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CFR Task Force on Transatlantic Relations
Reading List

Bergsten, C. Fred, "America and Europe: Clash of the Titans?" *Foreign Affairs*, Vol. 78, No. 2 (March/April 1999).

Bergsten, C. Fred, "The Transatlantic Century," *The Washington Post*, April 30, 2002.

Blair, Tony, "Speech to the Polish Stock Exchange," Warsaw, Poland, October 6, 2000.

Chirac, Jacques, "Our Europe," German Bundestag, Berlin, Germany, June 27, 2000.

European Commission, "Overview" in "Spring 2003 Economic Forecasts," April 8, 2003.

Fischer, Joschka, "From Confederacy to Federation – Thoughts on the finality of European integration," Humboldt University, Berlin, Germany, May 12, 2000.

Garton Ash, Timothy, "Anti-Europeanism in America," *The New York Review of Books*, February 13, 2003.

Garton Ash, Timothy, "How the West Can Be One," *The New York Times Magazine*, April 27, 2003.

Haass, Richard N., "Charting a New Course in the Transatlantic Relationship," Centre for European Reform, London, United Kingdom, June 10, 2002.

Ikenberry, G. John, "Getting hegemony right," *The National Interest*, No. 63 (Spring 2001).

Joffe, Josef, "Continental divides," *The National Interest*, No. 71 (Spring 2003).

Judt, Tony, "America and the World," *The New York Review of Books*, April 10, 2003.

Judt, Tony, "Anti-Americans Abroad," *The New York Review of Books*, May 1, 2003.

Kagan, Robert, "Power and Weakness," *Policy Review*, No. 113 (June/July 2002).

Kissinger, Henry A., "America and Europe: The World of Democracies" in *Does America Need a Foreign Policy? Toward a Diplomacy for the 21st Century* (New York: Simon & Schuster, 2001).

Kissinger, Henry A., "A Dangerous Divergence," *The Washington Post*, December 10, 2002.

Kissinger, Henry A., "The 'Made in Berlin' Generation," *The Washington Post*, October 30, 2002.

Kissinger, Henry A., "Repairing the Atlantic Alliance," *The Washington Post*, April 14, 2003.

Kissinger, Henry A., "Role Reversal and Alliance Realities," *The Washington Post*, February 10, 2003.

Knowlton, Brian, "A global image on the way down," *International Herald Tribune*, December 5, 2002.

Kupchan, Charles A., "The Atlantic Alliance Lies in the Rubble," *Financial Times*, April 10, 2003 and "The Last Days of the Atlantic Alliance," *Financial Times*, November 18, 2002.

Kupchan, Charles A., "The End of the West," *Atlantic Monthly*, Vol. 290, No. 4 (November 2002).

Kupchan, Charles A., "The Rise of Europe," in *The End of the American Era: U.S. Foreign Policy and the Geopolitics of the Twenty-first Century* (New York: Alfred A. Knopf, 2002).

Quinlan, Joseph P., "Executive Summary" in *Drifting Apart or Growing Together? The Primacy of the Transatlantic Economy* (Washington: Center for Transatlantic Relations, 2003).

Sapir, André, "Old and New Issues in EC-US Trade Disputes," Conference Paper, April 5, 2002.

Solana, Javier, "Mars and Venus Reconciled: A New Era for Transatlantic Relations," Albert H. Gordon Lecture, Harvard University, Cambridge, Massachusetts, April 7, 2003.

"The State of the Euro-Atlantic Partnership," Debate between Christopher Patten and Richard Perle, The Trilateral Commission, 26th European Meeting, Prague, October 20, 2002.

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# America and Europe:
Clash of the Titans?

C. Fred Bergsten

## CONTINENTAL DRIFT

THE LAUNCH of the euro offers the prospect of a new bipolar international economic order that could replace America's hegemony since World War II. The global trading system has already been jointly run since the early days of the European Common Market, which enabled Europe to integrate its commerce and exercise power equivalent to that of the United States in that domain. Now Euroland will equal or exceed the United States on every key measure of economic strength and will speak increasingly with a single voice on a wide array of economic issues. The euro is likely to challenge the international financial dominance of the dollar. Moreover, the end of the Cold War has sharply reduced the importance of U.S. military might for Europe and pulled aside the security blanket that often allowed both sides to cover up or resolve their economic disputes for the greater good of preserving the anticommunist alliance.

Economic relations between the United States and the European Union will therefore rest increasingly on a foundation of virtual equality. The United States will either have to adjust to this new reality or conduct a series of rear-guard defensive actions that will be increasingly futile and costly—like the British did for many decades as their leadership role declined. The EU will either have to exercise

C. FRED BERGSTEN is Director of the Institute for International Economics and was formerly Assistant Secretary of the Treasury for International Affairs and Assistant for International Economic Affairs to the National Security Council. Copyright © 1999 by C. Fred Bergsten.

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*America and Europe: Clash of the Titans?*

positive leadership, which it now can do, or become highly frustrated
at home and a spoiler abroad.

Partly as a result of these seismic shifts, transatlantic economic
interdependence and joint responsibility for global leadership have
grown rapidly for both economic superpowers. Europe and America
therefore need to devise new strategies and institutional arrangements
to manage both their bilateral economic relations and global economic
issues. Such strategies can be constructed with or without a "common
European foreign policy" that embraces traditional security issues;
Europe itself has integrated far faster economically than it has politically.
Japan will also be a partner in some elements of this collaboration.
But until that country and the rest of Asia recover from their prolonged
economic woes—which may take half a decade or more—transatlantic
relations will be the crucial pivot for global as well as bilateral economic
progress. And since Japan did not play a very forceful international role
even prior to the Asian crisis, the timing or even the possibility of its
full participation in the core leadership group remains highly uncertain.

The EU and the United States have yet to develop the required new
approaches, however. Recent official discourse has focused instead on
a range of narrow, highly technical, and even bureaucratic issues:
bananas (which the United States as a country does not even directly
export), testing procedures for pharmaceuticals, the appropriate
representation of Euroland, which international committee should
devise reform of the global financial system, and many other relatively
minor matters. At their December summit, the two superpowers
could agree only to consider new winemaking standards. Although the
two sides need to address disputes over lesser issues—which are inevitable
given their high levels of trade, finance, and investment—the gulf
between policy requirements and operating reality is enormous.

Meanwhile, a long list of serious challenges remains unresolved.
America and Europe are at loggerheads over global warming and
energy policy. Despite extensive efforts, they have not resolved the
bitter dispute over the extraterritorial impact of American foreign
policy sanctions and only narrowly averted a collision over antitrust
policy in the Boeing-McDonnell Douglas case. While many countries
are still reeling from the global financial turmoil, the two economic
superpowers snipe at each other about how to share its adverse

FOREIGN AFFAIRS · March/April 1999

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C. Fred Bergsten

effects on their own economies and about their competing regional initiatives in other parts of the developing world.

A U.S. economic slowdown could trigger protectionist pressures.

Their greatest failure, however, lies with the looming problems at the heart of the transatlantic economic relationship. America's trade and current account deficits will probably hit $300 billion in 1999. Any slowdown in the U.S. economy could trigger strong protectionist pressure from industries of central importance to Europe, as is already occurring in steel. In addition, the huge U.S. trade deficit and the likely worldwide shifts of capital into the euro could push the euro up sharply against the dollar in the near future. In turn, a stronger euro would hurt Europe's competitive position and seriously exacerbate its unemployment problem, while the weaker dollar would push U.S. prices and interest rates upward, igniting additional tensions across the Atlantic.

The bilateral relationship is thus drifting dangerously toward crisis. In addition, the global superpowers are only partially confronting several key systemic questions. On the monetary side, America and Europe, along with several key Asian countries, seem to be moving toward modest reforms in the "international financial architecture" to incorporate greater transparency in markets, more rigorous adherence to global financial norms, and modest improvements in International Monetary Fund (IMF) procedures. But the two superpowers have failed to propose, let alone implement, fundamental solutions to the unfolding financial crisis that could stabilize capital flows and the international monetary system.

There is little if any discussion of the momentous changes presaged by the creation of the euro—the biggest change in global finance since the dollar surpassed sterling to become the world's leading currency in the interwar period. There has been no U.S. willingness to even discuss Germany's proposals, now endorsed by the other key continental Europeans and Japan, to avoid the destabilizing currency gyrations that have been so disruptive over the past quarter-century. On trade matters, the EU has proposed a Millennium Round of negotiations at the World Trade Organization (WTO) to open markets further and improve the global trading system, while the United

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FOREIGN AFFAIRS · Volume 78 No. 2

States will host the next WTO ministerial meeting later this year to plan international trade policy for the early 21st century. Until quite recently, however, the United States had resisted the European initiatives and has still offered no detailed proposals of its own. In short, there is no meeting of the minds on how to proceed on either trade or money.

Furthermore, the two sides have not worked out any strategy to respond to the politically potent backlash against globalization already observed around the world, including on both sides of the Atlantic. That resentment could severely impede progress on key specific issues, as Congress has already demonstrated with its refusal to authorize new trade negotiations and its reluctant support for the IMF. The result could be a gradual undoing of the international economic liberalization of the past two or three decades and a profound alteration in policy around the world.

Economic relations between America and Europe are approaching paralysis just when a daunting policy agenda and the advent of full bipolarity require new cooperative initiatives. Officials devote enormous attention to minutiae but none to common strategy or the requisite institutional mechanisms for tackling a growing number of acute challenges. They react on an ad hoc basis to virtually every problem that arises while failing to anticipate readily foreseeable obstacles. To be sure, extensive trade and investment ties limit the probability of the kind of blowups that the United States and Japan have experienced, and transatlantic diplomacy is skilled at keeping problems under wraps. But the economies of America and Europe, not to mention transatlantic relations and the world economy, remain at considerable risk.

## THE TRADE DIMENSION

THE UNITED STATES is entering its eighth year of economic expansion. The economy is at full employment. Price inflation is nowhere to be seen. The underlying competitiveness of most American companies is strong. The government budget is in surplus. Although the trade deficit is soaring to record levels, much of this is due to America's superior growth and the Asian crisis; the dollar is not nearly as overvalued as in the mid-1980s.

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For these reasons it is particularly worrisome that American trade policy has been stalemated for four years. Despite the strength of the economy, opponents of globalization have successfully stymied any new trade negotiating authority since Congress approved the North American Free Trade Agreement (NAFTA) in 1993 and the Uruguay Round and WTO, which stemmed from the General Agreement on Tariffs and Trade (GATT), in 1994. Congress came close to blocking new U.S. contributions to the IMF—an imperfect but agreed instrument for responding to the global financial crisis that was sweeping the globe.

We know from history that trade policy tends to backslide toward protectionism unless liberalization continues moving forward. Fortunately, multilateral agreements in several key sectors—telecommunications services, information technology, and financial services—followed the Uruguay Round and maintained momentum for several years. (The United States was able to participate on the basis of residual authority from earlier legislation.) Since the failure of the Asia Pacific Economic Cooperation (APEC) forum's sectoral initiative and the flagging talks of the Free Trade Area of the Americas in 1998, however, no significant trade liberalization is under way anywhere in the world. Not surprisingly, the U.S. steel industry has entered the vacuum to seek widespread relief. Top administration officials expect a number of aggrieved bedfellows to follow shortly: machine tools, semiconductors, shipbuilding, textiles and apparel, some agricultural sectors, and perhaps others.

America's bipartisan trade policy of the past 65 years is at risk. This is especially true with a weakened administration that openly acknowledges a huge debt to organized labor for its surprise November 1998 "victory" and shrinks from reopening NAFTA-style splits within the Democratic Party as it eyes the elections in 2000. Even a modest slowdown in economic growth with small upticks in unemployment could tilt the balance toward protectionism. A relapse into recession could unleash substantial restrictive actions and even legislation.

This prospect threatens transatlantic relations for two reasons. First, many of the imports in question are from Europe itself: machine tools from Germany, sweaters and other woolens from Italy and the

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United Kingdom, and steel from throughout the region. Even U.S.
restrictions on imports from other countries, such as steel from Russia
or ships from South Korea, could inflame transatlantic relations if
those restricted products are deflected toward European markets
already hit by high unemployment and rising imports. The United
States is already threatening to retaliate against European restrictions
on banana imports and hormone-treated beef, while Europe is
threatening to counteract those American steps as well as the U.S.
sanctions on European companies operating in Iran and Libya.

Second, even the threat of American restrictions would seriously
disrupt the "trade G-2" bilateral relationship between the United
States and Europe that has managed global commercial policy for
almost 40 years. Europe has spoken with a single voice on most trade
matters since the creation of the original Common Market. Hence,
it has been able to convert its status as the world's largest trading
entity into effective negotiating equality with the United States on
trade. The three major GATT liberalization initiatives—the Kennedy,
Tokyo, and Uruguay Rounds—ultimately depended on agreements
between Europe and America. The more recent sectoral agreements
also hinged on their cooperation. A policy reversal by the United
States now, or even its failure to overcome the recent stalemate, would
undermine the partnership that has been so vital to both regions and
to the world trading system.

To its great credit, the EU has recognized the pending threat and
proposed a new "Millennium Round" to improve and expand the
WTO system, restarting the liberalization process and strengthening
the multilateral framework. Such a negotiation would include
sectors, notably agriculture and services, that would greatly expand
American exports. Indeed, the United States and the EU share an
interest in moving as far as possible toward global free trade. They
have already eliminated most of their own import barriers, so such
an initiative would require the rest of the world to catch up with
them, expanding their exports and creating high-paying jobs. The
administration failed to endorse the EU strategy until very recently,
however, and has still made no specific proposals of its own, despite
its role as host of the next WTO ministerial meeting in late 1999. It has
failed to convey to Congress or to the American public the huge

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opportunities for expanding U.S. exports, thereby undercutting the effort to win approval for any new negotiations.

Both sides now run the risk of drift and even paralysis in transatlantic trade policy—with potentially severe repercussions for the rest of the world. A slide into protectionism or even a failure to continue opening new markets would have a major impact on the global trading system. Could we then expect Asian economies, who depend on expanded exports to emerge from their deep recessions, to keep their own markets open? Would the transition economies in the former Soviet Union, Eastern Europe, and Asia stick to their liberalization strategies? With the backlash against globalization already evident everywhere, the ominous inward-looking protectionist and nationalistic policies that the world has rejected so decisively could reemerge once again.

A failure of transatlantic leadership would make such policy reversals particularly likely. The United States and the EU are the only economic superpowers and the only two regions enjoying reasonable economic growth. They created the GATT system and, more recently, the WTO. Despite their own occasional transgressions, they have nurtured and defended the system throughout its evolution over the past 50 years. While Japan has been important on a few issues and the developing countries played an encouraging role in the Uruguay Round, the Atlantic powers built and sustained the world trade order. Their failure to maintain that commitment would devastate the entire regime.

WHETHER THE DOLLAR?

ALTHOUGH THE transatlantic partnership in trade looks shaky, the financial dimension could prove even more disruptive as the euro becomes a major global currency. The euro now represents an economy almost as large as the United States and will be even larger when all 15 EU countries become members. It enjoys considerably larger trade flows and monetary reserves and can boast a far stronger external financial position as a sizable creditor area; in contrast, America's net foreign debt now approaches $2 trillion. As soon as the European Central Bank establishes its credibility, the euro will become a global

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financial asset and produce a portfolio diversification from dollars into euros by private investors and central banks that could ultimately reach $500 billion to $1 trillion.

The short-term problem is that the shift from dollars to euros could lead to a broad swing in the dollar-euro exchange rate. America's huge trade deficits are certain to produce a sharp fall in the dollar soon anyway, as they have done about once per decade since the early 1970s.

The dollar fell 25 percent against the yen during the second half of 1998, and large dollar-yen swings have often preceded general gyrations in the dollar. Europe's unusually large trade surplus, by far its greatest since the mid-1980s, suggests that part of the dollar's decline will be against the euro. The portfolio

> America needs a currency correction to reduce its trade deficit.

shift into the euro could trigger this event and amplify the dollar's decline, already expected on the heels of America's trade deficit. Some European experts have predicted that the euro could rise by as much as 40 percent against the dollar. This is far more than the 10 percent or so that underlying economic conditions suggest but nonetheless is plausible, since currency markets often substantially overshoot their long-run equilibrium levels.

An excessive appreciation of the euro would hurt European competitiveness and push Europe's unemployment up at a time when the new governments throughout the region are determined to get it down. French officials and German industrialists are in fact loath to contemplate any further decline of the dollar, and some even believe that the dollar is now undervalued. Although they will have to accept some fall in the dollar to help correct America's excessive trade deficit and ease U.S. protectionist pressures, the exchange rate could again become another highly contentious issue across the Atlantic.

America obviously needs a currency correction to help reduce its trade deficit. In light of the lag between exchange-rate shifts and trade flows, the administration must hope that it will come sooner rather than later so that results, especially for industrial workers, show before the 2000 election. But a sharp general fall in the dollar could trigger latent inflationary pressures as long as the U.S. labor market remains tight. In turn, the dollar's decline could push up interest rates

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C. Fred Bergsten

on inflation fears and foreign demand for higher returns in a falling currency. The stock market could drop and the impending slowdown could even tilt into recession. In short, the result could be an abrupt termination of America's "economic miracle."

The official American position states that the creation of the euro "is good for America if it is good for Europe." This is correct but banal, given the strong impact that the euro could have on the fundamental economic variables on both sides of the Atlantic. At a minimum, the two sides need to agree on a dollar-euro range that would reflect their respective domestic economic conditions. They should then devise new mechanisms, such as clear policy statements and direct intervention in the markets, to keep the rate from straying too far from these underlying fundamentals.

Renewed transatlantic currency instability, and especially a corresponding increase in U.S. interest rates, would also be poisonous for Asian and other emerging market countries trying to recover from the current crisis. Higher American interest rates would increase the cost of servicing their largely dollar-denominated foreign debts and send much-needed capital flows to America instead of to their own needy economies. A failure to manage the dollar-euro relationship effectively could thus have severe consequences worldwide.

These examples only begin to reveal the impact of the new monetary conditions on the United States and the world economy. The existence of a real competitor to the dollar means that the United States will have to pay higher interest rates to attract foreign capital to finance its large external deficits. Such competition will be healthy for the United States over the longer run by providing an incentive to avoid huge budget deficits and double-digit inflation; it might even eventually eliminate its trade imbalance. But the new competition could be quite uncomfortable for a while.

The new monetary environment will also substantially affect the world economy. The dollar and the euro will probably account for roughly equal shares of the great bulk of international financial assets. Prolonged misalignment between them will generate similarly skewed results for other countries that peg their units to either currency. Indeed, the dollar's sharp rise against the yen from 1995 to 1997 partially caused the Asian crisis, since most of the Asian currencies were effectively

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tied to the dollar. Moreover, misalignments among the major currencies contribute to disruptive protectionist pressures—with particularly large costs for developing and other heavily trade-dependent countries. In addition, considerable dollar-euro instability is likely even without prolonged misalignment because both superpowers will be continental economies with only a modest reliance on trade. Europe may be tempted to emulate America's periodic "benign neglect" of the exchange rate, especially given the European Central Bank's mandate to focus on price stability—but at the cost of hurting smaller countries more sensitive to instability.

As with trade, the two partners bear enormous responsibility for the global monetary system. Despite the high stakes, however, there is still no evidence of serious discussion, let alone strategic preparation or contingency planning against the risks outlined above. Why is there such a gap between the challenges of economic policy and the apparent responses of the United States and the EU? There is certainly no dearth of meetings. The leaders hold semiannual summits and lower-level officials get together constantly. The governments have been quite adept at declaring the launch of new transatlantic "dialogues," "partnerships," and "marketplaces," but the fundamental problems remain unresolved.

## CLOSING THE GAP

THERE IS plenty of blame to go around for this lack of preparation. Europe has been preoccupied with regional initiatives, most notably with the euro but also with its enlargement of membership and reordering of regional finances. Its relentless expansion of trade association agreements now encompasses more than 80 countries and raises doubts about its commitment to nondiscriminatory multilateralism (despite its proposal for a Millennium Round). It has failed to design effective procedures to represent Euroland in international financial councils, with member states jealously defending their national prerogatives. This approach has frustrated Americans (and others) who had anticipated more streamlined decision-making. To paraphrase Henry Kissinger, the United States still does not know who to call in Europe when new crises hit. Europe's failure to effectively

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tackle foreign policy problems in its own backyard, notably Bosnia
and now Kosovo, has invited disrespect and even ridicule over the
prospect of real partnership.

As I noted above, however, the Europeans have begun to address
the transatlantic and global agendas, such as proposing a Millennium
Round to restart the trade momentum. They have also floated
suggestions for improved exchange-rate management that could
reduce the risks of misalignments and instability. Although detailed
blueprints for implementing these ideas have yet to be laid out and
caution still prevails, the Europeans have nevertheless tried to
launch the process.

For its part, the United States has contributed to the lag in two key
ways. First, the domestic backlash against globalization adversely
affects relations with Europe and the rest of the world. Given its
concern for lower-income Americans and the disruptions generated
by rapid technological change, the administration has been curiously
ineffective in improving the domestic adjustment programs and safety
nets that could buffer trade-induced job insecurity and downward
pressure on wages. It has failed to work out credible international
initiatives on labor standards and environmental concerns, and
neither the Republican-led Congress nor the business community
has demonstrated the necessary flexibility to foster a political consensus
on those key topics. Instead, the administration has mostly backtracked
in the face of resistance rather than mounting an effective response,
thereby undermining the prospects for tackling the economic
challenges ahead. In short, it has failed to reestablish a political
foundation for a sustainable foreign economic policy. Europe can
understandably view the United States as inward-looking, just as
Americans can level that charge at Europeans.

Second, the United States suffers from schizophrenia on the inter-
national front. On the one hand, it claims that Europe (and, during
better times, Japan) should assert greater international responsibility
and "share the burdens of leadership." On the other hand, its revealed
preference is to try to maintain American dominance—even while
asking others to pay the bill—and to exploit national differences
within Europe whenever possible. (The Europeans are also no
strangers to this; they continually talk of "a common foreign policy"

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but almost always act nationally.) One senses that some American officials resist European or other international ideas simply because they originated elsewhere. Whatever the cause, the administration has responded with studied indifference or outright hostility to constructive European trade and monetary proposals.

Regrettably, the Clinton administration has not replied to these European suggestions with any strategic visions of its own. Instead, it has reacted rather than led, whether the challenge was international (like the Asian financial crisis) or domestic (like the antiglobalization campaign). Such a lack of initiative, or even a thoughtful response, costs the United States dearly when confronting major developments such as the advent of a new economic superpower and a challenger currency. Even beleaguered Japan has endorsed Europe's calls for a Millennium Round and new approaches to currency management. The United States must realize that it will be outflanked on economic issues by the other two industrial giants if it continues its passivity.

An important part of the problem is bureaucratic buck-passing. Even though they eventually intervene when forced by events, monetary authorities on both sides of the Atlantic like "freely flexible" exchange rates because they can then blame currency problems on "the market" rather than themselves. Central banks in particular resist any policy framework that might place even the most limited constraints on their cherished independence. Moreover, neither America nor Europe is good at managing the interaction between monetary and trade issues—with different ministries in charge of each domain and little coordination between them—despite the obvious economic linkage.

## MANAGED CARE

IT WILL NOT be easy to convert the current transatlantic malaise into an effective partnership. The United States faces significant domestic constraints, both economic and political, and Europe has a full "domestic" agenda. Governments always find it hard to take forceful preventive actions. The turf problems described above represent formidable practical barriers. So what can be done?

There is no need for new transatlantic "grand designs." Instead, the EU and the United States need to install effective working

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C. Fred Bergsten

arrangements to address the serious problems ahead, both in their bilateral relations and in the joint challenges of global leadership that will become even more difficult in the coming months and years. They should take separate approaches to financial and trade issues.

The immediate goal on the monetary front is modest: to keep the dollar-euro exchange rate from straying so far from underlying economic fundamentals that it damages their economies, the transatlantic relationship, and the global system. America and Europe should retain flexible exchange rates as the basic paradigm but plan their management preemptively rather than deploying ad hoc measures too late, as at present. Monetary authorities could agree on a fairly wide range, perhaps 10 to 15 percent on either side of an agreed midpoint of 1.00 = $1.25-$1.30, that would limit dollar-euro fluctuations. Such a band includes the startup rate of 1.00 = $1.17 but prevents any significant dollar appreciation from that point or any dollar depreciation beyond its previous lows against the constituent European currencies. The authorities should announce their agreed range to convey clearly their official intention to the markets. A qualified majority vote of the EU Council of Economic and Finance Ministers could endorse such an incremental alteration in managing floating rates, while any major reform (like a return to fixed Bretton Woods-style parities) would need its unanimous approval.

Despite their modesty, such new arrangements would provide a helpful operational focus for America and Europe to agree on appropriate exchange rates. They would require close monitoring of the markets and creation of an effective mechanism for joint intervention to protect the ranges. They would also encourage some policy coordination, including of monetary policy, when the exchange rate moves to the edge of the very wide band and something more than direct intervention and official statements is required. They would help stabilize private capital flows by indicating the limits of official tolerance of fluctuations; the absence of government guidance often encourages contagion and destabilizes capital flows when a currency comes under speculative siege. The relative stability of the two major currencies (or three currencies, when Japan reaches comparable agreements for the yen with America and Europe) would be enormously helpful for other countries, who could then peg their unit to one of the key currencies without running the risk of prolonged misalignments.

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The scheme would be truly cooperative, based on initial proposals from Europe and Japan and worked out in detail with the United States. The outcome would be a concentric network of largely informal groups to manage international economic and monetary affairs: a core G-2 comprising the United States and Europe; a G-3 including Japan; the existing G-7, G-10, and G-22 to engage the next tier of key countries; and the global institutions, like the IMF, for formal implementation of the more far-reaching reforms. The involvement of the broader groups will ensure that the G-2 does not collude against the rest of the world and promote its own interests at everyone else's expense.

On trade, both sides must restart the process of global liberalization to counter the protectionist tide in the United States and the broader antiglobalization pressures everywhere. The United States and the EU should agree that the 1999 WTO ministerial meeting endorse the early launch of a Millennium Round. The negotiations should aim to produce tangible results every two or three years, to demonstrate progress and broaden market access in countries that still place large restraints on imports. They should also work out key issues of discord, including agriculture, competition policy, the implementation of the WTO rulings (which have been crucial in the banana case), and the rules governing regional arrangements. And they should address the environmental and labor issues that help drive the backlash against globalization.

On the institutional side, the G-2 relationship must be reinvigorated. It should again function as the core of the quadrilateral group with Japan and Canada, and then the full WTO itself. Such a strategy, along with more responsive U.S. domestic policies, should deflect enough protectionist pressure to get the two economic superpowers back on track in managing bilateral trade policy and their global responsibilities.

**THE TRANSATLANTIC CENTURY?**

NOT TOO long ago, there was much debate over whether the next hundred years would be the “Japanese” or “Asian” century. Now, that looks less likely. The “European century” seems a more likely prospect, or even a “second American century.” Some observers have suggested that the 21st century will have a “trilateral” focus on Europe, Japan, and the United States. But the most plausible candidate for

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["C. Fred Bergsten", "economic success and global leadership may instead be the transatlantic partnership. If the United States and the EU can begin to cooperate now as equal partners, even in the economic arena alone, they could resuscitate the vitality of their own relationship and provide effective global leadership. If they fail to do so they will continue to drift apart like tectonic plates, with severe consequences both for themselves and for the world economy.", "The economic integration of Europe over the past half-century, culminating in the euro, represents history's most dramatic success in institutionalizing interdependence. It has also been the most sensational instance of nations voluntarily relinquishing their sovereignty in favor of international collaboration. It has assured peace as well as prosperity through judicious economic amalgamation. The countries of the North Atlantic will probably never choose integration as deep as that of Europe and are unlikely to heed the call of former Secretary of State James A. Baker III to keep pace with Europe's course. But the completion of the European economic evolution provides the basis for an effective transatlantic partnership that could herald a similar, if more modest, success story over the next 50 years. It could also presage the next major step forward in managing the world economy.

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April 30, 2002, Tuesday, Final Edition

SECTION: EDITORIAL; Pg. A19

LENGTH: 1135 words

HEADLINE: The Transatlantic Century

BYLINE: C. Fred Bergsten

BODY:

The president of the United States and the leadership of the European Union hold their regular semiannual summit here this week. Even the closest observers of world affairs are blissfully unaware of these sessions. The chief outcome of one of their recent meetings was an agreement to consider the adoption of new winemaking standards.

This picture would be comic if it didn't represent such a wasted opportunity. The United States and Europe are the world's only economic superpowers. They are crucial both to each other's prosperity and to the stability of the world economy as a whole. They need to start thinking of themselves as an informal "G-2" steering committee for the global system rather than as petty antagonists over bananas, steel and other minutiae. Fundamental changes in the world economy call for such a new mind-set. Japan seemed a likely member of the leadership committee, and even a dominant player, a decade ago. But it failed to assume global responsibilities commensurate with its economic weight when it had the chance, and now its decade of severe decline and rapidly aging population raises serious doubts about its leadership in East Asia, let alone the world.

China is the rising power in economic as well as strategic terms. It is still a very poor country and not yet a full-market economy or a political democracy. Its capacity for global leadership is probably a decade or two away.

Meanwhile, Europe has become virtually the economic equal of the United States. Its population is larger than ours and its total output is similar. Our external trade levels are identical. The combined monetary reserves of its members are much larger than our own. The creation of the euro, which will eventually rival the dollar, further promotes the integration of Europe into a single economy.

On issues where Europe speaks with a single voice, and has thus been able to translate its economic weight into negotiating leverage, a G-2 already exists. The best example is trade, where the European Commission has represented Europe since the creation of the original Common Market. Both sides of the Atlantic have thus held veto power over global trade policy for about four decades. The great liberalization and rule-making advances of the postwar period -- the Kennedy Round, Tokyo Round and Uruguay Round in the World Trade Organization -- could proceed only when the G-2 agreed.

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Even on trade, however, the United States and Europe seldom behave like responsible leaders. They did get together at the recent WTO Ministerial in Doha to launch new multilateral negotiations, reversing the disastrous failure at Seattle in 1999. But their incessant and growing battles over agriculture, aircraft, bananas, beef, dispute settlement modalities, genetically modified products, mergers policy a la GE-Honeywell, regional preferential deals, retaliation methods, sanctions, steel, subsidies, tax policy and many others threaten trade war rather than promising systemic improvement.

These trade-related issues represent only a piece of the acute transatlantic differences on economic issues, many of which have broader ramifications in security and foreign policy. There is a basic split over energy, with America's fixation on low prices and gas guzzlers confronting Europe's preference for much higher prices and conservation. There are closely related disputes over the environment, with Europe moving to implement the Kyoto convention to combat global warming, which the United States has denounced. Despite President Bush's laudable pledge to sharply increase U.S. foreign aid, European levels are about three times as great, and breed resentment over inadequate "burden-sharing" by America. A sharp disagreement over World Bank lending policies has held up replenishment of its funding for the world's poorest nations.

Most important, the huge U.S. trade deficit means the United States must attract about $ 500 billion in financing from the rest of the world every year to balance its books. That imbalance reflects a sizable currency misalignment between dollar and euro that will require intensive and cooperative management rather than today's "benign neglect" of both. The alternative is an outbreak of trade protection and a dollar crash that could jeopardize continued U.S. prosperity and global stability.

Creation of the needed G-2 will thus require a considerable change in conduct, based on a basic change in mind-sets on sides of the Atlantic. Much of the problem lies in Europe, which has largely failed to get its representational act together except for trade and competition policy. Hence, the United States has been under no compulsion to interact with a single Europe and is continually tempted to play off the individual European countries against each other. The European Union's current constitutional convention offers an opportunity that must be seized to consolidate its external representation.

But the bigger adjustment may be required on this side of the Atlantic. The United States is the only military superpower. Its economy, at least for now, is the world's strongest. Why would it want or need to share power with anyone?

The answer is simple. Precisely because of its military superiority, and the need to act by itself on some occasions in that domain, the United States will inevitably be charged with unilateralism for the foreseeable future. Those charges are particularly acute at present due to the strong differences in transatlantic views on the Arab-Israeli conflict, Iraq and even the next steps in the campaign against terrorism.

The United States should thus deliberately, and even ostentatiously, share power and proceed multilaterally in areas where doing so makes substantive sense. Economics is such an area. The United States simply cannot dominate the world economy as it does global security affairs, and Europe is its only potential partner, in terms of both economic capability and cultural compatibility.

The United States and Europe now see each other as inward-looking, highly egotistical entities. Europe views the United States as wanting to run the world with other people's money. Americans characterize Europeans as pontificating free-riders who hide behind America's willingness to exercise leadership even when that is unpopular. They need instead to start thinking in terms of cooperating and indeed coordinating consistently, both to minimize the problems they cause each other and to provide progressive leadership for the world. They should begin implementing an informal G-2 steering committee for the world economy and start using occasions such as the Thursday summit for that purpose.

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Prime Minister's Speech to the Polish Stock Exchange

A few weeks ago, you celebrated the twentieth anniversary of the extraordinary revolution that gave birth to a movement called Solidarity.

Poland grew to be the icebreaker for the end of communism in all of Europe and for the end of the Cold War.

As we speak, another revolution is taking place. What the people of Poland begun, the people of Serbia will finish - opening up for the first time in history the prospect of a European continent united in freedom and democracy.

Milosevic has done enough damage, for one man, in one country. Three wars. Tens of thousands dead. Millions displaced. Acts of barbarism not seen in Europe since the Second World War. Their effect felt throughout Europe.

We, and you, part of the NATO Alliance that stood up for our values against him in Kosovo last year, know what he is capable of. The sooner he is gone, the better for Serbia, the better for the whole of Europe.

Then we must stand ready, when the will of the people is finally done, to hold out the hand of partnership to a democratic Serbia, and welcome her into the European family of nations.

Poland led the wave of revolution in Europe. Since then, Poland has been critical to the great transition from communism to democracy, together with your dynamic Central European partners. I am delighted that the Czech and Slovak Prime Ministers, and the Hungarian Foreign Minister are all with us today.

Britain and Poland have marched shoulder-to-shoulder at decisive moments in Europe's history. Last month in a moving ceremony, we unveiled a statue of General Sikorski, a fitting monument to a great patriot.

Britain went to war in 1939 because Hitler invaded Poland. Robbed of their own homeland, the Polish people gave themselves selflessly in the liberation of Western Europe, only to see the iron curtain come down on Poland.

Winston Churchill said of the pilots who so valiantly and against such odds defended the last bastion of resistance in Europe against Hitler's air armadas that never had so many owed so much to so few.

And of those few, the Polish pilots are remembered and revered for their courage, their skill, their idealism. They laid down their lives not in defence of their own country, but in defence of an ideal, in defence of a free Europe.

As the Allied forces struggled to roll back fascism, Polish servicemen marched, fought and died for that same ideal, shoulder-to-shoulder with their British comrades; in the Battle of the Atlantic; at Tobruk and Monte Cassino; in Normandy; the unsung heroes of the Special Operations Executive and the most spectacular intelligence coup of the Second World War, Enigma.

Few countries have contributed more to the fall of fascism and Soviet dictatorship in Europe. Now we want you in the European Union.

## ENLARGEMENT

The European Union is on the brink of one of the most important decisions in its history. Enlargement to the East may be the EU's greatest challenge, but I also believe it is its greatest opportunity.

Nobody who considers how the European Union has underpinned peace and democracy in the reconstruction of post-war Western Europe can ignore the benefits that enlargement will bring to post-Cold War Europe and the Balkans.

Nobody who considers the role that open markets have played in generating wealth and prosperity in the European Union can doubt the benefits of creating a market of half a billion consumers.

People can always find good reasons for delay. People concerned about what these momentous changes will mean for the EU, and for them.

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Others worried about the implications for the CAP. Popular but misplaced fears that freedom of movement means massive shifts of population.

But let me be frank. Without enlargement, Western Europe will always be faced with the threat of instability, conflict and mass migration on its borders. Without enlargement, the political consensus behind economic and political reform in the weaker transition countries may splinter.

Should that happen, we would all lose. That is why supporting enlargement in principle but delaying in practice is no longer good enough.

So I am determined there should be a breakthrough on enlargement under the Swedish Presidency. I will be urging Europeans political leaders to commit themselves to a specific framework leading to an early end of the negotiations and accession. I want to see new member states participating in the European Parliamentary elections in 2004 and having a seat at the table at the next IGC.

My message to you is this: there are no guaranteed places. Reform is the only entry ticket. But we want Poland, and as many others as are ready, in the EU as soon as possible.

## BRITAIN IN EUROPE

Britain will always be a staunch ally of all those European democracies applying to join the European Union. A staunch ally, wielding its influence at the centre of Europe.

It was not always like that. The blunt truth is that British policy towards the rest of Europe over half a century has been marked by gross misjudgements, mistaking what we wanted to be the case with what was the case; hesitation, alienation, incomprehension, with the occasional burst of enlightened brilliance which only served to underline the frustration of our partners with what was the norm. The origins of this are not complex but simple. Post-war Britain saw the issue entirely naturally as how France and Germany were kept from going back to war with each other. Britain's initial role was that of a benign, avuncular friend encouraging the two old enemies to work together. Then with gathering speed, and commensurate British alarm, Europe started not just to work together but to begin the institutional cooperation that is today the European Union. At each stage, Britain thought it won't possibly happen and held back. And at each stage it did happen and we were faced with the choice: catching up or staying out.

This was complicated by the fact that for all the other key players, there were compelling reasons for being in: reasons of history, reasons of proximity, reasons of democracy. For Britain, the victor in WWII, the main ally of the United States, a proud and independent-minded island race (though with much European blood flowing in our veins) the reasons were there, but somehow always less than absolutely compelling.

And for the rest of Europe, the reasons for Britain being in seemed less compelling too. Reading over the summer Jean Lacouture's biography of de Gaulle, I could see clearly why our French friends hesitated over Britain. There is a perception in Britain that it was because de Gaulle was anti-British. Nothing could be more misguided. He was an admirer of Britain and grateful for our support in WWII. But he had painstakingly given France back her dignity and self-esteem. He mistrusted American intentions and saw Britain as both a Trojan Horse for the United States and a brake on the necessary strengthening of Europe. So, even though, ironically, he was closer to Britain in his conception of what Europe should be than to virtually anyone else, he blocked Britain. There is something very poignant about the accounts of his meetings in 1963 with Macmillan, a sometimes underestimated British Prime Minister, who saw only a little late the danger for Britain in isolation from Europe.

All this is history, but its effects live on. Now, the circumstances of today mean it is time to overcome the legacy of Britains past. Two things have changed. From Europe's perspective, Britain as a key partner in Europe is now a definite plus not a minus. Britain has a powerful economy, an obvious role in defence and foreign policy and there is genuine respect for Britain's political institutions and stability. Also, in a world moving closer together, with new powers emerging, our strength with the United States is not just a British asset, it is potentially a European one. Britain can be the bridge between the EU and the US.

And for Britain, as Europe grows stronger and enlarges, there would be something truly bizarre and self-denying about standing apart from the key strategic alliance on our doorstep. None of this means criticisms of Europe are all invalid. They aren't, as I shall say later. But to conduct the case for reform in a way that leaves Britain marginalised and isolated (and that, despite the efforts of John Major, was the reality we inherited three years ago), is just plain foolish.

For Britain, as for those countries queuing up to join the European Union, being at the centre of influence in Europe is an indispensable part of influence, strength and power in the world. We can choose not to be there; but no-one should doubt the consequences of that choice and it is wildly unrealistic to pretend those consequences are not serious. In particular, there is absolutely no doubt in my mind, that our strength with the US is enhanced by our strength with the rest of Europe and vice versa.

I have said the political case for Britain being part of the single currency is strong. I don't say political or constitutional issues aren't important. They are. But to my mind, they aren't an insuperable barrier. What does have to be overcome is the economic issue. It is an economic union. Joining prematurely simply on political grounds, without the economic conditions being right, would be a mistake. Hence our position: in principle in favour; in practice, the economic tests must be met. We cannot and will not take risks with Britain's economic strength. The principle is real, the tests are real.

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ord about Denmark. The Danish referendum was an important vote for the Danish people, but the rest of us should draw the correct conclusions. It will have no impact on the political support for enlargement as some fear. Nor will it affect the British Governments position on the Euro. Each country must make up its own mind on the Euro, in its own way.

But my point is this: Britain's future is and will be as a leading partner in Europe. Today I turn to the issue of Europe's political future.

## A LARGER, STRONGER, DEMOCRATIC EUROPE

What sort of European Union will Poland join?

The Polish historian Joachim Lelewel famously asked Polska tak, ale jaka? Poland, yes, but what sort of Poland? Today I want to ask: Europe, yes, but what sort of Europe?

The trouble with the debate about Europes political future is that if we do not take care, we plunge into the thicket of institutional change, without first asking the basic question of what direction Europe should take.

To those who say the need for change in Europes institutions is driven by the impression Europe is slowing down, I must say I find that bizarre. Monetary union is currently the most ambitious economic enterprise in the world. We have just begun to fashion a common defence policy. And we are now set to reunify Europe and expand it with up to 13 new members and in the longer term more. We are hardly short of challenges.

Neither do I see any profit in pitting the European institutions against intergovernmental co-operation. We need a strong Commission able to act independently, with its power of initiative: first because that protects smaller states; and also because it allows Europe to overcome purely sectional interests. All governments from time to time, Britain included, find the Commissions power inconvenient but, for example, the single market could never be completed without it. The European Parliament is a vital part of the checks and balances of the EU. The Commission and the Council have different but complementary roles.

The need for institutional change does not derive either from a fear that Europe is immobile or that it is time to upset the delicate balance between Commission and governments; it derives from a more fundamental question.

The most important challenge for Europe is to wake up to the new reality: Europe is widening and deepening simultaneously. There will be more of us in the future, trying to do more.

The issue is: not whether we do this, but how we reform this new Europe so that it both delivers real benefits to the people of Europe, addressing the priorities they want addressed; and does so in a way that has their consent and support.

There are two opposite models so far proposed. One is Europe as a free trade area, like NAFTA in North America. This is the model beloved by British Conservatives.

The other is the classic federalist model, in which Europe elects its Commission President and the European Parliament becomes the true legislative European body and Europes principal democratic check.

The difficulty with the first is that it nowhere near answers what our citizens expect from Europe, besides being wholly unrealistic politically. In a Europe with a single market and single currency, there will inevitably be a need for closer economic co-ordination. In negotiations over world trade and global finance, Europe is stronger if it speaks with one voice.

In areas like the environment and organised crime, in policing our borders, Europe needs to work together. In foreign and security policy, though nations will guard jealously their own national interests, there are times when it will be of clear benefit to all that Europe acts and speaks together. What people want from Europe is more than just free trade. They want: prosperity, security and strength.

In a world with the power of the USA; with new alliances to be made with the neighbours of Europe like Russia; developing nations with vast populations like India and China; Japan, not just an economic power but a country that will rightly increase its political might too; with the world increasingly forming powerful regional blocs ASEAN, Mercosur; Europes citizens need Europe to be strong and united. They need it to be a power in the world. Whatever its origin, Europe today is no longer just about peace. It is about projecting collective power. That is one very clear reason, quite apart from the economic reasons, why the central European nations want to join.

Some limited vision of Europe does not remotely answer the modern demands people place on Europe.

The difficulty, however, with the view of Europe as a superstate, subsuming nations into a politics dominated by supranational institutions, is that it too fails the test of the people.

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There are issues of democratic accountability in Europe the so-called democratic deficit. But we can spend hours on end, trying to devise a form of European democracy and get nowhere. The truth is, the primary sources of democratic accountability in Europe are the directly elected and representative institutions of the nations of Europe national parliaments and governments.

That is not to say Europe will not in future generations develop its own strong demos or polity, but it hasn't yet.

And let no-one be in any doubt: nations like Poland, who struggled so hard to achieve statehood, whose citizens shed their blood in that cause, are not going to give it up lightly. We should celebrate our diverse cultures and identities, our distinctive attributes as nations.

Europe is a Europe of free, independent sovereign nations who choose to pool that sovereignty in pursuit of their own interests and the common good, achieving more together than we can achieve alone. The EU will remain a unique combination of the intergovernmental and the supranational.

Such a Europe can, in its economic and political strength, be a superpower; a superpower, but not a superstate.

We should not therefore begin with an abstract discussion of institutional change. We begin with the practical question, what should Europe do? What do the people of Europe want and expect it to do? Then we focus Europe and its institutions around the answer.

How we complete the single market.

How we drive through necessary economic reform.

How we phase out the wasteful and inefficient aspects of the CAP.

How we restore full employment.

How we get a more coherent foreign policy.

How we develop the military capability we require without which common defence policy is a chimera.

How we fight organised crime, immigration racketeering, the drugs trade.

How we protect an environment that knows no borders.

And of course, how we stop Europe focussing on things that it doesn't need to do, the interfering part of Europe that antagonises even Europeans ardent supporters.

The problem Europeans citizens have with Europe arises when Europe's priorities aren't theirs. No amount of institutional change most of which passes them by completely will change that.

Reforming Europe to give it direction and momentum around the people's priorities will. The citizens of Europe must feel that they own Europe, not that Europe owns them.

So let me turn to the changes I believe are part of delivering that direction.

## PROPOSALS FOR POLITICAL REFORM

First, we owe it to our citizens to let them know clearly what policies and laws are being enacted in their name. The European Council, bringing together all the Heads of Government, is the final court of appeal from other Councils of Ministers unable to reconcile national differences.

That is a vital role. But the European Council should above all be the body which sets the agenda of the Union. Indeed, formally in the Treaty of Rome, that is the task given to it. We now have European Council meetings every three months. And in truth they do, for example, in areas like the Luxembourg summit on jobs, the Lisbon summit on economic reform, the Peortschach summit on defence, develop the future political direction of Europe. I would like to propose that we do this in a far more organised and structured way.

Just as governments go before their electorates and set out their agenda for the coming years, so must the European Council do the same. We need to do it in all the crucial fields of European action: economic, foreign policy, defence, and the fight against cross-border crime. I am proposing today an annual agenda for Europe, set by the European Council.

The President of the Commission is a member of the European Council, and would play his full part in drawing up the agenda. He would then bring a proposal for Heads of Government to debate, modify and endorse. It would be a clear legislative, as well as political, programme setting the workload of individual Councils. The Commission's independence as guardians of the treaty would be unchanged. And the Commission would still bring forward additional proposals where its role as guardian of those treaties so required. But we would have clear political direction, a programme and a timetable by which all the institutions would be guided.

We should be open too to reforming the way individual Councils work, perhaps through team presidencies that give the leadership of the Council greater continuity and weight; greater use of elected chairs of Councils and their working groups; and ensuring that the Secretary-General of the Council, Javier Solana, can play his full role in the development of foreign and defence policy. For example, when Europe is more than 25

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Members, can we seriously believe that a country will hold the Presidency only every 12 or 13 years? But two or three countries together, with a mix of large and small states, might make greater sense. In future we may also need a better way of overseeing and monitoring the Unions programme than the three monthly European Councils.

Second, there is an important debate about a Constitution for Europe. In practice I suspect that, given the sheer diversity and complexity of the EU, its constitution, like the British constitution, will continue to be found in a number of different treaties, laws and precedents. It is perhaps easier for the British than for others to recognise that a constitutional debate must not necessarily end with a single, legally binding document called a Constitution for an entity as dynamic as the EU.

What I think is both desirable and realistic is to draw up a statement of the principles according to which we should decide what is best done at the European level and what should be done at the national level, a kind of charter of competences. This would allow countries too, to define clearly what is then done at a regional level. This Statement of Principles would be a political, not a legal document. It could therefore be much simpler and more accessible to Europes citizens.

I also believe that the time has now come to involve representatives of national parliaments more on such matters, by creating a second chamber of the European Parliament.

A second chamber's most important function would be to review the EU's work, in the light of this agreed Statement of Principles. It would not get involved in the day-to-day negotiation of legislation - that is properly the role of the existing European Parliament. Rather, its task would be to help implement the agreed statement of principles; so that we do what we need to do at a European level but also so that we devolve power downwards. Whereas a formal Constitution would logically require judicial review by a European constitutional court, this would be political review by a body of democratically elected politicians. It would be dynamic rather than static, allowing for change in the application of these principles without elaborate legal revisions every time.

Such a second chamber could also, I believe, help provide democratic oversight at a European level of the common foreign and security policy.

Efficient decision making, even with these changes, will be harder in an enlarged European Union. In the long run, I do not believe that a Commission of up to 30 members will be workable. The present intergovernmental conference must and will address the size of the Commission. More radical reform is not possible this time round in view of the worries of some states. I simply give my view that, in the end, we shall have to revisit this issue and streamline considerably. Reweighting votes in the Council has also become a democratic imperative which this current intergovernmental conference must resolve.

Efficient decision making in an enlarged Union will also mean more enhanced cooperation. I have no problem with greater flexibility or groups of member states going forward together. But that must not lead to a hard core; a Europe in which some Member States create their own set of shared policies and institutions from which others are in practice excluded. Such groups must at every stage be open to others who wish to join.

I agree with Guy Verhofstadt that enhanced cooperation is an instrument to strengthen the Union from within, not an instrument of exclusion. That is why enhanced cooperation must not be used to undermine the single market or other common policies. The safeguards must be stringent ones. The present treaties provide them. Any changes must be equally stringent in avoiding a multi-tier Europe; the creation of different sets of rules; damage to the rights of those not able to participate; or erosion of the powers of the Commission as guardians of the treaties. The European Parliament should play a part in ensuring that these conditions are met, both at the time an enhanced co-operation is decided upon and during the course of its implementation.

Within a coherent framework agreed by the European Council, there is clearly much greater scope for using enhanced cooperation in the two biggest growth areas of European action: the development of a foreign and security policy and the cross border fight against crime. In the fight against international crime it should be in the interest of all Member States if particular groups of countries carry forward work in particular areas. That, after all, is what was done through the Schengen Agreement. The difference now is that we must, from the beginning, operate within the framework of the European treaties, not outside it. Italy and Germany have suggested joint police operations at the Unions external borders. That kind of cooperation between groups of countries seeking to achieve goals agreed by all, and in the interests of all, will become common place.

## CONCLUSION

We need to get the political foundations of the European Union right. These foundations are rooted in the democratic nation state. Efficiency and democracy go together. Poland knows that. Your people have decided that the European Union is the most effective route to deliver what they want: prosperity, security and strength. We are building a Europe of equal partners served by institutions which need to be independent but responsive and accountable. We want a Europe where there are national differences, not national barriers, where we hold many of our policies common, but keep our distinct, separate identities.

The European Union is the world's biggest single economic and political partnership of democratic states. That represents a huge opportunity for Europe and the peoples of Europe. And as a Union of democracies, it has the capacity to sustain peace in our continent, to deliver unprecedented prosperity and to be a powerful force for democratic values in the rest of the world.

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ELC

Our task, with the help of the new democracies about to join the EU, is to shape a responsive European Union - in touch with the people, transparent and easier to understand, strengthened by its nations and regions - a European Union whose vision of peace is matched by its vision of prosperity.

A civilised continent united in defeating brutality and violence. A prosperous continent united in extending opportunities to all. A continent joined together in its belief in social justice.

A superpower, but not a superstate.

An economic powerhouse through the completion of the world's biggest single market, the extension of competition, an adaptable and well educated workforce, the support for businesses large and small.

A civilised continent through common defence, the strength of our values, the pursuit of social justice, the rich diversity of our cultures.

The countries represented here today have suffered more than most in the cause of freedom. I want you, as soon as possible, to share in the European Unions success, and to join as equal partners, as, amid the new reality I have outlined, a new Europe is built.

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Speech by the President of France, Jacques Chirac, on his State Visit to the Federal Republic of Germany in the German Bundestag, Berlin, 27 June 2000

"Our Europe"

Thank you for this momentous occasion which neither I nor my compatriots will forget. Thank you for inviting me to address Germany's Parliament, here, in this palace which bears the scars of your country's suffering but which, today radiant with light, is the image of modern Germany. For half a century, a gaping wound at the heart of divided Berlin, in ruins, the Reichstag, never rebuilt, remained as the symbol of the pain and expectation of a whole people. As the symbol of a Europe torn apart. And, of course, when Germany, and subsequently our continent, was once again reunited, German democracy was reestablished here, picking up the threads of history and finally closing the tragic parenthesis.

As you said, I am one of those who always hoped and always awaited the moment when Germany would regain its unity and its capital. So you can understand my emotion at being the first foreign head of State to address, from this podium, the whole of Germany! Germany, our neighbour, our adversary yesterday, our companion today! United Germany! Germany back home!

Today, I think of all those who made possible the realization of this dream of generations of Germans. Of those men of conviction and vision who helped their people believe in their future. Of those who gave the Federal Republic, in the city on the banks of the Rhine which gave it a home, its institutions and values. Of those who raised the country from its ruins, rebuilt and gave the world, thanks to their boundless skills, efforts and infinite sacrifices, first-hand evidence of an extraordinary success. Of those who have restored Germany to its place in the front rank of the world's nations.

But I'm thinking first and foremost of the statesmen who, in your country as in ours, set in train the historic reconciliation between Germany and France. What audacity and courage they needed, in the immediate aftermath of the war, to speak to each other the language of trust and cooperation. The miracle is that, at each essential stage, our two countries found the men to consolidate the rapprochement and go ever further.

At the outset, there were Konrad Adenauer and General de Gaulle who had the vision to keep their appointment with history and open up, I would even say, force open the road which we are travelling together. I'm thinking of Willy Brandt and Georges Pompidou. I'm thinking too of Helmut Schmidt and Valéry Giscard d'Estaing who strengthened Franco-German solidarity and enabled Europe to go further.

Finally, I want here to pay tribute to Helmut Kohl and tell him that the immense work he accomplished with François Mitterrand in strengthening Europe's cohesion and identity still further remains engraved on the memory of the French and Europeans.

It will soon be forty years since General de Gaulle, visiting the Federal Republic of Germany, talked about the Franco-German friendship and declared: "It is so that we may work together that we embarked on our rapprochement, then our Union—two of the most striking events history has ever seen. The union, so that there may exist on the old continent a strong structure whose power, prosperity and authority will equal those of the United States. The union, too, so that, when the time comes, the whole of Europe can ensure its stability, peace, development. The union, finally and perhaps above all, because of the immense task of human progress which the world has to carry out and in which the combination of Europe's values, in the first place, ours, can and must play the major role".

Forty years have passed. To a large extent realized, the ambition remains. Prosperity first of all. The European Union is today the world's leading economic and trading power, it's a research and innovation giant. Franco-German cooperation, emulation, synergy have been one of its most powerful driving forces. Today, at a time when we're seeing the formation of groups capable of outperforming their international competitors, the Germans and French are looking quite naturally to each other.

We passed a historic milestone with the adoption of the euro, a project also supported from the outset by the Franco-German tandem and which is a success. With the euro, we have set the seal on the unification of the large European

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market and given ourselves a tremendously powerful catalyst for trade. We are firmly rooting in our fellow citizens' hearts the sense of belonging to a single economic-and over and above that a political and human-entity. The Europeans now have their currency.

Secondly, stability, peace and development for the whole continent. The key evidence of the success of the European enterprise has very probably been this tremendous force of attraction exerted on those Europeans who remained for so long separated from us. The brilliant success of Europe made daily more absurd and unbearable the maintenance at its gates of totalitarian regimes and the division of our continent, and first of all of Germany. The whole of Europe remembers those magical hours when, braving the wall of shame, East and West Berliners joined together, sending out the signal of freedom to the oppressed peoples.

Finally, Europe, campaigning for and engineering progress in the world. What has united Germany and France and their partners is, of course, their peoples' deep aspiration for peace. But it's also, and perhaps primarily, a certain idea of man which has given the European enterprise its vision of freedom, dignity, tolerance and democracy. That's why belonging to the Union means wholeheartedly adhering to the ideas and values underpinning it.

Beyond its borders, the European Union is making its voice heard. It is arguing for a fairer international organization of trade, mindful of the need to improve individuals' well-being and paying due regard to the world's cultural diversity. It is arguing for genuine solidarity between rich and poor countries and setting an example through an active development aid policy. It is arguing for peace and an end to barbarism, and is working to that end.

I'm thinking of course of our joint commitment in Bosnia and Kosovo which clearly reflects the deep significance, for you like us, of our European enterprise, this obligation to act ethically which brings us together and, in our view, while honouring Europe's alliances, justifies it now giving itself the capabilities to pursue its own foreign and security policy. Here, in the Bundestag, I want to pay tribute to the historic decision of the Germans who, for the first time for over half a century, agreed to send troops to a foreign theatre of operations. They did so out of respect for the dignity of every individual. France wishes to see Germany's commitment, its rank as a major world power, its international influence, recognized by a permanent member's seat on the United Nations Security Council!

In three days, France will be taking over the presidency of the European Union. It will have the responsibility of wrapping up decisions which bind us for the future. I am thinking of course of the first of these: the absolutely vital reform of our common institutions which we shall steer with, I know, the support of our German partners.

It will have to take Europe forward in many important areas. That of European defence. We are hoping to make Europe go further, make headway commensurate with the considerable progress achieved in the space of a few months, particularly under the German presidency. We want Europe also to be closer to its citizens. Everyone must be able to see for themselves the benefits of our Union in their everyday lives. Today, admittedly, many Europeans deem it a bit abstract, too far removed from their real concerns: growth, jobs and training, justice and security, the battles against drug trafficking and against illegal immigration networks, the environment and health, others too. In all these areas, the next six months must allow us to push forward.

But going beyond these immediate tasks, the responsibility incumbent on us founder members is continually to pose the question of what Europe means, the direction in which it should move and its future, and never to allow our determination to weaken. I salute the profoundly European spirit which prevailed here, very recently, at the relaunch of a debate whose issues are, in the true sense of the term, existential. A debate which is engaging our nations and our peoples, their history and their identity and concerns the very organization of our societies, the Europeans' will and ability to go further in the Union. It's no trifling matter! There are moments when you have to be able to take risks. Go off the beaten track. That's the price we'll have to pay to pursue the great Community adventure!

I would like, here in Berlin, to scout out the way, tell you what I firmly believe, offer you some ideas for the way forward.

First of all, I believe that the European Union's enlargement is a great ambition, one which is both legitimate and necessary. It is under way. It will be difficult, for both the candidate countries and member States. But tomorrow we shall be thirty or more represented in Brussels, in Strasbourg and Luxembourg. That's an achievement! For peace and democracy, entrenched on our continent and making our joint venture wholly meaningful. For the candidate countries, buttressed in their fight for freedom by the hope of joining us. For the Union itself which, as a result, will become

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anger, politically and economically.

But, for all that, the obligation is clear. The enlargement won't go ahead regardless. We shall not allow the unravelling of the European enterprise to which you and we, with our partners, have devoted so much determination and energy for almost half a century. And which, in return has brought us so much, not just peace, but also economic success and thus social progress. Which has proved, for us all, tremendously empowering. Our Union won't be quite the same tomorrow. But it won't be diluted, nor will it take a backward step. It will be our responsibility to ensure this. I believe too that the pace of European construction can't be decreed. It is to a large extent dictated by the increase in the strength of the feeling, among our peoples, of identity and of belonging to Europe, of their wish to live together in a mutually supportive community. And I am confident since this feeling is growing stronger and stronger, especially among the young.

Finally, I believe it is necessary to provide an informed background to the debate on the nature of the Union. It's misrepresenting the truth to say that, on one side, there are those who are defending national sovereignty and, on the other, those who are selling it off. Neither you nor we are envisaging the creation of a super European State which would supplant our national States and mark the end of their existence as players in international life. Our nations are the source of our identities and our roots. The diversity of their political, cultural and linguistic traditions is one of our Union's strengths. For the peoples who come after us, the nations will remain the first reference points.

Envisaging their extinction would be as absurd as denying that they have already chosen to exercise jointly part of their sovereignty and that they will continue to do so, since that is in their interest. Yes, the European Central Bank, the Luxembourg Court of Justice and qualified majority voting are elements of a common sovereignty. It is by accepting these areas of common sovereignty that we shall acquire new power and greater influence. So, please, let's stop anathemizing and over-simplifying and at last agree that the Union's institutions are, and will remain original and specific!

But let's recognize too that they can be improved and that the forthcoming major enlargement has to be the opportunity for us to think more deeply about our institutions, go beyond the issues dealt with by the Intergovernmental Conference. With this in mind, I would like us to be able to agree on some principles.

First of all, the need to make the European Union more democratic. The task of building Europe has, to too large an extent, been solely that of leaders and elite. It is time our peoples once more became the sovereigns of Europe. Democracy in Europe must be more dynamic, particularly through the European parliament and the national parliaments.

Then, to clarify, but without setting it in stone, the division of responsibilities between the different levels of the European system. Say who does what in Europe, bearing in mind the need for the answers to be provided at the best level, the one closest to the problems. In short, at last apply the principle of subsidiarity.

We must also ensure that, in the enlarged Europe, the capacity for forward momentum remains. There must constantly be the possibility of opening up new avenues. For this, and as we have done in the past, the countries which want to integrate further, on a voluntary basis and on specific projects, must be able to do so without being held up by those who, and it is their right, don't wish to go so fast.

Finally, there's the Europe as a world power that we so want to see--this Europe, one which is a strong player on the international stage, has to have strong institutions and an effective and legitimate decision-making mechanism, i.e. one in which majority voting is the rule and which reflects the relative weights of the member States. These are the main guidelines which, I believe, must govern the process of remodelling the EU's institutions. The face of the future Europe has still to be shaped. It will depend on the debate and the negotiations. And, of course, above all, on the will of our peoples. But we can already, at this stage, map out the route.

The first, inescapable, step is the success, under French presidency, of the Intergovernmental Conference. Let's not underestimate the importance of this conference. The four essential points on its agenda, including the development of the enhanced cooperation procedure, will enable us to tailor the EU's decision-making mechanisms to its future

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Composition. The success of the IGC is an essential prerequisite for any progress. And neither you nor we could be dissatisfied by an agreement on the bare minimum, what I would call a cut-price agreement, which would lead the Union to paralysis for the next few years!

After the Intergovernmental Conference, the end of the year will see the opening of what I would describe as the "great transition" period at the end of which the EU's institutions and borders will have to have been stabilized. During this period, we will have to work on three major projects at one and the same time.

Firstly, of course, the enlargement. It will take a good few years to conclude the accession negotiations and ensure the successful integration of the new member States. Then there's the deepening of the policies, on the initiative of those countries I was talking about just now and which wish to go further or faster. Together with Germany and France, they could form a "pioneer group". This group would blaze the trail, by making use of the new enhanced cooperation procedure defined by the IGC and forging, if necessary, cooperation in spheres not covered by the Treaty, but without ever undermining the Union's coherence and acquis.

This is, of course, how the composition of the "pioneer group" will emerge. Not on an arbitrary basis, but through the will of the countries which decide to participate in all the spheres of enhanced cooperation. Thus, starting next year, I would like the "pioneer group" to be able to set to work inter alia on improving the coordination of economic policies, strengthening the defence and security policy and increasing the effectiveness of the fight against organized crime. Should these States conclude a new Treaty together and give themselves sophisticated institutions? I don't believe so. This, we should realize, would add an additional level to a Europe which already has plenty! And let's avoid setting Europe's divisions in stone when our sole objective is to maintain a capacity for forward momentum. Instead, we should envisage a flexible cooperation mechanism, a secretariat tasked with ensuring the consistency of the positions and policies of the members of this pioneer group, which should, of course, remain open to all those wishing to join it.

Thus, in this transition period, Europe will continue to move forward while the preparations are being made for the reshaping of the institutions. Indeed, and this is the third project, I propose that, immediately after the Nice Summit, we launch a process which, going beyond the IGC, will enable us to address the other institutional issues facing Europe. Firstly, to reorganize the treaties to make their presentation more coherent and easier for people to understand. Then, clearly define the division of responsibilities—you emphasized this and were right to do so—between Europe's various levels. We could also, in the framework of this process, ponder the issue of the Union's ultimate geographical limits, clarify the nature of the Charter of Fundamental Rights which, I hope, we shall have adopted in Nice and, finally, prepare the necessary institutional adjustments, as regards both the executive and the Parliament, to strengthen the effectiveness and democratic control of our Union.

This preparatory discussion will have to be conducted openly, with the participation of governments and citizens, through their representatives in the European Parliament and national Parliaments. The candidate countries will of course have to take part in it. There are several possible ways of organizing, ranging from a Committee of Wise Men to an approach modelled on the Convention which is drafting our Charter of Fundamental Rights.

And at the end of these discussions, which will very probably take some time, the governments, then the peoples would be called on to give their verdict on a text which we will then be able to establish as the first "European Constitution". But if the European enterprise is to prosper, it is the Franco-German friendship that we must first seek constantly to deepen. Our innumerable and so familiar areas of cooperation, the close political dialogue between our institutions at all levels, the fertile interchange between our cultures, the exchanges among young people thanks to our thousands of twinning arrangements and language courses—all have forged a unique, irreversible and irreplaceable bond.

It is now more than half a century that we have been working together hand in glove. Between us, reconciliation is a fact. It is self-evident. A reality of daily life which is so much a part of our landscape that we no longer perceive its true dimension. And the new generation now in control receives it as their birthright after learning of it in books, without getting the same emotional charge as formerly. So, let us rediscover our initial inspiration, the fervour of the founding fathers! The burning necessity for our dialogue! Let us provide places where we can come to know one other and venture forth together! And it's something I have been noticing since yesterday, in the streets of Berlin, the many Germans who smilingly give us spontaneous tokens of friendship, a gesture from the heart, something you don't often encounter on official journeys and which I found very touching.

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What a lot we have in common, what good reason we have to pay each other more attention! While we each have our own traditions, our history, our own qualities, which doubtless explain the forms of organization we have chosen for ourselves. While Germany feels comfortable with its federal system, which makes possible the active and lively participation of citizens at all levels of political life. And while, by modernizing it, France has succeeded in maintaining a unitary tradition which helps to preserve the cohesion of its national community, the challenges we have to take up today are the same. They are the challenges of economic growth and competitiveness, changes in our educational system, the defence of jobs, adaptation of our social systems to demographic change, modernization and establishment of effective policies for health systems, security, the environment, immigration. One would need only to skim through the agendas of your parliaments and ours, or follow the impassioned debates going on in our two countries, to gauge the close kinship of our problems and of our peoples' expectations.

What we still lack, it seems to me, is a place where everyone can easily come together—political and economic leaders, trade union and other associations, representatives of the media and prominent people from the world of culture. Where all the components that make up Germany and France on the move, with their debates, their concerns, their aspirations, could all meet. And I propose that there should be a German-French Conference every year to bring them together. It would be the great rendezvous of our two nations where Germany and France could together embrace the future.

In the past few months, the economic world has made spectacular progress. Our major companies have forged powerful new alliances in the key fields of aerospace, chemicals, energy, insurance and services. Yesterday evening, Chancellor Schröder and I met their leaders.

I believe our priority must be to give even more encouragement to this strong dynamic of integration between our economic potentials, making the Franco-German tandem the engine of a powerful centre of European industry. And I call on our business circles, of course with the support of our two governments, to create a Foundation where German French leaders and managers could meet and come to a better understanding—this is perhaps what we are most lacking of the business culture prevailing in each other's country.

This spirit of partnership is something we must also develop in the intellectual disciplines and the arts. I salute the quality and the importance of the dialogue between our thinkers and our artists. But I am convinced that we can lend that dialogue still greater intensity, showing solidarity at a time when we must together fight the great battle for cultural diversity in the world. Thanks to your initiative, Chancellor, we now have our Franco-German Cinema Academy, whose first session was held yesterday, in our presence. In the same spirit, we have begun to reflect together on the future of books and the development of the media.

Let us rekindle in our artists and writers the taste for composing and creating in each other's country, and give them the means of doing so, thus resuming the prestigious European tradition of travel and immersion in other cultures. And I propose the creation in Berlin of a place such as already exists in Rome or Madrid, a forum where our creative people, who seek inspiration in this city that is in the full flood of renewal, will find a welcome and conditions propitious to their reflection.

We must cultivate this spirit of dialogue between our peoples by promoting the practical study of our respective languages. As I salute the representatives of the Bundesrat who are present here, I would like to address my particular congratulations to the authorities of the Länder who have committed themselves to this course with determination and have taken exemplary decisions. For our part, we shall see to it that the German language keeps its status of excellence and its rank among the very foremost living foreign languages taught in our schools.

Finally, I propose that in this symbolic year we together make a powerful gesture towards our young people, by inviting 2,000 of our middle and senior school pupils to complete their first year of practical language learning with a study visit to the country whose language they have chosen, to discover the country, the people and their traditions. What France and Germany have experienced and undergone in history is unlike anything else. Better than any other nation, they grasp the deep meaning of peace and of the European enterprise.

They alone, by forcing the pace of things, could give the signal for a great coming together in Europe. Together, as their voyage of mutual rediscovery has grown more intense, as the commitment of their peoples has deepened, they have moved the idea of Europe forward.

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They alone can make the gestures that will carry Europe further, in its ambitions, in its frontiers and in the hearts of its people. Which will make the Union that great area of peace, rights and freedoms, that homeland of the spirit worthy of its heritage, that land our citizens will love to inhabit, to cultivate, to make flourish through their common endeavour.
Long live Germany! Long live France! And long live the European Union!

Source: Unofficial Translation from the French Embassy to the United Kingdom, London.

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EUROPEAN
COMMISSION

DIRECTORATE-GENERAL FOR
ECONOMIC AND FINANCIAL AFFAIRS

SPRING 2003
ECONOMIC FORECASTS

(The definitive version will be published
as European Economy n° 2/2003)

Overview

The euro area and EU economy ended 2002 on a very weak note due to global uncertainties and persistent structural rigidities that reduce the EU capacity to react to shocks. Continued sluggishness is expected to prevail in the first half of this year. Assuming that geo-political tensions abate before the summer, the return of confidence and lower oil prices would trigger a moderate recovery in the second half of 2003. It is unlikely to be a vigorous rebound as the rise in unemployment weighs on consumption, the protracted fall in stock markets affects corporate balance sheets and oil prices continue to put pressure on inflation. Consequently, for a third consecutive year growth is likely to disappoint: the average growth rate is expected to be a meagre 1 % in 2003 in the euro area (1.3 % in the EU). A more solid average growth rate of 2.3-2.4 % is projected in the euro area and EU next year, when employment creation resumes, investment picks up and the international environment is more supportive. However, given the high level of uncertainty, a further delay in the acceleration of growth cannot be excluded.

Geo-political tensions,
volatile oil prices and
the protracted fall in
stock markets cloud the
short-term outlook

At the present juncture uncertainty is particularly high and the outlook depends more than ever on the views one takes on exogenous factors. Underlying the Commission projections is the assumption that the geo-political tensions related to the war in Iraq will have ended by mid-year leading to an improvement in confidence and a normalisation of international relations.

The oil price assumptions suggest a gradual decline from USD 31 (rent
crude) in the first quarter of this year towards USD 25.5 per barrel in the last
quarter of this year resulting in an average oil price of USD 27.5 in 2003. A
further easing to USD 23.5 is assumed for next year.

With equity prices falling about 60 % from the peak levels in Spring 2000, the speed and size of the stock market correction are comparable to the 1929 crash. While the reduction in household wealth and the pressure on balance sheets of financial institutions and firms will put a lid on economic expansion, continued low growth is projected in the baseline scenario.

Moderate and
unbalanced global
recovery

The international tensions are reflected in another year of weak world trade growth at 2.6 % in 2002 after a contraction of 0.5 % in 2001, a trough not seen since 1982-83. Although accelerating to 5.4 %, also this year foreign trade is unlikely to be a motor of the global recovery. World GDP growth has been revised down to 3.2 % in 2003, hardly an acceleration from last year, but in 2004 world GDP should increase by a more robust 3.7 %. The recovery is unbalanced as reflected in the widening current account and

1

Economic Forecasts, Spring 2003

government deficits.

In the US, helped by monetary and fiscal policy stimulus and solid
underlying productivity growth, the modest recovery is expected to continue
with growth at about 2.5% in 2003 and 2004. GDP growth remains below
potential as household balance sheet adjustments, together with remaining
under-utilisation of capacity and the drag from the external balance contain
the strength of the recovery. The budget deficit widens to 4.8% of GDP in
2003 and the current account deficit to 6.1% in 2004.

The economic outlook for Japan remains bleak and the government deficit could widen to 7 % of GDP, but in the rest of Asia growth continues to be buoyant, despite weak export markets outside the region. After a stagnation in 2002, Latin America is expected to recover moderately, benefiting from the currency depreciation, a pick-up in the world economy and the gradual resolution of the financial crises which hit several countries in the region. Growth is expected to remain robust in Canada and Australia. Also in the countries preparing for accession on 1 May 2004, continued strong growth is forecast supported by domestic demand and structural change, notwithstanding the weakness in the EU.

The euro area and EU
recovery lost
momentum in the
second half of 2002

The euro area economy grew by a meagre 0.9% in 2002 (1.1% for the EU) and momentum faded in the second half of that year. Euro area GDP expanded by 0.2% in the last quarter of 2002 compared to 0.4% in the previous quarter.

While the driving forces of the recovery shifted promisingly to domestic demand, private consumption failed to strengthen and remained at 0.7% in 2002 in the euro area (1.4% in the EU). Higher than expected inflation eroded purchasing power, poor job creation dampened real disposable income growth and the continued decline in equity prices reduced household wealth. This is, however, not enough to explain sluggish consumer spending. An important factor is uncertainty which reduces confidence and pushes up the savings rate. There are the geo-political tensions linked to Iraq and the uncertainties related to future labour and pension income. Recently, in particular the latter has become a source of concern because of the diminished equity value of pension funds and the deterioration of public finances in some Member States.

Investment barely turned the corner, after one year and a half of continuous
decline. There was just a stabilisation in the last quarter of 2002 partially
linked to a better control of unit labour costs and for the year as a whole
investment contracted by 2.3% in the euro area (-2.4% in the EU).

Prospects remain bleak
in the very short run,
but a recession is likely
to be avoided

Consumer confidence continued to decline in the beginning of this year and is now at levels observed in September 1992, when the EU entered a recession. However, consumers may overreact to the military conflict in the Middle East. In addition, business confidence is still above recession levels, while industrial production and retail trade, though remaining weak, recovered somewhat from the dramatic fall at the end of last year. Taken together, these indicators suggest continued slow growth in the first half of this year, but a recession in the EU as a whole is unlikely. Only in Germany is GDP forecast to shrink in the second quarter.

Resilient headline
inflation

Despite the economic slowdown, inflation is in general slow to decline in 2003 and is expected to remain at 2.1% on average in the euro area compared to 2.2% last year, only falling below 2% next year. High oil prices and rises in indirect taxes have kept inflation from decreasing more, and it takes time for the strengthened euro and the improved outlook for unit labour costs to exert their downward pressure on prices. In some countries, inflation continues to remain very low due to the sharpness of the slowdown, leading to wide inflation differentials in the euro area.

Further deterioration of
the general government
deficit, but considerable
differences at the
Member State level

The general government deficit at the euro area level widened significantly to 2.2 % of GDP in 2002 (1.9 % in the EU). Compared to the Commission Autumn Forecast, the French deficit has been revised up to 3.1 % of GDP, while the Portuguese deficit has been revised down below the 3 % threshold; the German deficit was revised down to 3.6 % of GDP. Better outcomes than expected were noted in Ireland (equilibrium), Austria (smaller deficit) and Finland (larger surplus). The United Kingdom and the Netherlands had worse results.

At the euro area level the deterioration of the general government balance remains contained to 2.5 % of GDP in 2003 (2.3 % in the EU) despite ongoing economic weakness, because some countries plan to limit the effect of the automatic stabilisers on the actual deficit. This is the case of Germany, Ireland and the Netherlands, which all three reduce their cyclically adjusted deficit by at least 0.5 % of GDP; in Italy the effort is smaller. Germany remains, however, in excessive deficit. Conversely, the cyclically adjusted deficit in the UK moves sharply further away from equilibrium. In France and Portugal, the cyclically adjusted deficits remain high and the actual deficits are above the 3 % ceiling, although in the case of Portugal, the authorities are considering measures to avoid such an outcome. Also in Greece, the cyclically adjusted deficit is wide.

The budgetary forecasts for 2004 are made as usual on the basis of unchanged policies and three countries (France, Italy, Portugal) would have a deficit above 3%, while three other (Germany, Netherlands, United Kingdom) are in the danger zone.

A worse outcome is
possible

There is considerable uncertainty around the Commission projection and a
worse outcome cannot be excluded as the war against Iraq may last longer
than earlier anticipated. Furthermore, conditions are fragile, both globally
and in the EU, making economies more sensitive to shocks. In this respect,
three issues are of particular concern: (i) weak confidence; (ii) growing
budgetary and current account imbalances; (iii) the protracted fall in stock
markets impacting negatively on household and corporate balance sheets.

A worst case scenario would include a protracted military conflict, high oil prices, a fall in international travel, a decline in foreign direct investment and world trade and a deterioration of confidence affecting consumption and investment. In such a case, the euro area and EU may face stagnation this year and the return to potential growth would be delayed to later in 2004.

4

"From Confederacy to Federation - Thoughts on the finality of European integration"
Speech by Joschka Fischer at the Humboldt University in Berlin, 12 May 2000

(Translation of advance text)

Fifty years ago almost to the day, Robert Schuman presented his vision of a "European Federation" for the preservation of peace. This heralded a completely new era in the history of Europe. European integration was the response to centuries of a precarious balance of powers on this continent which again and again resulted in terrible hegemonic wars culminating in the two World Wars between 1914 and 1945. The core of the concept of Europe after 1945 was and still is a rejection of the European balance-of-power principle and the hegemonic ambitions of individual states that had emerged following the Peace of Westphalia in 1648, a rejection which took the form of closer meshing of vital interests and the transfer of nation-state sovereign rights to supranational European institutions.

Fifty years on, Europe, the process of European integration, is probably the biggest political challenge facing the states and peoples involved, because its success or failure, indeed even just the stagnation of this process of integration, will be of crucial importance to the future of each and every one of us, but especially to the future of the young generation. And it is this process of European integration that is now being called into question by many people; it is viewed as a bureaucratic affair run by a faceless, soulless Eurocracy in Brussels - at best boring, at worst dangerous.

Not least for this reason I should like to thank you for the opportunity to mull over in public a few more fundamental and conceptual thoughts on the future shape of Europe. Allow me, if you will, to cast aside for the duration of this speech the mantle of German Foreign Minister and member of the Government - a mantle which is occasionally rather restricting when it comes to reflecting on things in public - although I know it is not really possible to do so. But what I want to talk to you about today is not the operative challenges facing European policy over the next few months, not the current intergovernmental conference, the EU's enlargement to the east or all those other important issues we have to resolve today and tomorrow, but rather the possible strategic prospects for European integration far beyond the coming decade and the intergovernmental conference.

So let's be clear: this is not a declaration of the Federal Government's position, but a contribution to a discussion long begun in the public arena about the "finality" of European

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integration, and I am making it simply as a staunch European and German parliamentarian. I am all the more pleased, therefore, that, on the initiative of the Portuguese presidency, the last informal EU Foreign Ministers' Meeting in the Azores held a long, detailed and extremely productive discussion on this very topic, the finality of European integration, a discussion that will surely have consequences.

Ten years after the end of the cold war and right at the start of the age of globalization one can literally almost feel that the problems and challenges facing Europe have wound themselves into a knot which will be very hard to undo within the existing framework: the introduction of the single currency, the EU's incipient eastern enlargement, the crisis of the last EU Commission, the poor acceptance of the European Parliament and low turn-outs for European elections, the wars in the Balkans and the development of a Common Foreign and Security Policy not only define what has been achieved but also determine the challenges still to be overcome.

Quo vadis Europa? is the question posed once again by the history of our continent. And for many reasons the answer Europeans will have to give, if they want to do well by themselves and their children, can only be this: onwards to the completion of European integration. A step backwards, even just standstill or contentment with what has been achieved, would demand a fatal price of all EU member states and of all those who want to become members; it would demand a fatal price above all of our people. This is particularly true for Germany and the Germans.

The task ahead of us will be anything but easy and will require all our strength; in the coming decade we will have to enlarge the EU to the east and south-east, and this will in the end mean a doubling in the number of members. And at the same time, if we are to be able to meet this historic challenge and integrate the new member states without substantially denting the EU's capacity for action, we must put into place the last brick in the building of European integration, namely political integration.

The need to organize these two processes in parallel is undoubtedly the biggest challenge the Union has faced since its creation. But no generation can choose the challenges it is tossed by history, and this is the case here too. Nothing less than the end of the cold war and of the forced division of Europe is facing the EU and thus us with this task, and so today we need the same visionary energy and pragmatic ability to assert ourselves as was shown by Jean Monnet and Robert Schuman after the end of the Second World War. And like then, after the end of

this last great European war, which was - as almost always - also a Franco-German war, this
latest stage of European Union, namely eastern enlargement and the completion of political
integration, will depend decisively on France and Germany.

Two historic decisions in the middle of last century fundamentally altered Europe's fate for the
better: firstly, the USA's decision to stay in Europe, and secondly France's and Germany's
commitment to the principle of integration, beginning with economic links.

The idea of European integration and its implementation not only gave rise to an entirely new
order in Europe - to be more exact, in Western Europe - but European history underwent a
fundamental about-turn. Just compare the history of Europe in the first half of the 20th century
with that in the second half and you will immediately understand what I mean. Germany's
perspective in particular teaches a host of lessons, because it makes clear what our country
really owes to the concept and implementation of European integration.

This new principle of the European system of states, which could almost be called revolution-
ary, emanated from France and her two great statesmen Robert Schuman and Jean Monnet.
Every stage of its gradual realization, from the establishment of the European Coal and Steel
Community to the creation of the single market and the introduction of the single currency,
depended essentially on the alliance of Franco-German interests. This was never exclusive,
however, but always open to other European states, and so it should remain until finality has
been achieved.

European integration has proved phenomenally successful. The whole thing had just one
decisive shortcoming, forced upon it by history: it was not the whole of Europe, but merely its
free part in the West. For fifty years the division of Europe cut right through Germany and
Berlin, and on the eastern side of the Wall and barbed wire an indispensable part of Europe,
without which European integration could never be completed, waited for its chance to take
part in the European unification process. That chance came with the end of the division of
Europe and Germany in 1989/90.

Robert Schuman saw this quite clearly back in 1963: "We must build the united Europe not
only in the interest of the free nations, but also in order to be able to admit the peoples of
Eastern Europe into this community if, freed from the constraints under which they live, they
want to join and seek our moral support. We owe them the example of a unified, fraternal

Europe. Every step we take along this road will mean a new opportunity for them. They need
our help with the transformation they have to achieve. It is our duty to be prepared."

Following the collapse of the Soviet empire the EU had to open up to the east, otherwise the
very idea of European integration would have undermined itself and eventually
self-destructed. Why? A glance at the former Yugoslavia shows us the consequences, even if
they would not always and everywhere have been so extreme. An EU restricted to Western
Europe would forever have had to deal with a divided system in Europe: in Western Europe
integration, in Eastern Europe the old system of balance with its continued national
orientation, constraints of coalition, traditional interest-led politics and the permanent danger
of nationalist ideologies and confrontations. A divided system of states in Europe without an
overarching order would in the long term make Europe a continent of uncertainty, and in the
medium term these traditional lines of conflict would shift from Eastern Europe into the EU
again. If that happened Germany in particular would be the big loser. The geopolitical reality
after 1989 left no serious alternative to the eastward enlargement of the European institutions,
and this has never been truer than now in the age of globalization.

In response to this truly historic turnaround the EU consistently embarked upon a far-reaching
process of reform:

- In Maastricht one of the three essential sovereign rights of the modern nation-state
currency, internal security and external security - was for the first time transferred to the sole
responsibility of a European institution. The introduction of the euro was not only the
crowning-point of economic integration, it was also a profoundly political act, because a
currency is not just another economic factor but also symbolizes the power of the sovereign
who guarantees it. A tension has emerged between the communitarization of economy and
currency on the one hand and the lack of political and democratic structures on the other, a
tension which might lead to crises within the EU if we do not take productive steps to make
good the shortfall in political integration and democracy, thus completing the process of
integration.

- The European Council in Tampere marked the beginning of a new far-reaching
integration project, namely the development of a common area of justice and internal security,
making the Europe of the citizens a tangible reality. But there is even more to this new
integration project: common laws can be a highly integrative force.

- It was not least the war in Kosovo that prompted the European states to take further steps to strengthen their joint capacity for action on foreign policy, agreeing in Cologne and Helsinki on a new goal: the development of a Common Security and Defence Policy. With this the Union has taken the next step following the euro. For how in the long term can it be justified that countries inextricably linked by monetary union and by economic and political realities do not also face up together to external threats and together maintain their security?

- Agreement was also reached in Helsinki on a concrete plan for the enlargement of the EU. With these agreements the external borders of the future EU are already emerging. It is foreseeable that the European Union will have 27, 30 or even more members at the end of the enlargement process, almost as many as the CSCE at its inception.

Thus we in Europe are currently facing the enormously difficult task of organizing two major projects in parallel:

1. Enlargement as quickly as possible. This poses difficult problems of adaptation both for the acceding states and for the EU itself. It also triggers fear and anxiety in our citizens: are their jobs at risk? Will enlargement make Europe even less transparent and comprehensible for its citizens? As seriously as we must tackle these questions, we must never lose sight of the historic dimension of eastern enlargement. For this is a unique opportunity to unite our continent, wracked by war for centuries, in peace, security, democracy and prosperity.

Enlargement is a supreme national interest, especially for Germany. It will be possible to lastingly overcome the risks and temptations objectively inherent in Germany's dimensions and central situation through the enlargement and simultaneous deepening of the EU. Moreover, enlargement - consider the EU's enlargement to the south - is a pan-European programme for growth. Enlargement will bring tremendous benefits for German companies and for employment. Germany must therefore continue its advocacy of rapid eastern enlargement. At the same time, enlargement must be effected carefully and in accordance with the Helsinki decision.

2. Europe's capacity to act. The institutions of the EU were created for six member states. They just about still function with fifteen. While the first step towards reform, to be taken at the upcoming intergovernmental conference and introducing increased majority voting, is important, it will not in the long term be sufficient for integration as a whole. The danger will then be that enlargement to include 27 or 30 members will hopelessly overload the EU's

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ability to absorb, with its old institutions and mechanisms, even with increased use of majority decisions, and that it could lead to severe crises. But this danger, it goes without saying, is no reason not to push on with enlargement as quickly as possible; rather it shows the need for decisive, appropriate institutional reform so that the Union's capacity to act is maintained even after enlargement. The consequence of the irrefutable enlargement of the EU is therefore erosion or integration.

Fulfilling these two tasks is at the heart of the current intergovernmental conference. The EU has pledged to be able to admit new members by 1 January 2003. Following the conclusion of Agenda 2000, the aim now is to put in place the institutional preconditions for the next round of enlargement. Resolving the three key questions - the composition of the Commission, the weighting of votes in the Council and particularly the extension of majority decisions - is indispensable for the smooth continuation of the process of enlargement. As the next practical step these three questions now have absolute priority.

Crucial as the intergovernmental conference is as the next step for the future of the EU, we must, given Europe's situation, already begin to think beyond the enlargement process and consider how a future "large" EU can function as it ought to function and what shape it must therefore take. And that's what I want to do now.

***

Permit me therefore to remove my Foreign Minister's hat altogether in order to suggest a few ideas both on the nature of this so-called finality of Europe and on how we can approach and eventually achieve this goal. And all the Eurosceptics on this and the other side of the Channel would be well advised not to immediately produce the big headlines again, because firstly this is a personal vision of a solution to the European problems. And, secondly, we are talking here about the long term, far beyond the current intergovernmental conference. So no one need be afraid of these ideas.

Enlargement will render imperative a fundamental reform of the European institutions. Just what would a European Council with thirty heads of state and government be like? Thirty presidencies? How long will Council meetings actually last? Days, maybe even weeks? How, with the system of institutions that exists today, are thirty states supposed to balance interests, take decisions and then actually act? How can one prevent the EU from becoming utterly

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intransparent, compromises from becoming stranger and more incomprehensible, and the citizens' acceptance of the EU from eventually hitting rock bottom?

Question upon question, but there is a very simple answer: the transition from a union of states to full parliamentarization as a European Federation, something Robert Schuman demanded 50 years ago. And that means nothing less than a European Parliament and a European government which really do exercise legislative and executive power within the Federation. This Federation will have to be based on a constituent treaty.

I am well aware of the procedural and substantive problems that will have to be resolved before this goal can be attained. For me, however, it is entirely clear that Europe will only be able to play its due role in global economic and political competition if we move forward courageously. The problems of the 21st century cannot be solved with the fears and formulae of the 19th and 20th centuries.

Of course, this simple solution is immediately criticized as being utterly unworkable. Europe is not a new continent, so the criticism goes, but full of different peoples, cultures, languages and histories. The nation-states are realities that cannot simply be erased, and the more globalization and Europeanization create superstructures and anonymous actors remote from the citizens, the more the people will cling on to the nation-states that give them comfort and security.

Now I share all these objections, because they are correct. That is why it would be an irreparable mistake in the construction of Europe if one were to try to complete political integration against the existing national institutions and traditions rather than by involving them. Any such endeavour would be doomed to failure by the historical and cultural environment in Europe. Only if European integration takes the nation-states along with it into such a Federation, only if their institutions are not devalued or even made to disappear, will such a project be workable despite all the huge difficulties. In other words: the existing concept of a federal European state replacing the old nation-states and their democracies as the new sovereign power shows itself to be an artificial construct which ignores the established realities in Europe. The completion of European integration can only be successfully conceived if it is done on the basis of a division of sovereignty between Europe and the nation-state. Precisely this is the idea underlying the concept of "subsidiarity", a subject that is currently being discussed by everyone and understood by virtually no one.

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So what must one understand by the term "division of sovereignty"? As I said, Europe will not emerge in a political vacuum, and so a further fact in our European reality is therefore the different national political cultures and their democratic publics, separated in addition by linguistic boundaries. A European Parliament must therefore always represent two things: a Europe of the nation-states and a Europe of the citizens. This will only be possible if this European Parliament actually brings together the different national political elites and then also the different national publics.

In my opinion, this can be done if the European parliament has two chambers. One will be for elected members who are also members of their national parliaments. Thus there will be no clash between national parliaments and the European parliament, between the nation-state and Europe. For the second chamber a decision will have to be made between the Senate model, with directly-elected senators from the member states, and a chamber of states along the lines of Germany's Bundesrat. In the United States, every state elects two senators; in our Bundesrat, in contrast, there are different numbers of votes.

Similarly, there are two options for the European executive, or government. Either one can decide in favour of developing the European Council into a European government, i.e. the European government is formed from the national governments, or - taking the existing Commission structure as a starting-point - one can opt for the direct election of a president with far-reaching executive powers. But there are also various other possibilities between these two poles.

Now objections will be raised that Europe is already much too complicated and much too intransparent for the citizen, and here we are wanting to make it even more complicated. But the intention is quite the opposite. The division of sovereignty between the Union and the nation-states requires a constituent treaty which lays down what is to be regulated at European level and what has still to be regulated at national level. The majority of regulations at EU level are in part the result of inductive communitarization as per the "Monnet method" and an expression of inter-state compromise within today's EU. There should be a clear definition of the competences of the Union and the nation-states respectively in a European constituent treaty, with core sovereignies and matters which absolutely have to be regulated at European level being the domain of the Federation, whereas everything else would remain the responsibility of the nation-states. This would be a lean European Federation, but one capable of action, fully sovereign yet based on self-confident nation-states, and it would also be a

Union which the citizens could understand, because it would have made good its shortfall on
democracy.

However, all this will not mean the abolition of the nation-state. Because even for the
finalized Federation the nation-state, with its cultural and democratic traditions, will be ir-
replaceable in ensuring the legitimation of a union of citizens and states that is wholly
accepted by the people. I say this not least with an eye to our friends in the United Kingdom,
because I know that the term "federation" irritates many Britons. But to date I have been
unable to come up with another word. We do not wish to irritate anyone.

Even when European finality is attained, we will still be British or German, French or Polish.
The nation-states will continue to exist and at European level they will retain a much larger
role than the Länder have in Germany. And in such a Federation the principle of subsidiarity
will be constitutionally enshrined.

These three reforms - the solution of the democracy problem and the need for fundamental
reordering of competences both horizontally, i.e. among the European institutions, and
vertically, i.e. between Europe, the nation-state and the regions - will only be able to succeed
if Europe is established anew with a constitution. In other words: through the realization of
the project of a European constitution centred around basic, human and civil rights, an equal
division of powers between the European institutions and a precise delineation between
European and nation-state level. The main axis for such a European constitution will be the
relationship between the Federation and the nation-state. Let me not be misunderstood: this
has nothing whatsoever to do with a return to renationalisation, quite the contrary.

The question which is becoming more and more urgent today is this: can this vision of a
Federation be achieved through the existing method of integration, or must this method itself,
the central element of the integration process to date, be cast into doubt?

In the past, European integration was based on the "Monnet method" with its commun-
itarization approach in European institutions and policy. This gradual process of integration,
with no blueprint for the final state, was conceived in the 1950s for the economic integration
of a small group of countries. Successful as it was in that scenario, this approach has proved to
be of only limited use for the political integration and democratization of Europe. Where it
was not possible for all EU members to move ahead, smaller groups of countries of varying

composition took the lead, as was the case with Economic and Monetary Union and with Schengen.

Does the answer to the twin challenge of enlargement and deepening, then, lie in such a differentiation, an enhanced cooperation in some areas? Precisely in an enlarged and thus necessarily more heterogeneous Union, further differentiation will be inevitable. To facilitate this process is thus one of the priorities of the intergovernmental conference.

However, increasing differentiation will also entail new problems: a loss of European identity, of internal coherence, as well as the danger of an internal erosion of the EU, should ever larger areas of intergovernmental cooperation loosen the nexus of integration. Even today a crisis of the Monnet method can no longer be overlooked, a crisis that cannot be solved according to the method's own logic.

That is why Jacques Delors, Helmut Schmidt and Valéry Gissard d'Estaing have recently tried to find new answers to this dilemma. Delors' idea is that a "federation of nation-states", comprising the six founding states of the European Community, should conclude a "treaty within the treaty" with a view to making far-reaching reforms in the European institutions. Schmidt and Gissard's ideas are in a similar vein, though they place the Euro-11 states at the centre, rather than just the six founding states. As early as 1994 Karl Lamers and Wolfgang Schäuble proposed the creation of a "core Europe", but it was stillborn, as it were, because it presupposed an exclusive, closed "core", even omitting the founding state Italy, rather than a magnet of integration open to all.

So if the alternative for the EU in the face of the irrefutable challenge posed by eastern enlargement is indeed either erosion or integration, and if clinging to a federation of states would mean standstill with all its negative repercussions, then, under pressure from the conditions and the crises provoked by them, the EU will at some time within the next ten years be confronted with this alternative: will a majority of member states take the leap into full integration and agree on a European constitution? Or, if that doesn't happen, will a smaller group of member states take this route as an avant-garde, i.e. will a centre of gravity emerge comprising a few member states which are staunchly committed to the European ideal and are in a position to push ahead with political integration? The question then would simply be: when will be the right time? Who will be involved? And will this centre of gravity emerge within or outside the framework provided by the treaties? One thing at least is certain: no European project will succeed in future either without the closest Franco-German cooperation.

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Given this situation, one could imagine Europe's further development far beyond the coming decade in two or three stages:

First the expansion of reinforced cooperation between those states which want to cooperate more closely than others, as is already the case with Economic and Monetary Union and Schengen. We can make progress in this way in many areas: on the further development of Euro-11 to a politico-economic union, on environmental protection, the fight against crime, the development of common immigration and asylum policies and of course on the foreign and security policy. In this context it is of paramount importance that closer cooperation should not be misunderstood as the end of integration.

One possible interim step on the road to completing political integration could then later be the formation of a centre of gravity. Such a group of states would conclude a new European framework treaty, the nucleus of a constitution of the Federation. On the basis of this treaty, the Federation would develop its own institutions, establish a government which within the EU should speak with one voice on behalf of the members of the group on as many issues as possible, a strong parliament and a directly elected president. Such a centre of gravity would have to be the avant-garde, the driving force for the completion of political integration and should from the start comprise all the elements of the future federation.

I am certainly aware of the institutional problems with regard to the current EU that such a centre of gravity would entail. That is why it would be critically important to ensure that the EU acquis is not jeopardized, that the union is not divided and the bond holding it together are not damaged, either in political or in legal terms. Mechanisms would have to be developed which permit the members of the centre of gravity to cooperate smoothly with others in the larger EU.

The question of which countries will take part in such a project, the EU founding members, the Euro-11 members or another group, is impossible to answer today. One thing must be clear when considering the option of forming a centre of gravity: this avant-garde must never be exclusive but must be open to all member states and candidate countries, should they desire to participate at a certain point in time. For those who wish to participate but do not fulfil the requirements, there must be a possibility to be drawn closer in. Transparency and the opportunity for all EU member states to participate would be essential factors governing the acceptance and feasibility of the project. This must be true in particular with regard to the

- 12 -

candidate countries. For it would be historically absurd and utterly stupid if Europe, at the
very time when it is at long last reunited, were to be divided once again.

Such a centre of gravity must also have an active interest in enlargement and it must be attrac-
tive to the other members. If one follows Hans-Dietrich Genscher's tenet that no member state
can be forced to go farther than it is able or willing to go, but that those who do not want to go
any farther cannot prevent others from doing so, then the centre of gravity will emerge within
the treaties. Otherwise it will emerge outside them.

The last step will then be completion of integration in a European Federation. Let's not
misunderstand each other: closer cooperation does not automatically lead to full integration,
either by the centre of gravity or straight away by the majority of members. Initially, enhanced
cooperation means nothing more than increased intergovernmentalization under pressure from
the facts and the shortcomings of the "Monnet Method". The steps towards a constituent treaty
- and exactly that will be the precondition for full integration - require a deliberate political act
to reestablish Europe.

This, ladies and gentlemen, is my personal vision for the future: from closer cooperation
towards a European constituent treaty and the completion of Robert Schuman's great idea of a
European Federation. This could be the way ahead!

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iber."[1] This irritation extends to the highest levels of the Bush administration. In conversations with senior administration officials I found that the phrase "our friends in Europe" was rather closely followed by "a pain in the butt."

The current stereotype of Europeans is easily summarized. Europeans are wimps. They are weak, petulant, hypocritical, disunited, duplicitous, sometimes anti-Semitic and often anti-American appeasers. In a word: "Euroweenies."[2] Their values and their spines have dissolved in a lukewarm bath of multilateral, transnational, secular, and postmodern fudge. They spend their euros on wine, holidays, and bloated welfare states instead of on defense. Then they jeer from the sidelines while the United States does the hard and dirty business of keeping the world safe for Europeans. Americans, by contrast, are strong, principled defenders of freedom, standing tall in the patriotic service of the world's last truly sovereign nation-state.

A study should be written on the sexual imagery of these stereotypes. If anti-American Europeans see "the Americans" as bullying cowboys, anti-European Americans see "the Europeans" as limp-wristed pansies. The American is a virile, heterosexual male; the European is female, impotent, or castrated. Militarily, Europeans can't get it up. (After all, they have fewer than twenty "heavy lift" transport planes, compared with the United States' more than two hundred.) Following a lecture I gave in Boston an aged American tottered to the microphone to inquire why Europe "lacks animal vigor." The word "eunuchs" is, I discovered, used in the form "EU-nuchs." The sexual imagery even creeps into a more sophisticated account of American-European differences, in an already influential *Policy Review* article by Robert Kagan of the Carnegie Endowment for Peace entitled "Power and Weakness."[3] "Americans are from Mars," writes Kagan approvingly, "and Europeans are from Venus"—echoing that famous book about relations between men and women, *Men Are from Mars, Women Are from Venus*.

Not all Europeans are equally bad. The British tend to be regarded as somewhat different and sometimes better. American conservatives often spare the British the opprobrium of being "Europeans" at all—a view with which most British conservatives, still mentally led by Margaret Thatcher, would heartily agree. And Tony Blair, like Thatcher before him, and Churchill before her, is cited in Washington as a shining exception to the European rule.

The worst abuse is reserved for the French—who, of course, give at least as good as they get. I had not realized how widespread in American popular culture is the old English pastime of French-bashing. "You know, France, we've saved their butt twice and they never do anything for us," Verlin "Bud" Atkinson, a World War II veteran, informed me at the Ameristar casino in Kansas City. Talking to high school and college students in Missouri and Kansas, I encountered a strange folk prejudice: the French, it seems, *don't wash*. "I felt very dirty a lot," said one college student, recalling her trip to France. "But you were still cleaner than French guys," added another.

Two prominent American journalists, Thomas Friedman of *The New York Times* and Joe Klein of *The New Yorker*, back from extensive book tours around the United States, separately told me that wherever they went they found anti-French sentiment— you would always get a laugh if you made a dig at the French. The *Na-tional Review Online* editor and self-proclaimed conservative "frog-basher" Jonah Goldberg, who also can be seen on television, has popularized the epithet quoted above, "cheese-eating sur- render monkeys," which first appeared in an episode of *The Simpsons*. Goldberg told me that when he started

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Writing anti-French pieces for *National Review* in 1998 he found "there was a market for it." French-bashing became, he said, "a shtick."

1.

Clearly it will not do to throw together neoconservative polemics, Kansas City high school students' prejudices against French bathroom behavior, remarks of a senior State Department official and senior administration officials, and then label the whole bag "anti-Europeanism." As a European writer, I would not want to treat American "anti-Europeanism" in the way American writers often treat European "anti-Americanism."

We have to distinguish between legitimate, informed criticism of the EU or current European attitudes and some deeper, more settled hostility to Europe and Europeans as such. Just as American writers should, but often don't, distinguish between legitimate, informed European criticism of the Bush administration and anti-Americanism, or between legitimate, informed European criticism of the Sharon government and anti-Semitism. The difficult question in each case, one on which knowledgeable people may reasonably disagree, is: Where's the dividing line?

We also need to keep a sense of humor. One reason Europeans like to laugh at President George W. Bush is that some of the things he has said—or is alleged to have said—are funny. For example: "The problem with the French is that they don't have a word for entrepreneur."[4] One reason Americans like to laugh at the French is that there is a long Anglo-Saxon tradition—going back at least to Shakespeare—of laughing at the French. But there's also a trap here. Conservative writers such as Jonah Goldberg and Mark Steyn make outrageous statements, some of them obviously humorous, some semi-serious, some quite serious. If you object to one of the serious ones, they can always reply "but of course I was only joking!" Humor works by exaggeration and playing with stereotypes. But if a European writer were to describe "the Jews" as "matzo-eating surrender monkeys" would that be understood as humorous banter? Of course the context is very different: there has been no genocide of the French in the United States. Yet the thought experiment might give our humorists pause.

Anti-Europeanism is not symmetrical with anti-Americanism. The emotional leitmotifs of anti-Americanism are resentment mingled with envy; those of anti-Europeanism are irritation mixed with contempt. Anti-Americanism is a real obsession for entire countries—notably for France, as Jean-François Revel has recently argued.[5] Anti-Europeanism is very far from being an American obsession. In fact, the predominant American popular attitude toward Europe is probably mildly benign indifference, mixed with impressive ignorance. I traveled around Kansas for two days asking people I met: "If I say 'Europe' what do you think of?" Many reacted with a long, stunned silence, sometimes punctuated by giggles. Then they said things like "Well, I guess they don't have much huntin' down there" (Vernon Masqua, a carpenter in McLouth); "Well, it's a long way from home" (Richard Souza, whose parents came from France and Portugal); or, after a very long pause for thought, "Well, it's quite a ways across the pond" (Jack Weishaar, an elderly farmer of German descent). If you said America" to a farmer or carpenter in even the remotest village of Andalusia or Ruthenia, he would, you may be sure, have a whole lot more to say on the subject.

In Boston, New York, and Washington—"the Bos-Wash corridor"—I was repeatedly told

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ai even people who know the Continent well have become increasingly indifferent toward Europe since the end of the cold war. Europe is seen neither as a potent ally nor as a serious potential rival, like China. "It's an old people's home!" said an American friend who attended both school and university in England. As the conservative pundit Tucker Carlson remarked in an exchange on CNN's *Crossfire*:

> Who cares what the Europeans think. The EU spends all of its time making sure that British bologna is sold in kilos not pounds. The whole continent is increasingly irrelevant to American interests.[6]

> When I asked a senior administration official what would happen if Europeans went on criticizing the US from a position of military weakness, the gist of his response was: "Well, *does it matter?*"

> Yet I felt this claim of indifference was also overstated. Certainly, my interlocutors took a lot of time and passion to tell me how little they cared. And the point about the outspoken American critics of Europe is that they are generally not ignorant of or indifferent to Europe. They know Europe —half of them seem to have studied at Oxford or in Paris—and are quick to mention their European friends. Just as most European critics of the United States fiercely deny that they are anti-American ("don't get me wrong, I love the country and the people"), so they will almost invariably insist that they are not anti-European.[7]

> Anti-Americanism and anti-Europeanism are at opposite ends of the political scale. European anti-Americanism is mainly to be found on the left, American anti-Europeanism on the right. The most outspoken American Euro-bashers are neoconservatives using the same sort of combative rhetoric they have habitually deployed against American liberals. In fact, as Jonah Goldberg himself acknowledged to me, "the Europeans" are also a stalking-horse for liberals. So, I asked him, was Bill Clinton a European? "Yes," said Goldberg, "or at least, Clinton thinks like a European."

> There is some evidence that the left-right divide characterizes popular attitudes as well. In early December 2002, the Ipsos-Reid polling group included in their regular survey of US opinion a few questions formulated for the purposes of this article.[8] Asked to choose one of four statements about American versus European approaches to diplomacy and war, 30 percent of Democratic voters but only 6 percent of Republican voters chose "The Europeans seem to prefer diplomatic solutions over war and that is a positive value Americans could learn from." By contrast only 13 percent of Democrats but 35 percent of Republicans (the largest single group) chose "The Europeans are too willing to seek compromise rather than to stand up for freedom even if it means war, and that is a negative thing."

> The divide was even clearer when respondents were asked to pick between two statements about "the way in which the war on Iraq should be conducted." Fifty-nine percent of Republicans as opposed to just 33 percent of Democrats chose "The US must remain in control of all operations and prevent its European allies from limiting the States' room to maneuver." By contrast, 55 percent of Democrats and just 34 percent of Republicans chose "It is imperative that the United States allies itself with European countries, even if it limits its ability to make its own decisions."

> It seems a hypothesis worth investigating that actually it's Republicans who are from Mars and Democrats who are from Venus.

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For some conservatives, the State Department is also an outpost of Venus. William Kristol, one of America's hereditary neoconservatives, writes of "an axis of appeasement—stretching from Riyadh to Brussels to Foggy Bottom."[2] Down the Bos-Wash corridor, I was several times told of two groups competing for President Bush's ear over Iraq: the "Cheney-Rumsfeld group" and the "Powell-Blair group." It is rather curious for a British citizen to discover that our prime minister has become a senior member of the State Department.

Atlanticist Europeans should not take too much comfort here, for even among lifelong liberal State Department Europeanists there is an acerbic edge of disillusionment with the Europeans. A key episode in their disillusionment was Europe's appalling failure to prevent the genocide of a quarter of a million Bosnian Muslims in Europe's own backyard.[3] Since then, there has been Europe's continued inability to "get its act together" in foreign and security policy, so that even a dispute between Spain and Morocco over a tiny, uninhabited island off the Moroccan coast has to be resolved by Colin Powell.

"They are not serious" was the lapidary verdict on "the Europeans" delivered to me by George F. Will over a stately breakfast in a Washington hotel. Though Mr. Will is very far from being a State Department liberal, many in the department would agree. Historically, the tables are turned. For what was Charles de Gaulle's verdict on the Americans? "*Ils ne sont pas sérieux.*"

So there is, in significant quarters of American life, a disillusionment and irritation with Europe, a growing contempt for and even hostility toward "the Europeans," which, at the extreme, merits the label "anti-Europeanism." Why has this come about?

Some possible explanations have emerged already; to explore them all would take a book. Here I can only indicate a few more places to look. For a start, there has always been a strong strain of anti-Europeanism in the United States. "America was created as an antidote to Europe," Michael Kelly, the former editor of *The Atlantic Monthly*, has observed. "Why," asked George Washington, in his Farewell Address, "by interweaving our destiny with that of any part of Europe, entangle our peace and prosperity in the toils of European ambition, rivalship, interest, humor or caprice?" For millions of Americans, in the nineteenth and twentieth centuries, Europe was the place you escaped from.

Yet there was also an enduring fascination with Europe, famously exemplified by Henry James; a desire in many respects to emulate, and then outdo, two European countries above all, England and France. Arthur Schlesinger Jr. quoted to me the old line "when Americans die, they go to Paris." "Every man has two countries," said Thomas Jefferson, "his own and France." When was it that American attitudes toward England and France diverged so sharply? Was it 1940, the year of France's "strange defeat" and England's "finest hour"? Thereafter De Gaulle recovered French self-esteem in opposition to the Americans while Churchill conjured a "special relationship" between his parents' two nations. (To understand the approaches of Chirac and Blair to the US today the key names are still De Gaulle and Churchill.)

For fifty years, from 1941 to 1991, the United States and a growing fellowship of Europeans were engaged in a joint war against a common enemy: first Nazism, then Soviet communism.

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This was the heyday of the geopolitical "West." There were, of course, repeated transatlantic strains throughout the cold war. Some of today's stereotypes can be found fully formed in the controversies of the early 1980s about the deployment of cruise and Pershing missiles, and American foreign policy toward Central America and Israel.¹⁰¹ They were formed in the minds of some of the same people: Richard Perle, for example, then widely known for his hard-line views as "the prince of darkness." These transatlantic arguments were often about how to deal with the Soviet Union, but they were also finally constrained by that clear and common enemy.

Now no longer. So perhaps we are witnessing what the Australian writer Owen Harries foresaw in an article nearly ten years ago in *Foreign Affairs*: the decline of "the West" as a solid geopolitical axis, owing to the disappearance of that clear and common enemy.¹⁰² Europe was the main theater of the Second World War and the cold war; it is not the center of the "war against terrorism." The gap in relative power has grown wider. The United States is not just the world's only superpower; it is a hyperpower, whose military expenditure will soon equal that of the next fifteen most powerful states combined. The EU has not translated its comparable economic strength—fast approaching the US $10 trillion economy—into comparable military power or diplomatic influence. But the differences are also about the uses of power.

Robert Kagan argues that Europe has moved into a Kantian world of "laws and rules and transnational negotiation and cooperation," while the United States remains in a Hobbesian world where military power is still the key to achieving international goals (even liberal ones). The first and obvious question must be: Is this true? I think that Kagan, in what he admits is a "caricature," is actually too kind to Europe, in the sense that he elevates to a deliberate, coherent approach what is, in fact, a story of muddled seeking and national differences. But a second, less obvious question is: Do Europeans and Americans wish this to be true? The answer seems to be yes. Quite a lot of American policymakers like the idea that they are from Mars—on the understanding that this makes them martial rather than Martian—while quite a lot of European policymakers like to think they are, indeed, programmatic Venutians. So the reception of Kagan's thesis is a part of its own story.

As a soon-to-be-enlarged European Union searches for a clearer identity, there is a strong temptation for Europe to define itself against the United States. Europe clarifies its self-image by listing the ways in which it differs from America. In the dread jargon of identity studies, America becomes the Other. Americans don't like being Othered. (Who does?) The impact of the September 11 terrorist attacks increases their own readiness to accept a martial and missionary account of America's role in the world.

Stanley Hoffmann has observed that France and the United States are both nations that see themselves as having a universalizing, civilizing mission. Now there is a European, rather than a merely French, version of the *mission civilisatrice*, a "EU-topia" of transnational, law-based integration, and it clashes most acutely with the latest, conservative version of an American mission.¹⁰³ Thus, for example, Jonah Goldberg quotes with irritation the claim by the veteran German Atlanticist Karl Kaiser that "Europeans have done something that no one has ever done before: create a zone of peace where war is ruled out, absolutely out. Europeans are convinced that this model is valid for other parts of the world."

Each side thinks its model is better. This applies not only to the rival models of international

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behavior, but also to those of democratic capitalism: the different mix of free market and welfare state, of individual freedom and social solidarity, and so on.[14] For the political scientist Charles A. Kupchan, the author of the recent book *The End of the American Era*, this presages nothing less than a coming "clash of civilizations" between Europe and America. Where Kagan thinks Europe is characterized by enduring weakness, Kupchan sees it, not China, as the United States' next great rival.[15] Many Europeans would love to believe this, but in the United States I found Kupchan almost alone in his view.

There is, I think, one other, deeper trend in the US. I've mentioned already that for most of the nineteenth and twentieth centuries American suspicion of things European was mixed with admiration and fascination. There was, to put it bluntly, an American cultural inferiority complex. This has gradually faded. Its fading has been accelerated, in ways that are not easy to pin down, by the end of the cold war and the United States' consequent rise to a unique preeminence. The new Rome no longer feels in awe of the old Greeks. "When I first went to Europe in the 1940s and 1950s, Europe was superior to us," a retired American diplomat with long European experience wrote to me recently. "The superiority was not personal—I never felt demeaned even by condescending people—but civilizational." Not any more. America, he wrote, "is no longer abashed."[16]

3.

All these trends were somewhat obscured for eight years after the end of the cold war by the presence in the White House of an honorary European, Bill Clinton. In 2001, George W. Bush, a walking gift to every European anti-American caricaturist, arrived in the White House with a unilateralist agenda, ready to jettison several international agreements. After September 11, he defined his new presidency as a war presidency. I found that the post-September 11 sense that America is at war persists more strongly in Washington than anywhere else in America, including New York.[17] It persists, above all, in the heart of the Bush administration. The "war against terrorism" strengthened an existing tendency among the Republican elite to believe in what Robert Kaplan has called "Warrior Politics," with a strong seasoning of fundamentalist Christianity—something conspicuously absent in highly secularized Europe. As Walter Russell Mead of the Council on Foreign Relations put it in his book *Special Providence*, it brought back the "Jacksonian" tendency in American foreign policy.[18] Al-Qaeda terrorists were the new Creek Indians.

The American question to Europeans then became, as the conservative columnist Charles Krauthammer put it to me: "Are you in the trenches with us or not?" At first, the answer was a resounding yes. Everyone quotes the *Le Monde* headline "Nous sommes tous des Américains." But a year and a half later, the only European leader who most Americans think is in the trenches with them is Tony Blair.[19] Many in Washington feel that the French have reverted to their old anti-American attitudes, and that the German chancellor, Gerhard Schröder, won his reelection last September by cynically exploiting anti-Americanism.

When and where did European and American sentiment start diverging again? In early 2002, with the escalation of the Israeli-Palestinian conflict in the Middle East. The Middle East is both a source and a catalyst of what threatens to become a downward spiral of burgeoning European anti-Americanism and nascent American anti-Europeanism, each reinforcing the other. Anti-Semitism in Europe, and its alleged connection to European criticism of the Sharon government, has been the subject of the most acid anti-European commentaries from conservative American columnists and politicians. Some of these critics are themselves not

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Most strongly pro-Israel but also "natural Likudites," one liberal Jewish commentator explained to me. In a recent article Stanley Hoffmann writes that they seem to believe in an "identity of interests between the Jewish state and the United States."[29] Pro-Palestinian Europeans, infuriated by the way criticism of Sharon is labeled anti-Semitism, talk about the power of a "Jewish lobby" in the US, which then confirms American Likudites' worst suspicions of European anti-Semitism, and so it goes on, and on.

Beside this hopeless tangle of mutually reinforcing prejudice—difficult for a non-Jewish European to write about without contributing to the malaise one is trying to analyze—there are, of course, real European–American differences in approaches to the Middle East. For example, European policymakers tend to think that a negotiated settlement of the Israeli–Palestinian conflict would be a bigger contribution to the long-term success of the "war against terrorism" than a war on Iraq. The larger point, for our purposes, is that where the cold war against communism in Middle Europe brought America and Europe together, the "war against terrorism" in the Middle East is pulling them apart. The Soviet Union united the West, the Middle East divides it.

Coolly examined, such a division is extremely stupid. Europe, just next door and with a large and growing Islamic population, has an even more direct vital interest in a peaceful, prosperous, and democratic Middle East than the United States does. Moreover, I found two senior administration officials in Washington quite receptive to the argument—which is beginning to be made by some American commentators—that the democratization of the greater Middle East should be the big new transatlantic project for a revitalized West.[21] But that's not how it looks at the moment.

At the moment it seems that a second Gulf war will only widen the gulf between Europe and America. Even if there is not a war on Iraq, the Middle East can still provide the vortex in which real or alleged European anti-Americanism fuels real or alleged American anti-Europeanism, which in turn fuels more anti-Americanism, both being aggravated by sweeping charges of European anti-Semitism. A change might come through a major conscious effort on both sides of the Atlantic, or with a new administration arriving in Washington in 2005 or 2009. Yet a lot of damage can be done in the meantime, and the current transatlantic estrangement is also an expression of the deeper historical trends I have mentioned.

You might say that to highlight "American anti-Europeanism," as I have done in this essay, will itself contribute to the downward spiral of mutual distrust. But writers are not diplomats. American anti-Europeanism exists; and its carriers may be the first swallows of a long, bad summer.

—January 15, 2003

## Notes

*The Guardian*, November 13, 2002.

[21] Jonah Goldberg believes he coined this term, and relates it etymologically to a wiener sausage—as a metaphor for the European spine. However, an earlier coinage seems to be P.J. O'Rourke's *Rolling Stone* essay "Terror of the Euroweenies."

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*Policy Review*, No. 113 (June/July 2002). A book-length version will shortly be published as *Of Paradise and Power* (Knopf).

[14] Attributed to him by the London *Times*, July 9, 2002, quoting what someone told the *Times* journalist that Shirley Williams said that Tony Blair said that President Bush said to him. Blair's spokesman, Alastair Campbell, denied that Bush said anything of the sort.

[15] Jean-François Revel, *L'Obsession Anti-Américaine* (Paris: Plon, 2002).

[16] June 12, 2001. For an Englishman this does raise an urgent question: What on earth is "British bologna"?

[17] Jonah Goldberg was the only person I met who was prepared to accept that he was "anti-European," so long, he explained, as one means by "European" a certain kind of know-it-all, bureaucratic, liberal internationalist in Paris or Brussels.

[18] IPSOS US-Express, December 3–5, 2002. I am most grateful to Michael Petrou for arranging this.

[19] *Weekly Standard*, August 26, 2002.

[20] See my "Bosnia in Our Future," *The New York Review*, December 21, 1995. In this case the British government was very much among the Europeans.

[21] *The Economist* ran a cover drawing in 1984 entitled "How to Recognise a European Through American Eyes." Distinguishing characteristics of the European were "An Angry Eye on Reagan. A Blind Eye on Russia. Limp-wristed. Weak-kneed. No Guts. Cold Feet. Snooty. Too Big for his Boots. But in Need of US Support."

[22] "The Collapse of 'The West,'" *Foreign Affairs*, Vol. 72, No. 4 (September/October 1993).

[23] See Kalypso Nicolaïdis and Robert Howse, ""This is my EUtopia...": Narrative as Power," *Journal of Common Market Studies*, Vol. 40, No. 4 (November 2002).

[24] See, for example, Will Hutton, *The World We're In* (London: Little, Brown, 2002), and my debate with him in *Prospect*, May 2002.

[25] See his "The End of the West" in *The Atlantic Monthly*, November 2002, and his *The End of the American Era: US Foreign Policy and the Geopolitics of the Twenty-first Century* (Knopf, 2002).

[26] E-mail to the author from Ambassador Thomas W. Simons, May 16, 2002, quoted with his kind permission. Michael Ledeen puts it less kindly: "Conversation is much better in America," he writes, and "Europeans have gone brain dead." This in the journal of the American Enterprise Institute, *The American Enterprise*, December 2002. The issue, entitled "Continental Drift: Europe and the US Part Company," is a veritable anthology of American right-wing views of Europe, including Mark Steyn's remarkable comment, "I find it easier to be optimistic about the futures of Iraq and Pakistan than, say, Holland or Denmark."

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See my "The Capital Makes Up Its Mind," *The New York Times*, December 12, 2002. This impression is confirmed by an August 2002 opinion poll by the Pew Research Center for the People and the Press.

[18] *Special Providence: American Foreign Policy and How It Changed the World* (Routledge, 2002).

[19] This is borne out by the IPSOS US-Express, December 3–5, 2002, poll. Asked "out of the following six countries, which one, in your opinion, exhibits the strongest reaction of solidarity with the United States in its efforts against Iraq?" 59 percent said Britain. This was followed by Israel, 11 percent; Canada, 7 percent; France, 4 percent; Germany, 3 percent; and Russia, 3 percent.

[20] Stanley Hoffmann, "The High and the Mighty," *The American Prospect*, January 13, 2003.

[21] See, for example, Ronald D. Asmus and Kenneth M. Pollack, "The New Transatlantic Project," *Policy Review*, No. 115 (October/November 2002).

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A Palestinian showing his colors during clashes at Khan Yunis in the Gaza Strip.

and his weak, corrupt Palestinian Authority.

To tar such reasoned European critics of the policies of Ariel Sharon with blanket charges of anti-Semitism is offensive — especially to those of us, Jewish or not, for whom the Holocaust remains central to our whole understanding of liberal politics. In particular, many of us understand the whole European project embodied in the European Union as being, at its deepest core, about the post-Holocaust "never again."

We, for our part, are worried by a tendency among conservative Republicans to celebrate and to exaggerate American power. In particular, they exaggerate the United States' capacity to deploy that power effectively outside existing alliances and international institutions. This hyperpower unilateralism seems to us a real departure from the post-1945 tradition of American foreign policy. It's yielding to the temptation that flows from finding yourself — absent Brezhnev — as the sole superpower after the end of the cold war.

The new American hubris combines an overestimation of the military dimension of power (to the neglect of the other two dimensions, economic and "soft" power) with an overestimation of what the United States can do on its

own or in small "coalitions of the willing." I recently asked a senior political figure in Washington how he imagined that the "war against terrorism" would end. "With the elimination of the terrorists," he replied. His answer shocked me. Does he really believe that you can win the war against terrorism by military and police means alone? You can win the war against an established state like Saddam Hussein's Iraq, but you can't win the peace this way. We've been seeing that on the streets of Baghdad since Saddam's fall. As Talleyrand once said, you can do anything with bayonets except sit on them. To emerge ultimately victorious in the broader "war against terrorism," it is the peace we have to win, first in Iraq, then in the wider Middle East.

To win the peace, we have to get the symbolism right. That unforgettable scene when an American soldier draped the Stars and Stripes over the head of the giant statue of Saddam Hussein, then hastily took it off, has fatally marred the "fall of the Berlin Wall" moment at the end of this war. The Pentagon seriously proposed that a former head of the C.I.A. should become information minister in the new occupation administration. (A satirical novelist like Evelyn Waugh would

have blanched at such a crude comic device.) It also seems to me that it would be a crass mistake not to try the Saddamite mass murderers under international law. You couldn't find a better way to make ordinary Iraqis reject this as "victors' justice." For heaven's sake, ask the U.N. to establish a special tribunal for Iraq, as it did for Yugoslavia. Then send Saddam's recently captured two half-brothers and Saddam himself in the unlikely event that we catch him alive, to sit in the Hague, up the corridor from Slobodan Milosevic.

Even the United States, now the most powerful country in the history of the world, cannot manage this process on its own. Militarily, yes, but not politically. I'm as ready as the next man to wallow in neo-Churchillian sentiment about our renewed Anglo-American comradeship in arms — for approximately five minutes. Two Anglo-Saxon powers are not enough; adding Australia just makes it three WASPs in a desert. Ah, you may say, but that's not all: Washington claimed support in the Iraq war from 45 countries. Who needs France when you have stout Micronesia at your side? As for Europe, we are told that the United States can manage just fine with a combination of Blair's

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U.S. DEPARTMENT of STATE

# Charting a New Course in the Transatlantic Relationship

Richard N. Haass, Director, Policy Planning Staff

Remarks to the Centre for European Reform
London, U.K.

June 10, 2002

Return to S/P Home Page

Thank you for inviting me to the Centre for European Reform (CER) for a discussion of the future of the transatlantic relationship. I was particularly flattered when I read on your Web site that the CER "represents a younger generation of British professionals, business people and academics." I can only assume that I was invited here as a peer of this young and dynamic group.

Ladies and gentlemen, it seems we are in another one of those recurring periods when it is fashionable to question the transatlantic relationship. The CER itself has publicized Charles' *Wall Street Journal* article titled, "Dark Clouds over the Atlantic" and is hosting an electronic debate on NATO's future. I'm glad to see that both Charles Grant and Ron Asmus at least agree that NATO has a future.

Elsewhere, on both sides of the Atlantic, the relationship is being analyzed, psychoanalyzed, diagnosed and, I dare say, misdiagnosed. Some have even pronounced it dying, if not already dead.

So let me jump right into the fray and offer my diagnosis. It is simple and clear: The transatlantic relationship remains critical for both the United States and Europe.

Let me also offer a prescription. Like any enduring relationship, this one needs an occasional spark to stay healthy. Or, as Giuseppe de Lampedusa put it so succinctly in his classic novel, *The Leopard*, "If we want things to stay as they are, things will have to change."

What does Lampedusa's insight hold for the transatlantic tie? It is this: Because of the relative peace and stability Europe enjoys today, there is less that the United States and Europe have to do together in Europe and more that they should do together beyond Europe. The challenge is to articulate and agree on a broader agenda for the transatlantic partnership in what my boss, Secretary of State Colin Powell, has termed the post-post-Cold War world.

## To The Post-Post-Cold War World

As the "post-post-Cold War" label suggests, an understanding of today's challenges and opportunities requires an appreciation of the historical context. For those who came of age during the Cold War, its key features are etched in our memories. From the late 1940s until the demise of the Soviet Union, the Cold War defined the main contours of the international landscape. It was, at its core, an ideologically charged confrontation between the United States and its allies on one side, and the Soviet Union and its satellites on the other. Publics on both sides of the Atlantic understood that the stakes involved were nothing less than the preservation of their way of life – in addition to life itself.

Europe was the prime geographical and ideological battleground. The security and stability of Western Europe, guaranteed by America, were at the core of both American policy and the transatlantic relationship. "Europe," meaning the democracies west of the Iron Curtain, was our most important ally, and vice versa. The North Atlantic Treaty Organization (NATO) was established to cement the linkage.

The dissolution of the Soviet Union introduced the post-Cold War interlude. It is now apparent that this was a decade of transition defined by U.S. and European efforts to reorder and restabilize the European continent. However, in the absence of a single existential threat, the meaning and purpose of the transatlantic relationship and its core institutions – in particular NATO – were uncertain and subject to debate.

http://www.state.gov/s/p/rem/10968pf.htm

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The focus remained on Europe, but the emphasis shifted from collective defense to both collective security and political and economic integration. The democracies of Western Europe strengthened the European Union, while NATO reached out to pull in several newly free central and east European countries.

The notable exception to these largely positive changes in Europe was the violent political disintegration of Yugoslavia. Much of our joint transatlantic effort over the past decade has been dedicated to returning peace and security to southeast Europe.

Then, on September 11, the post-post-Cold War world began. With the attacks on the World Trade Center and the Pentagon came the realization of a new unifying threat – terrorism, weapons of mass destruction, and the linkage between them. I say "unifying," because the type of terrorism represented by the murders of September 11 is not against the United States alone, but a threat to all the countries and peoples of the world.

The transition to the post-post-Cold War world has profound implications for the transatlantic relationship. The Soviet Union is gone, and most of Europe is enjoying peace, stability, democracy, and increasing prosperity. The tumultuous transitions of the last decade are beginning to wind down. The threat is now global. The opportunities are global as well. So must be the transatlantic response.

As with any historic change, the transition to the post-post-Cold War world is not without frictions. This should come as no surprise, for transatlantic relations have never been immune from them. As those of us on both sides of the Atlantic analyze the current state of relations, then, we should be careful not to romanticize the past.

True, by any standard, the successes have been remarkable. Together, the United States and our European allies outlasted the Berlin blockade, negotiated away Soviet nuclear missiles from Eastern Europe, saw the Soviet Union and Warsaw Pact dissolve and Germany unified within NATO, rolled back Iraq's aggression against Kuwait with the help of other friends and allies, and ended war within the former Yugoslavia.

But the alliance also had to endure the Suez Crisis, DeGaulle's pullout from NATO's unified military command, Vietnam, *Ostpolitik*, the Soviet pipeline deal, the nuclear freeze movement, and the euromissile deployments, to name but a few such moments.

I speak from personal experience. I remember a time during the euromissile debate when I was living in London, working on the staff of the International Institute for Strategic Studies and doing a lot of media interviews defending the missile deployments. Those were the days when women were picketing Greenham Common and everyone was an expert on nuclear strategy, including my dentist. But it wasn't until I was in the chair, with the drill in my mouth, that my dentist decided to let me know he had seen me on television defending the deployments – and that he happened to be the head of the local chapter of CND, the Campaign for Nuclear Disarmament. Believe me, you don't know what transatlantic *frisson* is until you've experienced it up close and personal in a dentist's chair!

I don't mean to discount current frictions between the United States and Europe. Differences do exist; ties that bound previous generations cannot be taken for granted. Still, I do think it's important not to lose perspective. As Mark Twain said of Wagner's music, the relationship is better than it sounds – even if it can and should be made to sound better than it does.

## New Opportunities for Cooperation

Our goal should be to ensure that the transatlantic relationship remains relevant to today's challenges and that inevitable differences do not make it impossible to pursue broader common interests together.

The end of the existential Soviet threat has opened up unprecedented opportunities for the United States and Europe to "reprogram" much of the tremendous amount of political, economic and military capital once devoted to survival and invest it elsewhere. The United States and Europe can afford to evolve from being great partners in Europe to being global partners beyond Europe.

This new opportunity is emerging alongside new European capabilities, especially as the European Union (EU) becomes an increasingly important partner for us. As the EU grows ever more capable, we look forward to working even more closely with it. We don't have Henry Kissinger's problem, and we do call often.

There is plenty of work for a global American partnership with a stronger Europe. As I look at the post-post-Cold War world, I see three broad sets of challenges that cry out for transatlantic cooperation. Each has a European dimension, but each also extends well beyond Europe. They are:

* Fighting and winning the war against terrorism and other transnational challenges;

* Integrating key states into the international order; and

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* Dealing with regional crises.

Let me take each in turn.

## Winning the War against Terrorism

The response to the terrorist attacks of September 11 is an encouraging model for transatlantic cooperation.

As NATO, the United States and Europe invoked the Article V mutual defense clause for the first time. NATO surveillance planes patrolled the skies over the United States until just last month. NATO Allies have provided blanket overflight rights, access to ports and bases, and refueling assistance in support of Operation Enduring Freedom. "Out of area," Allies have flown air sorties and refueling missions, sent ships to strategic locations throughout the world, and put forces on the ground in Afghanistan. Sixteen of the 19 NATO allies are in the Afghan theater. Nearly all troop contributors to the International Security Assistance Force for Afghanistan are either current Allies or NATO Partners. Among them are German troops - the first major "out of continent" deployment of the Bundeswehr. This month, Turkey assumes command of the force from Britain.

The European Union and its member states have also responded vigorously outside the military sphere. EU members have agreed on a common arrest warrant, tightened money laundering laws, and intensified the sharing of law enforcement and intelligence information among themselves and with the United States. Domestically, they have rounded up terrorist cells, frozen terrorist assets, improved aviation security, and enhanced border security.

The rebuilding of Afghanistan would not be imaginable without leadership and donor support from Europe and the United States. Together with Japan and Saudi Arabia, the United States and the EU led the effort that mobilized initial pledges of $4.5 billion for the reconstruction effort there.

The transnational agenda is growing, and it is not defined by terrorism alone. The international community is threatened by disease, illegal drugs, transnational crime, human trafficking, and environmental degradation. None of these problems is confined to Europe or the United States. None of these can the United States or Europe hope to defeat alone.

Combating third world poverty and promoting sustainable development are also high on the list of global issues on which the United States and Europe can work together. Indeed, there is already transatlantic cooperation in all of these areas, but there is an opportunity and a need to do even more. All will take hard work, tough decisions, and close cooperation.

## Integrating Key States and Regions

Defense against transnational threats is not our only task. The United States and Europe also share a positive agenda aimed at integrating other countries and peoples into arrangements that will sustain a world consistent with shared interests and values, and thereby promote peace, prosperity and justice as widely as possible. By shared interests I mean core principles such as democracy, open trade, and the peaceful resolution of conflicts.

This process of integration has proceeded furthest in Europe. With the fall of the Berlin Wall, America joined Western Europe in a collective effort to create a Europe whole and free. This effort to consolidate the gains for democracy, free markets and stability throughout Europe and the independent states of the former Soviet Union will continue bilaterally and multilaterally through NATO, the EU and the OSCE.

NATO and the EU are helping to unite Europe as they extend membership to more of Europe's emerging democracies. The next round of NATO enlargement, for example, will further widen the circle of democracies and expand the zone of stability and security through the Baltics and the Balkans. Though it was founded in a different time for a different purpose, NATO now has an essential role to play in helping democracy take root and maintaining stability in regions of Europe that have long suffered from political and social upheavals. The Organization for Security and Cooperation in Europe (OSCE) is also making important contributions to conflict prevention, crisis management, post-conflict rehabilitation, human rights, and democratization.

We welcome an increasingly strong and effective EU, the introduction this year of the euro, and development of a successful European Security and Defense Policy (ESDP) that is closely coordinated with NATO and includes a crisis management and civilian policing capability available for international deployment. As President Bush recently said, "in all these steps, Americans do not see the rise of rival, we see the end of old hostilities. We see the success of our Allies, and we applaud [their] progress." We understand that a more capable and independent Europe will sometimes disagree and go its own way, but this is a small price to pay compared to the benefit of having a strong partner to help us meet regional and global challenges.

The U.S.-European relationship also remains vital to the political and economic integration of Russia into the West. America and Europe share a common interest in working with Russia to encourage continued progress on human rights, religious and press freedom, rule of law, and political and economic reform.

All benefit when a democratic and economically viable Russia is able to build real partnerships with Europe's core institutions,

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including NATO and the EU, and to join international institutions like the World Trade Organization.

Since September 11, NATO and Russia have given new impetus to their extensive cooperation. The recently created NATO-Russia Council will facilitate joint decisions and actions in areas of common concern. NATO is also intensifying its relationship with Ukraine and other Partners to further the integration and stability of Europe.

Similarly, the United States and Europe share an interest in ensuring that China's internal development and its emergence as a rising power unfold in a peaceful and stabilizing manner. We are encouraged by Beijing's entry into the World Trade Organization last November and by its cooperation in the war against terrorism. In dealing with China, the United States and Europe must avoid sending conflicting signals on trade, human rights, proliferation, and other concerns, but instead use interactions to reinforce the core message.

The Bush Administration is also aggressively promoting trade as a way to integrate more nations and peoples into a more stable, prosperous, and equitable international order. As the United States' chief commercial rival and partner in the international economic policymaking arena, Europe shares responsibility for the health of the international economic system.

Trade disputes are inevitable in the $2 trillion transatlantic economic relationship. But, bound by internationally agreed rules governing dispute settlement, the United States and Europe must set an example for the world and ensure that bilateral trade disputes do not spill over into other aspects of the relationship, permanently damage the enormously successful institutions created over a half-century ago, or jeopardize the prospects for concluding the Doha Development Round by 2005. America and Europe must advance to the high ground and take the tough decisions necessary to expand the circle of benefits to the developing world.

## Managing Regional Challenges

U.S-European cooperation is also essential to managing regional crises. Cooperation has been particularly close and successful in Southeast Europe where, after a shaky start, the United States and the EU have implemented sweeping judicial reforms in Bosnia in cooperation with the government, overseen peaceful elections in Kosovo, and concluded the Framework Agreement in Macedonia that likely prevented another Balkan war.

The United States played an important supporting role in the EU's success in brokering an agreement between Serbia and Montenegro to preserve the Yugoslav Federation. Now, America and Europe need to keep the spotlight on the Balkan states to press ahead with political and economic reform and to deliver all remaining indicted war criminals to the Hague Tribunal.

The Balkans were the first test. Together, the United States and Europe are passing it, but there is still work to do, and we will stay until it is done. As Secretary Powell has said: "We need to finish the job in the Balkans - and we will. We went in together with the Europeans, and we will come out together."

America and Europe can extend and are in fact extending this experience of successful cooperation in Europe to other regions. The United States and the EU worked smoothly to help resolve the recent standoff in Bethlehem's Church of the Nativity. The two of us have joined with Russia and the UN in the "Madrid Quartet" in an effort to bring about an enduring cease-fire and a parallel political process in the Middle East. On the Indian sub-continent, a succession of visits by European and American diplomats has sought to prevent the outbreak of war.

But such cooperation is just a start. The United States and Europe also have a mutual stake in managing such regional challenges as deterring war on the Korean Peninsula, preserving Colombia's democracy from terrorists, and addressing the threat posed by an Iraq with weapons of mass destruction.

## Adapting European Institutions

In the same spirit with which transatlantic cooperation built institutions for the Cold War, the United States and Europe must now adapt them to the challenges of the post-post-Cold War period. As the preeminent transatlantic institution, NATO is at the top of the list for reform. Collective security complements, but does not replace, NATO's traditional focus on collective defense. Both are important elements of NATO's future mission.

September 11 is a reminder that the end of the Cold War did not eliminate all security threats. That is why NATO must have the new capabilities needed to meet today's threats, such as terrorism, the proliferation of weapons of mass destruction, and the linkage between them.

It will not surprise you to hear me say that the biggest threat to NATO's viability as a military organization comes from within. I am talking about the growing gap in military capabilities between the United States and Europe. Our NATO allies need flexible, sustainable forces, able to move long distances in a hurry and deliver overwhelming firepower on arrival.

Today, the United States has the vast preponderance of such forces. Other allies have only limited capabilities in lift, precision

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weapons, intelligence and surveillance platforms, and protection of forces against chemical and biological agents. NATO members have themselves committed to bridging this gap, and it is critical that our allies succeed in refocusing their defense efforts - if need be by pooling their resources to do collectively what they are unable to do individually.

This November's Prague Summit will mark a crucial step in the effort to adapt and shape NATO for the new century. The Prague agenda will focus on the themes of new capabilities, new members and new relationships. Alliance leaders will approve recommendations to ensure that NATO has the new capabilities needed to meet today's threats, to extend NATO's membership to more of Europe's newer democracies, and to intensify NATO's relationship with Russia, Ukraine and others.

## Managing Disagreement

Given the rapid pace of change and the complexity of the challenges, it's not surprising that there are frictions in the transatlantic relationship. From Europe, we hear rumblings about unilateralism, even arrogance.

From our side of the pond, there are complaints about European self-absorption, along with open irritation with Europeans who complain about American predominance, but are unwilling to spend more to close the gap in military capabilities or to exercise greater global leadership. Both Europeans and Americans find fault with the other's trade policies.

Such frictions are hardly surprising, in particular at this juncture in history. Without the existential threat posed by the Soviet Union, differences over other issues are naturally more exposed.

But these frictions are not due to lack of consultation. The Bush Administration has tried to consult fully and to bridge differences. We have consulted intensively with Europe - the EU, NATO, and bilaterally - on the global war on terrorism, environmental policies, missile defense and weapons of mass destruction, peace in the Balkans, and the situation in the Middle East. Where the United States could not go along with a proposed approach, such as the Kyoto Protocol, we put forward alternative proposals to address the underlying concern. The same will be true with respect to our position on the International Criminal Court. On some social issues, like the death penalty, the United States and Europe will simply have to agree to disagree.

As the United States and Europe continue to cooperate in transforming Europe and collaborate increasingly on global issues of mutual concern, they will inevitably, as in the past, have to manage disagreements large and small. Sometimes differences are just that - differences over priorities, policies, perspectives and even values. Sometimes, these differences require that the United States act on its own. It would be wrong to label such differences as American "unilateralism." Just as Europeans can disagree among themselves without threatening the viability of the EU, we can disagree with some or all Europeans without weakening the transatlantic bond. The bottom line is that there is virtually nothing we can do alone that we cannot do better together with our allies and partners in Europe.

## Prescriptions for the Future

Just as the United States and Europe have done successfully at every prior juncture, they must be prepared to adapt their relationship, their institutions, and their consultations to new realities. It is time to evolve from being great partners in Europe to being global partners beyond Europe.

Let me leave you today with six modest suggestions for steps the United States and Europe can take together to tackle the global agenda we share:

* First, America and Europe must complete the consolidation of a Europe whole, free and at peace. This means continuing the enlargement and adaptation of institutions such as NATO and the EU that are important anchors for a united, strong and democratic Europe.

* Second, America and Europe must reorient their focus and energies beyond the borders of Europe. We want to know we have European partners in confronting the global challenges of terrorism, proliferation of weapons of mass destruction, the threat posed by an Iraq with such weapons, humanitarian tragedies in Africa, and the potential for instability in Latin America posed by narcoterrorism in Colombia. Only by addressing such regional and transatlantic challenges can the transatlantic relationship be relevant; only by being relevant can the transatlantic relationship withstand the inevitable disagreements and divergence.

* In reaching beyond Europe's borders, we do not expect every partner to make the same commitment to every coalition. Differences in capabilities, location, foreign policy outlook, and domestic concerns make this impractical. Some multilateral efforts will become embedded in more formal institutional structures, such as NATO. Others will be built around narrower and less permanent coalitions of the willing. Clearly, the idea of "flexible response" has taken on a whole new meaning. This said, it is important to keep in mind that too much division of labor can be a dangerous thing. If the United States and Europe are not making similar contributions and sacrifices, this can lead over time to even greater divergences of views and values.

* Third, to do more together as equal partners, America and Europe must bridge the growing gap in military capabilities between the European members of NATO and the United States. Let me assure you, this gap will not be bridged by the United States

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doing less. It will only close if Europeans do more, individually and collectively.

Fourth, America and Europe must work together to integrate Russia further into Western institutions and norms. The NATO-Russia Council is an important step in that direction, as is Russia's inclusion in the Madrid Quartet. Russian entry into the World Trade Organization (WTO), once Russia has taken the necessary steps, would be another milestone. Russia must be integrated, willingly, into Europe more tightly than even Peter the Great ever imagined.

Fifth, America and Europe must lead the way to completion of the Doha Development Round. Although transatlantic trade disputes will continue, the larger prize must remain in view. The successful launch of the Doha Round demonstrated what Europe and the United States can achieve when cooperating to advance common interests in opening markets, restoring global economic growth, and alleviating poverty. So far, the Round is all about promise. It is time to make that promise a reality.

Last, but certainly not least, America and Europe must strengthen consultation – between the United States and the EU, within NATO, and at the bilateral level – on the full range of regional and transnational issues. Current consultations and coordinated efforts on terrorism, Afghanistan and the Middle East are excellent models. It matters less where and in what forum such consultations take place. What is important is that the consultations are serious and, as was once said about voting in Chicago, they happen early and often.

## Conclusion - New Strength from a New Global Partnership

At the dawn of the "European project," Jean Monnet clearly saw that "problems are arising that only Europe and the United States together have the resources to deal with." He was referring to the situation in post-War Europe and, together, Europe and the United States did deal with the Cold War Soviet threat, and with poverty and instability in Europe.

With those problems largely solved or on the way to solution, discussion has inevitably turned to "what next?" and "do we still have a mission?" I firmly believe we do still have a mission, and that "what's next" for the transatlantic relationship in the post-post-Cold War world is clear – the United States and a strong, cohesive Europe must pool their resources to meet global challenges and seize global opportunities. How well we meet this test will go a long ways toward determining how history judges our joint response to this new era in international relations.

Thank you.

For texts of other statements, testimony and articles by Richard Haass and other members of the Policy Planning Staff, please go to the Policy Planning home page.

[End]

Released on June 10, 2002

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# Getting hegemony right

The National Interest; Washington; Spring 2001; G John Ikenberry;

**Issue:** 63

**Start Page:** 17-24

**ISSN:** 08849382

**Subject Terms:** National security
Globalization
Foreign policy
**Geographic Names:** United States
US

## Abstract:

Around the world there is growing unease about a global order dominated by American power, which is often characterized as unprecedented, unrestrained, and unpredictable. If it is to avoid global resentment and ward off potentially hostile coalitions, the US must continue to ensure that others have a stake in its hegemonic system.

## Full Text:

Copyright National Affairs, Inc. Spring 2001

IN MAY 1999 the Oxford Union debated the proposition, "Resolved, the United States is a rogue state." The resolution was ultimately defeated, but around the world there is growing unease about a global order dominated by American power-power unprecedented, unrestrained and unpredictable. The unease is felt even by America's closest allies. "The United States of America today predominates on the economic level, the monetary level, on the technological level, and in the cultural area in the broadest sense of the word", French Foreign Minister Hubert Vedrine observed in a speech in Paris in early 1999. "It is not comparable, in terms of power and influence, to anything known in modern history." European diplomats, following Vedrine's coining of the term, have begun calling the United States a "hyperpower." During the Cold War, the Soviet Union and the United States kept each other in check. Today the restraints are less evident, and this has made American power increasingly controversial.

This is an unexpected turn of events. Just a little over a decade ago many pundits argued that the central problem of U.S. foreign policy was the graceful management of the country's decline. Paul Kennedy's famous book, The Rise and Fall of the Great Powers, argued that the United States would go the way of all great powers-down. Japan was on the rise and Europe was awakening. World politics after the Cold War, it was widely assumed, was to be profoundly multipolar.

But the distribution of world power took a dramatic turn in America's favor. The sudden collapse of the Soviet Union, the decline in ideological rivalry, lagging economic fortunes in Japan and continental Europe, growing disparities in military and

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technological expenditure, and America's booming economy all intensified power disparities during the 1990s. Today it is not decline that the United States must manage but the fear, resentment and instabilities created by a decade of rising American power.

A global backlash to U.S. power is not inevitable, however, particularly if the United States remembers its own political history. Our leaders have the ideas, means and political institutions that can allow for stable and cooperative order even in the midst of sharp and shifting asymmetries of power. The United States faced this problem after World War II and solved it by building what might be called a "stakeholder" hegemony. America can do it again today.

## The Dangers of Success

THE UNITED STATES has a hegemony problem for a simple reason: It started the decade of the 1990s as the world's only superpower and then proceeded to have a better decade than any other power. Disparities in economic and military power between the United States and the other major states widened. Between 1990 and 1998, U.S. economic growth (27 percent) was almost twice that of the European Union (15 percent) and three times that of Japan (9 percent).1 The weakness of the euro since its launch is ultimately a result of these divergent European and U.S. economic trends. While Europe and Japan have struggled with economic restructuring, America has ridden the wave of the "New Economy" and rising productivity. The United States also reduced defense spending at a slower rate after the Cold War than the other major powers, resulting in greater relative military capabilities by the end of the 1990s. In fact, it has come close in recent years to monopolizing military-related research and development, spending roughly 80 percent of the world's total.2 These developments have resulted in an extremely lopsided distribution of world power. The U.S. economy has slowed in recent months, but the disparities in wealth creation remain.

While such brute material disparities might normally be hidden below the surface, recent developments have rendered them salient and provocative. The U.S.-led NATO air campaign over Kosovo in 1999 provided at times dramatic-and, to countries such as China and Russia, disturbing-evidence of America's military and technological advantage. The squabble between the United States and Germany over the leadership of the International Monetary Fund (IMF) also gave the impression that America had acquired a taste for dominance. Washington similarly bullied Japan during the East Asian financial crisis, opposing Tokyo's plan for an Asian Monetary Fund and insisting on American-approved remedies. Bipartisan support for a national missile defense, despite the opposition of the other major states and its potentially unsettling consequences for world security relationships, is another source of resentment and suspicion. In the meantime, the expansion and integration of world markets-unfolding under the banner of globalization-are seen by many as a Washington-directed phenomenon that spreads American values and disproportionately favors American interests. For these and many other reasons, it is widely believed around the world today that the global distribution of

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power is dangerously out of balance.

Realist thinkers argue that what is happening is not surprising. Balance of power theory makes a clear prediction: Weaker states will resist and balance against the predominant state. According to realists, security-indeed survival-is the fundamental goal of states, and, because states cannot ultimately rely on the commitments or guarantees of other states to ensure their security, they will be very sensitive to their relative power position. When powerful states emerge, secondary states will seek protection in countervailing coalitions of weaker states. The alternative is to risk domination.3 A leading scholar of balance of power theory, Kenneth Waltz, argues that with the end of the Cold War, relations between the United States and its allies will loosen and move toward a more traditional balance of power model. With the end of bipolarity, "the United States as the strongest power will often find other states edging away from it: Germany moving toward Eastern Europe and Russia, and Russia moving toward Germany and Japan.114 According to this view, unipolarity is simply not stable. Eventually, the anarchic character of international politics will reassert itself: economic rivalry, security dilemmas, alliance decay and balance of power politics among the major states.

The driving forces of this expected global reaction are the everyday frustrations and worries that are produced by sharp power disparities. Because of the size of the United States, little shifts in U.S. policy can have huge consequences for other states. The Europeans will slowly expand their investments in autonomous military capabilities and increasingly articulate an independent strategic vision. Japan will expand its diplomatic engagement of East Asia, quietly launching independent security dialogues with other states in the region. At the same time, there is little in America's environment to discipline the exercise of Washington's power. It is hard for the world to ignore or work around the United States regardless of the issuetrade, finance, security, proliferation or the environment.

But while the world worries about what America does next-or neglects to do-the United
States needs to worry very little about what the rest of the world does. In such a benign
and unchallenged environment, U.S. foreign policy tends to be driven by domestic
politics or the current policy tastes of its leaders. The sad fact is that in a world of
unipolar power Americans need to know very little about what other governments or
peoples think, but foreigners must worry increasingly about the vagaries of congressional
campaigns and the idiosyncratic prejudices of congressional committee chairmen.

For those who see this world as inherently unstable, the existing world order will change
not in large, dramatic leaps but in small steps. The great powers in Europe and Asia will
begin making minute adjustments to protect themselves from the uncertainties of
American power. Even in more balanced times, secondary states have worried about the
ability of the United States simultaneously to restrain and commit itself. As the power
imbalance has grown more extreme, America's willingness and ability to show restraint
and make commitments is increasingly thrown into question. One can only imagine the

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discussions that go on, for example, in diplomatic cables between Paris and Berlin. Paris has never wanted to be a "junior partner in the American project", as one French official recently observed. Worried states are making small adjustments, creating alternatives to alliance with the United States. These small steps may not look important today, but eventually the ground will shift and the U.S.-led postwar order will fragment and disappear.

## The Acceptable Face of American Power

THIS BLEAK vision of backlash and strategic rivalry is not destiny. Indeed, the most striking fact of international life in the decade since the end of the Cold War is that stable and cooperative relations between the democratic great powers continue largely unabated. In some ways these relations have actually deepened, such as with the creation of the World Trade Organization and the expansion of intergovernmental working groups under the auspices of the G-7. One reason for this is simple enough: There is a broad convergence of interests among the advanced industrial countries, all of which share deeply held common commitments to economic openness, democracy and multilateral management of global issues. The huge start-up costs of establishing an alternative to the U.S.-centered system also probably deter the other major states.

A critical ingredient in stabilizing international relations in a world of radical power disparities is the character of America itself. The United States is indeed a global hegemon, but because of its democratic institutions and political traditions it is-or can be a relatively benign one. Joseph Nye's arguments on "soft power" of course come to mind here, and there is much to his point. But, in fact, there are other, more significant aspects of the American way in foreign policy that protect the United States from the consequences of its own greatness.

When other major states consider whether to work with the United States or resist it, the fact that it is an open, stable democracy matters. The outside world can see American policymaking at work and can even find opportunities to enter the process and help shape how the overall order operates. Paris, London, Berlin, Moscow, Tokyo and even Beijingin each of these capitals officials can readily find reasons to conclude that an engagement policy toward the United States will be more effective than balancing against U.S. power.

America in large part stumbled into this open, institutionalized order in the 1940s, as it sought to rebuild the postwar world and to counter Soviet communism.

In the late 1940s, in a pre-echo of today's situation, the United States was the world's dominant state-constituting 45 percent of world GNP, leading in military power, technology, finance and industry, and brimming with natural resources. But America nonetheless found itself building world order around stable and binding partnerships. Its calling card was its offer of Cold War security protection. But the intensity of political

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and economic cooperation between the United States and its partners went well beyond what was necessary to counter the Soviet threat. As the historian Geir Lundestad has observed, the expanding American political order in the half century after World War II was in important respects an "empire by invitation."5 The remarkable global reach of American postwar hegemony has been at least in part driven by the efforts of European and Asian governments to harness U.S. power, render that power more predictable, and use it to overcome their own regional insecurities. The result has been a vast system of Americacentered economic and security partnerships.

Even though the United States looks like a wayward power to many around the world today, it nonetheless has an unusual ability to co-opt and reassure. Three elements matter most in making U.S. power more stable, engaged and restrained.

First, America's mature political institutions organized around the rule of law have made it a relatively predictable and cooperative hegemon. The pluralistic and regularized way in which U.S. foreign and security policy is made reduces surprises and allows other states to build longterm, mutually beneficial relations. The governmental separation of powers creates a shared decision-making system that opens up the process and reduces the ability of any one leader to make abrupt or aggressive moves toward other states. An active press and competitive party system also provide a service to outside states by generating information about U.S. policy and determining its seriousness of purpose. The messiness of a democracy can, indeed, frustrate American diplomats and confuse foreign observers. But over the long term, democratic institutions produce more consistent and credible policies that do not reflect the capricious and idiosyncratic whims of an autocrat.

Think of the United States as a giant corporation that seeks foreign investors. It is more likely to attract investors if it can demonstrate that it operates according to accepted accounting and fiduciary principles. The rule of law and the institutions of policymaking in a democracy are the political equivalent of corporate transparency and accountability. Sharp shifts in policy must ultimately be vetted within the policy process and pass muster by an array of investigatory and decision-making bodies. Because it is a constitutional, rulebased democracy, outside states are more willing to work with the United Statesor, to return to the corporate metaphor, to invest in ongoing partnerships.

This open and decentralized political process works in a second way to reduce foreign worries about American power. It creates what might be called "voice opportunities"-that is, opportunities for political access and, with it, the means for foreign governments and groups to influence the way Washington's power is exercised. In 1990 the political analyst Pat Choate wrote a bestseller entitled Agents of Influence, detailing the supposedly scandalous ways in which Japanese ministries and corporations were manipulating the American political process. High-priced lobbyists were advancing Tokyo's commercial interests within the hallowed halls of the American capital and undermining the pursuit of the U.S. national interest. Today Washington is even more

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inundated by foreign diplomats and revolvingdoor lobbyists working to ensure that the interests of America's partners are not overlooked. Looked at from the perspective of the stable functioning of America's hegemonic order, Choate was actually describing one of the brilliant aspects of the United States as a global power. By providing other states opportunities to play the game in Washington, they are drawn into active, ongoing partnerships that serve the long-term strategic interests of the United States.

A third and final element of the American order that reduces worry about power asymmetries is the web of multilateral institutions that mark the postwar world. After World War II, the United States launched history's most ambitious era of institution-building. The UN, IMF, World Bank, NATO, GATT and other institutions that emerged provided a more extensive rule-based structure for political and economic relations than anything seen before. The United States had been deeply ambivalent about making permanent security commitments to other states and about allowing its political and economic policies to be dictated by intergovernmental bodies. The Soviet menace was critical in overcoming these doubts. Networks and political relationships were built that-paradoxically-made U.S. power both more far-reaching and durable but also more predictable and malleable.

In effect, the United States spun a web of institutions that connected other states to an emerging American-dominated economic and security order. But in doing so, these institutions also bound the United States to other states and reduced-at least to some extent Washington's ability to engage in the arbitrary and indiscriminate exercise of power. Call it an institutional bargain. The price for the United States was a reduction in Washington's policy autonomy, in that institutional rules and joint decision-making reduced U.S. unilateralist capacities. But what Washington got in return was worth the price. America's partners also had their autonomy constrained, but in return were able to operate in a world where U.S. power was more restrained and reliable.

Secretary of State Dean Rusk spelled out the terms of the bargain in testimony before the Senate Foreign Relations Committee in 1965:

> We are every day, in one sense, accepting limitations upon our complete freedom of action .... We have more than 4,300 treaties and international agreements, two-thirds of which have been entered into in the past 25 years .... Each one of which at least limits our freedom of action. We exercise our sovereignty going into these agreements.

But Rusk argued that these agreements also create a more stable environment within which the United States can pursue its interests. "Law is a process by which we increase our range of freedom" and "we are constantly enlarging our freedom by being able to predict what others are going to do."6 The United States gets a more predictable environment and more willing partners.

There have been many moments when Asian and European allies have complained about

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the heavy-handedness of U.S. foreign policy, but the open and institutionalized character of the American order has minimized the possibilities of hegemonic excess over the long term. The untoward implications of sharp power asymmetries are reduced, cooperation and reciprocity are regularized, and the overall hegemonic order is rendered more legitimate and stable. The bargain-on both sides-remains intact.

## Renewing the Institutional Bargain

AMERICA's soaring power in the 1990s has put this open and rule-based postwar order to the test. Over the last fifty years, the advanced industrial states have been relatively confident that the institutional foundations of this order would guard against the worst abuses of U.S. unilateralism and domination. The system had characteristics of a stakeholder hegemony that promoted stability and cooperation. Today, in various political circles around the world, it is harder for some people to make this judgment. Even the leader of a major U.S. ally, German Chancellor Gerhard Schroder, has raised concerns. "That there is a danger of unilateralism, not by just anybody but by the United States, is undeniable."7

The implication of my argument is that the more America's brute power capabilities emerge from behind mutually acceptable rules and institutions, the more that power will provoke reaction and resistance. American leaders are indeed ambivalent about entangling the country in restraints and commitments. In the past, however, these leaders have consistently concluded that some restraint on U.S. autonomy was a useful way to allay the worries of other states and bind them to America's postwar global political-economic order. As Robert Zoellick, former undersecretary of state and now U.S. Trade Representative in the Bush administration, describes the operation of this postwar order:

> The more powerful participants in this system-especially the United States-did not forswear all their advantages, but neither did they exercise their strength without substantial restraint. Because the United States believed the Trilateral system was in its interest, it sacrificed some degree of national autonomy to promote it.8

What can America do to prevent the unraveling of this order? Three suggestions are offered here. First, U.S. officials should keep the country's current good fortunes in historical perspective. This might induce a bit more modesty. America's long-time rival from outside the advanced democratic world-Russia-now has an economy about the size of Denmark's. America's one-time rival from within the advanced democratic world-Japan-has gone through ten years of economic stagnation, with no end in sight. China is still a developing country in terms of both economic and military capabilities, far from being able to challenge the United States in either arena. Western Europe is stable and expanding, but it is consumed with its own union, embarked on a politically difficult economic restructuring, and still is not capable of projecting global power. This unusual-perhaps unique-set of circumstances gives the United States a de facto license to act as the world's manager and CEO. But U.S. officials should remember that the wheel of

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world power does turn. Russia will not be down forever, nor will Japan. Europe will eventually get its house in order. The way America treats the other major states when they are in decline will influence how these states treat America when-not if-they recover.

Second, the United States needs to renew the postwar institutional bargain by making it more explicit and more encompassing. This means that America must make it clear that it will play by multilateral rules in exchange for cooperation by other states on issues that matter most to us. The U.S. government should bury once and for all legislation such as Super 301 and the Helms-Burton Act, which give the president authority to act unilaterally to protect narrow economic interests. Such exercises of U.S. power create more problems than they solve. The United States should also expand its capacity to consult with other governments throughout the policymaking process. Washington is not just the capital of the country or even of "the West"; it is also-at least for a few more decades the capital of a larger global order. These foreign stakeholders must be brought more fully into our policy process. Increasing opportunities to voice opinions can be achieved informally in the day to day willingness of U.S. officials to consult with other governments. If not, Washington risks an ultimate shift toward some other form of global order.

President George W Bush seemed to acknowledge the dangers of an overweening foreign policy-and chest thumping about America as the "indispensable nation"-during one of the presidential debates, when he called for more modesty as America operates around the world. The Bush team has also made "listening to our allies" a central theme of its foreign policy. Whether this is more than hollow campaign rhetoric will depend on how the new administration acts on such issues as U.S. participation in peacekeeping operations, national missile defense, and a variety of proposed multilateral political and environmental accords.

Preserving the existing system through the redoubling of rule-based relationships will also require American elites to elevate the domestic debate on international commitments and institutions. The old canard that building international rules and authority threatens American sovereignty is still too tempting to many politicians on the Left and Right. The argument that many-if not mostof the existing multilateral institutions are inspired by U.S. leadership and advance the country's goals needs to be made more convincing to the American people. Politicians are more likely to stress the short-term costs to the United States in terms of lost policy autonomy or sovereignty than the gains in building an enlightened order that serve long-term U.S. interests.

Finally, the United States needs to find more ways to pursue its economic and security goals through joint or multilateral decision-making exercises. A good example of such intergovernmental processes that create stakeholder cooperation is the 1999 Perry commission on North Korea. Responding to a congressional request for a reassessment of U.S. policy toward North Korea, the Clinton administration charged former Secretary

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of Defense William Perry with the task of policy review. The deliberations eventually involved extensive talks with Japan and South Korea. In a de facto way, the commission became multilateral, and Japanese and South Korean officials were integrated into the process and ultimately helped shape its content. The Perry report helped clarify U.S. policy toward North Korea, but the process by which it was generated also helped build consensus in the region on how to deal with that state. It also made American involvement in the region more consistent with the goals of partner states. The G-8 process-which in recent years has launched ongoing intergovernmental working groups to pursue common approaches to issues such as transnational organized crime and environmental policy-is also a place where coordinated policymaking can be expanded.

America's unipolar moment need not end in antagonistic disarray. But the United States needs to rediscover the solutions that it has brought to the problem of unequal power in the past. These solutions are celebrated in our national political tradition. The rule of law, constitutional principles and inclusive institutions of political participation ensure that governance is not simply a product of wealth or power. The wealthy and the powerful must operate within principled institutional parameters. Because a rulebased order generates more stable and cooperative relations within the country, even the wealthy and powerful gain by avoiding social upheaval, which puts everyone's interests at risk. America can once again take this old domestic insight and use it to shape post-Cold War international relations. And it is time to do so now, when America's relative power may be at its peak.

## Clarity at Last?

Are we all clear that we want to build something that can aspire to be a world power? In other words, not just a trading bloc but a political entity. Do we realize that our nation-states, taken individually, would find it far more difficult to assert their existence and their identity on the world stage?

- Romano Prodi, president of the European Commission, Financial Times, February 14, 2001

[Footnote]

1Calculated from OECD statistics (July 1999 web edition). GDP measures are figured at 1990 prices and exchange rates.

2See International Institute for Strategic Studies, The Military Balance 1999/2000 (London: Oxford University Press, 1999). For additional indicators of an intensification of U.S. power, see William C. Wohlforth, "The Stability of a Unipolar World", International Security (Summer 1999).

[Footnote]

3For views along these lines, see Peter W. Rodman, "The World's Resentment: Anti-Americanism as a Global Phenomenon", The National Interest (Summer 2000); and Samuel Huntington, "The Lonely Superpower", Foreign Affairs (March/April 1999).

4Waltz, "The Emerging Structure of International Politics", International Security (Fall 1993), p. 75.

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[Footnote]

5See Lundestad, "Empire by Invitation? The United States and Western Europe, 1945-1952", The journal of Peace Research (September 1986).

[Footnote]

6Quoted in Edward C. Luck, Mixed Messages: American Politics and International Organization,

1919-1999 (Washington, DC: Brookings Institution Press, 1999), p. 61.

7Craig Whitney, New York Times, February 15, 1999.

[Footnote]

8Zoellick, "The United States", in Zoellick et al., 21" Century Strategies of the Trilateral Countries: In Concert or Conflict?, Report No. 53 (New York: Trilateral Commission, 1999), p. 5.

[Author note]

G. John Ikenberry is Peter F. Krogh Professor of Global Justice at the School of Foreign Service, Georgetown University. His most recent book is After Victory: Institutions, Strategic Restraint, and the Rebuilding of Order after Major War (Princeton University Press, 2001).

Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited
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Continental divides

*The National Interest*; Washington; Spring 2003; Josef Joffe;

**Issue:** 71
**Start Page:** 157
**ISSN:** 08849382

**Full Text:**

Copyright National Interest, Inc. Spring 2003

A GERMAN chancellor openly defying the United States? Accusing George W Bush of "adventurism" and hurling an ever louder "no" across the Atlantic-a "nein" to war against Saddam under any circumstances? During the Cold War, America's trustiest ally would not have dreamed of insurrection, not while Soviet shock troops were ensconced 25 miles outside of Hamburg, whence I write. Thereon hangs a tale that transcends yesteryear's transatlantic troubles of the "Whither NATO?" variety. It is the story of bipolarity lost-the first chapter, not the last.

The Atlantic Alliance has been dying a slow death ever since Christmas day 1991, when the Soviet Union committed suicide by dissolution. Having won the Cold War, the Alliance lost its central purpose and began to crumble like a bridge no longer in use-slowly, almost invisibly. In 1994 the departure of the last Russian troops from Central Europe signaled that the capitulation was complete. The Europeans saw their existential dependence on the United States lifted, the latter its lesser but still vital need for a European glacis.

Only one year later, as the wars of Yugoslav succession began in earnest, NATO as quasi-supranational army was already defunct, for those who fought with the United States were but a loose coalition of willing and able. The most glorious watershed was 9/11. It was not that the Europeans withheld fealty from the United States; indeed, as the Alliance invoked Article 5, numerous NATO members contributed to the American cause. The deeper message of 9/11 and the Afghan campaign was one of systemic transformation.

Above all, the United States demonstrated a surfeit of autonomous power that finally rendered explicit the transition to unipolarity. Moving unopposed, and several military-technological orbits above the rest, it needed merely assistants, not allies. And so Secretary of Defense Donald Rumsfeld would famously proclaim that the mission determines the coalition and not the other way around. This spelled the unheralded demise of NATO as we knew it-as a community that would either act together or not at all. Alliance was now formally ad hoc and la carte.

Or even less, as the run-up to the second Iraq war would demonstrate. History and theory have always predicted more than just the death of alliances as the price of victory. The larger warning is that the international system abhors imbalances, that power begets counter-power. Surreptitiously, balancing against the United States had already begun in the latter 1990s when Washington regularly found itself alone and on the other side of such issues as the ABM Treaty, the Comprehensive Test Ban Treaty and the International Criminal Court (ICC).

Au fond, all of these duels were not about principle, but power. If the United States wanted to scratch the ABM Treaty in favor of missile defense, Europe, China and Russia strenuously sought to uphold it on the sound assumption that a better defense makes for a better offense, hence for richer U.S. military options than under conditions of vulnerability. A less than-complete test ban would also enhance U.S. options by allowing the development of smaller, hence more useable, nuclear weapons. Naturally, Europe et al. insisted on adherence while the United States balked. And so with the ICC. In the end, even the Clinton team correctly understood the underlying thrust of the ICC. Claiming the right to pass judgment on military interventions by prosecuting malfeasants ex post facto, the Court might deter and thus strain America's forays abroad.

Not to put too fine a point on it, Europe and others cherished this expansion of multilateral oversight precisely for the reason that the United States opposed it. Great powers loathe international institutions they cannot dominate; lesser

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Operations like them the way the Lilliputians liked their ropes on Gulliver. The name of the game was balancing on the edge, and both sides knew it, though it was conducted in the name of international law, not of raw power.

The contest turned from jujitsu to wrestling in the summer of 2002-once the Bush Administration began to prepare the world for a second round against Saddam Hussein. The first clarion call was Gerhard Schroder's indictment of American "adventurism." It was followed by a categorical refusal to join the American effort-not even under a UN mandate. In the regional government campaigns in Hesse and Lower Saxony in January 2003, the Chancellor went one worse by threatening to vote against a war resolution in the Security Council.

To argue that Schroder tapped into the reservoir of German pacifism to save his sinking campaign is true, but it misses the deeper point. Spawned by strategic imperative, the Federal Republic was practically a child of Truman's and Eisenhower's America. No German chancellor, even of the Left, would have dared play politics with the American connection while Soviet armies were poised to lunge across the Fulda Gap. Better to lose the elections than to lose the Americans.2 That Schroder chose to save himself and not the American tie provides the most vivid proof of bipolarity lost and dependence unhinged.

Indeed, the demise of bipolarity abroad translated immediately into its collapse "at home" in Germany. For fifty years, there had always been an "American party" in the system-the Christian Democratic and Liberal (Free Democratic) right-and a victorious one, to boot. Yet this time, its leaders did not rush to the defense of the United States; unlike the Adenauers and Kohls, they merely squirmed and waffled. It may be true that all politics is local, but it helps to have a permissive international environment on your side.

The French, an Economy power that always tries to fly Business, played a subtler game. From de Gaulle onward, they sought to capitalize on their nuisance value. Patiently and skillfully, they went up against the United States in the Security Council to execute (with Russia and China) a supple balancing strategy. The purpose was to entangle Gulliver in the ropes of great power diplomacy. And entangle they did-when the United States consented to prosecute its war against Saddam by way of the UN. The fruit of France's labor was Resolution 1441: dire threats against Iraq, but no automaticity of force; "serious consequences", but UN inspections first.

When Hans Blix returned from his first forays with ambiguous reports in hand, France's stand predictably hardened. The signal, repeated by Moscow and Beijing, was "more inspections"-on the plausible expectation that the approach of spring and summer would close America's window of military opportunity and postpone an attack sine die. Compared to Schroder's foot-stomping, this was a far more subtle performance, but the underlying thrust was the same. The objective was to constrain and contain the United States that had mutated from "last remaining superpower" to "hyperpower" and "empire."

And why not, given that America's might was no longer stalemated by the Soviet Union? The French and the Germans (as well as the Russians and the Chinese) acted as if they feared the "hyperpower" more than Saddam's imperialist reflexes and his vehicles of mass destruction. And well they might in this new era of Gulliver Unbound. Assume an American victory that is swift and sustainable, intimidates rather than inflames Arabs and Iranians, relieves dependence on dangerous clients such as Saudi Arabia and Egypt, and finally loosens up the pathologies of Arab political culture that spawned Al-Qaeda. Such an outcome would install the United States as arbiter over the Middle East, over its oil and politics. This prospect can hardly enthuse the lesser players, for it would certify what is already the case de facto: the global primacy of the United States. So it should not come as a surprise that America's rivals and quondam allies would try to balance against Number 1 by enmeshing him in the ropes of institutional dependence. These are the ways of world politics.

HOW WILL this story of bipolarity lost unfold? As this issue goes to print amid the rumbles of war, we cannot know. But we do know that the past is not over yet. Suddenly, on January 30, those who would fashion a diplomatic axis against the United States found themselves confronted with an equally soft alliance against themselves-when Britain,

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Italy, Poland, the Czech Republic, Hungary, Denmark and Portugal ever so politely told Messrs. Chirac and Schröder to back off.

In diplomacy, the message said of Iraq: "Our goal is to ... ensure that this regime gives up its weapons of mass destruction. Our governments have a common responsibility to face this threat." Decoded, however, the missive read: "We are not amused that France and Germany are trying to gang up on the United States. Saddam must be disarmed, by force if need be." Repeated more harshly by the "Vilnius 10" on February 5 ("We are prepared to contribute to an international coalition to enforce ... the disarmament of Iraq"), the message was that 18 European countries (from "A" like Albania to "S" like Slovenia) were not ready to take on the "hyperpower"-and even less ready to submit to the French and Germans as would-be gang leaders.

The implication for U.S. policy is ambiguous. On the one hand, it has lost its former "Continental sword", Germany. Berlin's escape from dependence was the most vivid illustration of system transformation, for the French have opposed the United States in the past without ever completely slamming the door on bandwagoning. True to style, they dispatched their aircraft carrier Charles de Gaulle toward the Suez Canal while simultaneously entrapping Washington in the corridors of the UN.

On the other hand, the United States may have gained a large group of new playmates, ranging from Britain to the Black Sea. The Euro 8 and the Vilnius 10 are a motley bunch. Some of them resent the Franco-German tandem's claim to leadership, others would rather depend for their security on a remote superpower than on weaker and nearby neighbors-- an urge that seems to increase in direct proportion to geographical proximity to Russia. At any rate, the first victim of the impending war against Iraq has been Europe's pretension to a common foreign and security policy. The game is now wide open for balance and maneuver, and for all comers. As the broadsides of the 18 showed, the United States can play this game, too.

Yet such a strategy-balancing la Britain-has not been America's greatest forte. Nor will it take care of the underlying dynamics of the post-bipolar world. Great power generates counter-power, for, to paraphrase Freud's remark about biology, the anatomy of the international system is its destiny-if not sooner, then later. Is there an escape from this dour verdict of history and theory? Perhaps-if America learned to soften the edge of its overwhelming power with the soothing balm of trust. In his State of the Union Address of 2003, George W Bush did not hold out much hope for such an escape when he asserted that, in the end, "the course of this nation does not depend on the decisions of others."

Real empires routinely crush their rivals. But America is only an "imperial republic", as Raymond Aron mused decades ago. Democracies, as his compatriot Alexis de Tocqueville reminded us, are fickle and inward-bound. Presumably, they pay "decent respect to the opinions of mankind" because they cherish that respect for themselves. They are better off leading by heeding because they cannot sustain the brutish ways of Rome for any length of time. There is also the practical matter of who will pacify postwar Iraq if not a significant part of the international community. Who will help in the war against terror and proliferation? For such wars cannot be won tour seul, not to speak of the never-ending campaigns against protectionism, drugs and overpopulation.

Unwilling to conquer, this "empire" still needs order beyond its borders. The objective is the right "milieu", as Arnold Wolfers put it forty years ago. To achieve it, America must sometimes use force; to sustain it, however, the sword is not enough-and it is, in the end, too costly to use too often. To build the right coalitions for peace, the United States must not forsake the "co" in "coalition"--as in "consensus" and "cooperation." As Gulliver learned, it is hard enough to live even as a friendly giant among the pygmies. It is even harder to escape their slings and arrows when the giant's strength is untempered by self-restraint. For power, as this last quarter shows, shall be balanced.

[Footnote]

1In January 2003 Germany entered the Security Council as a rotating member; in February, it became chairman.

2It is instructive to recall the fate of Chancellor Helmut Schmidt (1974-82), who stuck to the deployment of Pershing II and cruise missiles in the face of his Social Democrats' opposition. No longer in control of his own party, he was abandoned by his Free Democratic coalition partners, who bolted to the Christian Democrats in 1982 and helped to elect Helmut Kohl as chancellor.

The New York Review of Books: America and the World

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Struggling to match his achievement. When the cold war ended, specialists fell upon the occasion. A pattern emerged: first came an ambitious essay-length interpretation of the moment and its meaning; then, a year or two later, a much-hyped book-length extension of that essay; finally, if the author was lucky, a phrase or two that hung for a while in the ether of specialist exchanges—"the End of History," "the Clash of Civilizations" —before evaporating under the pressure of its own pretensions. Unlike Kennan, however, his would-be heirs nurse metatheoretical aspirations, whereas Kennan was building policy recommendations out of close local observation.[1] They don't write as well as he did; and they have scant desire to hide their authorial light under the bushel of anonymity. Not surprisingly, the implicit comparison is consistently unflattering: kissed only by the shadow of Kennan's achievement, his successors—like Portia's suitors—"have but a shadow's bliss."[2]

The latest contender is Robert Kagan, director of the US Leadership Project at the Carnegie Endowment for International Peace. His article "Power and Weakness" appeared in *Policy Review* in June 2002; his book (injudiciously overpraised by those who ought to know better) is now published just in time for the war its author has long advocated; and his catch phrase "Americans are from Mars and Europeans are from Venus" is doing business around the globe. Like many in contemporary Washington, he is interested not so much in strategy as in power: who has it, who doesn't. In Kagan's view, Europeans today live in a "Kantian" postmodern paradise; they are at peace with one another and have constructed for themselves a happy way of life, based on negotiation, cooperation, rules—and impotence. Americans, meanwhile, are mired in history, in a dangerous "Hobbesian" world of interests and conflicts, where the law of the jungle applies and survival rests on armed power.

This sharply drawn contrast accounts, in Kagan's view, for the present chasm separating the two sides of the Atlantic. The Europeans have a mission (in his words) to universalize the pacific model of their European Union, through international treaties, courts, agencies, and other transnational regulatory bodies. This brings them into confrontation with Washington, since the United States, part of whose burden entails protecting Europe against the folly of its own military inadequacy, cannot be constrained by such bodies. The US is the only world power with global military reach; it is thus a ready target for the enemies of freedom; and it must therefore be ready to fight. There is no reason, Kagan concludes, why Europeans and Americans shouldn't strive to understand one another better; but part of that understanding requires that they accept how very different they have become.

In broad-brush terms Kagan is correct, though hardly original. American leaders do think more readily of going to war, and they have the means to do so. Europeans are far more committed to multilateral institutions, of which they have considerable experience. But Kagan has magnified this staple truism of newspaper editorials into a geopolitical treatise, and that is where the trouble starts. Under closer scrutiny, its assumptions quickly dissolve. For example: Kagan repeatedly labels "Hobbesian" the international anarchy that he invokes to justify America's muscular unilateralism. But this is a crass misreading of Hobbes's position.

Drawing on his observations of seventeenth-century England in an age of civil war, Thomas Hobbes argued that the very laws of nature that threaten to make men's lives "solitary, poor, nasty, brutal and short" require us to form a common authority for our separate and collective protection. Notice that "solitary," though: in Hobbes's account men are not so much in

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ermanent conflict as unengaged one with another. In a "Hobbesian" international world, states—by analogy with individuals—would come together out of their shared interest in security, relinquishing some autonomy and freedom in return for the benefits of a secure environment in which to pursue their separate concerns. This was the genuinely "Hobbesian" solution devised by the American statesmen of an earlier generation, who built the international institutions that Kagan would now tear asunder.

As for the Kantian paradise of the Europeans (the allusion is to Kant's 1795 essay "On Perpetual Peace"): Kagan has forgotten the very recent past, in which European infantrymen died on peacekeeping missions in Asia, Africa, and Europe while American generals foreswore foreign ground wars lest US soldiers get killed. If Americans are from Mars, they rediscovered the martial virtues rather recently. Kagan has also missed some interesting polls. When asked last year whether they approved of the use of military power to protect their interests, British, French, Italian, and Polish respondents all showed more support for military action than did American respondents. Only the Germans were less enthusiastic. Europeans may not like wars—in which respect they are indeed at odds with the current US administration, though in tune with many Americans—but they are not pacifists, either.[2]

Kagan's claim that "weaker powers" (like Europe) historically seek to constrain stronger ones through international structures is likewise misleading. The international agencies we know today were the work of strong powers—notably the US. By universalizing and institutionalizing their own interests, great powers have a much better chance of convincing others to do their bidding, and can reduce the risk of provoking a "coalition of the unwilling" against them. If Kagan looks around him, he will see that this is what the US has recently been attempting in the United Nations—admittedly with limited success, thanks to international resentment at the "neo-Hobbesian" approach advocated by Kagan and his friends and practiced for the past two years.

Robert Kagan wants it both ways. At the end of his book he rather limply asks that Americans and Europeans show better mutual comprehension; but the foregoing 100 pages display not just ignorance of the recent European past and current European diversity, but an undertone of arrogant condescension, mixed with a certain amount of humbug: "The problem," he writes, is that "the United States must sometimes play by the rules of a Hobbesian world, even though in doing so it violates Europe's postmodern norms." But the norms that Washington currently violates are its own—there is nothing uniquely European, much less postmodern, about the rule of law or the desirability of peace over war. And as Kagan's whole book makes very clear, this doesn't pose a problem to him. For Kagan, the Europeans, to adapt an earlier exercise in imperial hubris, are "weeny, weedy and weaky." Violating their norms, for Robert Kagan and a new generation of policy specialists in Washington, is part of the fun.[3]

Like Kagan, Michael Mandelbaum believes that we live today in an American world and finds this a source of satisfaction. But otherwise the two could not be more different. There is a lot of history in *The Ideas That Conquered the World*, whose author teaches at the School of Advanced International Studies in Washington and is an established scholar of US foreign policy. There is also a seductive thesis. Mandelbaum argues that the twenty-first century will see the final apotheosis of the "Wilsonian triad": peace, markets, and democracy. After a century of conflict these three interrelated goals of liberal internationalism have triumphed over their historical foes, and the "plot" of post-cold war history will be their "defense,

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