by Charles Grant
Those who never liked ‘Anglo-Saxon’ capitalism are feeling smug. Marxists, fans of ‘Rhineland’ capitalism and those who simply cannot stand American power are crowing. “The US will lose its status as the superpower of the world financial system,” says Peer Steinbruck, Germany’s finance minister. “Self-regulation is finished, laisser faire is finished, the idea of an all powerful market which is always right is finished,” says France’s president, Nicolas Sarkozy. The British academic (and sometime fan of Margaret Thatcher) John Gray proclaims that “in a change as far-reaching in its implications as the fall of the Soviet Union, an entire model of the government and the economy has collapsed.”
All this hyperbolic froth and windy rhetoric conceals a real danger for the European economy. The perceived failure of one model of capitalism, combined with growing protectionist pressure from all continents, could push EU governments to ban or discourage a whole range of ‘Anglo-Saxon’ practices and institutions. Cross-border takeovers and equity issues, the private equity and hedge fund industries, and even privatisations – all of which can help to make economies more efficient – may come under threat. Furthermore, some governments may think that because the EU’s ‘Lisbon agenda’ of economic reform is British-inspired, they can relax their efforts to carry out its painful but essential prescriptions.
Of course, the credit crisis has exposed huge weaknesses in the American and British financial systems. The so-called phantom banking industry of institutions and instruments that focused on fiendishly complex off-balance sheet financing was poorly regulated. Those in charge of many leading banks appear to have had no idea about the risks they were taking on. Their pay packages were ridiculous and unjustified, especially when those who had failed received tens of millions of dollars of ‘compensation’ for being fired. The property and credit booms in the US, the UK, Spain and Ireland were excessive. And the British decision to allow the building societies (mutuals) to turn themselves into banks – and their subsequent move into risky financial instruments and models of funding – may have been an error.
But politicians such as Steinbruck should not indulge in too much Schadenfreude. For the next few years, some of the core euroland economies may be lucky enough to escape some of the pain that will afflict the Anglo-Saxons. But the continental banks are certainly not immune from the crisis, as the rescue of the Dutch-Belgian Fortis shows. The capital ratios of some of the top continental banks are inferior to those of their American peers. And if a European bank involved in several members-states did head for the rocks, could the EU’s ramshackle regulatory system – with national authorities holding many of the key powers – move as quickly as Treasury Secretary Hank Paulson, Federal Reserve Governor Ben Bernanke and the Congress have done?
Many of today’s Cassandras mistakenly assume that financial crises are a uniquely Anglo-Saxon phenomenon. Very different sorts of financial system – such as those of Japan and Sweden in the early 1990s – have ended up being bailed out by governments. Financial crises are inherent in the nature of capitalism, rather than one particular brand of it.
However the current crisis turns out, many continental European governments will have to tackle serious structural flaws in their economies. They are held back by a lack of competition and restrictive practices in a host of sectors, especially services. Their universities cannot compete with the world’s best. In many of these countries, old-fashioned trade unions block reform and modernisation (look at the pitiful saga of Alitalia). Excessive state aid distorts the allocation of capital and may deter new entrants. Over the past 20 years, France, Germany and Italy have performed poorly on economic growth and job creation. Europe as a whole has a poor record on innovation and the adoption of new technologies.
Among the EU-27, the UK has not been the star of the class. In recent years the Nordic economies and the Netherlands have had the best record of combining on the one hand high employment and active labour market policies, and on the other generous welfare and high-quality public services. But the UK has many strengths (as well as notable weaknesses like infrastructure). Its liberal labour markets have helped to push the employment rate above 70 per cent of the workforce – the only other EU countries above 70 per cent are Denmark, Sweden and the Netherlands. And of the EU’s large economies Britain is the most open to foreign investment, which is one reason why it has a good record of adopting new technologies.
Moreover, the City of London remains a big British strength – despite everything that has happened. Much of what the City does is valuable not only to the UK, but also to Europe and indeed the world economy. If properly regulated, mergers and acquisitions, corporate advice, City law firms, hedge funds, private equity, the euromarkets, the fund managers, the Lloyds insurance market, the currency markets, the international equity markets, and much else, add value. The City is in for a lean few years, but it will come back – after some consolidation and regulatory reform – because the world needs a centre of expertise for international finance.
Nobody should write off the American economy. Compared to its European peers, its history of recovering rapidly from recession is impressive. Its track record on innovation and start-ups is the envy of the world. Where are the European Googles, Microsofts, Ciscos and Intels? The US has most of the world’s best universities. It consistently out-performs the EU on productivity. Despite the rise of the BRIC economies, at market exchange rates the US will remain the world’s leading economy for many decades. China’s leaders know this very well and have not resorted to the kind of hubris that we have heard from certain continental politicians.
Some European leaders may view the Lisbon agenda of economic reform as ‘Anglo-Saxon’, but they should not abandon it. Parts of the agenda are rather Anglo-Saxon, such as the emphasis on creating employment, liberalising utilities and enhancing competition. But much of the agenda has a broader scope: boosting innovation, improving R&D, reforming pensions and helping start-ups. All the European economies need the Lisbon agenda, whether they are Anglo-Saxon, Rhineland, Nordic, East European or Mediterranean. At some point the financial turmoil will settle down. Then EU leaders will need to return to two key questions: why is the trend growth rate of the EU economy about one percentage point less than that of the US, and what can Europe do to catch up?
Charles Grant is director of the Centre for European Reform.
Monday, September 29, 2008
Friday, September 19, 2008
Can the next US president heal the transatlantic rift?
by Tomas Valasek
There are two schools of thought on what the election of a new US president will mean for transatlantic relations. The optimists argue that relations will improve significantly. They assume that much of the anger Europe feels towards the US is aimed at George W Bush rather than the country as a whole, and that once he leaves, US-European ties will revert to their normal, friendly terms. The pessimists disagree: they say that US and European outlooks on security are fundamentally different, that the next US president, whoever he is, will pursue a foreign policy similar to that of George W Bush, and that the relations may well worsen post-US elections as the Europeans, disappointed that president Obama or McCain does not turn out to be a multilateralist European liberal, turn their backs on the United States with a vengeance.
So when the German Marshall Fund released its annual Transatlantic trends survey last week, both the optimists and pessimists poured through the numbers in search of evidence for their respective hypotheses. On balance, the results tend to slightly favour the optimists, but much depends on who the Americans elect on November 4th.
The German Marshall Fund asked the Europeans directly whether they think that relations with the US would improve after the elections. Fourty-seven per cent of Europeans said ‘yes’ assuming Obama is the president. The reverse held true for McCain: only 11 per cent thought transatlantic relations would improve with him in the White House. But this reflects Europe’s strong preference for Obama rather than a dislike of McCain. Only 13 per cent of Europeans think that relations would worsen under McCain while a significant plurality - 49 per cent - expect them to remain the same. This suggests that Europe is adopting a ‘wait-and-see’ attitude on the Republican candidate.
Another useful way of gauging the impact of elections is to compare perceptions of the United States in Europe with attitudes towards George W Bush personally. Thirty-six per cent of Europeans support US leadership role in the world but only 19 per cent approve of George W Bush’s conduct in the office. This suggests that the 'Bush' factor reduces the Europeans’ support for the US by 17 percentage points – a percentage that Obama would certainly (and McCain possibly) pick up just by getting elected.
At this point the pessimists would point out that it does not matter what the Europeans think now. A pessimist would say that the Europeans do not understand how much continuity there is in US foreign policy. And that once Europe finds out that Obama or McCain’s foreign policy is more similar to George W Bush’s foreign policy than Europe’s - which it will be - even the most hardened Euro-optimists will feel disappointed.
That is a valid point. Obama’s victory in particular would be bound to generate expectations that no president could fulfil. So after an initial spike in European support for the US, there would come an inevitable decline. (With McCain, the Transatlantic Trends suggest, there would be little excitement in Europe initially, and hence less room for disappointment later if he turns out to be similar to the current president).
But none of this rules out the possibility of a long-term improvement in relations. It all depends on how the new president conducts himself in office. Past US presidents have managed to combine the US foreign policy tradition of assertive leadership with the Europeans’ preference for multilateral solutions and diplomacy. And so, presumably, could Obama and McCain.
Here are a few supporting numbers: in 2002, 64 per cent of Europeans approved of US leadership. (That number, as pointed out earlier, has dropped to 36 per cent today.) The major change since 2002, which accounts for the chill in transatlantic relations, was the war in Iraq. But six years on, Iraq has become a lot more stable and less salient as a political issue in Europe. It could largely disappear from transatlantic debates if Obama wins the presidency: he opposed the war all along, and has promised to withdraw US forces speedily if elected.
European support for US leadership stood at 64 per cent six years ago because previous US presidents have used US military power more delicately than George W Bush, and listened to the European allies a lot more attentively than the current president. That is precisely what Obama promises to do. (McCain says he will listen to Europe more but on some issues like Russia he sounds more aggressive than George W Bush.)
US foreign policy, contrary to the pessimists’ assumptions, is not bound to remain jingoistic - in fact, it has become a lot less belligerent in the last three-four years, during which the US opened talks with North Korea and endorsed Europe's nuclear diplomacy with Iran (for which president Bush, wrongly but understandably, has received no credit in Europe).
To win the Europeans’ hearts, the new president will have to show appreciation for the EU’s new role. As McCain or Obama will find out, Europe has changed much since George W Bush came to power. It no longer instinctively turns to the US when a crisis breaks out on or near the continent. The EU now takes care of most security problems on its own (except for large-scale crises, which still require NATO involvement). This new EU is not anti-American: 67 per cent of Europeans think that Europe should seek to work with the US rather than independently, say the Transatlantic Trends. So if the next US president seeks to work with his allies in Europe, he is likely to be received positively. Support for US’s leadership role would eventually inch up. And optimists among the Europeans would feel vindicated.
Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.
There are two schools of thought on what the election of a new US president will mean for transatlantic relations. The optimists argue that relations will improve significantly. They assume that much of the anger Europe feels towards the US is aimed at George W Bush rather than the country as a whole, and that once he leaves, US-European ties will revert to their normal, friendly terms. The pessimists disagree: they say that US and European outlooks on security are fundamentally different, that the next US president, whoever he is, will pursue a foreign policy similar to that of George W Bush, and that the relations may well worsen post-US elections as the Europeans, disappointed that president Obama or McCain does not turn out to be a multilateralist European liberal, turn their backs on the United States with a vengeance.
So when the German Marshall Fund released its annual Transatlantic trends survey last week, both the optimists and pessimists poured through the numbers in search of evidence for their respective hypotheses. On balance, the results tend to slightly favour the optimists, but much depends on who the Americans elect on November 4th.
The German Marshall Fund asked the Europeans directly whether they think that relations with the US would improve after the elections. Fourty-seven per cent of Europeans said ‘yes’ assuming Obama is the president. The reverse held true for McCain: only 11 per cent thought transatlantic relations would improve with him in the White House. But this reflects Europe’s strong preference for Obama rather than a dislike of McCain. Only 13 per cent of Europeans think that relations would worsen under McCain while a significant plurality - 49 per cent - expect them to remain the same. This suggests that Europe is adopting a ‘wait-and-see’ attitude on the Republican candidate.
Another useful way of gauging the impact of elections is to compare perceptions of the United States in Europe with attitudes towards George W Bush personally. Thirty-six per cent of Europeans support US leadership role in the world but only 19 per cent approve of George W Bush’s conduct in the office. This suggests that the 'Bush' factor reduces the Europeans’ support for the US by 17 percentage points – a percentage that Obama would certainly (and McCain possibly) pick up just by getting elected.
At this point the pessimists would point out that it does not matter what the Europeans think now. A pessimist would say that the Europeans do not understand how much continuity there is in US foreign policy. And that once Europe finds out that Obama or McCain’s foreign policy is more similar to George W Bush’s foreign policy than Europe’s - which it will be - even the most hardened Euro-optimists will feel disappointed.
That is a valid point. Obama’s victory in particular would be bound to generate expectations that no president could fulfil. So after an initial spike in European support for the US, there would come an inevitable decline. (With McCain, the Transatlantic Trends suggest, there would be little excitement in Europe initially, and hence less room for disappointment later if he turns out to be similar to the current president).
But none of this rules out the possibility of a long-term improvement in relations. It all depends on how the new president conducts himself in office. Past US presidents have managed to combine the US foreign policy tradition of assertive leadership with the Europeans’ preference for multilateral solutions and diplomacy. And so, presumably, could Obama and McCain.
Here are a few supporting numbers: in 2002, 64 per cent of Europeans approved of US leadership. (That number, as pointed out earlier, has dropped to 36 per cent today.) The major change since 2002, which accounts for the chill in transatlantic relations, was the war in Iraq. But six years on, Iraq has become a lot more stable and less salient as a political issue in Europe. It could largely disappear from transatlantic debates if Obama wins the presidency: he opposed the war all along, and has promised to withdraw US forces speedily if elected.
European support for US leadership stood at 64 per cent six years ago because previous US presidents have used US military power more delicately than George W Bush, and listened to the European allies a lot more attentively than the current president. That is precisely what Obama promises to do. (McCain says he will listen to Europe more but on some issues like Russia he sounds more aggressive than George W Bush.)
US foreign policy, contrary to the pessimists’ assumptions, is not bound to remain jingoistic - in fact, it has become a lot less belligerent in the last three-four years, during which the US opened talks with North Korea and endorsed Europe's nuclear diplomacy with Iran (for which president Bush, wrongly but understandably, has received no credit in Europe).
To win the Europeans’ hearts, the new president will have to show appreciation for the EU’s new role. As McCain or Obama will find out, Europe has changed much since George W Bush came to power. It no longer instinctively turns to the US when a crisis breaks out on or near the continent. The EU now takes care of most security problems on its own (except for large-scale crises, which still require NATO involvement). This new EU is not anti-American: 67 per cent of Europeans think that Europe should seek to work with the US rather than independently, say the Transatlantic Trends. So if the next US president seeks to work with his allies in Europe, he is likely to be received positively. Support for US’s leadership role would eventually inch up. And optimists among the Europeans would feel vindicated.
Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.
Monday, September 15, 2008
The EU’s toolbox for Russia
by Katinka Barysch
Last week, Russia belatedly signed up to a timetable for pulling back its troops from the ‘buffer’ zone in Georgia. The EU, and its current president, Nicolas Sarkozy, deserve credit for having brokered the initial ceasefire and then pushing hard for Russia to follow the terms. The important question now is how the EU will respond in case tensions do not ease, or even grow further.
At its emergency summit on September 1st, the Europeans managed to stick together in an unprecedented condemnation of Russian aggression. To signal their willingness to act, they froze negotiations on their new Partnership Agreement with Russia. This decision did not sway Russia’s plans. But, being used to a squabbling and uncritical EU, Moscow will have taken note of the Europeans’ relatively strong reaction – relative because compared with the tough rhetoric of some US politicians the EU’s reaction looked measured. Those who criticise the EU for this miss the point. The EU cannot be a mediator in the conflict and take sides at the same time. The EU’s mediating role was all the more effective because it was backed by an angrily growling America that openly backed Saakashvili. The Americans found it easier to be firm because they could rely on the EU to do the negotiations.
The latest ceasefire agreement, of course, will not end the tensions. Already, there are new disagreements about how many Russian soldiers should remain in Abkhazia and South Ossetia, and where EU monitors will be allowed to go. Moreover, many people, and not only in Ukraine, Poland or Estonia, predict that Russian efforts to control its neighbourhood will not stop at the border of South Ossetia.
So the EU needs to continue its debate about what kind of tools it has available to ratchet up the pressure if necessary.
Most of the measures that politicians and commentators have discussed since August 8th are more likely to harm European interests without making Russia change its ways. Moreover, any panicky over-reaction would make Russia look scarier than it is, which Russian leaders may secretly enjoy.
Economic sanctions are almost a non-starter. Almost 30 per cent of the gas consumed in the EU comes from Russia, and the EU is in no position to replace these supplies in the foreseeable future. Acutely aware that this dependence is mutual, Russian leaders have been notably careful not to mention energy in their angry exchanges with the West. The EU could try to limit Russian sales of non-energy goods or Russian investments in EU countries. But in the absence of a UN mandate, such steps would violate the EU’s own rules for openness and non-discrimination. Economic sanctions risk undermining the principles on which the EU is based. And they could stunt Russia's diversification away from oil and gas, which is good for its long-term stability.
As for Russia’s WTO application, the EU is keen on getting Russia to respect international trade rules and submit to the WTO dispute settlement procedures while Moscow seems in no rush to finish the accession negotiations. Russia’s membership is in any case a long way off, because of Moscow’s erratic trade policy, the US’ refusal to repeal the Jackson-Vanik amendment and vetoes from Georgia and, possibly, Ukraine (both WTO members). The EU should not use the WTO to make a political point at a time when the organisation is already weakened by the break-down of the Doha trade talks.
Nor would it be a good idea to ban Russians from visiting or working in EU countries. If Russians cannot travel, they may be more prone to believing their government’s propaganda about a West that is hostile and hypocritical. And the EU needs to think very carefully about targeted visa sanctions. A ban on Russian leaders and top officials would signal a new world in which the Europeans no longer believe that engagement can achieve anything. We are a long way from there. The EU could make it harder for Russia’s big businessmen to holiday at the Cote d’Azur or do business in London, hoping that they would put pressure on their leaders to change their ways. But many rich Russians have acquired foreign passports and few will risk falling out with a regime that seems to enjoy a bit of oligarch bashing from time to time.
The EU’s decision to continue doing business with Russia does not mean that it will be business as usual. The EU could stop preparations for a trade agreement for nuclear fuels, something that Russia wants badly to grab a bigger share of the European market. The same applies for Russia’s participation in EU research projects.
More fundamentally, the EU’s response should not start by asking how to punish Russia or change its course. It should start within the EU, with a set of well-defined objectives. The tricky part is to figure out how to achieve these objectives in the face of Russian opposition or obstruction. After Georgia, the EU can no longer pretend that its goals do not clash with Russia’s. That is good because it forces the Europeans to have a more open and realistic debate about its ties with Russia and to set clearer priorities (a slimming down the bloated EU-Russia agenda in reaction to Georgia would help with this). The EU’s priorities should be: stability beyond the EU’s eastern borders, energy security, and international tasks that require some sort of Russian involvement, such a preventing Iran from building a nuclear bomb. Russia would have to take the Union a lot more seriously if it beefed up its neighbourhood policy, made some tangible progress towards a common energy policy and streamlined its foreign policy-making.
Katinka Barysch is deputy director at the Centre for European Reform.
Last week, Russia belatedly signed up to a timetable for pulling back its troops from the ‘buffer’ zone in Georgia. The EU, and its current president, Nicolas Sarkozy, deserve credit for having brokered the initial ceasefire and then pushing hard for Russia to follow the terms. The important question now is how the EU will respond in case tensions do not ease, or even grow further.
At its emergency summit on September 1st, the Europeans managed to stick together in an unprecedented condemnation of Russian aggression. To signal their willingness to act, they froze negotiations on their new Partnership Agreement with Russia. This decision did not sway Russia’s plans. But, being used to a squabbling and uncritical EU, Moscow will have taken note of the Europeans’ relatively strong reaction – relative because compared with the tough rhetoric of some US politicians the EU’s reaction looked measured. Those who criticise the EU for this miss the point. The EU cannot be a mediator in the conflict and take sides at the same time. The EU’s mediating role was all the more effective because it was backed by an angrily growling America that openly backed Saakashvili. The Americans found it easier to be firm because they could rely on the EU to do the negotiations.
The latest ceasefire agreement, of course, will not end the tensions. Already, there are new disagreements about how many Russian soldiers should remain in Abkhazia and South Ossetia, and where EU monitors will be allowed to go. Moreover, many people, and not only in Ukraine, Poland or Estonia, predict that Russian efforts to control its neighbourhood will not stop at the border of South Ossetia.
So the EU needs to continue its debate about what kind of tools it has available to ratchet up the pressure if necessary.
Most of the measures that politicians and commentators have discussed since August 8th are more likely to harm European interests without making Russia change its ways. Moreover, any panicky over-reaction would make Russia look scarier than it is, which Russian leaders may secretly enjoy.
Economic sanctions are almost a non-starter. Almost 30 per cent of the gas consumed in the EU comes from Russia, and the EU is in no position to replace these supplies in the foreseeable future. Acutely aware that this dependence is mutual, Russian leaders have been notably careful not to mention energy in their angry exchanges with the West. The EU could try to limit Russian sales of non-energy goods or Russian investments in EU countries. But in the absence of a UN mandate, such steps would violate the EU’s own rules for openness and non-discrimination. Economic sanctions risk undermining the principles on which the EU is based. And they could stunt Russia's diversification away from oil and gas, which is good for its long-term stability.
As for Russia’s WTO application, the EU is keen on getting Russia to respect international trade rules and submit to the WTO dispute settlement procedures while Moscow seems in no rush to finish the accession negotiations. Russia’s membership is in any case a long way off, because of Moscow’s erratic trade policy, the US’ refusal to repeal the Jackson-Vanik amendment and vetoes from Georgia and, possibly, Ukraine (both WTO members). The EU should not use the WTO to make a political point at a time when the organisation is already weakened by the break-down of the Doha trade talks.
Nor would it be a good idea to ban Russians from visiting or working in EU countries. If Russians cannot travel, they may be more prone to believing their government’s propaganda about a West that is hostile and hypocritical. And the EU needs to think very carefully about targeted visa sanctions. A ban on Russian leaders and top officials would signal a new world in which the Europeans no longer believe that engagement can achieve anything. We are a long way from there. The EU could make it harder for Russia’s big businessmen to holiday at the Cote d’Azur or do business in London, hoping that they would put pressure on their leaders to change their ways. But many rich Russians have acquired foreign passports and few will risk falling out with a regime that seems to enjoy a bit of oligarch bashing from time to time.
The EU’s decision to continue doing business with Russia does not mean that it will be business as usual. The EU could stop preparations for a trade agreement for nuclear fuels, something that Russia wants badly to grab a bigger share of the European market. The same applies for Russia’s participation in EU research projects.
More fundamentally, the EU’s response should not start by asking how to punish Russia or change its course. It should start within the EU, with a set of well-defined objectives. The tricky part is to figure out how to achieve these objectives in the face of Russian opposition or obstruction. After Georgia, the EU can no longer pretend that its goals do not clash with Russia’s. That is good because it forces the Europeans to have a more open and realistic debate about its ties with Russia and to set clearer priorities (a slimming down the bloated EU-Russia agenda in reaction to Georgia would help with this). The EU’s priorities should be: stability beyond the EU’s eastern borders, energy security, and international tasks that require some sort of Russian involvement, such a preventing Iran from building a nuclear bomb. Russia would have to take the Union a lot more seriously if it beefed up its neighbourhood policy, made some tangible progress towards a common energy policy and streamlined its foreign policy-making.
Katinka Barysch is deputy director at the Centre for European Reform.
Wednesday, September 03, 2008
The Arab-Israeli conflict: France's dashed hopes
by Clara Marina O'Donnell
During a trip to Israel in August, the only optimists I met were French diplomats. The reason for their upbeat mood? Ambitious plans by President Sarkozy for the EU to advance the Middle East peace process – including a controversial proposal that the EU should take the lead in creating an international peacekeeping force which could replace the Israeli army in the West Bank as part of a peace deal. But in the current inauspicious environment, can France, which currently holds the EU presidency, really help to move things forward and allow the EU to play a bigger role in the peace process?
Probably not. Already, it looks as if the French plans are becoming victims of circumstance. The Gymnich, an informal meeting of EU foreign ministers, that will take place on September 5th and 6th, had been flagged up as vital in developing a new EU strategy. The EU was to reflect on ways it could increase its support for the peace process, including the offer of new security guarantees to Israel. But the Georgian war has changed EU priorities, and talks on the Middle East have been seriously scaled down.
But even if the EU’s agenda had not been thrown off course, the situation in Israel and the Palestinian territories is so bad that there is little Europe can do to assist the current peace process. The prospects for the US-sponsored Annapolis peace effort, always bleak, have almost entirely faded. With just over three months to the December deadline for a deal, not only are Palestinians still divided and feuding, but Israel has also plunged into a political crisis. Prime Minister Olmert, the main force behind the peace talks, has been forced to resign over corruption allegations. In the current environment, any efforts by the EU, a minor player, are condemned to frustration.
Yet Sarkozy’s ideas are interesting. The CER has long argued that the EU should offer more security guarantees to Israel, including peacekeepers, in order to prove its credibility as a valuable partner to Israel, and to strengthen its role in the peace process (‘The EU, Israel and Hamas’, CER working paper, April 2008). So while it might not be possible to debate these ideas at the upcoming Gymnich, and still less put them into practice in the near future, the EU should still reflect on them.
Sarkozy’s general approach to Israel is also interesting. The EU has always found it hard to influence Israel. Two tactics have been tried, both – so far – unsuccessfully. The EU used to voice loud public criticism of Israeli actions it disapproved of, for example the expansion of settlements in the Palestinian territories. But Israel would simply ignore this, and accuse the EU of megaphone diplomacy. More recently, the EU has trodden more softly, in the hope of increasing its influence. Relations have, as a result, significantly improved – but on issues such as settlements the EU is still mostly ignored.
Sarkozy has adopted something of a middle ground approach – ‘tough love’ – with Israel. He presents himself as a true friend of Israel but he is also publicly critical about sensitive issues. His approach seems to have had some success. Despite declaring that settlement activity must stop and that Jerusalem must become a shared capital of Israel and a future Palestinian state, Sarkozy received a standing ovation when he addressed the Israeli parliament in June. And I encountered generally positive assessments of him from local and foreign officials in the region.
France may not be able to deliver the ambitious and radical ideas it was envisaging to strengthen the Middle East peace process (it would be unkind to suggest that scaling back ambitious agendas might be a recurrent theme of the current French administration). Neither has Paris found a magic solution to the EU’s conundrum of how to increase its influence with Israel (the continued growth in settlements over the last year clearly shows the limit of EU influence), but Sarkozy’s new approach does offers a potentially useful path forward for EU-Israel relations.
Clara Marina O'Donnell is a research fellow at the Centre for European Reform.
During a trip to Israel in August, the only optimists I met were French diplomats. The reason for their upbeat mood? Ambitious plans by President Sarkozy for the EU to advance the Middle East peace process – including a controversial proposal that the EU should take the lead in creating an international peacekeeping force which could replace the Israeli army in the West Bank as part of a peace deal. But in the current inauspicious environment, can France, which currently holds the EU presidency, really help to move things forward and allow the EU to play a bigger role in the peace process?
Probably not. Already, it looks as if the French plans are becoming victims of circumstance. The Gymnich, an informal meeting of EU foreign ministers, that will take place on September 5th and 6th, had been flagged up as vital in developing a new EU strategy. The EU was to reflect on ways it could increase its support for the peace process, including the offer of new security guarantees to Israel. But the Georgian war has changed EU priorities, and talks on the Middle East have been seriously scaled down.
But even if the EU’s agenda had not been thrown off course, the situation in Israel and the Palestinian territories is so bad that there is little Europe can do to assist the current peace process. The prospects for the US-sponsored Annapolis peace effort, always bleak, have almost entirely faded. With just over three months to the December deadline for a deal, not only are Palestinians still divided and feuding, but Israel has also plunged into a political crisis. Prime Minister Olmert, the main force behind the peace talks, has been forced to resign over corruption allegations. In the current environment, any efforts by the EU, a minor player, are condemned to frustration.
Yet Sarkozy’s ideas are interesting. The CER has long argued that the EU should offer more security guarantees to Israel, including peacekeepers, in order to prove its credibility as a valuable partner to Israel, and to strengthen its role in the peace process (‘The EU, Israel and Hamas’, CER working paper, April 2008). So while it might not be possible to debate these ideas at the upcoming Gymnich, and still less put them into practice in the near future, the EU should still reflect on them.
Sarkozy’s general approach to Israel is also interesting. The EU has always found it hard to influence Israel. Two tactics have been tried, both – so far – unsuccessfully. The EU used to voice loud public criticism of Israeli actions it disapproved of, for example the expansion of settlements in the Palestinian territories. But Israel would simply ignore this, and accuse the EU of megaphone diplomacy. More recently, the EU has trodden more softly, in the hope of increasing its influence. Relations have, as a result, significantly improved – but on issues such as settlements the EU is still mostly ignored.
Sarkozy has adopted something of a middle ground approach – ‘tough love’ – with Israel. He presents himself as a true friend of Israel but he is also publicly critical about sensitive issues. His approach seems to have had some success. Despite declaring that settlement activity must stop and that Jerusalem must become a shared capital of Israel and a future Palestinian state, Sarkozy received a standing ovation when he addressed the Israeli parliament in June. And I encountered generally positive assessments of him from local and foreign officials in the region.
France may not be able to deliver the ambitious and radical ideas it was envisaging to strengthen the Middle East peace process (it would be unkind to suggest that scaling back ambitious agendas might be a recurrent theme of the current French administration). Neither has Paris found a magic solution to the EU’s conundrum of how to increase its influence with Israel (the continued growth in settlements over the last year clearly shows the limit of EU influence), but Sarkozy’s new approach does offers a potentially useful path forward for EU-Israel relations.
Clara Marina O'Donnell is a research fellow at the Centre for European Reform.
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