The ICAS Lectures

No. 99-226-JGC

  The European Union in the 21st Century: 
Friend or Foe?  

  Jonathan G. StA. Clarke

ICASWinter Symposium
Asia's Challenges Ahead
University of Pennsylvania
February 26, 1999

Institute for Corean-American Studies, Inc.

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Jonathan G. StA. Clarke

Twenty years apart, two famous American diplomats, Henry Kissinger and Richard Holbrooke, both echoed the same sense of frustration over the European Union. "When I want to call the person in charge, who do I call?" Their point was: after all the agonizing years of meetings, summits, institution building, what is Europe's ultimate point of identity? Where does America turn when things need to get done?

In truth, Europeans too share some of this confusion about the identity of their creation. In 1956 one senior British Ambassador described the first planning meetings of Europe as an "ill considered and emotional hullabaloo." Even today Europeans joke about the EU as being an "UPO" -- an unidentified political object.

We need to take a fresh look at the EU on the brink of the new millenium. Now that the decisive first stage of European Monetary Union has been successfully completed on January 1, 1999 with eleven countries effectively abolishing their own currencies in favor of a single European unit -- the Euro -- the question can fairly be asked: has the EU emerged from the shadows as a power in its own right in global affairs? And if it has, will it be a friendly partner or a cantankerous rival? Distinguished commentators are already opting for the gloomy view, for example Fred Bergsten, an economist well known in Asian circles, who in the current issue of Foreign Affairs writes of an impending "clash of the Titans" between America and Europe.

It could go either way. Take two examples in the news right now. Over Kosovo, the US and the EU are working well together. By contrast, when it comes to bananas, a crop which the U.S. does not officially export, a nasty trade war is on the agenda. Truly a descent from the sublime to the ridiculous.

The real risk of a transatlantic clash comes from a mutual lack of understanding. Many Europeans find America difficult to read, but there are also plenty of misconceptions about Europe on this side of the Atlantic. To address this cognitive deficit, it may help to look at three of the most important recent developments in Europe -- European Monetary Union, the Euro, EU Enlargement, the addition of new members, and the Common Foreign and Security Policy, the EU's face to the world. These developments will bring home what Europe means in conceptual and practical terms. This is important because many Americans and Asians often have is a fundamental and absolutely crucial misunderstanding about what the EU really is.

This is not always their fault. The EU is encrusted with jargon and does not make itself easy to understand by non-experts. An example is how the EU tries to explain itself in one of its basic guidebooks: "The European Union is a unique, treaty-based, institutional framework that defines and manages economic and political cooperation among its fifteen European member countries." Not a model of clarity. It's no wonder that most people seem to think that the EU is just another boring international organization. Something like NATO or the World Trade Organization, or a sort of regional UN.

This does not do justice to the EU. The fact is that the Europe experiment is both daring and exciting. Europe is actually trying to accomplish a feat of epic dimensions and significance, namely to abolish the nation state as the chief actor in political and economic decisions. The whole ethos of Europe is shared sovereignty or better a conscious and shared transfer of sovereignty from the nation states to the central European institutions.

The reason for this arose from the horrors of World War II. Europe's founders believed that one of the main causes of the war and of WW I had been overaggressive nationalism and sovereignty -- especially between Germany and France -- and they were determined to stamp it out as a cause of future war. The Treaty of Rome, the founding European treaty, set out as its major goal "an ever closer union among the peoples of Europe." This objective has been pursued fitfully and there have been many set backs. Many countries, most notably Britain but to be honest including all the member states, have had trouble from time to time with sovereignty -- or what they delicately call supra-national -- issues but nonetheless the EU enterprise has made steady progress. And is now poised to become a real actor in world affairs.

The stage was set in a climactic event that took place less than two months ago on January 1, 1999 when 11 countries (i.e. Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Spain and Portugal) united their currencies into the Euro. The trendy name for this group of 11 is Euroland.

As with all EU developments over history, the skeptics are making the early running. In technical terms the euro has got off to a turbulent start. It is making daily lows against the dollar and one leading economist commented that "At the moment, the euro is really just a one way bet and that is down. It is turning out to be a weak currency, hampered by political interference with monetary policy." There have even been some unbecoming turf battles about who is to represent Euroland in the G7 meetings.

Now, without sounding like a EU bureaucrat, we need to see beyond the short term and to recognize that European monetary union is a historic event. It may not be too much of an exaggeration to compare it to the setting up of the Atlantic Alliance whose fiftieth anniversary will be celebrated in April. For the first time since the fall of the Roman Empire, Europe will have a single currency. The Euro zone is roughly comparable in size and economic weight to the United States. The population of Euroland is about 300 million, and the Euro zone will account for around 20 percent of the world trade and world GDP. Add in the rest of the EU and the result is an economy and population considerably larger than that of the US. In the present economic and financial turmoil the EMU has already shown that it will be an element of stability in Europe and in the world.

How is the Euro doing? Well, it has now traded for nearly two months. Looking beyond its initial gyrations, we can start to see the changes that are occurring in the way the EU does business.

  • First, the Euro-zone provides for a single money market with one interest rate set by the European Central Bank in Frankfurt.
  • Second, the European stock and government bond markets have undergone a complete facelift. All new issues are in Euro, while existing bonds have been re-denominated. The present variety of small and fragmented markets have merged into a market worth around $ 2 trillion. That is about 80% of the market capitalization of the US treasury market. Since January 1, all European stock markets also quote in Euro. The major European stock exchanges are in the middle of negotiations about joint operations or mergers.
  • Third, the exchange rate risk between the participating currencies has been eliminated, removing one of the most important barriers to cross-border transactions. Your next European vacation won't need to include any exchange losses.
  • Fourth, the Euro will be an important invoicing currency for international trade, if only because the EU, like the USA, does about 20% of world trade. But today 50% of world trade is paid in dollars. This is expected to change. Central Banks all over the world will also want to keep parts of their reserves in Euro. Experts predict that these could reach 25 to 35% of overall reserves. This is one of the areas experts foresee as being a source of EU-US tension if switching of this magnitude were to put pressure on US interest rates.
  • The Euro will enhance price transparency and comparability. Removing the veil of price disparities will encourage bargain hunting across Europe. Production, distribution and marketing strategies will be profoundly affected, especially in the age of electronic commerce. A Euro induced merger wave in banking has already taken place over the last couple of years.
  • Lastly, as you read the Economist and Financial Times you will find fewer and fewer references to the DM, Franc, and Lira. The Euro will predominate.

Samuel Johnson is recorded by Boswell as remarking of a dog bouncing a ball on its nose that what was remarkable was not how well he did it, but that he did it at all. So it is with EMU. The nay-sayers never thought it would happen. In 1992, eleven democratic countries decided jointly on the principle, the timetable and the conditions under which their currencies could be merged. It was a huge gamble. The pages of Foreign Affairs contain learned article after article explaining why it would never succeed.

Today, seven years later, despite the electoral unpopularity of the measures necessary to achieve the goal which led to changes of government in ten of the eleven countries, the skepticism of markets, and adverse economic conditions including chronically high levels of unemployment, the bet has paid off in accordance with the precise conditions and timetable. The success of the project for monetary union is a dramatic restatement of the political vitality of the EU. The experts were wrong and the dreamers were right.

The self confidence induced by the Euro success, has encouraged EU transformation in another direction. From the word go, it has been accepted that the community was intended to be open to all democratic European states. The EU has grown from its original six to its present 15 and is now preparing to add more new members, the so-called enlargement process - one that will peacefully unite Europe from East to West for the first time in centuries. One decade ago, Central Europe was still locked behind the Iron Curtain and struggling under the crumbling Soviet system. Today, five formerly communist Central European countries (Poland, Hungary, the Czech Republic, Slovenia and Estonia) are negotiating EU membership. Negotiations are also underway with Cyprus and it is hoped that these will prove a catalyst to solving the problem there.

This means that within one decade former eastern Europe will have been transformed from a domain of communist controlled countries to democracies and market economies. Accession negotiations will begin with the remaining five applicants from Eastern Europe (Bulgaria, Romania, Slovakia, Lithuania, and Latvia) as soon as they are ready.

This will not be an easy or straightforward process. Joining the EU is far more complex than joining NATO. The enlargement question poses many fundamental questions. What is a European country? Turkey? Ukraine? Morocco? Also, there are wide-reaching structural questions. The new enlargement round means that current European institutions will have to be profoundly altered. They were initially designed to operate a simple commercial agreement signed by six partners and neighbors; they do not have the necessary infrastructure to control a political union consisting of thirty states with widely differing cultures and structures.

Once again, despite the problems, the process is underway. And if all the candidate countries successfully make it into the European Union sometime in the next ten to fifteen years, the population of the enlarged European Union would exceed the combined populations of the United States, Canada, Japan, and Korea.

The commercial export opportunities are obvious. Already, the European Union already accounts for about 20 % of worldwide imports and exports. Nearly 60 % (56,4 %) of the total Development Assistance to developing countries is given by European countries.

These numbers are impressive, but the political implications are also important. The new European entity will be a new center of gravity in world affairs. So, the question naturally arises: What do the Europeans themselves, the United States of America and the remainder of the world expect of Europe at the beginning of the 21st century?

This leads to a discussion of the European foreign policy. Once again, we meet a piece of EU jargon, namely the Common Foreign and Security Policy, known as CFSP.

First some basic background: the ideas of CFSP have been around for many years but if first took on institutional teeth in the Amsterdam Treaty of 1997. This established a mechanism for member states to coordinate policy by formulating "common positions" and conducting "joint actions" under the Union. The aim is to use these new instruments to create pro-active policies which assert the EU's political identity. This will develop slowly. Decision making procedures are intergovernmental and, therefore, different from those which apply to external economic relations.

What happens is that Heads of State and Government in the EU's governing organ, the European Council, agree in broad terms to joint actions. Foreign ministers of the member states decide the specifics. The European Commission participates in all discussions, can make proposals, and has a right of initiative, but not the sole right of initiative it has in community policies. The European Parliament is regularly consulted but has no direct powers. Many people regard this lack of democratic accountability as highly unsatisfactory and needing early reform.

As mentioned earlier, the Amsterdam Treaty created a CFSP planning and analysis secretariat staffed by officials from the Council, the Commission, member states, and the Western European Union (WEU). The WEU is the vehicle for military cooperation and for the coordination of European Union positions within NATO. A High Representative will personify the EU's foreign and security policy for the first time. Security roles such as peace keeping, monitoring, and conflict prevention.

In practice CFSP is still at an awkward stage of its growth. In terms that will be familiar to any one with teenage children, it still has not proved itself worthy of being trusted with a key to the family car.

This is a paradoxical situation. European leaders find it more difficult to implement a joint foreign policy than a common agricultural policy. They find it quite normal to define a single price for milk and lay down the common ingredients of beer. Yet they cannot face the idea of having a common policy on Rwanda - let alone Iraq where EU divisions have been all too plain.

This no doubt explains the permanent double language that characterizes European foreign policy. While in economic and monetary circles actions closely reflect underlying realities (otherwise the markets react immediately), hypocrisy continues to sap foreign policy. The determination to set up joint foreign and security policies is an integral part of the Treaties of Maastricht and Amsterdam and is recalled in every communiqu‚ and speech. Yet at the back of everybody's mind is a very different line of behavior, particularly vis a vis the US where the British, French, and Germans go their individual and jealously guarded ways.

Everyone agrees however that a common European foreign policy is a necessity

For Europe itself. Even if the EU did not exist, the interests of the various European countries are now too closely linked for them to have differing policies or, even worse, competitive policies. Faced with the situation in the Balkans, Ukraine, Russia, Turkey, the Middle East, and North Africa it makes no sense for the individual countries to act separately. With the Euro now in being, this thinking extends to Asia and Africa. Unilateral action by one EU state is counter-productive if not supported multilaterally.

The Cold War system of two super powers was an unfair but relatively stable place. The world today, in which there is only one super power, is less unfair but much more unpredictable. Today, the Balkans are once again teetering on the brink of regional disintegration. India and Pakistan have carried out nuclear tests. North Korea is engaged on an ambitious missiles program. The war in Congo embroils half-a-dozen African countries.

To meet these challenges, a European foreign policy is both necessary and possible.

In some places it already exists. For example, there are common approaches to combat drugs, serious crime, terrorism and illegal immigration. In other words, all international affairs which do not require the use of force. These issues, which represent the largest proportion of the EU's relations with 90% of United Nation member states, are now EU-based.

Among CFSP joint actions, the EU has taken many initiatives in the former Yugoslavia, providing humanitarian assistance, launching diplomatic efforts for peace, sending monitors, administering and policing the town of Mostar in Bosnia, and providing peacekeeping troops from member states. Together with the United States the EU helped forge the Bosnia peace settlement in 1995, and is playing a leading role in the international reconstruction effort. The EU is chairing the Paris conference on Kosovo and is taking a leadership role in efforts to bring about a peaceful settlement there. Other joint actions have included election monitoring in Russia, South Africa, and the Middle East, and support for the Middle East Peace process. The Stability Pact for Central Europe, established in 1994 to foster good neighborliness and democratic and human rights principles with the countries of that area, was the result of a successful joint action.

The completion of the reform of NATO and the Atlantic Alliance is nearing completion. This will open the door to a credible European defense designed to serve the common policy. What this means, hopefully, is that Europeans will be able to take care of their own security problems without always calling being dependent on US forces. The EU will also be able to make a contribution to wider global security issues.

Transatlantic misunderstandings did not disappear with the ending of the cold war. Sometimes the US assertions of unilateralism and indispensability are at fault. But European misunderstandings are to blame. Everybody agrees on the general direction for the future. Now that the Soviet threat has disappeared, Europe could be faced with two types of security problem - major difficulties involving a nuclear power for which the American guarantee remains absolutely vital, and lesser problems that the Europeans must have the will and the means to deal with on their own, without any commitment from non-European nations. The Balkans might be a test case. It was with this in mind that the reform of the Alliance was undertaken.

However, seven years after the dissolution of the Warsaw Pact, the situation is strange. The European members of NATO demand a US military presence in Kosovo but seem to be happy to accept responsibility for Estonia. The Europeans requested, and obtained, United Nations involvement in Bosnia while the Americans refused to accept the Baltic states as members of the Alliance. Instead, they are poised to become members of the EU.

The problem lies first and foremost with the Europeans themselves. Too many of them are afraid either to exercise their responsibilities in the security sector or to share these responsibilities solely with their immediate neighbors. Many of them took a long time to understand Simon Peres' insight that "when you lose an enemy, you lose your foreign policy." The habits of thought acquired during the cold war continue to be uppermost in many minds. As long as the Europeans are still reluctant to undertake a serious public debate and, in doing so, to risk bold initiatives as they did in the economic and monetary sectors, the security of Europe will remain essentially guaranteed by the US.

This leads on to a discussion of the EU relationship with the US.

Such a partnership can become a reality if there is a genuine commitment on both sides of the Atlantic. Until now, in many EU capitals, the bilateral relationship with Washington has always taken precedence over an EU-US relationship which scarcely exists outside the commercial sector. There are, nevertheless, a large number of topics of common interest. Apart from the burning issues (peace process, Iraq, Congo, the Balkans, the fight against terrorism), the topics include:

The Millennium Round. The Transatlantic Business Dialogue identified areas in which our economic interests are totally convergent. This is also an imaginative EU effort to maintain momentum on trade liberalization.

Measures to address major environmental risks. The EU has taken a leading role in recent international initiatives (e.g. the Kyoto conference n global warming).

Coordination and cooperation over Russia.

The design of a new world-wide financial architecture taking in the lessons of the current crisis. After earlier Latin-American crises, the events occurring at the present time in Japan, Asia, Russia and, again, in Brazil show that the international community intervenes late too late and with too little despite the fact that its experts have predicted the crises.

The reform of the United Nations. India will soon have a larger population than China and, in forty years' time, Africa will have more inhabitants than both countries put together. As long as the "medium" Asian, African and Latin-American powers do not feel that they are occupying the place they deserve, they will be tempted to ignore the requirements of joint security. Yet it is these very countries which may well constitute the greatest sources of instability in decades to come.

The EU's relationship with East Asia is also important.

China:Some quick figures: since 1995 China has been the EU's fourth largest export market and its fourth largest supplier. The EU's strategy for China emphasizes 'the smooth and gradual integration of China into the world economy' together with the promotion of democracy, structures based on the rule of law and respect for human rights.

Korea: A framework trade and cooperation agreement was negotiated in 1995 to promote closer economic relations and exchanges of information and mutually beneficial investment. In addition, the EU is contributing to the Korean Peninsula Energy Development Organization in support of the search for peace and stability in the region. Bilateral trade between the EU and Korea is in the region of ECU 15 billion.

Japan: This relationship has been dominated for years by the Union's trade deficit with Tokyo. Japan exports to Europe almost 50% more than Europe exports to Japan. While keeping up pressure on Japan to remove non-tariff barriers, the Union has also sought to deepen and extend cooperation beyond the field of trade. A joint declaration on EU-Japan relations in 1991 lists shared objectives in the political and economic fields and establishes a consultation framework including annual meetings between the presidents of the European Council and the Commission, and the Japanese Prime Minister. Cooperation now takes place across a wide range of areas, including science and technology, competition policy, development assistance, environmental policy, industrial policy, industrial cooperation, macroeconomic and financial affairs and transport.

ASEAN: A cooperation agreement covering trade, economic and development matters was signed in 1980 with the countries of the Association of South-East Asian Nations (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand). A bilateral meeting between the EU and ASEAN will take place in Berlin in April 1999 and is likely to involve a lively dispute over the presence of Myanmar.

What is the best guess for the EU's future. The prophets of doom will, hopefully, be proved wrong as they have so regularly in the past. The EU is not yet an 800 pound gorilla. Nor do many analysts think will it ever be one or even want to be one. But it is out there. Kosovo, financial reserves, bananas, the Koran peninsular, Myanmar, global warming: On big issues and small issues the EU will be a player. And anyone with international interests will need to carry an EU guidebook in his back pocket.


This page last updated 3/12/99 jdb


ICAS Fellow