by Hugo Brady
EU leaders are racking their brains to come up with candidates for the future presidency of the European Council. The job, to be created by the nearly-ratified Lisbon treaty, will replace a system whereby the EU is 'led' by a different national leader every six months. Instead, the Union will have a full-time consensus builder who will also represent the EU to foreign heads of state, for a maximum five-year term. The man or woman who gets the job is banned from holding national office, but the assumption is that potential incumbents need to have served as a president or prime minister in a past life.
Strangely, suitable candidates are proving elusive, even though the post has the potential to be both prestigious and influential. Of those names that have been touted so far, some – like the former British prime minister, Tony Blair – are divisive figures that would inevitably bring much political baggage to the office. Others – like Jan Peter Balkenende, the current Dutch prime minister – are agreeable to most, but uninspiring. They lack the profile and international standing that is needed if the post is to be more than merely ceremonial.
In early 2008, I tried to imagine the qualities the successful candidate for European Council president should have, in a mock job advert published in CER's bi-monthly bulletin:
"As the first person to hold this post, you will enjoy enormous scope to shape its future potential. Second-rate candidates need not apply. You should be a formidable communicator, highly capable but not overly assertive. You need to be firm but conciliatory. Modesty would be an asset. Although this position offers prestige and influence, power and perks will be limited. With only a handful of staff and no presidential cavalcade, the job will resemble that of the UN secretary-general rather than that of US president. Beyond your right to assemble us for emergency meetings, your formal powers will be limited. We are counting on your ability to set the agenda and forge consensus through persuasion and quiet charisma."
('Applicants sought for EU council president', CER bulletin, April/May 2008).
These are virtuous attributes indeed but, even in the rarefied corps of past and present European leaders, they are hard to find. Moreover, the job appears to require its holder to be a walking paradox: charismatic but modest, highly effective but non-intimidating, a consensus builder but also a decision-maker. Most ex-leaders of national governments would struggle to adjust to the limitations and requirements of such a position. That is one reason why candidates are so scarce.
Hence the member-states would find more suitable candidates if they widened their search beyond former heads of government to heads of international organisations, former European Commissioners with a distinguished record and, perhaps, even prominent figures from the world of business with an international profile. Some potentials might be Dominique Strauss-Kahn, (although it is probably more important that he stay in his current position as head of the IMF), or Chris Patten, a former EU commissioner for external relations.
In an ideal world, the most promising candidate from the non-leaders category would probably be Pascal Lamy, the current head of the World Trade Organisation. Judged against the criteria quoted above, Lamy emerges as a front-runner for a number of reasons. First, as the current head of a complex but indispensible organisation that operates by consensus and moves at a slow pace, Lamy could argue that he has done this sort of work before. Second, he has no political baggage of the sort that would identify him as a tool of one particular camp of member-states or another. A French socialist who supports free trade, Lamy would be a prime candidate to bring the Union together on many issues, especially on further steps to hasten economic recovery.
Also, whilst chief of staff for Jacques Delors, a former president of the European Commission, Lamy was a highly effective consensus builder who managed to thrive amid often spectacular political infighting. That is a quality that would stand him in good stead in the power-sharing triumvirate established by the Lisbon treaty, where the Council President's responsibilities rub up against those of the president of the European Commission and a newly powerful High Representative for Foreign Policy.
Opponents could argue that Lamy has no foreign policy experience on big picture issues like the Middle East peace process or Iran's nuclear programme. But trade – along with enlargement – has long been the EU's most important foreign policy tool, and Lamy is a former EU trade commissioner. Furthermore, rising powers like China or India will sit up and take notice if the head of the WTO were to depart suddenly to take up the European Council job.
I have no idea if Lamy is interested in the EU presidency, or whether he would be willing to leave the WTO were it offered to him. But the member-states will have a bigger, better field of candidates to choose from if they can let go of the idea that the first incumbent - so important to the future success of the position - must first have been a member of their own club.
Hugo Brady is a senior research fellow at the Centre for European Reform.
Tuesday, October 20, 2009
Thursday, October 08, 2009
Greece: Nowhere to hide
by Simon Tilford
The Greek economy is on a very dangerous course. Unless the government takes steps to boost productivity and strengthen public finances, Greece faces a bleak future. Many Greeks appear to believe that membership of the euro insulates their country from the threat of financial crisis. This is mistaken. Membership may free the country from the threat of a currency crisis, but not from a fiscal crisis.
Eurozone membership requires considerable discipline. The reason is obvious. A country that loses trade competitiveness within the currency union can only regain it by ensuring its costs rise less quickly than the rest of the eurozone. In short, it must engineer a real depreciation within economic and monetary union (EMU). It cannot rely on devaluation to restore competitiveness.
Costs can be held down by wage freezes, although this risks depressing domestic demand and exacerbating the weakness of the fiscal position. Only stronger productivity offers the chance of regaining competitiveness without hitting domestic demand and bringing on a fiscal crisis. Higher productivity requires reforms of labour markets and the opening of the domestic economy to more competition.
Greece only has a small window of opportunity. The government deficit is on course to exceed 8% of GDP this year – this despite the Greek economy having only just entered recession. With the economy set to contract next year and stagnate the following year, the debt to GDP ratio will rise dramatically. The IMF estimates that it will jump to 134% by 2014. In reality, it looks like being much higher than this. And once the deficit reaches such a level it is hard to prevent it rising further because of the rising burden of interest payments.
Greece cannot finance deficits of this size domestically. It has to attract funding from abroad. This will become increasingly difficult if investors believe that the economy will be stuck in a cycle of very weak economic growth and rising public debt. Investors will lose faith in the ability of the Greek government to service its debts.
Many Greeks appear to believe that the eurozone as a whole would step in to prevent a debt crisis. They are probably right, but this would not be cost free. Assistance would be provided only in return for a commitment to reform the economy and cut public spending. It would make much more sense to take steps now rather than having to take more painful steps later.
The election result suggests that there is little stomach for reform in Greece. But Greece has no choice but to reform. Delay will only make the eventual medicine more bitter.
Simon Tilford is chief economist at the Centre for European Reform.
The Greek economy is on a very dangerous course. Unless the government takes steps to boost productivity and strengthen public finances, Greece faces a bleak future. Many Greeks appear to believe that membership of the euro insulates their country from the threat of financial crisis. This is mistaken. Membership may free the country from the threat of a currency crisis, but not from a fiscal crisis.
Eurozone membership requires considerable discipline. The reason is obvious. A country that loses trade competitiveness within the currency union can only regain it by ensuring its costs rise less quickly than the rest of the eurozone. In short, it must engineer a real depreciation within economic and monetary union (EMU). It cannot rely on devaluation to restore competitiveness.
Costs can be held down by wage freezes, although this risks depressing domestic demand and exacerbating the weakness of the fiscal position. Only stronger productivity offers the chance of regaining competitiveness without hitting domestic demand and bringing on a fiscal crisis. Higher productivity requires reforms of labour markets and the opening of the domestic economy to more competition.
Greece only has a small window of opportunity. The government deficit is on course to exceed 8% of GDP this year – this despite the Greek economy having only just entered recession. With the economy set to contract next year and stagnate the following year, the debt to GDP ratio will rise dramatically. The IMF estimates that it will jump to 134% by 2014. In reality, it looks like being much higher than this. And once the deficit reaches such a level it is hard to prevent it rising further because of the rising burden of interest payments.
Greece cannot finance deficits of this size domestically. It has to attract funding from abroad. This will become increasingly difficult if investors believe that the economy will be stuck in a cycle of very weak economic growth and rising public debt. Investors will lose faith in the ability of the Greek government to service its debts.
Many Greeks appear to believe that the eurozone as a whole would step in to prevent a debt crisis. They are probably right, but this would not be cost free. Assistance would be provided only in return for a commitment to reform the economy and cut public spending. It would make much more sense to take steps now rather than having to take more painful steps later.
The election result suggests that there is little stomach for reform in Greece. But Greece has no choice but to reform. Delay will only make the eventual medicine more bitter.
Simon Tilford is chief economist at the Centre for European Reform.
Friday, October 02, 2009
The Czechs will probably ratify the Lisbon treaty this year
by Charles Grant
Any prediction about the timing of the Czech Republic’s ratification of the Lisbon treaty must be heavily qualified; politics in Prague are so complex and opaque that many Czechs find it hard to understand what is going on. But having just spent a couple of days talking to politicians and officials in Prague, I think it likely that the Czechs will ratify this year.
The republic’s maverick president, Vaclav Klaus – who shares the passion of his idol, Margaret Thatcher, for free markets and bashing Brussels – is doing his best to delay the ratification of the Lisbon treaty. Last year a group of eurosceptic senators allied to Klaus challenged the treaty in the constitutional court, with six specific complaints about the document. After seven months the court approved the treaty and earlier this year the parliament voted for it, but Klaus has delayed signing the law of ratification. On September 29th the eurosceptic senators mounted a second challenge to the treaty in the constitutional court, thereby giving Klaus a good reason not to sign.
If the Irish approve the treaty in their October 2nd referendum, Poland’s president, Lech Kaczynski, is likely to sign his country’s law of ratification. The Czech Republic would then be the only EU member-state not to have ratified the document.
The general view in Prague is that the court, based in the Moravian town of Brno, will once again approve the treaty. It is an independent institution and nobody thinks its judges are particularly eurosceptic. But how quickly will it rule? Klaus has admitted receiving a hand-written letter from David Cameron, the leader of the British Conservatives, apparently stating that they are with the Czech president in his fight against the treaty. If Klaus can delay his signature till the Conservatives take office in Britain – after the general election that is due by next June – Cameron will hold a referendum on the treaty. The result would almost certainly be a No, and that would be the end of the Lisbon treaty.
Nobody knows how long the court will take to consider the treaty. Although it took only ten days to rule on a recent case concerning early parliamentary elections (the court insisted that the current parliament continue to the end of its term), it will need to give a full and considered response to the new challenge to the Lisbon treaty. However, one senior figure I spoke to was confident that the ruling would be “in weeks not months”. The case for a quick ruling is that the court has already spent time on the treaty, dealing with last year’s case, and that “the court does not exist in a political vacuum”. The judges understand, apparently, that there is much at stake for the whole of Europe. The chairman of the court has said that he and his judges will prioritise this case and that other matters will be put on hold. The predominant view of people I spoke to was that the court would rule by Christmas.
But could Klaus’s friends in the Senate seek to delay the treaty further, by mounting a third legal challenge? The leader of the eurosceptic senators, Jiri Oberfalzer, is reported to have said that they would not do so. Oberfalzer has also said it is unlikely that the president himself would start a new case before the court. Indeed, at a recent dinner of leaders of the Visegrad countries (the Czech Republic, Hungary, Poland and Slovakia), Klaus apparently said that ratification was like a train in motion that could not be stopped.
So long as Klaus jibs at signing the ratification, he will face mounting pressure from other EU governments. And he may face threats from France and/or Germany. In Paris there is talk of punishing the Czech Republic for delaying ratification, for example by making sure the next Czech commissioner gets a non-job or by blocking Czech participation in international bodies. In the Commission and the European Parliament some people say that the Czechs could lose their commissioner altogether: if the next Commission has to be appointed under the rules of the Nice treaty – so that the number of the commissioners must be less than the number of member-states – the Czechs should be the ones to lose out.
That kind of threat would probably be counter-productive. Klaus is famously stubborn and is never happier than when standing up for a little country against bullying by big member-states. Czech officials worry that France’s president, Nicolas Sarkozy – renowned for his impulsive comments – could put his foot in it with a stinging attack on the Czechs.
It would be wiser to let the Czech people themselves put pressure on their president. Klaus is out of tune with Czech public opinion, which is predominantly in favour of the Lisbon treaty. All the main parties except for the Communists support the treaty. The recent decision of President Barack Obama to scrap plans for an anti-missile radar in the Czech republic has weakened the hand of those Czech politicians who argue that the American alliance is more important than European integration. Indeed, since the US decision on missile defence there has been more talk in Prague of boosting the EU’s role in defence. The best course of action for Europe’s leaders is to wait patiently for the court to rule and keep their fingers crossed.
Charles Grant is director of the Centre for European Reform.
Any prediction about the timing of the Czech Republic’s ratification of the Lisbon treaty must be heavily qualified; politics in Prague are so complex and opaque that many Czechs find it hard to understand what is going on. But having just spent a couple of days talking to politicians and officials in Prague, I think it likely that the Czechs will ratify this year.
The republic’s maverick president, Vaclav Klaus – who shares the passion of his idol, Margaret Thatcher, for free markets and bashing Brussels – is doing his best to delay the ratification of the Lisbon treaty. Last year a group of eurosceptic senators allied to Klaus challenged the treaty in the constitutional court, with six specific complaints about the document. After seven months the court approved the treaty and earlier this year the parliament voted for it, but Klaus has delayed signing the law of ratification. On September 29th the eurosceptic senators mounted a second challenge to the treaty in the constitutional court, thereby giving Klaus a good reason not to sign.
If the Irish approve the treaty in their October 2nd referendum, Poland’s president, Lech Kaczynski, is likely to sign his country’s law of ratification. The Czech Republic would then be the only EU member-state not to have ratified the document.
The general view in Prague is that the court, based in the Moravian town of Brno, will once again approve the treaty. It is an independent institution and nobody thinks its judges are particularly eurosceptic. But how quickly will it rule? Klaus has admitted receiving a hand-written letter from David Cameron, the leader of the British Conservatives, apparently stating that they are with the Czech president in his fight against the treaty. If Klaus can delay his signature till the Conservatives take office in Britain – after the general election that is due by next June – Cameron will hold a referendum on the treaty. The result would almost certainly be a No, and that would be the end of the Lisbon treaty.
Nobody knows how long the court will take to consider the treaty. Although it took only ten days to rule on a recent case concerning early parliamentary elections (the court insisted that the current parliament continue to the end of its term), it will need to give a full and considered response to the new challenge to the Lisbon treaty. However, one senior figure I spoke to was confident that the ruling would be “in weeks not months”. The case for a quick ruling is that the court has already spent time on the treaty, dealing with last year’s case, and that “the court does not exist in a political vacuum”. The judges understand, apparently, that there is much at stake for the whole of Europe. The chairman of the court has said that he and his judges will prioritise this case and that other matters will be put on hold. The predominant view of people I spoke to was that the court would rule by Christmas.
But could Klaus’s friends in the Senate seek to delay the treaty further, by mounting a third legal challenge? The leader of the eurosceptic senators, Jiri Oberfalzer, is reported to have said that they would not do so. Oberfalzer has also said it is unlikely that the president himself would start a new case before the court. Indeed, at a recent dinner of leaders of the Visegrad countries (the Czech Republic, Hungary, Poland and Slovakia), Klaus apparently said that ratification was like a train in motion that could not be stopped.
So long as Klaus jibs at signing the ratification, he will face mounting pressure from other EU governments. And he may face threats from France and/or Germany. In Paris there is talk of punishing the Czech Republic for delaying ratification, for example by making sure the next Czech commissioner gets a non-job or by blocking Czech participation in international bodies. In the Commission and the European Parliament some people say that the Czechs could lose their commissioner altogether: if the next Commission has to be appointed under the rules of the Nice treaty – so that the number of the commissioners must be less than the number of member-states – the Czechs should be the ones to lose out.
That kind of threat would probably be counter-productive. Klaus is famously stubborn and is never happier than when standing up for a little country against bullying by big member-states. Czech officials worry that France’s president, Nicolas Sarkozy – renowned for his impulsive comments – could put his foot in it with a stinging attack on the Czechs.
It would be wiser to let the Czech people themselves put pressure on their president. Klaus is out of tune with Czech public opinion, which is predominantly in favour of the Lisbon treaty. All the main parties except for the Communists support the treaty. The recent decision of President Barack Obama to scrap plans for an anti-missile radar in the Czech republic has weakened the hand of those Czech politicians who argue that the American alliance is more important than European integration. Indeed, since the US decision on missile defence there has been more talk in Prague of boosting the EU’s role in defence. The best course of action for Europe’s leaders is to wait patiently for the court to rule and keep their fingers crossed.
Charles Grant is director of the Centre for European Reform.
Tuesday, September 29, 2009
Westerwelle for finance minister
by Katinka Barysch
Guido Westerwelle is the undisputed winner of Sunday’s election in Germany. His Liberal Democratic Party (FDP) attracted almost 15 per cent of the vote, its highest share ever. Angela Merkel will remain chancellor although her Christian Democratic Union (CDU) did slightly worse than in the 2005 election. The FDP’s gains allow Merkel to discard the cumbersome ‘grand coalition’ with the Social Democrats and start negotiating a deal with the more likeminded Liberals.
The haggling about posts and policies is likely to be swift this time, with Merkel promising to have her new cabinet in place in a couple of weeks. Traditionally, the leader of the junior coalition partner becomes foreign minister (and vice chancellor). So Westerwelle is almost certain to succeed SPD-leader Frank-Walter Steinmeier in the foreign ministry.
Since taking over as FDP leader eight years ago, Westerwelle has worked hard to make his party appeal more to young voters and those fed up with the two big Volksparteien, the SDP and the CDU. Sunday’s result shows that he has been successful. But party political manoeuvring and a relentless quest for media attention have not left him much time to travel the world.
His public statements about foreign policy have often been a little vague and sometimes contradictory. He has argued for continuity in German foreign policy, promising that there would be no sharp breaks with most of Steinmeier’s positions. As a strong Atlanticist he was critical of George W Bush’s war on terror but has applauded Barack Obama, in particular for his moves on disarmament. He has spoken out against Germany sending more troops to Afghanistan, or letting them fight in the south, but he wants Berlin to live up to its promises to train more Afghan policemen. He is a firm believer in the benefits of European integration, especially the single market, and he thinks Germany should pay more attention to the smaller EU members. But the smalls will not like his suggestion that European integration should become more flexible, allowing sub-groups of member-states to go ahead with particular policies. He says EU accession negotiations with Turkey should continue, which will put him at loggerheads with those in the CDU (and its smaller sister party, the CSU) who want to offer Turkey a privileged partnership. He has sometimes sounded rather conciliatory on Russia. But he also advocates keeping Germany’s nuclear power stations running beyond 2022, to make the country less dependent on Russian gas.
Westerwelle does not have a lot of experience with foreign policy and his public statements on international issues so far do not add up to a coherent Weltanschauung. That does not mean that he would not make a good foreign minister. Joschka Fischer had limited international credentials before he became foreign minister of the SPD / Green Party coalition in 1998. He turned out to be an effective and principled international operator. Like all foreign ministers before him, he quickly became one of Germany’s most popular politicians.
It is not Westerwelle (or Fischer or Steinmeier) that is the problem. It is the tradition of giving the foreign ministry to the leader of the junior coalition partner. Westerwelle may or may not agree with Merkel on foreign policy. He has little choice but to use his new job to sharpen his party’s profile. The SPD did so dismally in Sunday’s election partly because, after four years in the grand coalition, voters struggle to tell what it stands for. The lesson for the FDP will be to chart an independent course, especially after 11 years in opposition. It should: in economics, not in foreign policy.
Since the foreign minister and the chancellor always come from different parties, all vital foreign policy dossiers (relations with the US, Russia, China and so on) land directly on the chancellor’s desk. Not content with being in charge of secondary issues, Germany’s foreign ministers have often developed their own stance on the big issues of the day. Contradictory public statements and competing diplomatic initiatives have sometimes been the result. Such incoherence in foreign policy mattered little before reunification, when Germany’s low-key foreign policy mainly consisted of supporting European integration and the transatlantic alliance. But today, Germany claims international leadership and is expected to adopt regional and global responsibilities. Today, German foreign policy should not be a matter of coalition squabbles. Therefore, the foreign minister should come from Merkel’s own party.
Westerwelle should move into the finance ministry instead. While the foreign policy part of the FDP’s manifesto is weak, it has strong positions on economic policy: it advocates open markets, less stringent hiring and firing rules, an effective competition policy, help for small enterprises and, most importantly, lower and simpler taxes. Westerwelle insists that he will not sign a coalition agreement that does not contain tax reform. But he also knows that with € 1.6 trillion in public debt and a new law mandating a zero deficit by 2016, there is not much room for fiscal manoeuvre. The temptation to leave this balancing act to someone else and instead enjoy the international limelight will be strong. But if Westerwelle is serious about tax reform, he should install himself in the finance ministry and see it through as best he can. By helping to tackle some of Germany’s economic weaknesses, Westerwelle may even add more to his country’s international standing and credibility than by being its chief diplomat.
Katinka Barysch is deputy director of the Centre for European Reform.
Guido Westerwelle is the undisputed winner of Sunday’s election in Germany. His Liberal Democratic Party (FDP) attracted almost 15 per cent of the vote, its highest share ever. Angela Merkel will remain chancellor although her Christian Democratic Union (CDU) did slightly worse than in the 2005 election. The FDP’s gains allow Merkel to discard the cumbersome ‘grand coalition’ with the Social Democrats and start negotiating a deal with the more likeminded Liberals.
The haggling about posts and policies is likely to be swift this time, with Merkel promising to have her new cabinet in place in a couple of weeks. Traditionally, the leader of the junior coalition partner becomes foreign minister (and vice chancellor). So Westerwelle is almost certain to succeed SPD-leader Frank-Walter Steinmeier in the foreign ministry.
Since taking over as FDP leader eight years ago, Westerwelle has worked hard to make his party appeal more to young voters and those fed up with the two big Volksparteien, the SDP and the CDU. Sunday’s result shows that he has been successful. But party political manoeuvring and a relentless quest for media attention have not left him much time to travel the world.
His public statements about foreign policy have often been a little vague and sometimes contradictory. He has argued for continuity in German foreign policy, promising that there would be no sharp breaks with most of Steinmeier’s positions. As a strong Atlanticist he was critical of George W Bush’s war on terror but has applauded Barack Obama, in particular for his moves on disarmament. He has spoken out against Germany sending more troops to Afghanistan, or letting them fight in the south, but he wants Berlin to live up to its promises to train more Afghan policemen. He is a firm believer in the benefits of European integration, especially the single market, and he thinks Germany should pay more attention to the smaller EU members. But the smalls will not like his suggestion that European integration should become more flexible, allowing sub-groups of member-states to go ahead with particular policies. He says EU accession negotiations with Turkey should continue, which will put him at loggerheads with those in the CDU (and its smaller sister party, the CSU) who want to offer Turkey a privileged partnership. He has sometimes sounded rather conciliatory on Russia. But he also advocates keeping Germany’s nuclear power stations running beyond 2022, to make the country less dependent on Russian gas.
Westerwelle does not have a lot of experience with foreign policy and his public statements on international issues so far do not add up to a coherent Weltanschauung. That does not mean that he would not make a good foreign minister. Joschka Fischer had limited international credentials before he became foreign minister of the SPD / Green Party coalition in 1998. He turned out to be an effective and principled international operator. Like all foreign ministers before him, he quickly became one of Germany’s most popular politicians.
It is not Westerwelle (or Fischer or Steinmeier) that is the problem. It is the tradition of giving the foreign ministry to the leader of the junior coalition partner. Westerwelle may or may not agree with Merkel on foreign policy. He has little choice but to use his new job to sharpen his party’s profile. The SPD did so dismally in Sunday’s election partly because, after four years in the grand coalition, voters struggle to tell what it stands for. The lesson for the FDP will be to chart an independent course, especially after 11 years in opposition. It should: in economics, not in foreign policy.
Since the foreign minister and the chancellor always come from different parties, all vital foreign policy dossiers (relations with the US, Russia, China and so on) land directly on the chancellor’s desk. Not content with being in charge of secondary issues, Germany’s foreign ministers have often developed their own stance on the big issues of the day. Contradictory public statements and competing diplomatic initiatives have sometimes been the result. Such incoherence in foreign policy mattered little before reunification, when Germany’s low-key foreign policy mainly consisted of supporting European integration and the transatlantic alliance. But today, Germany claims international leadership and is expected to adopt regional and global responsibilities. Today, German foreign policy should not be a matter of coalition squabbles. Therefore, the foreign minister should come from Merkel’s own party.
Westerwelle should move into the finance ministry instead. While the foreign policy part of the FDP’s manifesto is weak, it has strong positions on economic policy: it advocates open markets, less stringent hiring and firing rules, an effective competition policy, help for small enterprises and, most importantly, lower and simpler taxes. Westerwelle insists that he will not sign a coalition agreement that does not contain tax reform. But he also knows that with € 1.6 trillion in public debt and a new law mandating a zero deficit by 2016, there is not much room for fiscal manoeuvre. The temptation to leave this balancing act to someone else and instead enjoy the international limelight will be strong. But if Westerwelle is serious about tax reform, he should install himself in the finance ministry and see it through as best he can. By helping to tackle some of Germany’s economic weaknesses, Westerwelle may even add more to his country’s international standing and credibility than by being its chief diplomat.
Katinka Barysch is deputy director of the Centre for European Reform.
Tuesday, September 22, 2009
Talk of ‘exit’ is premature
by Simon Tilford
The governor of the Bank of England (BoE), Mervyn King, has had a mixed financial crisis. He assumed that financial stability flowed from monetary stability – which we now know is not the case – and was very slow to recognize the extent of the crisis. He has also taken the UK into unchartered waters with the embrace of so-called quantitative easing (QE). QE involves the electronic creation of new money by the central bank in the form of purchases of government and private sector bonds. QE aims to drive down long-term interest rates and encourage bank lending. The BoE has now spent around £150bn, in the process buying not far short of a quarter of the UK’s entire outstanding stock of government debt. It is far from clear whether QE will work. It is possible that the banks will simply sit on the cash rather than lending it, as they did in the early 1990s when the Bank of Japan employed a similar strategy. But King is right to argue that dramatic action is warranted by the economic outlook, which is much worse (and not just in the UK) than the general consensus.
The BoE governor has repeatedly warned that commentators and economists are not paying sufficient attention to the difference between ‘growth and levels’, and that the threat of inflation is extremely remote. He is clearly right. A couple of quarters of modest economic growth following peak-to-trough contractions of around 5 per cent is neither here nor there. It certainly does not represent a return to business as usual. Of course, it is positive that the recession is over. But that the economy has been stabilized at all has been the result of massive monetary and fiscal stimulus. The underlying dynamic remains very weak. On most growth projections it will take the EU economy several years to return to pre-crisis levels of GDP.
No sooner has the recession ended than we are being overwhelmed with talk of a rapid bounceback in economic growth and hence for the need to craft ‘exit strategies’ to prevent an upsurge of inflation. This ignores what has happened. The gap between what we can produce and what we do produce is now enormous. With consumption and investment set to remain very weak, it will take many years to close this gap. To talk of exit strategies in such a situation is dangerous and potentially deflationary. It is going to feel like a recession for many years. Demand for labour will take a long time to recover, not only because it will take time to recoup the lost output but because labour productivity will also rise over this period. Fewer workers will be needed to produce a given amount of output. The result threatens to be mass unemployment. The outlook for investment is also very poor. The combination of excess capacity and undercapitalised banks will conspire to keep investment weak for quite some time.
Of course there are mighty long-term fiscal challenges facing most EU economies. If bond investors start to believe that governments have lost control of their public finances, long-term interest rates will rise, hitting growth. But a premature exit would do more harm than good, as it would almost certainly derail the recovery, in the process weakening fiscal positions. If no-one else is willing to spend, then the state has to. Any country exiting before a self-sustaining recovery has taken hold will essentially be guilty of free-riding on the demand being generated by deficit spending elsewhere. Germany has already indicated that it intends to tighten fiscal policy steadily following the election and is now constitutionally obliged to reduce its fiscal deficit to 0.35% of GDP by 2016. Such a move will only work if others keep spending and Germany can rely on rebuilding its trade surplus for economic growth. This is a zero-sum game. If everyone behaves in this way, the impact on Europe’s economy will be dire.
Similarly, a premature move to raise interest rates in an effort to head off a largely imaginary inflation bogeyman would risk scuppering the recovery by increasing the cost of capital and boosting the already excessive strength of the euro. The European economy needs very low interest rates for an extended period of time to keep capital cheap and to stimulate activity to close the output gap. The risk of snuffing out the recovery now (in the process exacerbating the weakness of public finances) is far greater than a spike in inflation later on. Stagnation and debt deflation pose greater risks to the European economy than inflation.
Simon Tilford is chief economist at the Centre for European Reform.
The governor of the Bank of England (BoE), Mervyn King, has had a mixed financial crisis. He assumed that financial stability flowed from monetary stability – which we now know is not the case – and was very slow to recognize the extent of the crisis. He has also taken the UK into unchartered waters with the embrace of so-called quantitative easing (QE). QE involves the electronic creation of new money by the central bank in the form of purchases of government and private sector bonds. QE aims to drive down long-term interest rates and encourage bank lending. The BoE has now spent around £150bn, in the process buying not far short of a quarter of the UK’s entire outstanding stock of government debt. It is far from clear whether QE will work. It is possible that the banks will simply sit on the cash rather than lending it, as they did in the early 1990s when the Bank of Japan employed a similar strategy. But King is right to argue that dramatic action is warranted by the economic outlook, which is much worse (and not just in the UK) than the general consensus.
The BoE governor has repeatedly warned that commentators and economists are not paying sufficient attention to the difference between ‘growth and levels’, and that the threat of inflation is extremely remote. He is clearly right. A couple of quarters of modest economic growth following peak-to-trough contractions of around 5 per cent is neither here nor there. It certainly does not represent a return to business as usual. Of course, it is positive that the recession is over. But that the economy has been stabilized at all has been the result of massive monetary and fiscal stimulus. The underlying dynamic remains very weak. On most growth projections it will take the EU economy several years to return to pre-crisis levels of GDP.
No sooner has the recession ended than we are being overwhelmed with talk of a rapid bounceback in economic growth and hence for the need to craft ‘exit strategies’ to prevent an upsurge of inflation. This ignores what has happened. The gap between what we can produce and what we do produce is now enormous. With consumption and investment set to remain very weak, it will take many years to close this gap. To talk of exit strategies in such a situation is dangerous and potentially deflationary. It is going to feel like a recession for many years. Demand for labour will take a long time to recover, not only because it will take time to recoup the lost output but because labour productivity will also rise over this period. Fewer workers will be needed to produce a given amount of output. The result threatens to be mass unemployment. The outlook for investment is also very poor. The combination of excess capacity and undercapitalised banks will conspire to keep investment weak for quite some time.
Of course there are mighty long-term fiscal challenges facing most EU economies. If bond investors start to believe that governments have lost control of their public finances, long-term interest rates will rise, hitting growth. But a premature exit would do more harm than good, as it would almost certainly derail the recovery, in the process weakening fiscal positions. If no-one else is willing to spend, then the state has to. Any country exiting before a self-sustaining recovery has taken hold will essentially be guilty of free-riding on the demand being generated by deficit spending elsewhere. Germany has already indicated that it intends to tighten fiscal policy steadily following the election and is now constitutionally obliged to reduce its fiscal deficit to 0.35% of GDP by 2016. Such a move will only work if others keep spending and Germany can rely on rebuilding its trade surplus for economic growth. This is a zero-sum game. If everyone behaves in this way, the impact on Europe’s economy will be dire.
Similarly, a premature move to raise interest rates in an effort to head off a largely imaginary inflation bogeyman would risk scuppering the recovery by increasing the cost of capital and boosting the already excessive strength of the euro. The European economy needs very low interest rates for an extended period of time to keep capital cheap and to stimulate activity to close the output gap. The risk of snuffing out the recovery now (in the process exacerbating the weakness of public finances) is far greater than a spike in inflation later on. Stagnation and debt deflation pose greater risks to the European economy than inflation.
Simon Tilford is chief economist at the Centre for European Reform.
Thursday, September 10, 2009
The dangers of Karzai’s re-election
by Tomas Valasek
The final result of the Afghan election may not be known until the end of September, but it looks as if President Hamid Karzai will have done well enough to avoid a second round of voting. This is causing dismay in some western capitals, where some senior figures now view Karzai as a key obstacle to Afghanistan’s reconstruction. If he stays in power, people in many European countries are likely to become increasingly disenchanted with the ‘mission impossible’ that their soldiers are undertaking, and that would increase the probability of European forces being withdrawn.
A senior UK diplomat recently described the problems posed by Karzai’s government for western attempts to reconstruct Afghanistan. “Our game plan is to use foreign troops to create enough breathing room for the Afghan government to assert its authority throughout the country,” he said. “But if the government whose authority we help to assert is widely viewed as corrupt and incompetent, we have no chance of succeeding.”
Karzai’s government has earned its inglorious reputation for several reasons. Washington suspects that some of its top officials are involved in the drug trade, including the president’s brother, Ahmed Wali Karzai, as well as the defence minister, Karzai’s running mate and the potential future vice-president, Mohammad Fahim. Corruption extends downwards through the bureaucracy. Western troops say that many Afghan policemen steal valuables during searches of houses. Local leaders complain they have very little effort from the Kabul government to rebuild roads or resuscitate the economy; it is the western governments and NGOs that deliver the little progress that there is.
In his early years as president, Karzai offered hope for a new future and was genuinely popular. In 2005, 83 per cent of Afghans approved of president Karzai and 80 per cent approved of the national government overall. Today those figures have dropped to 52 and 49 per cent, respectively. Those are still solid numbers that some western leaders would envy. But the support has been on a constant slide for the past four years because more and more Afghans have given up hope that the current government will deliver stability or prosperity.
The US, the UK and other key troop-contributing governments worry that a Karzai victory heavily tainted by allegations of fraud will further disappoint the Afghans and embolden the Taliban. And in the western countries that send the troops his re-election could also fatally undermine public support for the mission. The latest opinion polls show that about two-thirds of Britons want UK troops out of the country – not only because of rising casualties, but also because of the perception that Afghan politicians are using their authority, which rests on the support of western troops, for self-enrichment.
The US, for now, has little choice but to stay put. The US public is as fidgety as that in Britain but President Obama has made success in Afghanistan a key plank of his foreign policy and he will not want to give up so soon. The US may send more troops if General Stanley McChrystal, the commander of US and NATO forces in Afghanistan, requests reinforcements.
The situation is different in other NATO allies. The Dutch are scheduled to leave next year, and the Canadians say they will withdraw in 2011, though NATO is working hard to get both governments to change their mind. That may prove impossible unless events in Afghanistan give the public some reason to believe that NATO is managing to turn around its flagging mission. Even the British presence cannot be taken as guaranteed, if public support for it continues to slide.
The prospect of European troops departing brings two risks. One is to the security of Afghanistan itself. Together, the UK, Canada and the Netherlands supply the bulk of the troops that keep a semblance of order in three of the volatile southern provinces (though the US is reinforcing its presence in the south). NATO and the EU are busy training new Afghan soldiers and police to replace the western troops. But on the evidence of the past few years, the central government is unlikely to have enough properly trained replacements to take over from the Europeans anytime soon. Some local Afghan leaders say that if the Europeans withdraw in the next year or two, they will leave the country too, or strike deals with the Taliban. Either way, the government in Kabul would lose out. The second risk is to NATO itself. Why should Washington take the alliance seriously if it finds itself manning the ramparts in Afghanistan alone?
To prevent European support for the war in Afghanistan from collapsing, the governments need to take two steps. First, those capitals that have done little to drum up public support for the mission need to step up. In the UK, Prime Minister Gordon Brown gave a major ‘why we fight’ speech on September 4th. More effort of this sort is needed. Second, assuming that Karzai is declared the victor, the West needs to find ways of making clear to is government that it needs to do more to fight corruption. This could include withholding EU and national aid from the most corrupt parts of the Afghan government.
Getting the Kabul government to change its ways will not be easy: when the US special representative, Richard Holbrooke, recently suggested that Afghanistan might have to deal with complaints of ballot-rigging by holding a second round of elections, Karzai walked out of the meeting; he later told a French newspaper that the US wanted him to be more “docile”. But the European governments and Washington are right to try. The government in Kabul and its western partners need to find ways of changing the perception that the Karzai government is failing, or public pressure may force European troops to withdraw sooner than is good for the country.
Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.
The final result of the Afghan election may not be known until the end of September, but it looks as if President Hamid Karzai will have done well enough to avoid a second round of voting. This is causing dismay in some western capitals, where some senior figures now view Karzai as a key obstacle to Afghanistan’s reconstruction. If he stays in power, people in many European countries are likely to become increasingly disenchanted with the ‘mission impossible’ that their soldiers are undertaking, and that would increase the probability of European forces being withdrawn.
A senior UK diplomat recently described the problems posed by Karzai’s government for western attempts to reconstruct Afghanistan. “Our game plan is to use foreign troops to create enough breathing room for the Afghan government to assert its authority throughout the country,” he said. “But if the government whose authority we help to assert is widely viewed as corrupt and incompetent, we have no chance of succeeding.”
Karzai’s government has earned its inglorious reputation for several reasons. Washington suspects that some of its top officials are involved in the drug trade, including the president’s brother, Ahmed Wali Karzai, as well as the defence minister, Karzai’s running mate and the potential future vice-president, Mohammad Fahim. Corruption extends downwards through the bureaucracy. Western troops say that many Afghan policemen steal valuables during searches of houses. Local leaders complain they have very little effort from the Kabul government to rebuild roads or resuscitate the economy; it is the western governments and NGOs that deliver the little progress that there is.
In his early years as president, Karzai offered hope for a new future and was genuinely popular. In 2005, 83 per cent of Afghans approved of president Karzai and 80 per cent approved of the national government overall. Today those figures have dropped to 52 and 49 per cent, respectively. Those are still solid numbers that some western leaders would envy. But the support has been on a constant slide for the past four years because more and more Afghans have given up hope that the current government will deliver stability or prosperity.
The US, the UK and other key troop-contributing governments worry that a Karzai victory heavily tainted by allegations of fraud will further disappoint the Afghans and embolden the Taliban. And in the western countries that send the troops his re-election could also fatally undermine public support for the mission. The latest opinion polls show that about two-thirds of Britons want UK troops out of the country – not only because of rising casualties, but also because of the perception that Afghan politicians are using their authority, which rests on the support of western troops, for self-enrichment.
The US, for now, has little choice but to stay put. The US public is as fidgety as that in Britain but President Obama has made success in Afghanistan a key plank of his foreign policy and he will not want to give up so soon. The US may send more troops if General Stanley McChrystal, the commander of US and NATO forces in Afghanistan, requests reinforcements.
The situation is different in other NATO allies. The Dutch are scheduled to leave next year, and the Canadians say they will withdraw in 2011, though NATO is working hard to get both governments to change their mind. That may prove impossible unless events in Afghanistan give the public some reason to believe that NATO is managing to turn around its flagging mission. Even the British presence cannot be taken as guaranteed, if public support for it continues to slide.
The prospect of European troops departing brings two risks. One is to the security of Afghanistan itself. Together, the UK, Canada and the Netherlands supply the bulk of the troops that keep a semblance of order in three of the volatile southern provinces (though the US is reinforcing its presence in the south). NATO and the EU are busy training new Afghan soldiers and police to replace the western troops. But on the evidence of the past few years, the central government is unlikely to have enough properly trained replacements to take over from the Europeans anytime soon. Some local Afghan leaders say that if the Europeans withdraw in the next year or two, they will leave the country too, or strike deals with the Taliban. Either way, the government in Kabul would lose out. The second risk is to NATO itself. Why should Washington take the alliance seriously if it finds itself manning the ramparts in Afghanistan alone?
To prevent European support for the war in Afghanistan from collapsing, the governments need to take two steps. First, those capitals that have done little to drum up public support for the mission need to step up. In the UK, Prime Minister Gordon Brown gave a major ‘why we fight’ speech on September 4th. More effort of this sort is needed. Second, assuming that Karzai is declared the victor, the West needs to find ways of making clear to is government that it needs to do more to fight corruption. This could include withholding EU and national aid from the most corrupt parts of the Afghan government.
Getting the Kabul government to change its ways will not be easy: when the US special representative, Richard Holbrooke, recently suggested that Afghanistan might have to deal with complaints of ballot-rigging by holding a second round of elections, Karzai walked out of the meeting; he later told a French newspaper that the US wanted him to be more “docile”. But the European governments and Washington are right to try. The government in Kabul and its western partners need to find ways of changing the perception that the Karzai government is failing, or public pressure may force European troops to withdraw sooner than is good for the country.
Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.
Friday, August 07, 2009
Anglo-Saxons and hedge funds: Culprits or scapegoats?
by Philip Whyte
Disasters often provoke unseemly bouts of finger-pointing. This has certainly been true of the global financial crisis. In the Anglo-Saxon world, libertarians have blamed it on governments, and governments on ‘bankers’. But in continental Europe, many blame Anglo-Saxons for their supposed reluctance to regulate financial markets. The crisis, they believe, would never have happened if the British and the Americans had regulated and supervised their financial sectors like the French and the Germans. On this view, the UK needs to change, notably by clamping down on hedge funds. Does this narrative stack up? Or have some Europeans just turned Anglo-Saxons and hedge funds into their scapegoats of choice?
Tirades against Anglo-Saxons long predated the crisis, but they have gathered in intensity since it began. In the run-up to the G20 summit in April, Luxembourg’s prime minister, Jean-Claude Juncker, stated that this crisis “started in the US. The Anglo-Saxon world has always refused to add the dose of regulation which financial markets needed.” At the end of the same summit, the French President, Nicolas Sarkozy, announced the death of “unregulated Anglo-Saxon finance”. And in July, Germany’s chancellor, Angela Merkel, told a political meeting in Nuremberg that “with us, dear friends, Wall Street or the City of London won’t dictate again how money should be made, only to let others pick up the bill.”
In any analysis of the causes of the crisis, the UK and the US clearly deserve a share of the blame. They tolerated unsustainable domestic credit booms which wreaked havoc on themselves and the rest of the world. But they were hardly the only countries to experience credit-fuelled housing booms. Denmark, France, Ireland and Spain did too. Nor were they the only countries which allowed ‘shadow banking’ entities to proliferate and banks’ exposures to complex financial instruments to grow. It was a funding crisis at two ‘special investment vehicles’ (SIVs) that brought the regulated German bank, IKB, to its knees. And German banks built massive exposures to collateralised debt obligations (CDOs).
What of hedge funds? Listen to French and German leaders, and you would think that hedge funds were central to the financial crisis. France and Germany have leaned on the European Commission to propose a directive that would regulate hedge funds; they have criticised the Commission’s resulting legislative proposal as too weak; and they have accused the British of dragging their heels. France and Germany are not entirely wrong: the example of Long Term Capital Management in 1998 shows that some hedge funds can pose a threat to financial stability. Even so, it is hard to avoid the conclusion that France and Germany have used the crisis as an opportunity to advance one of their hobby horses.
Both the EU’s de Larosière report and the UK’s Turner review agree that hedge funds did not cause the global financial crisis. They did not drive the growth in sub-prime lending. They did not cause house prices to fall. And they did not force regulated banks (such as Germany’s Hypo Real Estate) to hold CDOs on their balance sheets. So it is quite wrong to imply, as some French and German politicians do, that the crisis would not have occurred if hedge funds had been more tightly regulated. It is also wrong to suggest that the British are reluctant to regulate hedge funds. The British government has accepted the Turner review’s recommendation that “regulation should focus on economic substance, not legal form”.
The Turner and de Larosière reports point to a broad, technocratic cross-Channel consensus on the causes of the financial crisis and the lessons to be learned. Does it matter if this is not reflected in political rhetoric? Yes, for two reasons. First, political obsessions can often drag policy in undesirable directions. (Remember that when Germany chaired the G7 in the months leading up to the crisis in 2007, it was so fixated with regulating hedge funds that it was blind to what turned out to be the central problem: the excessive leverage and effective under-capitalisation of the regulated banking sector). Second, rhetoric can poison negotiations unnecessarily, making agreement more difficult to reach.
Populist broadsides against Anglo-Saxons and hedge funds are unlikely to help the prospect of pan-European regulatory reform. If French and German politicians are not careful, the scenario which they paint of a recalcitrant Britain at odds with the rest of Europe could become a self-fulfilling prophesy. It is no secret that sections of Britain’s media and political class are primed to detect sinister motives in anything emanating from Europe. More often than not, such fears are just paranoid fantasy. But for once, the British may be forgiven if they conclude that France and Germany are exploiting the crisis to promote some of their longstanding objectives and to weaken London’s position as a financial centre.
Philip Whyte is a senior research fellow at the Centre for European Reform.
Disasters often provoke unseemly bouts of finger-pointing. This has certainly been true of the global financial crisis. In the Anglo-Saxon world, libertarians have blamed it on governments, and governments on ‘bankers’. But in continental Europe, many blame Anglo-Saxons for their supposed reluctance to regulate financial markets. The crisis, they believe, would never have happened if the British and the Americans had regulated and supervised their financial sectors like the French and the Germans. On this view, the UK needs to change, notably by clamping down on hedge funds. Does this narrative stack up? Or have some Europeans just turned Anglo-Saxons and hedge funds into their scapegoats of choice?
Tirades against Anglo-Saxons long predated the crisis, but they have gathered in intensity since it began. In the run-up to the G20 summit in April, Luxembourg’s prime minister, Jean-Claude Juncker, stated that this crisis “started in the US. The Anglo-Saxon world has always refused to add the dose of regulation which financial markets needed.” At the end of the same summit, the French President, Nicolas Sarkozy, announced the death of “unregulated Anglo-Saxon finance”. And in July, Germany’s chancellor, Angela Merkel, told a political meeting in Nuremberg that “with us, dear friends, Wall Street or the City of London won’t dictate again how money should be made, only to let others pick up the bill.”
In any analysis of the causes of the crisis, the UK and the US clearly deserve a share of the blame. They tolerated unsustainable domestic credit booms which wreaked havoc on themselves and the rest of the world. But they were hardly the only countries to experience credit-fuelled housing booms. Denmark, France, Ireland and Spain did too. Nor were they the only countries which allowed ‘shadow banking’ entities to proliferate and banks’ exposures to complex financial instruments to grow. It was a funding crisis at two ‘special investment vehicles’ (SIVs) that brought the regulated German bank, IKB, to its knees. And German banks built massive exposures to collateralised debt obligations (CDOs).
What of hedge funds? Listen to French and German leaders, and you would think that hedge funds were central to the financial crisis. France and Germany have leaned on the European Commission to propose a directive that would regulate hedge funds; they have criticised the Commission’s resulting legislative proposal as too weak; and they have accused the British of dragging their heels. France and Germany are not entirely wrong: the example of Long Term Capital Management in 1998 shows that some hedge funds can pose a threat to financial stability. Even so, it is hard to avoid the conclusion that France and Germany have used the crisis as an opportunity to advance one of their hobby horses.
Both the EU’s de Larosière report and the UK’s Turner review agree that hedge funds did not cause the global financial crisis. They did not drive the growth in sub-prime lending. They did not cause house prices to fall. And they did not force regulated banks (such as Germany’s Hypo Real Estate) to hold CDOs on their balance sheets. So it is quite wrong to imply, as some French and German politicians do, that the crisis would not have occurred if hedge funds had been more tightly regulated. It is also wrong to suggest that the British are reluctant to regulate hedge funds. The British government has accepted the Turner review’s recommendation that “regulation should focus on economic substance, not legal form”.
The Turner and de Larosière reports point to a broad, technocratic cross-Channel consensus on the causes of the financial crisis and the lessons to be learned. Does it matter if this is not reflected in political rhetoric? Yes, for two reasons. First, political obsessions can often drag policy in undesirable directions. (Remember that when Germany chaired the G7 in the months leading up to the crisis in 2007, it was so fixated with regulating hedge funds that it was blind to what turned out to be the central problem: the excessive leverage and effective under-capitalisation of the regulated banking sector). Second, rhetoric can poison negotiations unnecessarily, making agreement more difficult to reach.
Populist broadsides against Anglo-Saxons and hedge funds are unlikely to help the prospect of pan-European regulatory reform. If French and German politicians are not careful, the scenario which they paint of a recalcitrant Britain at odds with the rest of Europe could become a self-fulfilling prophesy. It is no secret that sections of Britain’s media and political class are primed to detect sinister motives in anything emanating from Europe. More often than not, such fears are just paranoid fantasy. But for once, the British may be forgiven if they conclude that France and Germany are exploiting the crisis to promote some of their longstanding objectives and to weaken London’s position as a financial centre.
Philip Whyte is a senior research fellow at the Centre for European Reform.
Monday, July 27, 2009
Can Europeans share a common security culture?
by Clara Marina O'Donnell
European countries have long declared their ambition to turn the EU into a global player in security – in order to tackle common threats and strengthen their voice on the global stage. But they still cannot agree on the main threats to their security or the best way to tackle them. Their views are so diverse that it is a wonder EU countries have managed to agree on any common action at all. But member-states need to strengthen their efforts to develop a common approach to security if the EU is to become a serious player.
For the past two decades, the EU has been developing a profile in foreign and security policy. It has agreed common security strategies, deployed over 20 peacekeeping and crisis management missions, led negotiations with Iran on the latter’s nuclear programme and negotiated a ceasefire to the Russia-Georgia war. However, as was brought into focus at a recent EUISS seminar, EU countries do not always share the same threat perceptions, or agree how these should be tackled.
Some European countries, such as Ireland and Austria, do not believe they face any serious ‘hard’ threats. Others fear for their territorial integrity, including the Baltics, Poland and the Czech Republic. Greeks and Cypriots worry mainly about the prospect of renewed military conflict with Turkey. So while Cyprus is still partly militarily occupied and Greek and Turkish military aircraft tail each other on a daily basis, the Viennese worry mainly about the level of burglaries in their city.
While the UK considers the threat of transnational terrorism as the most pressing threat to Europe as a whole, and a key priority to be tackled at home and abroad, most other countries feel largely unaffected. Russia is seen as a close partner to some countries, including Italy and Germany, while the Baltic states see it as an existential threat. Some member-states believe it is important to have a global outlook on security, in particular France and the UK, while others, such as Malta, believe their main security challenge is managing migration flows.
Different views also exist on how to tackle security threats. For many member-states a UN mandate is essential in order to participate in a military mission abroad, while for others, like the UK, it is only desirable. Some believe the US and NATO are cornerstones of their security (in particular the UK and the eastern countries), while others view NATO with suspicion – and resent the UK for having sided with the US during the war in Iraq. Some EU member-states have long traditions of intervention in conflicts across the world and accept the possibility of casualties within their armed forces, in particular France and the UK. Others are averse to the use of military force, most notably Germany.
Various member-states (Sweden, Austria, Finland and Ireland) have a long history of neutrality and are grappling to make their stance compatible with growing EU co-operation in security and defence (Ireland is finding it the hardest to accept EU defence co-operation. Due to public concern, it will have its military neutrality enshrined in an EU treaty for the first time if the Lisbon treaty comes into force). For their part, the UK and France are insistent on the need to develop expeditionary capabilities to allow the EU to fulfil its ambitions abroad. Some member-states, such as Sweden, have transformed their military forces, but many others have so far resisted.
In light of their very different histories, traditions and cultures, it is no mean achievement that EU countries have agreed to work together to provide peacekeeping and crisis management to conflicts zones in need, and to cooperate on wider security issues such as Iran and the Arab-Israeli conflict. In addition, with time the EU is likely to become further involved in security, by tackling ‘soft’ threats (such as protective measures against cyber attacks), or certain aspects of ‘hard’ threats (such as monitoring the cross-border transfer of dangerous products which could be used in chemical or biological attacks).
But member-states’ different interests and approaches limit the EU’s effectiveness as an external actor, as demonstrated by the difficulties in finding helicopters for the EU’s peacekeeping mission to Chad, the UK’s refusal to send a battlegroup to the Democratic Republic of Congo in 2008, or the difficulties the EU has in agreeing a common position on Russia or energy security.
Perhaps the biggest problem for the EU is the division between its western and eastern members. While many member-states feel they cannot trust their partners to guarantee their security (within the EU or NATO), it is difficult to talk of a common security culture. If threat perceptions within eastern European countries worsened, their anxieties could define their foreign policies, hampering the EU’s work at home and abroad (and NATO). For the EU and NATO to remain credible security providers to their members, and for the EU to become a serious player in global security, European countries must overcome the current mistrust and strengthen their efforts to develop a stronger common strategic culture.
Clara Marina O'Donnell is a research fellow at the Centre for European Reform
European countries have long declared their ambition to turn the EU into a global player in security – in order to tackle common threats and strengthen their voice on the global stage. But they still cannot agree on the main threats to their security or the best way to tackle them. Their views are so diverse that it is a wonder EU countries have managed to agree on any common action at all. But member-states need to strengthen their efforts to develop a common approach to security if the EU is to become a serious player.
For the past two decades, the EU has been developing a profile in foreign and security policy. It has agreed common security strategies, deployed over 20 peacekeeping and crisis management missions, led negotiations with Iran on the latter’s nuclear programme and negotiated a ceasefire to the Russia-Georgia war. However, as was brought into focus at a recent EUISS seminar, EU countries do not always share the same threat perceptions, or agree how these should be tackled.
Some European countries, such as Ireland and Austria, do not believe they face any serious ‘hard’ threats. Others fear for their territorial integrity, including the Baltics, Poland and the Czech Republic. Greeks and Cypriots worry mainly about the prospect of renewed military conflict with Turkey. So while Cyprus is still partly militarily occupied and Greek and Turkish military aircraft tail each other on a daily basis, the Viennese worry mainly about the level of burglaries in their city.
While the UK considers the threat of transnational terrorism as the most pressing threat to Europe as a whole, and a key priority to be tackled at home and abroad, most other countries feel largely unaffected. Russia is seen as a close partner to some countries, including Italy and Germany, while the Baltic states see it as an existential threat. Some member-states believe it is important to have a global outlook on security, in particular France and the UK, while others, such as Malta, believe their main security challenge is managing migration flows.
Different views also exist on how to tackle security threats. For many member-states a UN mandate is essential in order to participate in a military mission abroad, while for others, like the UK, it is only desirable. Some believe the US and NATO are cornerstones of their security (in particular the UK and the eastern countries), while others view NATO with suspicion – and resent the UK for having sided with the US during the war in Iraq. Some EU member-states have long traditions of intervention in conflicts across the world and accept the possibility of casualties within their armed forces, in particular France and the UK. Others are averse to the use of military force, most notably Germany.
Various member-states (Sweden, Austria, Finland and Ireland) have a long history of neutrality and are grappling to make their stance compatible with growing EU co-operation in security and defence (Ireland is finding it the hardest to accept EU defence co-operation. Due to public concern, it will have its military neutrality enshrined in an EU treaty for the first time if the Lisbon treaty comes into force). For their part, the UK and France are insistent on the need to develop expeditionary capabilities to allow the EU to fulfil its ambitions abroad. Some member-states, such as Sweden, have transformed their military forces, but many others have so far resisted.
In light of their very different histories, traditions and cultures, it is no mean achievement that EU countries have agreed to work together to provide peacekeeping and crisis management to conflicts zones in need, and to cooperate on wider security issues such as Iran and the Arab-Israeli conflict. In addition, with time the EU is likely to become further involved in security, by tackling ‘soft’ threats (such as protective measures against cyber attacks), or certain aspects of ‘hard’ threats (such as monitoring the cross-border transfer of dangerous products which could be used in chemical or biological attacks).
But member-states’ different interests and approaches limit the EU’s effectiveness as an external actor, as demonstrated by the difficulties in finding helicopters for the EU’s peacekeeping mission to Chad, the UK’s refusal to send a battlegroup to the Democratic Republic of Congo in 2008, or the difficulties the EU has in agreeing a common position on Russia or energy security.
Perhaps the biggest problem for the EU is the division between its western and eastern members. While many member-states feel they cannot trust their partners to guarantee their security (within the EU or NATO), it is difficult to talk of a common security culture. If threat perceptions within eastern European countries worsened, their anxieties could define their foreign policies, hampering the EU’s work at home and abroad (and NATO). For the EU and NATO to remain credible security providers to their members, and for the EU to become a serious player in global security, European countries must overcome the current mistrust and strengthen their efforts to develop a stronger common strategic culture.
Clara Marina O'Donnell is a research fellow at the Centre for European Reform
Tuesday, July 21, 2009
Carl Bildt and the cost of speaking plainly
by Charles Grant
Carl Bildt is better known throughout the world than most of his fellow EU foreign ministers – and many of the prime ministers, too. That is not only because he has held some senior jobs (prime minister of Sweden, and Balkan envoy for both the United Nations and the EU), but also because he is actively engaged in, and knowledgeable about, a wide range of international issues.
Someone with Bildt’s skills and experience should be the front-runner to become the EU’s new High Representative – in effect its foreign policy chief – if, as is likely, the Lisbon treaty is finally implemented at the end of this year. That treaty would merge the roles currently played by Javier Solana, the current High Representative, and Benita Ferrero-Waldner, the commissioner for external relations, into a single post at the head of a new ‘external action service’ – an embryonic EU foreign ministry.
But Bildt’s chances of being appointed High Representative are slim. This is because he tends to say what he thinks and that is not always wise in politics or diplomacy. His frank and trenchant opinions appeal to think-tankers and journalists but not always to other foreign ministers. Some of them find his confidence and cleverness, and the length of his contact book, irritating. And sometimes he conducts his own solo diplomacy, particularly when Balkan problems hot up, which can be frustrating for the country holding the EU presidency.
I must declare an interest. Carl Bildt sat on the advisory board of the Centre for European Reform until he became Swedish foreign minister in October 2006, and still attends many CER conferences. He is very much a ‘think-tankers’ foreign minister’: he likes to argue and ask questions, and he brims with ideas. He also works very hard at his job: most weekends, this youthful-looking 60-year old is at some conference or other, debating the most pressing foreign policy issues of the day. And if he is not at a conference he is on a diplomatic mission or at a summit.
His critics view Bildt as an arrogant Mr Know-it-all. But in many ways he is modest. He takes the time to speak to people who are not ‘important’, like secretaries and conference organisers, and not all politicians do that. Furthermore, most politicians will only attend a conference if they are given a speaking slot. They go to give their speech and are not particularly interested in hearing what others have to say. But Bildt is not like that. Every six months the CER and other think-tanks organise a roundtable that brings together European and American diplomats and thinkers. Bildt always turns up, even though he seldom has a speaking slot. He sits at the back taking notes, because he is genuinely interested to hear what other experts have to say.
If Bildt was serious about running for the job of High Representative he would have manoeuvred to win the support of France and Germany. But he has not done that, with the result that both Berlin and Paris are likely to block his candidacy. Germany takes the view that the EU should maintain friendly relations with Russia. So in August 2008, when Russia invaded Georgia, the Germans disapproved of Bildt’s comparison of the Russian justification for the attack on Georgia to Adolf Hitler's rationale for invading parts of Central Europe – namely the need to protect a minority. Bildt’s comment was indeed over-the-top and unwise. In fact he has a good network of contacts inside Russia, including some of those in positions of power. Nevertheless as far as several EU governments are concerned, Bildt is simply too confrontational towards Russia.
France is an even bigger problem for Bildt. Just before the recent European elections he gave an interview to Le Figaro in which he contradicted the view of President Nicolas Sarkozy that Turkey is not in Europe. “If we judge Cyprus to be in Europe, although it is as in island along Syria's shores, it is hard not to consider that Turkey is in Europe," Bildt said. That interview made Sarkozy angry and he cancelled a visit to Stockholm. To make matters worse, Bildt does not speak French fluently.
Bildt has also been implicitly critical of Sarkozy’s protectionist rhetoric – he is a true believer in free markets, free trade and the ‘Lisbon agenda’ of economic reform. You know where you are with Bildt – he is a strong backer of human rights in authoritarian countries and he believes that the countries of Eastern Europe should be free to choose their own destinies. He is also an unstinting Atlanticist; if the decision was left to him, Sweden would join NATO. Bildt’s experience in Bosnia has made him passionate about the protection of minorities. At the end of the war in Sri Lanka, when government forces were killing many Tamil civilians, he tried to fly to Colombo to make his point to the country’s leaders. But he was refused a visa.
Many EU foreign ministers would probably prefer a High Representative in the mould of Javier Solana, the incumbent. The Spaniard’s style of operating is the opposite of Bildt’s: he avoids direct confrontations with people, preferring to build a consensus through discreet personal diplomacy. The ideal High Representative would be a figure who combined Bildt’s rigorous thinking and grand strategic vision with Solana’s subtle manner and feline operating skills. But there is probably no such person.
Charles Grant is director of the Cente for European Reform
Carl Bildt is better known throughout the world than most of his fellow EU foreign ministers – and many of the prime ministers, too. That is not only because he has held some senior jobs (prime minister of Sweden, and Balkan envoy for both the United Nations and the EU), but also because he is actively engaged in, and knowledgeable about, a wide range of international issues.
Someone with Bildt’s skills and experience should be the front-runner to become the EU’s new High Representative – in effect its foreign policy chief – if, as is likely, the Lisbon treaty is finally implemented at the end of this year. That treaty would merge the roles currently played by Javier Solana, the current High Representative, and Benita Ferrero-Waldner, the commissioner for external relations, into a single post at the head of a new ‘external action service’ – an embryonic EU foreign ministry.
But Bildt’s chances of being appointed High Representative are slim. This is because he tends to say what he thinks and that is not always wise in politics or diplomacy. His frank and trenchant opinions appeal to think-tankers and journalists but not always to other foreign ministers. Some of them find his confidence and cleverness, and the length of his contact book, irritating. And sometimes he conducts his own solo diplomacy, particularly when Balkan problems hot up, which can be frustrating for the country holding the EU presidency.
I must declare an interest. Carl Bildt sat on the advisory board of the Centre for European Reform until he became Swedish foreign minister in October 2006, and still attends many CER conferences. He is very much a ‘think-tankers’ foreign minister’: he likes to argue and ask questions, and he brims with ideas. He also works very hard at his job: most weekends, this youthful-looking 60-year old is at some conference or other, debating the most pressing foreign policy issues of the day. And if he is not at a conference he is on a diplomatic mission or at a summit.
His critics view Bildt as an arrogant Mr Know-it-all. But in many ways he is modest. He takes the time to speak to people who are not ‘important’, like secretaries and conference organisers, and not all politicians do that. Furthermore, most politicians will only attend a conference if they are given a speaking slot. They go to give their speech and are not particularly interested in hearing what others have to say. But Bildt is not like that. Every six months the CER and other think-tanks organise a roundtable that brings together European and American diplomats and thinkers. Bildt always turns up, even though he seldom has a speaking slot. He sits at the back taking notes, because he is genuinely interested to hear what other experts have to say.
If Bildt was serious about running for the job of High Representative he would have manoeuvred to win the support of France and Germany. But he has not done that, with the result that both Berlin and Paris are likely to block his candidacy. Germany takes the view that the EU should maintain friendly relations with Russia. So in August 2008, when Russia invaded Georgia, the Germans disapproved of Bildt’s comparison of the Russian justification for the attack on Georgia to Adolf Hitler's rationale for invading parts of Central Europe – namely the need to protect a minority. Bildt’s comment was indeed over-the-top and unwise. In fact he has a good network of contacts inside Russia, including some of those in positions of power. Nevertheless as far as several EU governments are concerned, Bildt is simply too confrontational towards Russia.
France is an even bigger problem for Bildt. Just before the recent European elections he gave an interview to Le Figaro in which he contradicted the view of President Nicolas Sarkozy that Turkey is not in Europe. “If we judge Cyprus to be in Europe, although it is as in island along Syria's shores, it is hard not to consider that Turkey is in Europe," Bildt said. That interview made Sarkozy angry and he cancelled a visit to Stockholm. To make matters worse, Bildt does not speak French fluently.
Bildt has also been implicitly critical of Sarkozy’s protectionist rhetoric – he is a true believer in free markets, free trade and the ‘Lisbon agenda’ of economic reform. You know where you are with Bildt – he is a strong backer of human rights in authoritarian countries and he believes that the countries of Eastern Europe should be free to choose their own destinies. He is also an unstinting Atlanticist; if the decision was left to him, Sweden would join NATO. Bildt’s experience in Bosnia has made him passionate about the protection of minorities. At the end of the war in Sri Lanka, when government forces were killing many Tamil civilians, he tried to fly to Colombo to make his point to the country’s leaders. But he was refused a visa.
Many EU foreign ministers would probably prefer a High Representative in the mould of Javier Solana, the incumbent. The Spaniard’s style of operating is the opposite of Bildt’s: he avoids direct confrontations with people, preferring to build a consensus through discreet personal diplomacy. The ideal High Representative would be a figure who combined Bildt’s rigorous thinking and grand strategic vision with Solana’s subtle manner and feline operating skills. But there is probably no such person.
Charles Grant is director of the Cente for European Reform
Friday, July 10, 2009
Iran, elections, and nuclear weapons
by Tomas Valasek
What the future holds for Iran's theocratic regime is hard to read. True, the government has ensured its own survival by suppressing last month's protests there with brutal force. President Mahmoud Ahmadinejad will remain in power despite a contested election. But the authority of the regime has suffered. The president has lost legitimacy in the eyes of millions of Iranians. The country's supreme leader, Ayatollah Ali Khamenei, who urged force against the protestors, has lost much of his popularity. The events of June 2009 could turn out to be the beginning of a deeper challenge to the Islamic republic: Iran observers point out that the country's 1979 revolution was preceded by a long build up of low-level agitation.
What is clear is that the violence around the presidential election bodes ill for western diplomacy to end Iran's nuclear ambitions, in at least two ways. First, Barack Obama will be under pressure to rethink the offer of 'engagement grounded in mutual respect', which he extended to the government in Iran in April 2009. On the other hand, the US will now find it easier to convince the Europeans to toughen the sanctions regime on Iran, thanks to Tehran's heavy-handiness.
Iran's nuclear programme is run directly by the country's supreme leader, not the president. The recent political turmoil will have had little effect on it. Even if the challenger, Mir Hossein Mousavi had won the presidency, Iran would have almost certainly continued to enrich uranium. Mousavi said during the campaign that he would not abandon "Iran's right to nuclear technology". Some Iran watchers have speculated that Mousavi would build enrichment facilities but not nuclear weapons, lest he put Iran in even deeper isolation. In reality, the president's views have little bearing on the nature of the nuclear project.
The West has long been worried that Iran is building a nuclear bomb, or at least acquiring all the necessary ingredients. However the more immediate concern now is the prospect of an Israeli military strike on Iran. US officials say they fear that Israel may try to destroy Iran's nuclear facilities this autumn, before Russia delivers a batch of modern anti-aircraft missiles recently purchased by the Iranian regime.
To prevent Iran from acquiring nuclear weapons – and to keep Israel from attacking – Barack Obama launched a new diplomatic push in April 2009. He has promised to join the European-led talks with the government in Tehran. US negotiators are rumoured to be considering dropping a key western condition for the talks, namely that Iran shut down its enrichment programme before the negotiations start. Obama also recorded a video statement to the Iranian people, in which he has offered a partnership between the US and Iran. The idea was to win the Iranian regime's goodwill by showing it the respect it craves, and to spur the Iranians into pressuring the leadership to pursue a less confrontational line with the US.
The second pillar of the US strategy has worked very well. While most Iranians support the nuclear programme, many of the young ones are increasingly frustrated with the country's pariah status. Mir Hossein Mousavi, surged ahead in the polls after he accused president Ahmadinejad of leading Iran into the 'indignity' of international isolation.
But Mousavi failed to win – or was prevented from winning – and the post-election protests have undermined the overall strategy. Iran cannot negotiate because the government is 'too busy locking people up', said one EU official working on the Iran dossier. If Ahmadinejad and Khamenei do fully consolidate power, this will create another headache for the West: how can Barack Obama speak to a regime which has likely rigged elections and brutally suppressed democratic protests? Obama is already under fire for being "soft" and "naive" regarding Iran. Admiral Michael Mullen, the chairman of the US Joint Chiefs of Staff, recently urged him to take a harsher line, noting that Iran's nuclear programme was progressing whatever the domestic situation there. Even if Obama starts talks with Tehran, he may feel compelled to satisfy Mullen, and others, by employing tougher rethoric. This would likely cause the talks to collapse prematurely.
If, as is likely, engagement does not generate a generous response from Tehran, the US will want to tighten existing sanctions on Iran. Some governments like the German and Italian ones, have been known to be sceptical about the need for further sanctions; the Italian foreign minister published an article in early June calling for the West to be nice to Iran. But the violence in Tehran has made the doubters more inclined to penalise the Iranian government, EU officials say.
However, fresh UN sanctions may be blocked by Russia, and possibly China. Both are members of the UN Security Council and oppose a harsher line on Iran. If the US and the EU apply unilateral sanctions, these will be less effective. Meanwhile, Israel may decide to attack, or Iran may race to acquire a full nuclear weapon. So the furore over Iran's presidential election – by throwing up new obstacles to diplomacy – has made the job of resolving tensions over its nuclear programme harder. That may prove the deadliest legacy of the events of the last few weeks.
Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.
What the future holds for Iran's theocratic regime is hard to read. True, the government has ensured its own survival by suppressing last month's protests there with brutal force. President Mahmoud Ahmadinejad will remain in power despite a contested election. But the authority of the regime has suffered. The president has lost legitimacy in the eyes of millions of Iranians. The country's supreme leader, Ayatollah Ali Khamenei, who urged force against the protestors, has lost much of his popularity. The events of June 2009 could turn out to be the beginning of a deeper challenge to the Islamic republic: Iran observers point out that the country's 1979 revolution was preceded by a long build up of low-level agitation.
What is clear is that the violence around the presidential election bodes ill for western diplomacy to end Iran's nuclear ambitions, in at least two ways. First, Barack Obama will be under pressure to rethink the offer of 'engagement grounded in mutual respect', which he extended to the government in Iran in April 2009. On the other hand, the US will now find it easier to convince the Europeans to toughen the sanctions regime on Iran, thanks to Tehran's heavy-handiness.
Iran's nuclear programme is run directly by the country's supreme leader, not the president. The recent political turmoil will have had little effect on it. Even if the challenger, Mir Hossein Mousavi had won the presidency, Iran would have almost certainly continued to enrich uranium. Mousavi said during the campaign that he would not abandon "Iran's right to nuclear technology". Some Iran watchers have speculated that Mousavi would build enrichment facilities but not nuclear weapons, lest he put Iran in even deeper isolation. In reality, the president's views have little bearing on the nature of the nuclear project.
The West has long been worried that Iran is building a nuclear bomb, or at least acquiring all the necessary ingredients. However the more immediate concern now is the prospect of an Israeli military strike on Iran. US officials say they fear that Israel may try to destroy Iran's nuclear facilities this autumn, before Russia delivers a batch of modern anti-aircraft missiles recently purchased by the Iranian regime.
To prevent Iran from acquiring nuclear weapons – and to keep Israel from attacking – Barack Obama launched a new diplomatic push in April 2009. He has promised to join the European-led talks with the government in Tehran. US negotiators are rumoured to be considering dropping a key western condition for the talks, namely that Iran shut down its enrichment programme before the negotiations start. Obama also recorded a video statement to the Iranian people, in which he has offered a partnership between the US and Iran. The idea was to win the Iranian regime's goodwill by showing it the respect it craves, and to spur the Iranians into pressuring the leadership to pursue a less confrontational line with the US.
The second pillar of the US strategy has worked very well. While most Iranians support the nuclear programme, many of the young ones are increasingly frustrated with the country's pariah status. Mir Hossein Mousavi, surged ahead in the polls after he accused president Ahmadinejad of leading Iran into the 'indignity' of international isolation.
But Mousavi failed to win – or was prevented from winning – and the post-election protests have undermined the overall strategy. Iran cannot negotiate because the government is 'too busy locking people up', said one EU official working on the Iran dossier. If Ahmadinejad and Khamenei do fully consolidate power, this will create another headache for the West: how can Barack Obama speak to a regime which has likely rigged elections and brutally suppressed democratic protests? Obama is already under fire for being "soft" and "naive" regarding Iran. Admiral Michael Mullen, the chairman of the US Joint Chiefs of Staff, recently urged him to take a harsher line, noting that Iran's nuclear programme was progressing whatever the domestic situation there. Even if Obama starts talks with Tehran, he may feel compelled to satisfy Mullen, and others, by employing tougher rethoric. This would likely cause the talks to collapse prematurely.
If, as is likely, engagement does not generate a generous response from Tehran, the US will want to tighten existing sanctions on Iran. Some governments like the German and Italian ones, have been known to be sceptical about the need for further sanctions; the Italian foreign minister published an article in early June calling for the West to be nice to Iran. But the violence in Tehran has made the doubters more inclined to penalise the Iranian government, EU officials say.
However, fresh UN sanctions may be blocked by Russia, and possibly China. Both are members of the UN Security Council and oppose a harsher line on Iran. If the US and the EU apply unilateral sanctions, these will be less effective. Meanwhile, Israel may decide to attack, or Iran may race to acquire a full nuclear weapon. So the furore over Iran's presidential election – by throwing up new obstacles to diplomacy – has made the job of resolving tensions over its nuclear programme harder. That may prove the deadliest legacy of the events of the last few weeks.
Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.
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