Friday, May 30, 2014

The new European Commission: which president, and what priorities?

The EU has probably never faced greater challenges. Chronically slow economic growth, and a euro crisis that is dormant but far from resolved, have undermined support for the EU – helping anti-establishment parties to win 20 per cent of the seats in the European elections. A wave of europhobic sentiment may carry Britain out of the EU, while Russia is becoming a more menacing neighbour.

The EU cannot tackle such problems without a strong European Commission – the body that defines the common interest, helps to forge common policies and polices the rules. Yet many intelligent and serious pro-Europeans want the Commission’s next president to be chosen by a method that is bound to weaken it.

This is the system of Spitzenkandidaten, or designated candidates, promoted by the European Parliament and the main pan-European political parties. They argue that the recent elections gave voters a real choice – between Jean-Claude Juncker, the candidate of the centre-right European Peoples’ Party (EPP), Martin Schulz, the candidate of the Party of European Socialists, and those representing smaller groups. Advocates of this system also claim that it enables people to see a link between the way they vote and the faces running the EU. And because the EPP won the most MEPs (though many fewer than five years ago), they argue, the European Council should bow to the ‘popular will’ and anoint Juncker. However, these arguments suffer from serious flaws.

First, the two leading candidates did not offer voters a real choice. Juncker and Schulz hold similar views, supporting more powers for the EU without wanting to change much in the way that it works. In any case, electors cannot realistically choose between candidates without knowing who they are. Most of those who voted have never heard of Schulz or Juncker, which is not surprising, since they are obscure politicians to most people living outside Brussels.

Second, the idea of Spitzenkandidaten is based on the assumption that if people vote for one face rather than another, policy will shift. But in reality the appointment of Juncker rather than Schulz would make little difference to what the Commission does, even if they held significantly different views: either would be constrained by having to work with a broad coalition of 27 commissioners, from various parties, appointed by national governments. Only the most dynamic of Commission presidents, such as Jacques Delors, have been able to make much difference.

Furthermore, the Commission has little executive power, except in a few areas like competition policy. Most key decisions in the EU are taken by the Council of Ministers. And although the Commission initiates legislation, the Council and the Parliament revise and then have to pass each law. So if advocates of Spitzenkandidaten lead electors to believe that their votes will change EU policy, through determining the Commission president, the result may soon be disillusionment.

A third problem with Spitzenkandidaten is that this idea would make the Commission more party-political, at least in terms of perceptions. A President Juncker would be seen as accountable to the EPP group in the Parliament. That would have serious implications for the Commission’s credibility and legitimacy as a regulator and enforcer of rules. Suppose that the centre-right Spanish government broke eurozone budget rules, and that the Commission treated it softly; the institution would be accused of political bias. Many of the Commission’s tasks require to it remain above party politics.

The fourth and most important reason for the European Council to reject Spitzenkandidaten is that the quality of those running the EU is hugely important. Schulz’s executive experience is limited to being mayor of a small German town. Juncker has considerable political experience, having been prime minister of Luxembourg from 1995 to 2013, but he left office under a minor cloud, having mismanaged a spy scandal. As chairman of the Eurogroup, from 2008 to 2013, he can hardly be blamed for the eurozone crisis. Nevertheless he lacked the clout to stand up to the big member-states, when the eurozone made mistakes, and was out of the loop at many key moments. Jean Pisani-Ferry’s excellent new book, ‘The euro crisis and its aftermath’, reveals that from January 2010 to June 2012, US Treasury Secretary Tim Geithner called the ECB president (whether Jean-Claude Trichet or Mario Draghi) 58 times, Wolfgang Schäuble (Germany’s finance minister) 36 times, Olli Rehn (the EU economics commissioner) 11 times and Juncker just twice.

The televised debates among the presidential candidates generated little interest in most member-states, perhaps because they were between largely unknown and uninspiring figures – the exception being Alexis Tsipras, the far left’s designated candidate, who has some charisma. If the debates had featured not only Tsipras but also, say, Angela Merkel, Silvio Berlusconi, Nicolas Sarkozy and Marine Le Pen – politicians who have made an impact outside their homelands – many millions might have watched.

But the system of Spitzenkandidaten discouraged heavyweight leaders from putting their names forward. Those in office would have had to resign without any certainty of gaining the nomination or winning the presidency. Several plausible candidates for the presidency – some with fresher faces than the designated candidates – held back from seeking nomination. These include Dalia Grybauskaite, Enda Kenny, Christine Lagarde, Fredrik Reinfeldt, Helle Thorning-Schmidt and Donald Tusk, respectively the leaders of Lithuania, Ireland, the IMF, Sweden, Denmark and Poland (other serious contenders, currently out of office, include Finland’s Jyrki Katainen, France’s Pascal Lamy and Italy’s Enrico Letta).

Rather than humouring the Parliament by appointing a designated candidate, the European Council should appoint a strong president. That would strengthen the Commission as a whole. Indeed, that institution’s weakness is one cause of the EU’s travails, and thus, indirectly, of the rise of euroscepticism. The Commission has been poorly led, lacked focus and proposed too many regulations that are badly drafted. It has become too willing to pursue the Parliament’s agenda, thereby damaging its credibility in national capitals.

A strong Commission requires a dynamic and effective president – one who can shake up the institution while retaining the confidence of both the Parliament and the member-states. The Commission’s priorities should include:

* Boosting economic growth. The Commission should propose to extend the single market (especially in services and the digital economy), negotiate more trade deals with other parts of the world, support the best research in the EU and invest in crucial infrastructure like energy transmission. Some of these measures would be unpopular. The president must therefore be astute at building coalitions for change, explaining the benefits and ensuring help for those who may be disadvantaged. The Commission should be more careful not to create impediments to growth: it should improve the impact assessments that it carries out on draft laws, and resist the Parliament when it demands regulations that are unnecessary. In the long run, faster growth would undermine support for populists.

* Restoring the eurozone to health. The euro's difficulties have done much to damage the EU’s overall economic performance. Though the euro crisis has slipped out of the headlines, major problems remain: an ill-conceived focus on austerity that smothers demand; deflationary pressures in Southern Europe that the European Central Bank (ECB) has failed to tackle; barely sustainable levels of public debt in much of Southern Europe; the reluctance of some governments to commit to painful structural economic reforms; and Germany’s unwillingness to generate the domestic demand that would stimulate activity elsewhere in the eurozone. Particularly in the early years of the crisis, the Commission lacked the backbone to stand up to the ECB, Germany and other governments when they pursued harmful policies.

* Encouraging the 28 to forge a common response to a more assertive Russia. The member-states have not reacted in the same way to Russia’s meddling in Ukraine: some worry about their military security, others fear for their energy supplies; some want the EU to prioritise human rights, others believe that engagement assists moderate voices within the Russian system. Despite these disagreements, even the modest EU sanctions adopted so far have hurt market confidence in Russia. In order to maximise Europe’s leverage vis-à-vis Russia, the Commission should work with the European External Action Service and the key member-states to herd the 28 towards a coherent approach. The Commission is developing sensible ideas for improving the EU’s energy security – including boosting energy efficiency, accessing alternative energy sources, building gas and electricity connections between member-states and co-ordinating the member-states’ negotiation of gas contracts with third parties – but will need drive and determination to persuade national governments to adopt them.

* Coping with the British problem. Whichever party wins the next British election, the UK is likely to demand major reforms to the way the EU works. Some member-states will support its efforts. Others will be less enthusiastic, but after the European elections, fewer governments will be willing to say that ‘business as usual’ is acceptable. The Commission president will face a Herculean task: constructing an agenda for reform that helps to keep the UK in the EU, but at the same time is acceptable to 27 other governments. And because there is unlikely to be a new EU treaty in the next few years, EU leaders will find it hard to craft reforms within the existing treaties that look substantive. The appointment of Juncker as Commission president would decrease the chances of keeping the British in the EU, since he (like Schulz) has an antagonistic relationship with them.

The EU treaties are clear: when the European Council chooses the Commission president, it should take into account the European elections; MEPs then have to approve that choice. This means that the president probably has to come from the party – or group of parties – that can muster the largest number of MEPs. The treaties, however, say nothing about Spitzenkandidaten. European leaders should not indulge the Parliament by tolerating its attempted power-grab. The challenges facing Europe are far too serious for its leaders to risk the choice of a weak Commission president. Of the potential candidates from the centre-right, Christine Lagarde is among the strongest (though apparently François Hollande would rather not have her as president). She would bring her experience as a minister and at the IMF, her communications skills and her economic expertise to the job.

Charles Grant is director of the Centre for European Reform.

Friday, May 23, 2014

Devolution in Ukraine: Panacea or Pandora’s Box?

Russia and the West do not agree on much about Ukraine, but both say that state power there has been too centralised. They are right that people in Ukraine’s regions do not feel that the authorities speak for them; but the real cause is ineffective and corrupt government at all levels, not an over-mighty central government. Both Russian and Western prescriptions for redistributing powers could make things worse if the underlying issues are not addressed first.

For Russia, the buzzword is ‘federalisation’ – a radical reallocation of powers so that the oblasts (regions) in southern and eastern Ukraine could have their own foreign and trade policies. According to Sergei Glazyev, Russian president Vladimir Putin’s adviser on Eurasian integration, this could include the right to join the Russian-led Eurasian Customs Union. Ukraine’s interim prime minister, Arseniy Yatsenyuk, has called this “feudalisation”, designed to make Ukraine subordinate to Russia. It would certainly be impossible for Ukraine to implement a free trade agreement with the EU if part of the country was in a customs union with Russia.

On the other side, the EU supports ‘decentralisation’, a vague term which could include giving some budgetary and other powers to local authorities below the oblast level. One of the principal proponents of decentralisation, Anatoliy Tkachuk of the Civil Society Institute in Kyiv, said recently that the focus should be on “consolidating and strengthening municipalities and districts” (smaller units than oblasts). Tkachuk argued that giving more power to the oblasts would “create a layer of oligarchic activity that would continue business as usual”.

Ukraine’s immediate focus is on the presidential election, the first round of which will be held on May 25th. After that, attention will switch from who runs the country to how it is run. Decentralisation features in the ‘roadmap’ for Ukraine put forward by the Swiss Chairman-in-Office of the Organisation for Security and Co-operation in Europe (OSCE), Didier Burkhalter. At the Foreign Affairs Council (FAC) on May 12th, EU foreign ministers welcomed Ukraine’s steps to implement this. Decentralisation is likely to be a key agenda item in the series of public roundtable meetings, held under OSCE auspices, which started in Kyiv on May 14th. The roundtable is co-moderated by the former German diplomat, Wolfgang Ischinger (full disclosure: he serves on the CER’s advisory board).

The key question is whether over-centralisation of power really has been nefarious, and therefore whether either version of devolution is the right answer. While on paper Ukraine’s constitution may suggest that power is too concentrated in the hands of its central government, the events of the last six months have shown that the reality is quite different. The weakness of Ukraine’s central institutions, the influence of wealthy regional power-brokers and the interference of Russia create a risk that Ukraine may fragment. In a country as large and diverse as Ukraine, ensuring that people throughout the country have a voice at the centre is vital. But in focusing on decentralisation without strengthening national-level institutions, the OSCE and the interim government could inadvertently increase the risk of break-up.

Ukraine has amended its constitution repeatedly since gaining independence in 1991, shifting the balance of power back and forth between president and parliament at least three times. The version of the constitution currently in force is as amended in 2004, following the cancellation of amendments strengthening presidential powers that were adopted in 2010 under Yanukovych. It remains a very flawed document. Meanwhile, Ukraine has failed to build strong institutions, particularly courts and law enforcement agencies. In 2007 the Council of Europe warned of a tendency towards “legal nihilism” in Ukraine; things only got worse under Yanukovych, who appointed one of his cronies as chair of the constitutional court. The police are often corrupt and (as recent events in the east of Ukraine have shown) either incompetent or disloyal.

Since central organs of power are so impotent, oligarchs with regional power bases have been able to capture effective control of their areas, particularly in the industrial east, and to manipulate the state to their own advantage. All Ukrainian presidents have relied on these power brokers to a greater or lesser extent. The current interim government in Kyiv has had to accept that real power in the east lies with the oligarchs, appointing Ihor Kolomoyskiy, multibillionaire owner of PrivatBank, as governor of Dnipropetrovsk oblast and Serhiy Taruta, billionaire founder of the Industrial Union of Donbass, as the governor of Donetsk oblast. Ukraine’s richest oligarch and Donbass ‘boss’, Rinat Akhmetov, who seemed for some weeks to be taking a neutral position on the demands of pro-Russian protesters, has now thrown his weight behind the cause of Ukrainian unity. Steelworkers from one of Akhmetov’s plants cleared pro-Russian separatists from the south-eastern city of Mariupol after Ukrainian forces had failed to do so. This may be a good thing in the short-term, but it sends a worrying signal of private power and state feebleness.

Ukraine could probably have muddled on with weak central government and strong regional oligarchs, were it not for Russia’s intervention. The annexation of Crimea, though clearly a grave breach of international law and Russia’s commitments, was relatively unimportant in terms of the future of Ukraine as a state: Crimea was already an autonomous region; it is the only part of Ukraine where ethnic Russians are in a majority; and it contributes less than 3 per cent of Ukrainian GDP. What is happening in the south and east, however, is an existential threat: the majority in these areas, whatever language they speak, identify themselves as Ukrainians; and these regions are Ukraine’s industrial heartland, with GDP per capita above the national average.

Russia’s longer-term aims in these areas are unclear; they may extend as far as annexation on the Crimean model, or the creation of an ‘independent’ state in what Putin has called (using a Tsarist era term for the area) “Novorossiya” (New Russia); or they may be limited to ensuring, by whatever method works, that Ukraine cannot integrate with the EU or NATO. But Moscow’s short term actions seem designed to make the Donetsk and Luhansk oblasts, which contain about 15 per cent of Ukraine’s population, at least partially ungovernable. The central government and the security forces have so far failed to find an effective way to respond.

In these circumstances, any move to devolve power before the centre can re-assert itself is likely to reinforce fissiparous tendencies in Ukraine. The assorted Russian agents, irregular Russian Cossack groups and armed local malcontents running parts of the east are highly unlikely to produce the good governance, economic reform and respect for human rights that Ukraine needs. As they have shown already, they are more likely to foment chaos and violence, with or without the Ukrainian security forces to fight. On the other hand, if the centre gives in to the temptation to hand control of eastern oblasts to the traditional regional bosses, the oligarchs are likely to go back to the corrupt and predatory behaviour which has left Ukraine as such a shocking contrast with its neighbour Poland (see Simon Tilford’s CER bulletin article ‘Poland and Ukraine: A tale of two economies’).

What Ukraine needs in order to progress, and what the EU, US and international organisations should help it to build, are effective institutions at all levels. Once a president has been elected and a government is in office, Ukraine’s first priority should be to start drafting a constitution which delineates clearly what powers belong where, so that citizens know who is accountable for what. The Council of Europe’s Venice Commission on Democracy through Law has been involved in advising Ukrainian governments on the constitution in the past, but the new government should accept its advice more wholeheartedly – including on the need for an inclusive and comprehensive drafting process. It is up to the Ukrainians themselves to discover what system will command the greatest support, but experience in post-communist countries suggests that parliamentary systems consolidate democracy and promote economic reform more effectively than presidential systems: parliaments provide a forum for compromise and coalition-building, while powerful presidencies facilitate state capture by well-connected elites.

Second, Ukraine needs a court system able to make judgements based on the constitution and the law, rather than on threats and bribes. At the FAC on May 12th, ministers tasked the European External Action Service to come up with the concept for an EU rule of law mission. The next FAC should move quickly to agree on recruitment and deployment. In 2004 to 2005, the EU mounted a successful rule of law mission, EUJUST THEMIS, to help Georgia reform its criminal justice system, including fighting corruption in it; Ukraine needs something similar but more wide-ranging, covering civil as well as criminal justice.

Third, Ukraine needs a well-trained and motivated police service which upholds the law and defends the rights of citizens. The police are often the first point of contact between the citizen and the authorities; if the interaction is positive, people are more likely to feel that the government is ‘on their side’. The UN’s ‘Brahimi Report’ of 2000 on peace operations underlined this: “The fairness and impartiality of the local police force … is crucial to maintaining a safe and secure environment, and its effectiveness is vital where intimidation and criminal networks continue to obstruct progress on the political and economic fronts” – a pretty good description of present-day eastern Ukraine. Both the EU and the OSCE have experience of training and mentoring police, particularly in the Balkans; they should agree on a sensible division of labour to tackle the enormous challenge of Ukraine.

Finally, to show the Ukrainian people that the new authorities are serious about fighting corruption, Ukraine needs more open government. Procurement needs to be transparent, so that the flow of money from the state to its suppliers can be audited by citizens. The gas transit business needs to be transparent, so that people can see how much is imported, how much is sold at what price and where the revenues go. At present only Russia knows exactly how much gas enters Ukraine; and the involvement of intermediary companies and the manipulation of prices for different classes of consumers make it hard to work out what happens to the gas inside the country. And the wealth of public officials needs to be transparent, to make it harder for the corrupt to hide illegitimate income. The interim government started well, by appointing the investigative journalist Tetyana Chornovol as its anti-corruption chief, but her efforts to establish a new system for fighting corruption seem to be stalling amid disagreements on the accountability of the planned anti-corruption service. The UK’s Department for International Development and non-governmental organisations like Transparency International could offer their expertise to help Ukraine ensure that public money is not diverted to private pockets. Ukraine is already a member of the Open Government Partnership, a group of 64 countries where government and civil society have agreed to improve government openness and accountability; it should start implementing the steps it has committed itself to.

None of these changes will be easy to implement; and Ukraine will also need economic and other forms of assistance if it is to develop. But if these reforms encourage Ukrainians, wherever they live and whatever language they speak, to feel connected to and protected by the state, they will help to underpin its foundations. Without reform, any edifice of devolved powers may prove fatally unstable.

Ian Bond is director of foreign policy at the Centre for European Reform.

Thursday, May 15, 2014

Presidential candidates, European federalism and Tony Giddens

These European elections promise to be difficult for the EU. Opinion polls are predicting a surge in support for anti-EU parties of left and right. Furthermore, if past elections are a guide to the future, voter turnout will fall again. It slid steadily from 63 per cent in the first European elections, in 1979, to 43 per cent five years ago. The European Parliament – despite gaining more powers through each successive treaty change – has failed to convince a majority of voters that it is an admirable or useful institution.

But despite these ill omens, many ‘federalists’ – who may be defined as those wanting a significant transfer of powers to EU institutions – are getting excited. This is because the European elections may, for the first time, determine the choice of the president of the European Commission. Each of the main pan-European political parties has chosen a designated candidate for that job. Many federalists hope and expect that the political party which gains the most votes will see its candidate anointed president. They believe that this method of choosing the president would make the EU more democratic: voters would see a link between the way they vote and the person running the Commission.

The designated candidates have engaged in a series of TV debates and claim to be offering voters a choice of Europes. But in fact the three most prominent candidates – the socialists’ Martin Schulz, the centre-right’s Jean-Claude Juncker and the liberals’ Guy Verhofstadt – are remarkably similar. They have spent much of their careers inside the Brussels system. Two are former Benelux prime ministers, and two are MEPs (Verhofstadt is both). Though there are minor differences among the three – such as on the degree of austerity that is desirable – they all want to shift more power to the centre. The real political argument in these elections is not between these three candidates, but between three approaches to Europe: the federalists, who want more of it; the sceptics, who want less of it (or none at all); and, in the middle, those who see the value of the EU but don’t want a lot more of it and hope that it can be reformed.

The proposal for the Commission president to be chosen through designated candidates is problematic: it would narrow the pool of talent from which the president can be drawn; risk damaging the Commission’s credibility as a regulator by making it more overtly party-political; and encourage voters to believe that the political colour of the president influences EU policy, only to disillusion them when they see this is seldom the case (these problems are explained by Heather Grabbe and Stefan Lehne in a CER policy brief).

Whatever the rights and wrongs of this method of deciding the president, the federalists who back it may end up disappointed. The EU treaties state clearly that the European Council chooses the Commission president, “taking into account” the results of the European elections. As far as many heads of government are concerned, this means that the European Council is merely obliged to choose someone from the party that wins the elections – so long as that person can muster a majority among MEPs. The European Council may end up choosing a president who is not a designated candidate – such as, on the left, Pascal Lamy, Enrico Letta or Helle Thorning-Schmidt; or, on the right, Enda Kenny or Donald Tusk.

Some federalists would then be disappointed. But they generally take a long view and, inspired by their faith, are often determined operators. Over the past 50 years, visionary federalists such as Jean Monnet and Jacques Delors have had their victories. The EU’s farm policy, trade policy, competition policy and single market are largely run on federal lines. The creation of the euro was their greatest triumph.

But from its inception the EU has been an uneasy compromise between federalists and ‘inter-governmentalists’ – those arguing that the member-states (who in practice tend to be led by the big ones) should set the agenda and take key decisions. They have ensured that matters such as foreign and defence policy, taxation and treaty change remain subject to unanimous voting, and thus under the sway of national governments.

The balance between these two schools of thought has remained fairly even over the decades. But in the past few years some authority has shifted to governments: the euro crisis has required member-states to find the money for bail-outs, which has enabled them (and Germany especially) rather than EU institutions to dominate the management of the eurozone. Meanwhile, among the EU institutions, the European Parliament has gained greater sway over some decisions, thanks to the Lisbon treaty.

Tony Giddens, one of Europe’s most eminent social scientists and a member of the House of Lords, makes a brave case for federalism in his recent book, ‘Turbulent and Mighty Continent: What Future for Europe?’ Its chapters on economic, social, climate and foreign policy include good arguments for the EU to take on a bigger role vis-à-vis the member-states. The book is weaker, however, on the EU institutions.

Giddens’ first error is to argue that neither the EU nor the euro can survive without an economic and political federation, and that a federation is feasible. Giddens calls not just for a bit more federalism, but a radical leap forward. He wants the direct election of the European Commission president, much more power for the European Parliament, and the Council of Ministers transformed into a senate.

Giddens seeks to give these ideas plausibility by citing the support of Commission President José Manuel Barroso for ‘political union’. But Barroso does not speak for the peoples or governments of Europe. Very few Europeans want federalism. Most of them do not believe that the further centralisation of power in Brussels and Strasbourg would solve their problems.

The creation of a federal system along the lines suggested by Giddens would require a new treaty to be ratified in 28 member-states. Several of them would hold referendums, including perhaps Germany. Belgium and Luxembourg would ratify a federal treaty quite easily but it is doubtful that that many other countries would. In Italy, France, Germany and Poland there are influential federalist politicians, but whether they could persuade majorities of their parliaments or electorates to vote for Giddens’ proposed federation is highly debatable.

There is not going to be a European federation. So it is lucky that Giddens’s belief that neither the EU nor the euro can survive without one is mistaken. However, he is right that in the long run a healthy euro requires some degree of ‘mutualisation’ (sharing of risk) between its members. And it is true that, in the recent negotiations over the EU’s banking union, Germany largely avoided commitments to recapitalise troubled banks in other member-states. Berlin has also ruled out the ‘eurobonds’ – collective borrowing by the eurozone – which Giddens thinks essential for the euro to hold together.

Nevertheless Germany has de facto accepted some mutualisation. The European Stability Mechanism, the eurozone bail-out fund, has €500 billion (it and other bail-out mechanisms have so far lent about €350 billion to countries in need); the European Central Bank’s Securities Markets Programme has spent more than €200 billion on government bonds; and that bank’s ‘bazooka’ (officially known as Outright Monetary Transactions) – if ever used – could spend much more on government bonds. It seems likely that, in any future eurozone crisis, Germany would accept as much mutualisation as was necessary to calm the markets.

The euro can thrive – or even flourish – without eurobonds or other major steps to an economic federation. But it will need an effective banking union, which in the long run will require a bigger resolution fund – with a larger contribution from Germany – than the €55 billion fund agreed by the EU in March 2014. A healthy euro also requires a relaxation of the austerity that Germany and the Commission have imposed on the heavily-indebted countries. It requires more structural reform in the southern countries, to improve their potential for growth and job creation. And it requires structural reform in Germany, too. Germany’s unbalanced economy, over-dependent on exports, suffers from low levels of consumption and investment. A more balanced German economy would help to fuel growth elsewhere in the eurozone. Finally, some of the public sector debts weighing down on the Southern European economies will have to be written off, or at least have their maturities stretched out into the very long term.

Giddens’ second error is to argue that, as the EU develops, ‘variable geometry’ – the idea that members can opt out of certain policies, and that smaller clubs can exist within the broader EU – will become impossible. He writes that every member-state will have to be involved in the same policy areas. If Giddens were right, the British would have no choice but to leave – for they will never join the euro or the Schengen area.

In fact the trend is in the other direction, towards variable geometry. Not every EU state takes part in defence policy, all of justice and home affairs co-operation or the euro. The treaty provisions for ‘enhanced co-operation’, allowing sub-groups to proceed without the rest of the EU on particular laws, are starting to be used. Enhanced co-operations on the European patent and on cross-border divorce now exist, while others are being mooted for the financial transactions tax and the European Public Prosecutor.

Like many federalists, Giddens assumes that most of the ten EU countries not in the euro will join it soon. Yet apart from Lithuania, none of the ten has taken even the first steps of preparing to join (such as entering the Exchange Rate Mechanism). It may be ten years or longer before Poland – which would need to change its constitution – joins the euro, and some of the others may never do so.

The debates between Juncker, Schulz and Verhofstadt, entertaining though they may be, will not determine the future of the EU. Politics in Europe remains largely national, which is why the European elections often fail to inspire and why greater accountability of the EU needs to come, at least in part, via national parliaments (see section 1.3 of the CER’s proposals on EU reform). If politicians want to build a more federal Europe around the euro, and fulfil some of Giddens’ vision, they will need to do a better job of explaining to voters how a loss of sovereignty will deliver significant benefits.

Charles Grant is director of the Centre for European Reform.

An earlier version of this article was published in the March issue of International Affairs.

Tuesday, May 06, 2014

What is wrong with German foreign policy?

During the euro crisis, Germany has become Europe’s unquestioned leader on economic policy-making. Both the strength of its economy and the demands of others for its money have given Germany a pre-eminent role. In foreign and security policy, Britain and France have generally set the EU agenda. The Ukraine crisis, however, may allow Germany to lead in this field, too. Germany has a special relationship with Russia, geographical proximity to Ukraine and strong economic ties with both. Meanwhile France is busy with two wars in Africa, and Britain is constrained by its europhobic domestic debate, as well as its post-Afghanistan, post-Iraq fear of foreign entanglements.

Nevertheless Germany will not emerge as a leader of EU foreign policy unless it overcomes some of the weaknesses that hold it back. President Joachim Gauck (pictured) identified two specific problems in an important speech to the Munich Security Conference on January 30th: Germany has tended to evade some of the responsibilities that other Western powers have borne; and it suffers from a dearth of strategic thinking. Gauck did not refer directly to a third problem: in Germany, foreign policy is more commercially-driven than in some EU countries.

The horrors of World War Two left Germany understandably more interested in an economic than a strategic approach to foreign policy; and unwilling to intervene militarily in other parts of the world. Although those traits have shown remarkable longevity, the various post-war chancellors have had their own priorities. Gerhard Schröder, chancellor from 1998 to 2005, tried – with the help of Joschka Fischer, his foreign minister – to make Germany more ‘normal’ in the way it handled security crises. Thus German forces took part in NATO’s bombing of Serbia and Kosovo in 1999, joined the NATO mission in Afghanistan and acted as peacekeepers in many parts of the world.

But under Angela Merkel foreign policy became more cautious, particularly from 2009-13, when the anti-interventionist Guido Westerwelle was foreign minister. This shift may have reflected the public’s lack of enthusiasm for both the Schröder-Fischer activism and the US-led invasion of Iraq. Thus during the Libya crisis of 2011 Germany lined up with Russia and China in abstaining on a UN Security Council resolution (backed by the US, Britain and France) that authorised the use of force.

Gauck’s Munich speech – supported by later interventions from Foreign Minister Frank-Walter Steinmeier and Defence Minister Ursula Von der Leyen – argued that Germany’s foreign policy should be more like that of other countries. The president said that when others regarded Germany as a shirker, they had a point. He urged the Germans to be ready to do more to guarantee the security that others had provided it for decades. He pointed out that Germany had benefited greatly from the open global order, and warned that “the consequences of inaction could be just as serious, if not worse, than the consequences of taking action”. He said that Germany should be prepared to spend money, and as a last resort, to send in troops. He noted that “there are also people who use Germany’s guilt for its past as a shield for laziness or a desire to disengage from the world”. He said the Germans should not make special rules for themselves.

To many foreign observers, Gauck was stating the obvious. Germany contributes less to European security than Britain or France: in 2013 it spent 1.4 per cent of GDP on defence, while France spent 1.9 per cent and Britain 2.3 per cent. Nor does Germany compensate by spending more on softer sorts of security: it spent 0.37 per cent of GDP on development aid in 2012, while France spent 0.45 per cent and the UK 0.56 per cent.

Germany has provided large numbers of peacekeepers and trainers for NATO and EU missions in places such as Afghanistan, Bosnia, Kosovo and Mali, but the caveats applying to them have often impaired their utility. In Afghanistan, for example, German troops and aircraft stationed in the north could neither undertake offensive operations nor assist NATO allies fighting in the more troubled south. France and Britain are usually more willing to send their soldiers into harm’s way (although 54 German troops died in Afghanistan).

Alongside a reluctance to use force, German foreign policy is characterised by the strongly-held principle that any problem can be solved through negotiation. Though an admirable starting point in foreign affairs, negotiation without a credible threat of sanctions or force cannot always be the solution. Negotiation tout court is a ‘post-modern’ concept that generally works well within the EU, but is less effective in dealing with the very ‘modern’ (that is to say, realist) powers in other parts of the world.

The recent history of the Germans’ dealings with Russia shows how much they believe in engagement. From Vladimir Putin’s ascent to power until very recently, they believed in Wandel durch Annäherung, change through rapprochement. They wanted the EU and its member-states to negotiate ‘modernisation partnerships’ with Russia, based on the assumption that its leaders could be persuaded to strengthen the rule of law and reform the economy.

That was probably a reasonable strategy for the EU, at least for a while. Barack Obama’s ‘reset’ with Russia produced real results on Iran, Afghanistan and arms control, when Dmitri Medvedev was president (in 2008 Putin became prime minister when the two men swapped jobs). Medvedev seemed keen to modernise Russia.

However, dark forces of atavism, nationalism and militarism were building inside Russia. Rather few Germans noticed. Merkel focused her efforts on cultivating Medvedev; like many Germans (and Obama), she over-estimated his chances of pushing aside Putin. With hindsight, some of the Germans’ faith in engaging Russia was over-optimistic or even naïve.

Since Putin returned to the presidency in 2012, anti-Western paranoia has increased its grip on Russian foreign policy. His behaviour since the autumn of 2013, when he started putting pressure on Ukraine (and other countries) to shun the EU’s Eastern Partnership, has been an unexpected and disagreeable cold shower for many Germans. Some of them now recognise that there has been too much wishful thinking in Germany about Russia.

German attitudes to Russia in particular or foreign policy in general will not change rapidly. Visiting Berlin in April 2014, I found that a number of senior thinkers and officials were making excuses for Russian conduct in Crimea. They more-or-less blamed not only NATO enlargement but also the EU for some of Russia’s actions, arguing that Brussels should have tried harder to consult Moscow over the Eastern Partnership (in fact, EU officials made repeated efforts to discuss the partnership with Russia, which showed no interest in the matter until the spring of 2013).

Since Germany is a profoundly democratic country, its politicians cannot ignore public opinion. Many Germans do not want to see their soldiers deployed anywhere – and are happy that they cannot be without a parliamentary vote. The Social-Democratic Party (SPD) has always contained pacifist elements and, ever since the Ostpolitik that it led in the 1970s, has tended to favour a soft approach towards Russia. German hostility to military intervention sometimes blends with strains of anti-Americanism – perhaps because the US has several times supported interventions that proved disastrous. The recent scandal over the National Security Agency’s spying on Europeans has strengthened America’s critics across the continent, and especially in Germany, where people care deeply about civil liberties.

Gauck’s Munich speech highlighted a second problem that contributes to an over-reliance on soft power in foreign policy: insufficient strategic thinking in Germany. In this context I take strategic to mean the ability of a country to define its interests in ways that are not exclusively commercial and economic; and to set out its long-term objectives and the means by which it hopes to achieve them (even if the means involve short-term costs or commitments to deploy force).

Compared to some countries, Germany’s universities, think-tanks and ministries are weak in strategic thinking. Berlin has some fine foreign policy think-tanks, but lacks the equivalent of London’s International Institute for Strategic Studies or Paris’s Fondation pour la Recherche Stratégique. As Gauck noted, “A security conference in Munich once a year….is not enough”.

A third constraint on German foreign policy is its economic orientation. Every European country tries to balance commercial objectives with concerns over human rights and broader strategic goals. But they do not all strike the same balance. Germany’s industrial and commercial interests sometimes drive its foreign policy more strongly than is the case in Britain or France.

During the Ukraine crisis, Brussels officials have complained about pressure from Berlin to “de-escalate” the EU’s relationship with Russia. That pressure is not surprising: German companies have invested more than €20 billion in Russia, which also provides about 30 per cent of Germany’s gas (however, only 3 per cent of German exports go to Russia). The Committee on Eastern European Economic Relations, a body that represents German industry, has lobbied the German government against EU sanctions on Russia throughout the Ukraine crisis. British firms involved in Russia have similarly lobbied their government, but arguably with less impact.

Berlin has often been reluctant to criticise Russia and China on human rights. Over the past few years, German policy on Russia has evolved, at least at the level of rhetoric, to become more critical, but the same cannot be said of its China policy. Germany’s commercial priorities were evident in the summer of 2013, when Merkel received Chinese leaders in Berlin and then visited them in Beijing. German solar-panel manufacturers had complained to the European Commission about Chinese panels being dumped on EU markets. The Commission had investigated and was threatening China with penalties. China then warned the EU about possible retaliation against exports of polysilicon (a material for solar panels) and luxury cars, which would have hit Germany. The German government criticised the Commission and undermined it by leaning on other member-states to oppose a tough response to the alleged dumping. As a result the Commission backed down.

Germany’s emphasis on commerce can therefore make its policies appear ‘anti-EU’. Many Brussels officials believe that, since Germany accounts for about 45 per cent of EU exports to China, it would rather have a strong bilateral relationship than a united European policy towards the country. German officials sometimes appear to think that, because most member-states do not have much manufacturing industry, the EU cannot be trusted to speak for German companies in countries like China. Similarly, Berlin has generally opposed a greater role for the Commission in managing the EU’s external energy relations, worrying that it might disregard the interests of German energy companies, many of which are active in Russia.

But is Germany any worse than its partners? When David Cameron, the British prime minister, went to Beijing in December 2013, he said proudly that he would be China’s advocate in Europe. He also said nothing (in public) about either human rights or tensions in the East China Sea – though US Vice President Joe Biden, in Beijing at the same time, spoke out on both issues. Does that not prove that all European leaders are commercially-driven? Not quite. Cameron was widely criticised in Britain for his handling of the Beijing visit, including (in private) by the Foreign Office. Britain’s response to the poisoning of Alexander Litvinenko, in 2006, is a counter-example. When the Russian authorities refused to co-operate with the British investigation, Prime Minister Gordon Brown reacted strongly. He imposed visa restrictions on government officials and cut off intelligence co-operation – despite the potential threat to BP’s and Shell’s massive investments in Russia.

At the time of his Munich speech, Gauck seemed to be setting out some long-term objectives for his country. But soon afterwards the Ukraine crisis escalated, presenting some immediate tests for Germany.

Though Gauck did not say so directly, he implied that in order to lead, Germany needed to be able to act – and sometimes against its own immediate economic interests. Germany would then have the credibility to win the respect of its fellow EU member-states.

In Berlin, senior officials and politicians understand that Germany cannot lead its partners on Russia policy if it is on one side of the spectrum of EU opinion on how to handle Moscow – the soft side. Rhetorically, Merkel’s tough words on Russia in recent months have positioned Germany close to the middle. As for a possible shift on substance, it is too early to tell where Germany will end up. The pressures on Germany to remain Russia’s special friend in Europe – from business, sections of the SPD (as well as some Christian Democrats) and much of public opinion – are immense. But Germany’s partners, in the US as well as in Europe, hope that the Gauck speech marks the start of a new era in Germany foreign policy – one that is less commercially-driven, more favourable to common EU policies and more willing to take on greater responsibility for European security.

Charles Grant is director of the Centre for European Reform.