10/5/99
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USA v EC

These days transatlantic rows seem to break out over everything from the war in Bosnia to trade in oil seed. Helen Simons examines why, and highlights the likely points of future conflict between the USA and the European Community

European politicians and commentators are apprehensive about the new administration in the White House. Within days of taking office it was clear that Bill Clinton was not going to be Europe's best friend. From declarations about the need for the USA to take firm action in Bosnia to the imposition of punitive tariffs on steel imports, the new American president made it clear that he is not afraid of upsetting European sensitivities.

Some pundits have explained Washington's cooler stance towards Europe as a reflection of the age gap between George Bush and Bill Clinton. They argue that past presidents were all of a generation that fought in the Second World War, and so shared an instinctive sympathy for their old allies and the Europe that they had helped to shape. Clinton, on the other hand, wasn't even born until after the war, so the old ties and loyalties will mean little to him. He is said to represent a modern breed of politicians that is tired of the old diplomacy and determined to put America first.

A closer look at the relations between Europe and America, however, shows that the new tensions have little to do with a generation gap. Transatlantic relations have been deteriorating for some time. Rows, splits and conflicts have become commonplace on questions as wide ranging as trade, exchange rates, European defence or military intervention in the third world. In fact the 'Atlantic partnership' has shown every sign of coming apart since the fall of the Berlin Wall in 1989. The end of the Cold War, rather than the end of the Bush administration, was the watershed for US-EC relations.

The Cold War provided a unique framework for transatlantic politics. The military alliance of Nato, established to see off the supposed Soviet threat on Western Europe's doorstep, allowed America to assume the leadership of Europe. Since the USA was the only power capable of standing up to the Soviets, European nations looked to America to protect them.

From the American viewpoint the best thing about the Cold War arrangement was that it allowed US leadership to extend beyond military matters. Even in areas where US world leadership was more questionable, America could use its position in the Western Alliance to impose its interests on the allies. This was most striking in the economic sphere.

The US economy has been in a stagnant state since the end of the sixties. Where once the USA could dominate the world economy in every sector, the past 20 years has brought the emergence of rivals in both Europe and Japan. In 1970, for example, 64 of the world's 100 largest industrial corporations were based in the USA, 26 were in Europe and only 8 were in Japan. By 1988, 42 of the 100 largest were located in the USA, 33 were in Europe and 15 were in Japan (see L Thurow, Head to Head: The Coming Economic Battle among Japan, Europe and America).

America dealt with the emergence of credible economic rivals through the mechanism of the Cold War alliance, by playing the 'linkage' game. When US economic interests were threatened by the Europeans, America would link the issue to the question of European security. The heavy hint was that if Europe failed to toe the line, US troops might have to be withdrawn from the European arena. By linking every issue ultimately to the question of security, America could use its military strength to see off challenges to its economic interests. The Atlantic Alliance was just a cover for US leadership in the Cold War era.

The collapse of the Soviet Union brought this episode to a close. The disappearance of the Soviet threat has weakened America's leverage over Europe. Last year, when vice-president Dan Quayle tried to play the linkage game during the Gatt trade negotiations, it became clear that the trick no longer worked. Quayle's suggestion that failure to agree on Gatt could hinder US support for Nato only succeeded in uniting all of the European negotiators against him. Even loyal Britain condemned the move as a feeble bullying tactic. Rather than whipping Europe into line, the affair caused many Europeans to question the future of Nato. Bush felt obliged to disown Quayle's remarks and to emphasise that there was 'no linkage at all....They are separate. These two issues are separate' (Independent, 12 February 1992).

The old Atlantic partnership is no more. Despite American nostalgia for the Cold War ways, there can be no return to the past. Today the USA is faced with the problem of finding a new way to impose itself upon its allies/rivals. Where once Washington could simply assume world leadership, it now has to struggle to preserve it. This is the problem that underlines the new adminstration's more aggressive stance towards the European nations.

Clinton's exact foreign policy gameplan remains uncertain, but it seems certain that the USA will become more active in the international arena in the coming years. Clinton's emphasis on putting America first and homing in on the economy 'like a laser beam' has been widely misinterpreted as an isolationist stance. In fact the reality of Clinton's policy will be far from isolationist. Rather we can expect to see America actively intervening on the world stage in a sustained effort to reassert its authority over its economic competitors.

In the coming months the US adminstration will be on the look out for opportunities to demonstrate America's leadership capabilities. From Somalia to Iraq, America will be keen to show the world that it is still calling the shots. Washington's motive in this is to preserve the status quo of world power relations, not to stir up trouble. Nevertheless, the effect of its interventionist role will be to heighten the tensions between Europe and America.

A brief survey of some key flashpoints between the allies serves to illustrate this problem.

Trading places

Clinton's team has promised to give the economy the same priority as security in the post-Cold War world. One campaign adviser explained the administration's thinking:

'Military power remains a valuable "currency" but economic power has been appreciating in value, becoming more and more "hard currency". Economic security is no less vital to national security than strong defence.' (BW Jentleson, 'Foreign policy for a post-Cold War world', The Brookings Review, Fall 1992)

This is one campaign promise president Clinton seems determined to see through. One of his first moves was to set up a high-powered Economic Security Council, to go alongside the militaristic National Security Council which dominated US foreign policy during the Cold War. But, when America is losing out in markets around the world, is there any mileage in pursuing an economy-based approach to foreign policy?

America can no longer rely upon its economic competitiveness to secure world leadership. In sector after sector the USA is losing pole position to either the Germans (in chemicals, for example) or the Japanese (particularly in cars and computers). But while the US economy lacks the dynamism of its rivals, it still has an economic ace which allows it to bully its way around the globe. The fact is that America is still the world's largest economy, and the largest market for goods. So it can make life difficult for its competitors by threatening to deny them access to the millions of American consumers.

In the Gatt trade negotiations, for example, the USA has tried to get its way with threats. Washington hopes that by threatening to deny European producers free access to the American market, it will bully Europe into submission. Since the US market is the largest in the world, US sales are vital for most European producers. A suggested 200 per cent tariff on French wine, for example, could cripple many of France's vineyards.

America's strategy is to use what remains of its economic strength unilaterally to see through its interests. Given the hostility that this politicisation of trade evokes, it is a high-risk strategy which could backfire if Europe decides to retaliate.

Paying the bills

America may be able to bludgeon its trading partners into submission, but it is likely to have less joy in the financial arena. The USA has long been indebted to the rest of the world, as it has relied on credit to keep its economy going. The federal deficit grew from $73 billion in 1980 to about $300 billion today. The total public debt has grown from $180 billion in 1980 to $4000 billion today.

The big problem facing Clinton is how to finance this debt. In the last decade of the Cold War, America forced its allies to subsidise the deficit by extending credit and coordinating interest rate policies. The German and Japanese governments played a particularly big part in keeping the credit flowing into the USA during the eighties, buying up US treasury bonds and pressing their financial institutions to do the same. Today things have changed. Germany, for example, now has its own problems funding the costs of German reunification. Both Germany and Japan have become net sellers of US bonds.

The result is that the USA faces a mounting crisis in paying off its debts. Last year it had to rely on near-bankrupt Latin American governments to buy around $25 billion of US securities - which is a bit like a desperate debtor going to a loan shark when the legitimate banks turn you down for more credit. Unable to rely on the same levels of cooperation from its European allies, America is now likely to take more unilateral action to resolve its financial problems. This in turn is likely further to increase tensions with Europe.

Last year's slide in the value of the dollar was an example of the kind of American initiatives we can expect to see in the future. By allowing the dollar to go into free fall on the foreign exchange markets, the US authorities sought to make American goods cheaper and foreign imports more expensive, in order to narrow their burgeoning trade deficit. The dollar's fall also had the effect of reducing the real value of American debt held in dollars by foreign creditors. In effect, the USA was exploiting the dollar's leading position as the global currency to make the rest of the world pay part of its bills.

The consequences of the dollar's slide were painfully felt throughout Europe. Although the Europeans blamed each other for the internal crisis of their Exchange Rate Mechanism (ERM), the primary cause of last year's turmoil on the currency markets was the falling value of the dollar, which led to an appreciation in the value of the German deutschmark. This was the main reason for the tension within the ERM. As the US administration seeks to put America first through a more unilateral financial policy, there is likely to be more trouble ahead in the world markets.

Insecurity in Europe

Security policy is the area which has forced America to face up to its changing role within Europe most directly. With no Red Army to confront, the rationale for the US security umbrella has disappeared. Nato now has no raison d'etre. That causes Nato officials to suffer frequent existential crises, and calls into question the presence of American troops in Europe.

No serious US politician wants to enter into a debate about the presence of American troops in Europe. These forces are a key symbol of America's continued leadership of the Atlantic Alliance. The major presidential candidates may have disagreed about the number of troops to be stationed in Europe, but both insisted that a core of US forces were there to stay. While no European power is yet demanding that the troops go home, the US military know that they are in a precarious position.

American strategists have tried to find a new role for Nato in Europe. Bush, for example, made many speeches after the collapse of the Berlin Wall on the importance of 'adapting and renewing Nato for the New World Order'. Foreign policy experts have called for the creation of a US-led rapid deployment force, and argued that the old Nato should take on the new problems of national unrest in Eastern Europe. Despite the reams of paper devoted to the subject, however, it is clear that the more Nato is discussed, the less of a role it seems to have.

A few astute politicians now realise that the Cold War arrangements cannot be maintained indefinitely. Former defence secretary James Schlesinger recently spelled it out:

'Ultimately the realities of the changing political and economic lines of forces [within Europe] will outweigh all the immediate declamations of unswerving loyalty and fidelity to institutions like Nato....The sharply diminished need for US protection unavoidably implies the shrinkage of US importance to Europe. That will be true no matter how much we flatter ourselves.' ('Transatlantic partnership: an American view', The Brookings Review, Summer 1992)

In reality, American statesmen would be best advised to keep quiet about Nato or risk drawing more attention to its outdated character. All the post-Cold War talk of Nato having a new role has already provoked a debate in Europe about the need for a new security system.

France's call for a European force has already set in motion the creation of the Franco-German corps, due to be in action by 1995. Ironically, by raising the leadership stakes and looking for a new role for Nato, the Americans have opened the way to the creation of a European force outside of their control. Security issues, which once provided the firmest cement holding the USA and the EC countries together, are set to become another bone of serious transatlantic contention.

Hot wars

America's need to reaffirm its world leadership is revealed most clearly in its taste for foreign adventures. By asserting its military and moral authority in Somalia or Iraq or somewhere else in the third world, Washington hopes to confirm that it is still the leading power on Earth.

The trouble today is that interventions which are designed to demonstrate America's global authority now increasingly risk exposing its isolation and lack of legitimacy. Compare the recent air-strikes against Iraq with the Gulf War. Back in 1990-91, America led an international alliance against Saddam Hussein. British and French troops fought under US command while the German and Japanese governments helped foot the bill.

In 1993 by contrast, America's military adventures in Iraq enjoy less than fulsome support from the old Allies. As the air-strikes have become more clearly exposed as a cynical exercise in demonstrating US authority, so America's rivals have become less keen to play ball. France has openly disowned recent US actions, and even tame Britain has expressed unease.

Tensions between the USA and Europe are clearest in the discussion around the war in the former Yugoslavia. For months US politicians and commentators have gone out of their way to criticise European efforts to sort out the conflict. The USA cannot accept that Germany or the EC could really assume the role of power-broker, even in their own backyard. The Americans have consistently contrasted their short, sharp military action in Iraq to the ineffective EC intervention in Bosnia.

Washington's intention here is to impress everybody with the need for American world leadership. But it is a high-risk gambit. The US attempt to wrest the initiative from the EC has raised the stakes in the Balkans, and focused more international attention on the conflict. Moreover, all the talk of the need for a US-backed solution to the conflict has dragged America closer towards involvement in a Balkan War that it does not want. As a result, far from US leadership in Europe being confirmed, many European leaders have urged America to keep out.

Neither the USA nor the EC is going out of its way to provoke the other. Yet the pursuit of an active foreign policy in the post-Cold War era is continually bringing transatlantic antagonisms closer to the surface. However much either side would like to avoid it, US-European relations appear to be entering a dangerous age of conflict. Bill Clinton's approval rating over the next four years is likely to be even lower in Europe than it is in America.

Reproduced from Living Marxism issue 53, March 1993

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