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Obama’s EU Inbox

OBAMA

Just prior to the inauguration, The Brookings Institution released a briefing book, “Big Bets and Black Swans,” examining the key foreign policy challenges President Obama faces as he begins his second term. The section on the Eurozone, written by Justin Vaiesse  and Thomas Wright — identifies a potential euro failure as a “black swan” — a low probability, high-risk event that could divert the president’s attention and political capital from other priorities. The recommendations outlined by its authors identify two opposing dynamics that have defined the U.S.-EU relationship in recent years. First, a prosperous eurozone is crucial to the health of the global economy, and impacts U.S. interests directly. Second, U.S. ability to influence eurozone developments directly is very limited. The memorandum addresses possible U.S. policy towards the eurozone crisis but its authors recognize that its causes can be traced to the last round of EU institution building, which brought about monetary union without fiscal union. The future health of the eurozone is therefore tied to the effectiveness of the current, post-crisis, round of EU institution-building. What can President Obama do to help? Speak softly to both Brussels and Britain, in effort to keep both talking to each other, and hope for the best.

The EU and U.S. rank first and second in GDP, respectively, and the Brookings authors note how strong the Foreign Direct Investment (FDI) link is between the two (“50 percent of U.S. FDI abroad goes to the European Union, while 62 percent of FDI in the United States originates in the European Union.”) And yet, “The United States can neither compel the Eurozone to adopt particular structures nor do much to protect the Eurozone from a political backlash” related to responses to the crisis. Happily, the authors note, EU leaders have already made a round of decisions aimed at preserving a Euro inclusive both of Europe’s “core” (Germany, France, and Northern Europe) and its troubled periphery (Greece, Ireland, Portugal and Spain), including the adoption of a Single Supervisory Mechanism (SSM) for Europe’s banks late last year (discussed previously on this blog). No institutions are crisis-proof, but the initially positive reaction to the adoption of the SSM signals the desire among EU policymakers to correct the deficits in Europe’s regulatory institutions that contributed to the onset of the crisis. This forward motion on regulatory reform, as well as German Chancellor Angela Merkel’s motive to keep eurozone matters from derailing her own re-election this year, provide some reason for tempered optimism that the eurozone should not devolve into the “black swan” the Obama Administration fears in the near term.

In addition to the renewal of EU institutions, the authors plead for the U.S. to work to keep Britain engaged in the Eurozone with the threat looming that a possible referendum offered by the Cameron government might sever the U.K.’s connection with Europe entirely. The U.K. is a net contributor to the EU budget, and this has proven to be politically problematic for its governments in the past. Last month, John Cassidy of The New Yorker concluded that whispers from the Cameron government about a possible referendum on Britain’s withdrawal from the EU were tied to the state of British conservatism – an acknowledgment of growing influence of the U.K. Independence Party, which campaigns for withdrawal from the EU, during the recession. It is a bet on Cameron’s part to cultivate the Independence Party eurosceptics on the U.K. right while their popularity surges and he faces re-election, while allowing for the chance that an economic rebound might siphon their popularity surge more quickly than it emerged. On January 23, UK Prime Minister David Cameron confirmed the rumors, pledging a national referendum on EU membership would be held within five years. Cameron’s speech drew criticism from several EU foreign ministers and general concern that it badly undercuts the EU efforts to emerge from the current crisis a stronger union. It has certainly produced fresh punditry on the question of the EU’s future; The New York Times “Room for Debate” this week asked “Should the EU Stick Together?”

The U.S. and U.K. have their own historic “special relationship.” For the U.S., however, the U.K.’s connection with the eurozone is a curious policy concern. The U.K., never a participant in the common currency, has gone to lengths to keep a distance from the EU’s financial union throughout its history. Further, the U.S.-U.K. “special relationship” has centered on global security issues — from the Atlantic Charter to the recent Iraq War — and not economic policy. The U.S.-U.K. partnership predates the EU and stands outside of either side’s relationship to the rest of Europe. The authors argue that the Obama Administration must use whatever sway this special relationship holds to help the Cameron government resist calls for withdrawal from the extreme eurosceptics of his party. The U.S. must work to preserve the U.K.’s role in Europe as a means of preserving its own. By promising an EU referendum, the Cameron government has transformed this from a less theoretical U.S. diplomatic goal to a more concrete one.

“Quiet diplomacy and support has been your hallmark and it has been reasonably effective,” Vaisse and Wright advise Obama, “You should not radically depart from this path.” It is telling, however, that as invested as the U.S. is in the Eurozone, there appears to be little the U.S. can do to influence Eurozone outcomes beyond quite diplomacy. On Europe, Obama must “speak softly,” because there is no “big stick.”

 
  • I Uhl

    Because there is limited action that the United States can take in the face of EU crises because it is not a member nation of the EU, convincing the UK to remain within in the EU through the special relationship between the US and UK might be the best option for the United States. The EU as a trading block has huge economic ties to the United States, so its continuation would be greatly beneficial to our struggling economy. The EU is obviously having to deal with some big issues in facing the current economic crises as to whether to increase integration between the countries or to dissolve the monetary ties between the countries. The United States should use its influence because we do not have any tangible pull within the EU in terms of political actions we can take, but the UK is a crucial piece to the EU, so as long as it is in the United States’ best interest to keep the EU as a singular trading block, we should use our relationship with the UK to do this.

  • Julie Nadig

    I agree that the U.S. must work to preserve the U.K’s role in Europe as a means of preserving its own. Although there is not much the United States can do to help the issues in the Eurozone, it’s in our best interests to do what we can to help. The United States should continue to help the relationship between Brussles and the United Kingdom. So, staying on the same path is really all the United States can do at this point.

  • Janna

    I’m interested to see if the US can “speak softly” in mediation with the EU. We’ve been known to impose ourselves upon nations throughout history– I’m curious to see what new approaches will be made. Will there be resistance? From who? To what intensity?

  • Emma

    The severity of the situation in Europe is not a low probability, high-risk event. I think that it is something with a high probability of happening. It is the greatest threat to jobs and investment across Europe and the United States and the two economies have most important relationship on the globe. The dream of the integration of national markets for goods and services to make Europe more efficient and competitive is coming to an abrubt halt. They are coming to a point where they need to either have a common fiscal and monetary policy across the Eurozone or separate it. It appears that the Eurozone is in balance with the economies in the outside world despite the turmoil within. The countries in debt owe mostly to the countries that have booming economies within the Eurozone thus causing a severe macroeconomic inbalance. I think the only way they can maintain the Eurozone and decrease this turmoil is to connect all the countries by having the same monetary and fiscal policy. This would also include negotiations to countries with the European Union that are not a part of the Eurozone- like the U.K. they either need to join them or leave them. Although the British want to keep the benefits of being a part of the European Union, the stake the global economy is at hands and I believe that is the most important factor in the world.

  • Christine

    It is shown that the US and Europe are intertwined. For this reason, the US has to keep in mind the effects the European economy will have on the US economy. The US and the United Kingdom are very important trading partners, and if the United Kingdom economy tanks this will have negative effect on the US economy. Whether or not the United Kingdom stays in the EU depends on what future outcome you want. the United Kingdom can stay with the EU and stay as a unified whole, or the United Kingdom can break away and maybe their economy will improve faster than if they had stayed in the EU.

  • Chris Franczyk

    i don’t know if it should be our responsibility to keep the UK in the European union. we have several problems at home that need to be dealt with before playing moderator for the UK and the EU. if we can manage it then we should but the us should not sacrifice itself in order to keep the EU and the UK together. the UK ultimately should make the decision based on what is best for their country and citizens.

  • Joe Hagerty

    The E.U should be an extremely important issue on Obama’s Foreign Relations agenda. Clearly as stated in the article they are an enormous economy as a whole and extremely negative implications could occur if the E.U were to break apart. The U.K is essential to the success of the E.U and Obama needs to continue to urge the U.K into staying in the E.U to avoid major economic implications in the near future. I think it would be wise for Obama to have continued talks with the Cameron government to remain constantly updated on the feelings the U.K has toward the E.U so the U.S can try to resolve any issues to avoid cessation.

  • Daniel Biel

    If any country is having economic problems, then ii effects the whole world. Right now the stronger economies in the euro zone are holding everything together and the U.S needs to do everything in it power in order to keep it from going further downward. As world power the U.S can not simply just leave U.k to deal with the EU alone. Furthermore, the U.S doesn’t have enough political influence to deal with the Eu, so we need to push the U.K to see it our way and it won’t be hard because we are their biggest ally.

  • Dmitriy Kalin

    The UK has made a wise decision in not choosing the euro as its form of currency. Nowadays, the UK is probably the most stable nation in Europe because of this choice. I don’t think it’s possible for President Obama to convince the UK of anything, because the UK has the power to make the choice whether or not it wishes to stay in the Union. Keep in mind, the UK does not have much incentive to stay, because of how things are going now.

  • Obama

    Uranus is the seventh planet from the Sun. It has the third-largest planetary radius and fourth-largest planetary mass in the Solar System. Uranus is similar in composition to Neptune, and both are of different chemical composition than the larger gas giants Jupiter and Saturn. For this reason, astronomers sometimes place them in a separate category called “ice giants”. Uranus’s atmosphere, while similar to Jupiter’s and Saturn’s in its primary composition of hydrogen and helium, contains more “ices” such as water, ammonia, and methane, along with traces of hydrocarbons.[12] It is the coldest planetary atmosphere in the Solar System, with a minimum temperature of 49 K (−224 °C). It has a complex, layered cloudstructure, with water thought to make up the lowest clouds, and methane thought to make up the uppermost layer of clouds.[12] In contrast, the interior of Uranus is mainly composed of ices and rock.[11]

    Like the other gas giants, Uranus has a ring system, a magnetosphere, and numerous moons. The Uranian system has a unique configuration among the planets because its axis of rotation is tilted sideways, nearly into the plane of its revolution about the Sun. Its north and south poles therefore lie where most other planets have their equators.[16] In 1986, images from Voyager 2 showed Uranus as a virtually featureless planet in visible light without the cloud bands or storms associated with the other giants.[16] Terrestrial observers have seen signs of seasonal change and increased weather activity in recent years as Uranus approached its equinox. The wind speeds on Uranus can reach 250 meters per second (900 km/h, 560 mph).[17]

  • Chris Byrd

    I think
    Obama should make protecting the U.S. from the E.U. in case it goes bad, but I
    also think that he needs to help the to fix E.U.. By keeping the U.K. in the E.U..

  • robert

    The U.S needs Europe to keep are global economy some what stable and should be President Obama’s biggest concern. I think that the U.S should provide support to the E.U but at the same time not rush to help, because Europe in reality has to solve this problem. I think that Obama should keep an watchful eye on Europe and the E.U crisis but in reality there isn’t much we can do to help.

  • AntonZ

    I agree. Any economic problems that europe has to face will affect the u.s in one way or another.
    it’s in our best interest to pay close attention to the eurozone situation

  • Craig Heilwagen

    I believe that United States should in fact try o keep the UK engaged within the euro zone because if the EU collapses the US’s economy will take a large hit along with many other countries. We may have problems that we have to solve within our country as well, but ignoring the EU, and focusing on our own country alone will only hurt us in the long run. Obama needs to persuade the UK to stay in the EU because if the UK leaves there will be large consequences in the future.

  • Melissa

    Although the U.S loves to play to role as the “good guys,” I agree with similar opinions below in the sense that this is an issue the UK needs to decide independently. Yes, maintaining relations with the UK is important, however whether or not the UK is going to remain in the EU will ultimately only be decided by the country itself. However, although it does no harm for the U.S to continue encouraging the maintenance of the UK within the EU, the last paragraph accurately depicts the truth of the situation claiming, “…as invested as the U.S. is in the Eurozone, there appears to be little the U.S. can do to influence Eurozone outcomes beyond quite diplomacy” (Crowley). Afterall, as the old proverb goes, “You can lead a horse to water, but you can’t force him to drink.”

  • Reg U

    Common national security concerns are important and especially if they are backed by long-standing tradition, history and friendship. But in the end it is economic strenght that begets significant military capability and the position to contribute to our allies. The President and the U.S. should focus on our own economic recovery (as should the U.K. and the EU on their own) and not be too unfocused by peripheral concerns. The U.S. should concentrate on its own fiscal policy problems and take the burden of heavy lifting from the Federal Reserve Bank (FRB). Looking to the future we need to look for future markets and partners. Only a few trade treaties (mostly negotiated during the previous administration) have been signed by this President while China signed on to more than a hundred during the same period (Afric, Asia and the Middle East) and are negotiating even more. In the end our own national interests should dominate.

  • kpc

    The US has had a good relationship with the UK for a very long time, so helping them out with their needs might be in our best interest, but we also have a lot going on in our own country that needs dealing with so maybe helping them can wait.

  • Maddy Claire

    While the threat of a possible Euro failure seems to be more of a high probability, whether or not the UK should say in vital. While the European Union is coming to a point where they either need to merge both their fiscal and monetary policy or break off all togeather. And while that may alienate countries like the UK, the US doesn’t have strong influnece on the decisions made, and should therefore only try to encourage what is best for all countries, to try and stablize this economy before the crisis grows and collapse is inevitable.

  • Konstantine

    As the financial crisis in Europe looms and countries like Greece, Italy, and Spain begin to face harder economic times, I believe, contrary to what the author states in this article, that the European Union should not be maintained and those countries which are suffering at the hands of the Euro should withdraw and return to their own currencies. If one looks at the EU and the countries involved, one can see how the countries that have drastically prospered are those with some of the largest economies in the world (prior to the creation of the EU and the utilization of one currency). Countries such as France, England, and Germany have prospered because of their growing and thriving economies, in addition to the low interest rate loans taken as part of the EU has enabled these countries to grow much faster than countries in Southern Europe because these “powerhouse” countries as I’ll call them, export enough goods to bring back enough revenue to repay the loans plus have a lot left over in profit. Given this information, I believe that the UK should continue with its plans to have a referendum since it has been able to thrive economically without using the Euro. Also, countries that don’t have the economic capabilities as the “powerhouse” economies I mentioned earlier should withdraw from the EU, default on their loans, return to their own currencies, and begin to jump start their economies. Although these countries will face a few years of economic hardship, in the end, they will be glad they made that decision because their devalued new currencies will spark investment in these nations and people in these nations will begin purchasing local goods, thus supporting the local economy. Additionally, after these countries revive their economies, they wont have to constantly meet the standards and requirements set forth by the ECB and therefore they will be able to set the monetary and fiscal policy appropriate for their own nation. Meanwhile, the membership of the EU should decrease and only the “powerhouse” countries should stay in the Euro, since they are able to prosper, and further their economies.

Author

Michael Crowley
Michael Crowley

Mike Crowley received his MA with distinction from The Johns Hopkins University School of Advanced International Studies (SAIS) in American Foreign Policy and European Studies. He has worked at the Center for Strategic International Studies, Akin Gump, and The Pew Charitable Trusts. He's also an actor working in Washington, DC and a volunteer at the National Gallery of Art, and he looks for ways to work both into his blog occasionally.

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