Why has the eurozone's recovery been weaker than the US's?

Why the has eurozone's recovery been weaker than the US's?

Why has the eurozone's recovery been weaker than the US's?

Written by Philip Whyte, 24 May 2013

CER/SWP/Brookings Daimler forum on global issues

CER/SWP/Brookings Daimler forum on global issues, Brussels

CER/SWP/Brookings Daimler forum on global issues

16 May 2013 - 17 May 2013

Speakers included: Carl Bildt, Ivo Daalder, François Heisbourg, Jofi Joseph, Hans-Dieter Lucas and Alice Wells.

Location info

Brussels

NATO and the costs of star wars

NATO and the costs of star wars

NATO and the costs of star wars

Written by Clara Marina O'Donnell, 01 May 2013

Over the last decade, the US has spent tens of billions of dollars constructing a shield to stop nuclear missiles from North Korea or Iran reaching its soil. So far, the shield does not work. Fortunately for the Americans, neither Pyongyang nor Tehran has nuclear missiles that could hit the US. Unfortunately, however, America's missile defence programme has upset China and Russia, two countries that do have nuclear arsenals that could reach its homeland. America's European partners in NATO should try to convince Washington to scale back its missile defence ambitions for the next few years. Not only would this allow the US government to spend its shrinking defence budget on more pressing military needs. It would also improve European security by reducing tensions between NATO and Russia.

Since the collapse of the Soviet Union, the US has been increasingly worried about nuclear attacks by 'rogue' states. In 1998, a study group chaired by Donald Rumsfeld predicted that North Korea and Iran could field intercontinental ballistic missiles within five years. Today, however, Iran has neither intercontinental missiles nor a nuclear bomb. In March of this year, a report from the Pentagon's intelligence agency (erroneously declassified) assessed "with moderate confidence" that Pyongyang could build a nuclear device that fits on a missile. But there is still no evidence that North Korean missiles are sophisticated enough to reach the US.

Although the American mainland is not currently under threat, every president since George H.W. Bush has sought to deploy nation-wide defences against a limited attack by ballistic missiles. Reviving some of President Ronald Reagan's 'star wars' ambitions, the US has had missile interceptors deployed in Alaska and California since 2004. Both the George W Bush and Obama administrations have also had various plans to deploy interceptors against intercontinental missiles at bases in Europe. (The Obama administration, working with NATO, has also been deploying interceptors in Europe to protect Europeans and US troops in the region against shorter-range missiles from Iran – a threat which does exist.) In March, Secretary of Defence Chuck Hagel announced that because of technical problems and budgetary constraints, the US is suspending its efforts to build Europe-based strategic interceptors. He also said that in response to the bellicose attitude of North Korea's new leader, the US will add 14 missile interceptors in on its West Coast, and perhaps deploy a few more on the East Coast, too.

The Obama administration has been wise to cancel the European leg of its strategic missile defence plans. Several recent studies had highlighted significant shortcomings in the programme. For example, a 2012 report by the National Academy of Sciences concluded that the interceptors planned for Europe would have been too slow to stop an incoming missile. But the US would be ill advised to increase the number of interceptors on the West – and possibly East – Coast. Studies have shown that the interceptors in Alaska and California do not work well either. According to Congress' Government Accountability Office, ten out of the 30 interceptors rely on technology which has never intercepted a missile during tests. The GAO estimates that it will take several years to repair this technology, costing the US taxpayer an additional $700 million. Hagel has promised to fix these glitches before the new interceptors are deployed. But the Pentagon does not yet have a solution to another big problem. None of its interceptors can distinguish between an incoming warhead and debris or decoys. (Ballistic missiles can easily carry decoys in addition to warheads.)

America's strategic missile defence efforts have made the US taxpayer fund a weapon that does not work to tackle a threat that does not exist. They have also antagonised China and Russia. Both countries worry that US technological breakthroughs could undermine their strategic deterrents. Moscow has been most displeased. The Kremlin has been asking for legal guarantees that the US would not direct its missile defences against Russia's strategic nuclear weapons. To reassure Russia, the Obama administration has encouraged Moscow to co-operate with NATO's defence programme against Iranian short and long-range missiles. (Moscow is less worried about NATO's defences against Iranian short-range missiles because the interceptors used would be too slow to stop a Russian strategic missile.) Washington has also been willing to provide Moscow political guarantees that its nuclear deterrent is not under threat.

But so far, the Obama administration has refused to give Russia legal guarantees. The US has made such commitments in the past. The Anti-Ballistic Missile Treaty established limits on what Moscow and Washington could do in this area from the 1970s until 2002. President George W Bush then withdrew from the agreement in order to pursue America’s missile defence ambitions unhindered. The Obama administration fears that Republican senators – who are keen on missile defence – would not ratify a treaty that would constrain the US. As a result, missile defence has become one of the most contentious issues in a troubled US-Russia relationship. Moscow has refused to negotiate further cuts in its nuclear arsenal until the issue is resolved. Last year, the chief of the General Staff of the Russian armed forces threatened to attack the European NATO countries hosting US missile defences. And according to press reports, Russian bombers have been simulating strikes against American missile defence installations.

Now that Hagel has cancelled the European leg of US strategic missile defences, there is a chance that NATO and Russia could end their dispute. Senior American and Russian officials have resumed talks about Russia co-operating with NATO's missile defence efforts. US policy-makers have also been encouraging Moscow to negotiate new bilateral nuclear reductions – a top priority for President Barack Obama. According to some Russian officials, President Vladimir Putin may be open to an agreement when he meets President Obama at the G8 in June or at their bilateral summit in September. But the Russians still want legal guarantees on strategic missile defences. 


Europeans welcome the possibility of improved NATO-Russia ties. Most of them have never been convinced of the need for, or feasibility of, strategic missile defences and many disliked Washington's decision to leave the ABM treaty. Germany and others have been keen for Russia to co-operate with NATO's missile defence programme as a way to alleviate tensions. To maximise the chances of a deal between Washington and Moscow, Europeans should now encourage their American allies to include legal guarantees on missile defence in a new nuclear arms reduction treaty with Russia. Steven Pifer and Michael O'Hanlon from the Brookings Institution point out in their book 'The opportunity' that treaty limits could still allow the US to deploy all its planned defences against North Korea and Iran: the US and Russia could for example agree to each having a maximum of 125 interceptors capable of engaging intercontinental missiles. (The ABM treaty initially allowed for 200.) The treaty could also be limited to ten years, so that both sides could reconsider its ceilings in light of how the threats from North Korea and Iran evolve.

The White House, and Europeans, would struggle to convince some Republican senators to ratify such a treaty. But without it, Russia is unlikely to reduce its numerous tactical nuclear weapons – an arsenal that worries both Democrats and Republicans.  Europeans should also discourage their US counterparts from deploying additional interceptors against strategic missiles until tests have shown them to be effective. The risk of wasting large sums of money at a time of savage defence cuts should help senators to reassess their views on missile defence.

As Greg Thielmann, a former senior US state department intelligence official, remarks, Europeans have "tamed ill-considered American instincts" in the past: in the 1980s, Europeans encouraged a reluctant Reagan administration to negotiate the Intermediate-Range Nuclear Forces Treaty. For the benefit of NATO-Russia relations and global arms control, the Europeans should encourage their ally to reassess its stance again.

Clara Marina O'Donnell is a senior research fellow at the Centre for European Reform and a non-resident fellow at the Brookings Institution.

Out of range, out of mind: Is there a role for Europe in the Korean crisis?

Out of range, out of mind: Is there a role for Europe in the Korean crisis?

Out of range, out of mind: Is there a role for Europe in the Korean crisis?

Written by Ian Bond, 12 April 2013

From London or Brussels, the situation on the Korean Peninsula can appear – in the words of former British Prime Minister Neville Chamberlain – a "quarrel in a far-away country between people of whom we know nothing". On one side, a mad dictator (you only have to look at his hairstyle) with nuclear weapons and long-range missiles of doubtful reliability; on the other side, the country of Gangnam Style and Samsung. The nuclear weapons cannot reach Europe. And the big global powers, the US and China, are already engaged. Europe could leave them to sort things out, at best playing the role of Greek chorus in support of US policy (as a Western ex-official described it recently).

But that would be a mistake. Seasoned Korea watchers say that the current crisis is as serious as they can recall. Against that background, as the US flies B2 bombers over South Korea and Japan deploys ships with anti-missile defences, one could ask, as Stalin did of the Pope, how many divisions the EU has. But while it may not have armies there, Europe has interests and assets in the region. It should think about how to protect the former and use the latter.

Any conflict would have a significant global economic impact. The Republic of Korea is the world's 15th largest economy and Europe's 9th largest trading partner. And if North Korea started lobbing missiles at Japan (the EU’s 7th largest trading partner), or if China, the EU's second largest trading partner, became directly involved in the fighting – admittedly, highly unlikely – that would multiply the effects on Europe’s own economic well-being.

Europeans also have an interest in the global order which the Democratic People's Republic of Korea (DPRK) threatens: the nuclear non-proliferation regime; norms on refraining from the threat or use of force in international relations; and respect for UN Security Council resolutions. The failure of global powers and institutions to stop North Korea becoming a de facto nuclear weapons state is already a bad precedent.

Finally, the crisis could have repercussions for transatlantic relations. Though there are American officials who think that greater European involvement in Asia would just complicate matters, there have also been calls from parts of the administration, including then-Defense Secretary Leon Panetta in January 2013, for increased European engagement there. If Europeans ignore these calls entirely, they risk strengthening the perception within Washington that the value of the transatlantic alliance is dwindling.

What more can Europe do? There are clear constraints; a diplomatic initiative cutting across the longstanding Six Party Talks process, for example, or any move to soften sanctions on North Korea without significant movement from Pyongyang, would be very unhelpful. But in the short term Europe can work for de-escalation. We do not know exactly what Pyongyang wants, but we can assume that the North Korean authorities are looking for concessions from the international community: aid, or a peace treaty with the US, for example. They need to hear a consistent message that this is the wrong way to set about things. The Europeans should signal strongly to Pyongyang that its aggressive stance will get it nowhere. Statements this week by Baroness Ashton, the EU High Representative, who called on North Korea to re-engage constructively with the international community, and by Anders Fogh Rasmussen, the NATO secretary general, whose message was "Stop what you are saying, stop what you are doing", are a good start. The EU has already imposed wide-ranging sanctions on North Korea following its December 2012 ballistic missile launch and its February 2013 nuclear test. It should tell Pyongyang clearly that while it would rather reward genuine efforts to reduce tension, it will not hesitate (for example) to restrict the country’s access to foreign currency in response to further provocative acts. 

Europeans should also intensify contacts with China and Russia – which cannot be suspected by North Korea of speaking on behalf of the US – and urge them to keep up their recent efforts to discourage North Korea's aggressive posturing. President Xi Jinping’s remarks at the Boao Forum this month, in which he said "no one should be allowed to throw a region and even the whole world into chaos for selfish gains", were evidently aimed at North Korea. China also seems to be making quiet moves to tighten implementation of the UN Security Council's financial and trade sanctions against North Korea. The EU should let the Chinese know that it welcomes such steps. 

If this becomes a shooting war, Europe's practical role in Korea will be limited (though European forces may be called on to stand in for US forces in areas closer to home, and some allies may have niche capabilities to offer). But if, as most experts believe, the situation eventually calms down, in the longer term Europeans can help North Korea and the concerned powers to move forward by taking the initiative in four areas.


First, the EU should reinstate its formal political dialogue with the DPRK, postponed last November as tension around North Korea’s weapons programmes grew. The Union should also encourage the European Parliament to keep channels of communication open. The Parliament wants to maintain a firm line with North Korea but it has in the past had contacts with the DPRK's Supreme People's Assembly. Even if EU officials and MEPs are unlikely to get close to any of the real decision-makers in North Korea, such contacts would expose North Korean officials to European thinking and perhaps challenge their preconceptions about Western aims.

Second, the EU should support 'track-two' dialogues. Think-tanks and academic institutions in several European countries have acted as venues for discreet discussions between North Korean and Western experts and former officials. If the North wants to improve relations – an important caveat – then such fora could allow it to explore new approaches without commitment and without having to take public positions. A degree of official backing from European governments or the EU itself could help to convince the North Koreans that Europeans are also serious about helping to reduce regional tension and improve relations.

Third, the EU could strengthen people-to-people and cultural co-operation. The North Korean authorities do not make this easy, as the 2009 closure of the Goethe Institute reading room in Pyongyang showed. But there have been some successes, such as the visit of the Munich Chamber Orchestra in 2012 and the showing of 'Bend it like Beckham' on state television in 2010; and the British Council has a long-running programme of teaching English teachers in North Korea, using a UK-focused curriculum. Without exaggerating their impact, such connections could help to expose some North Koreans to the reality of life outside, and implicitly encourage them to draw a contrast with official propaganda about the West.

Finally, Europeans should support economic and business training. In the long run, nothing in North Korea can improve much without a radical change of economic course. Where is the DPRK going to find the people to lead and manage such a process? Inevitably, China will have the greatest part to play, given its proximity and its own history of economic transformation. But Europeans – and especially, perhaps, those from the former communist countries – should  offer their insights and expertise. According to Professor Susan Shirk of the University of California at San Diego, and a former senior State Department official, such low-key, non-political capacity building could strengthen the voices of economic rationality within the country.

What tools does Europe have? Europeans have political ties with all the players in the region. The EU has had a 'strategic partnership' with South Korea since 2010, and there are regular high-level contacts between Brussels and Seoul. The High Representative discussed the situation in the region with South Korean foreign minister Yun Byung-Se on April 8th. The EU has a wide-ranging political dialogue with Japan, from summit level downwards. 

The Union also has a formal high-level dialogue with China on strategic and foreign policy issues. China is probably the only country with any significant degree of influence over North Korea. Beijing has hitherto prioritised stability in North Korea over everything else, worried by what might happen on the border if internal change led to disorder. The EU has stepped up its contacts with Beijing on North Korea, expressing appreciation for the recent steps the Chinese have taken (for example in co-sponsoring the latest package of UN Security Council sanctions after North Korea's third nuclear test in February) and encouraging them to be firm with North Korea.

While the US, Japan and South Korea have no diplomatic relations with the DPRK, seven EU member-states – Bulgaria, the Czech Republic, Germany, Poland, Romania, Sweden and the UK, though not the EEAS – have embassies in Pyongyang, which provide a source of first-hand information and a channel for communication. The Swedish Embassy also represents US diplomatic interests in Pyongyang. There are occasional bilateral visits to Pyongyang from Europe, for example by a Dutch agricultural trade mission in 2012. The EU has a small programme of humanitarian assistance, focused on vulnerable groups in North Korea. Europeans have a history of quietly facilitating dialogue between North Korea and the outside world, including through business education.

The Korean Peninsula is far away, but we should not make the mistake of equating distance with lack of importance to Europe. Good or bad, what happens there will affect us. Even if their clout is relatively limited, Europeans should think creatively about how to nudge developments in the right direction.

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

Ian Bond

Ian Bond

Ian Bond

Director of foreign policy

Biography

Job title: 
Director of foreign policy
Profile image: 
Ian Bond

Ian Bond joined the Centre for European Reform as Director of foreign policy in April 2013. Prior to that, he was a member of the British diplomatic service for 28 years.

Extras
Areas of expertise: 

Russia and the former Soviet Union, European foreign policy, Europe/Asia relations, US foreign policy.

Areas of expertise

Russia and the former Soviet Union, European foreign policy, Europe/Asia relations, US foreign policy.

Languages spoken

English, French, Latvian, Russian

The EU, Russia and China

The EU, Russia and China

The EU, Russia and China

Written by Charles Grant, 15 March 2013

The EU and transatlantic relations

The EU and transatlantic relations

The EU and transatlantic relations

Written by Rem Korteweg, 15 March 2013

Roundtable on 'Britain, the EU and China: An agenda for growth'

Roundtable on 'Britain, the EU and China: An agenda for growth'

Roundtable on 'Britain, the EU and China: An agenda for growth'

16 April 2013, 3:00 pm - 5:00 pm

With Liam Byrne, Rana Mitter and Linda Yueh

Location info

London

Freeing the transatlantic economy – prospects, benefits and pitfalls

Freeing the transatlantic economy – prospects, benefits and pitfalls

Freeing the transatlantic economy – prospects, benefits and pitfalls

Written by Philip Whyte, 20 February 2013

In mid-February, the EU and the US agreed to launch negotiations aimed at sealing a Transatlantic Trade and Investment Partnership (TTIP). Like Yogi Berra, cynics might be tempted to dismiss the project as déjà-vu all over again. After all, this is hardly the first such initiative the two sides have launched. In 1990, they signed a Transatlantic Declaration; in 1995, a New Transatlantic Agenda; in 1998, a Transatlantic Economic Partnership; and in 2007, they established a Transatlantic Economic Council (TEC), a body that was supposed to give political impetus to freeing up commercial relations across the Atlantic. Past attempts to lower the barriers that impede trade and investment across the Atlantic are a story of rising ambition, but frustratingly elusive results. So why bother?

Part of the answer is that the scale of the transatlantic economy makes the effort seem worthwhile. Despite the rise of China and other emerging economies, the transatlantic axis remains the largest bilateral commercial relationship in the world. Although the data indicates that the EU and the US now trade more goods with Asia than they do with each other, such figures are misleading. One reason is that they are distorted by the increasingly global nature of supply chains (so that finished goods like iPhones show up as Chinese exports, even though the value added to an iPhone in China is tiny). Another reason is that they ignore trade in services and foreign direct investment (FDI). Yet FDI has been growing faster than trade in goods for years; sales generated by foreign outlets outstrip those derived from cross-border trade; and services account for a rising share of transatlantic commerce.

The transatlantic economy, then, is larger than a casual look at the data for ‘visible trade’ might suggest. Despite the rise of Asia, moreover, the axis has tightened, not loosened, in recent years. Trading across borders is important, but it is a less intimate relationship than establishing a physical presence to produce and sell goods and services in another country. And it is the second mode which dominates the transatlantic economy. US firms are the largest foreign investors in the EU, and vice versa. Taken together, the investment of American firms in the EU and of European firms in the US approaches $3 trillion. Despite the economic difficulties they have experienced since 2008, the EU and the US still meet most of the leading criteria that influence where businesses want to invest: they offer wealthy consumers, skilled workers, political stability and predictable business environments.

Yet for all its value, the transatlantic economy is still riddled with barriers to trade and investment. Tariffs, though low on average (at 4 per cent), have not been eliminated, and remain astronomical for certain goods – notably in the agricultural sector. Eliminating tariffs, however, would still not free up the transatlantic economy, because the principal barriers to trade and investment now lurk ‘behind the border’. Examples of non-tariff barriers that clog up transatlantic commerce include: regulations (such as the EU’s ban on imports of genetically-modified foods); burdensome customs procedures (particularly in the US since 9/11); different product standards; curbs on foreign ownership of companies (in, for example, the US maritime freight sector); subsidies (notably to aircraft manufacturers); public procurement markets that are still closed; and so on.

The size of the transatlantic economy means that even a partial reduction of some of these barriers could yield non-trivial economic gains, mainly through the ‘dynamic effects’ of increased competition on productivity. A recent study by the European Centre for International Political Economy (ECIPE) estimates that eliminating tariffs alone would yield GDP gains of 0.5 per cent for the EU and 1 per cent for the US. Such gains are not to be sniffed at. It is misleading, however, to think of the TTIP as providing a boost to growth and jobs at a time when economic activity (particularly in Europe) is so weak. Set aside the time-lag that will elapse before a deal – if one is reached – enters into force. Even if such a lag did not exist, trade deals are long-term, supply-side measures: they are not a solution to the short-term, demand-side weakness that afflicts much of Europe.

So what are the prospects for an agreement to lower trade and investment barriers? Seasoned observers caution that such barriers are notoriously difficult to get rid of. In many policy areas, trade-impeding barriers reflect conflicting regulatory approaches – for example, the EU’s ‘precautionary principle’ versus the US’s reliance on risk-based scientific evidence – that remain deep-seated. If such barriers had been easy to dismantle, they would have been a long time ago. The TTIP may therefore struggle to avoid the fate of previous such initiatives, which have tended to get bogged down in technical detail, resulting in a loss of political interest at the top; have become hostage to trivial-sounding but often rancorous disputes that cannot be resolved, like trade in chlorine-rinsed chicken; and have consequently delivered far less market opening than originally hoped for.

Set against this, optimists counter that the political stars appear to be better aligned than for a long time. The intellectual case for lowering barriers to transatlantic trade and investment is arguably more widely accepted than it has ever been by politicians and businesses on both sides of the pond. Cheerleaders are more numerous, refuseniks more muted. President Obama, who took little interest in transatlantic trade during his first term of office, mentioned it in his State of the Union address on February 12th. The rise of China has provided further impetus. The US and the EU recognise that there is more to the TTIP than just transatlantic relations. In addition to promoting a trade liberalisation agenda at a time when the Doha Round is moribund, a successful TTIP would influence behaviour, regulations and technical standards in third countries such as China.

How should the success of the TTIP be measured? The TTIP should not be judged relative to an idealised but unrealistic outcome. It is wholly unrealistic to expect the result to be a transatlantic free trade area (which would imply the complete elimination of tariffs), let alone an enlarged version of the EU’s single market (which would imply full freedom of movement for people, goods, services and capital across the Atlantic). A successful TTIP would make steps towards a free trade area (by reducing, but not eliminating, tariffs), and modest ones towards a single market (perhaps by delivering some mutual recognition of regulations, reaching some agreements on common technical standards, and by improving market access in services). But it would fall short of both. The test of the TTIP is not whether it eliminates all barriers, but whether it lowers some of them.

The prospects for a successful outcome would be greatly improved if the two sides could agree on some rules of engagement. First, they should not allow the best to be the enemy of the good: better to focus on credible objectives and deliver than to be unrealistically ambitious and fail to do so. Second, to provide a sense of purpose and momentum, the two sides should commit to early tariff cuts, before proceeding to the more difficult barriers ‘behind the border’. Third, they should identify the regulatory and other issues on which progress is least likely and agree to set them aside for the time being. Fourth, they should refrain from linking unrelated issues by making progress on one conditional on the other. If the EU and the US fail to observe such rules of engagement, the TTIP is more likely to produce finger pointing and recrimination than any substantive market opening.

Philip Whyte is a senior research fellow at the Centre for European Reform.

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