to Western sanctions imposed following its intervention in Ukraine in 2014, Russia decreased its external vulnerabilities. It is now the only major emerging market with fiscal and current-account surpluses, low government debt and high reserves. It no longer fears losing access to global funding markets. Russia has also forged stronger ties with China. The two countries recently announced a new cross-border payments system for settling bilateral trade in renminbi and rubles, with initial transactions planned for this year. And Iran and Turkey have since expressed an interest in joining.

Meanwhile, India and Japan already have independent domestic payments systems, and Russia has launched a card payments system to circumvent US-based credit card networks. Similarly, in China, mobile payment apps such as Alibaba’s Alipay and Tencent’s WeChat Pay allow consumers to forgo credit cards altogether, paying directly with their smartphones. Not to be left behind, Facebook has announced the creation of a new cryptocurrency that presumably will be available to all of its users, many more of whom live outside the US than within it.

Such moves from US adversaries were predictable, but Europeans, too, are looking for alternatives. A number of European countries maintain close ties to Russia, and some have already signed up to participate in China’s Belt and Road Initiative. Linking to a Russian–Chinese payment system could offer valuable protection against potential US efforts to sanction projects that are critical to European interests, such as the Nord Stream 2 gas pipeline between Russia and Germany.

Moreover, the EU has become more assertive in declaring its economic sovereignty, and it has invited other JCPOA parties to join INSTEX. The EU’s official position has long been that it neither encourages nor discourages an international role for the euro. But the European Commission recently outlined proposals that would expand use of the euro by non-residents, including for trade in the energy, food and aerospace sectors. Europe’s desire to reduce its dependence on the US financial system may provide an impetus for deeper monetary and fiscal integration, especially come 2020, when new EU leaders are installed and Brexit is completed.

As Barry Eichengreen of the University of California, Berkeley, has shown, a rebalancing of power within the global financial system can come either from historical cataclysms, such as world wars, or from institutional changes. The establishment of the US Federal Reserve System, for example, shifted the centre of gravity in global finance from the UK to the US.

This time around, the system’s central player is abusing its position in ways that are prodding others—including its own allies—to develop alternative networks. In a networked world, where the power of economic coercion depends on specific webs of connections, the networks themselves are a valuable resource. But they are not natural resources; they must be built and maintained through responsible stewardship. The Trump administration should not take them for granted.