The Polish Quarterly of International Affairs volume 26 no. 2/2017

Recovery of the Eurozone and a New Dynamic in European Integration Sebastian Płóciennik The Evolution of Deterrence: From Cold War to Hybrid War Wojciech Lorenz The Yemen War: A Proxy War, or a Self-Fulfilling Prophecy? Hubert Świętek On the Eastern Policy of the EU Adam Eberhardt The U.S.-ASEAN Partnership Ngyuen Thi Thuy Hang

THREE SEAS INITIATIVE Bartosz Wiśniewski, Oana Popescu, Martin Ehl, Oktawian Milewski, Dominik Héjj, Mateusz Gniazdowski volume 26 no. 2/2017 © Copyright by Polski Instytut Spraw Międzynarodowych, Warszawa 2017

Copy editor: Brien Barnett, Anthony Casey Proof-reading: Katarzyna Staniewska Cover design: Malwina Kühn Typeset: Dorota Dołęgowska

Contributors:

Sebastian Płóciennik—Ph.D., head of the Weimar Triangle Programme at the Polish Institute of International Affairs Wojciech Lorenz—analyst at the Polish Institute of International Affairs Hubert Świętek—Ph.D., vice-consul at the Polish Embassy in Rome Bartosz Wiśniewski—head of the Research Office at the Polish Institute of International Affairs Oana Popescu—Romanian journalist and analyst, director of the Global Focus Centre in Martin Ehl—Czech journalist and international expert, head of the foreign desk in Hospodářské noviny Oktawian Milewski—Romanian journalist and analyst Dominik Héjj— Ph.D., political scientist, expert in Hungarian affairs Mateusz Gniazdowski—deputy director of the Centre for Eastern Studies in Adam Eberhardt—director of the Centre for Eastern Studies in Warsaw Nguyen Thi Thuy Hang—Ph.D., Faculty of International Politics and Diplomacy, Diplomatic Academy of Vietnam Marek Rohr-Garztecki—Permanent Representative of the Republic of to UNEP and UN Habitat

Publisher: Polski Instytut Spraw Międzynarodowych (The Polish Institute of International Affairs) ul. Warecka 1a, 00-950 Warszawa; tel. +48 22 556 80 00; fax +48 22 556 80 99; e-mail: [email protected]

ISSN 1230-4999

The views expressed in The Polish Quarterly of International Affairs are solely those of the authors. The Polish Quarterly of International Affairs is regularly presented in the catalogue of International Current Awareness Services, in Ulrich’s International Periodical Directory, and in International Political Science Abstracts/Documentation Politique Internationale. Selected articles are included in the International Bibliography of the Social Sciences.

Printed by: OWP SIM, ul. Orzechowa 2, 05-077 Warszawa CONTENTS

ARTICLES

Sebastian Płóciennik Recovery of the Eurozone and a New Dynamic in European Integration: Implications for Member States outside the Monetary Union ...... 7 In the last few years, the division of the EU between Member States inside and outside the eurozone has begun to stabilise. Those that intended to adopt the single currency as early as possible have done so and the others either did not wish to join the eurozone or could not do so quickly. This stability was supported by several factors, in particular the economic weakness of the eurozone, the relatively high political and economic weight of countries on the outside (which guaranteed) their influence in the EU, and the general stagnation of EU integration processes. However, it is becoming clear that by 2017, these factors are becoming less influential, which may translate into a change in the relationship between Member States inside the eurozone and those outside. Neither a new enlargement dynamic of the single currency area nor a deepening of divisions in the EU can be ruled out.

Wojciech Lorenz The Evolution of Deterrence: From Cold War to Hybrid War...... 22 The theoretical foundations of the deterrence concept were developed during the Cold War and used by the U.S. and NATO to reduce the risk of military confrontation with the USSR. After the collapse of the Soviet Union, the dissolution of the Warsaw Pact and the 11 September terrorist attacks, the U.S changed its deterrence policy. Although Russia’s aggressive policy forced NATO to reinstate deterrence, it will be supported by other forms of influence to limit the risk of confrontation in Europe.

Hubert Świętek The Yemen War: A Proxy War, or a Self-Fulfilling Prophecy?. . . . 38 In recent years, Yemen has become an arena of strategic competition between Middle Eastern regional powers. As is the case with many other regional conflicts, the Yemen war is considered in the context of major international politics and great-power rivalry. Contrary to appearances, however, this is not a proxy war waged by Iran, one that the great rival of Teheran—Saudi Arabia—must, for the sake of its own security interests, oppose. On the contrary, Riyadh is a major player in the conflict, pursuing its own imperial interests. But its strategy has thus far been unsuccessful, prolonging the conflict and resulting in the devastation of Yemen and a humanitarian disaster. This can boost the role of terrorist organisations on a scale comparable to what we are witnessing in Syria and Iraq, creating a real threat to international security.

Bartosz Wiśniewski The Three Seas Initiative after the Warsaw Summit: What Next? . . .55 The Warsaw TSI summit was a political success, thanks in no small part to the participation of U.S. President . The TSI has thus been endowed with a much needed—and generally unexpected—gravitas. However, Trump’s endorsement of the Initiative should not come across as entirely unexpected. On the contrary, it is possible to track this support to the fundamentals of U.S. foreign policy strategy towards the CEE in the post- Cold War era. As for the TSI itself, it still faces a number of challenges, such as defining the role of key stakeholders, coming up with a viable list of deliverables, and calibrating its relationship with other regional cooperation mechanisms.

Oana Popescu : A Latecomer Who Wants to Get in the Game...... 65 Romania will host the Three Seas Initiative (TSI) summit in 2018. After the launch of the initiative in in 2016 and the new energy injected into it, not least through U.S. endorsement, in Warsaw this year, the main question to answer in Bucharest in 2018 is if we can now put some meat on the bones.

Martin Ehl The Three Seas Initiative through Czech Eyes: Unconvinced by Their Neighbour’s Plans...... 76 At a time when the needs strong leadership, when many of its policies are in desperate need of overhaul, and when the Visegrad Four group has won recognition as an important player, the Three Seas Initiative dissipates the energy, skills and attention of Central and Eastern European countries that could otherwise be directed to questions of the region’s vital interests. From the Czech perspective, the TSI weakens CEE regional influence in the EU, while Poland’s insistence that it has U.S. support is on shaky ground due to the Trump Administration’s internal weaknesses and limited interest in European issues.

Oktawian Milewski Romania and the Three Seas Initiative ...... 82 The TSI should not be and will not be conceived as a platform that is opposed to Western Europe, especially Berlin, Paris and Brussels. For Bucharest, whose century-plus journey to Westernisation may bear fruit in this generation or the next, opposing Western Europe in any “civilisational way” is anathema. The TSI under a Romanian presidency will bear traces of a long-standing choice of identity in Bucharest, and in Romania overall. Dominik Héjj “Make Great Again:” Do Hungarians Need the Three Seas Initiative?...... 94 What is Hungary’s attitude to relations with Poland and to the Three Seas Initiative? If one accepts Orbán’s vision presented during his 2009 Warsaw visit, the TSI would seem a perfect fit; here are 13 states, seeking to develop close regional cooperation along the north-south axis in the fields of infrastructure and energy, and to close the gap between “Eastern” and “Western” Europe and strengthen the CEE’s competitiveness. The leaders of these states have repeatedly emphasised that this project is not about building an alternative to the West.

Mateusz Gniazdowski Comments on the Structure of the Three Seas Initiative and the Warsaw Summit ...... 105 The TSI states are not a cohesive bloc, not even on the NS2 issue, and it seems that the Warsaw summit succeeded in undermining the scepticism about the political aspects of the Initiative. The aims of the TSI were thrown into relief and incorporated into the common concern for the cohesion and strengthening of the EU. At the same time, multi-dimensional cooperation within the Visegrad Group will not come to harm through the TSI, and it is even possible to speak of the complementarity of formats. For Poland, the Visegrad Group will remain the principal format of multi-lateral intergovernmental regional cooperation in the EU.

Adam Eberhardt The Semblance of Partnership: On the Eastern Policy of the European Union...... 109 Any discussion of the prospects for the European Union’s eastern policy should begin with an appraisal of the effectiveness of how this policy has been practised to date and of the changes that have taken place in the EU’s neighbourhood in the last decade. What is the balance sheet of the successes (intended as well as accidental) and failures of the EU’s eastern policy? Does the old Eastern Partnership costume fit the new times? And, finally, are we capable of developing an offer for Ukraine, Moldova, Belarus, and South Caucasus states that will support their modernisation and place them more firmly within the European integration mechanisms? Regrettably, the answers to these questions will not be particularly optimistic.

Nguyen Thi Thuy Hang The U.S.-ASEAN Partnership: A Happy Marriage?...... 116 This paper seeks to examine the dynamics of the U.S.-ASEAN partnership and explore the networks of engagement that have shaped this relationship in the areas of trade, development assistance and security cooperation. Employing archival research and content analysis as the main methodology, the paper will show that, by mutually constructing effective mechanisms for trade, the U.S. and ASEAN have strengthened their trade relations. Assistance programmes provided by U.S. agencies have also contributed considerably to ASEAN development through assistance programmes provided by U.S. agencies. Furthermore, the U.S. and ASEAN have strengthened their security cooperation, contributing to sustaining peace and stability in Southeast Asia. Building on the progresses of its success to date, the U.S.-ASEAN partnership continues to play an increasingly prominent regional and global role in maintaining peace and prosperity.

REVIEW ARTICLE

Marek Rohr-Garztecki Crouching Tigers, Hidden Dragons...... 127 SEBASTIAN PŁÓCIENNIK

Recovery of the Eurozone and a New Dynamic in European Integration: Implications for Member States outside the Monetary Union

The single currency is the factor that underpins the most important structural division in the European Union at present. It began in 1999, when the euro was adopted by 11 of the Member States of the time. Of the remaining four, the United Kingdom and Denmark were granted monetary union opt-outs and Sweden and did not then meet the convergence criteria (the latter country finalised its accession in 2001). With successive EU enlargements to the east and south, which brought the bloc’s membership up to 28, the euro vs. non-euro pattern began to change. All new entrants committed themselves in accession agreements to join the monetary union after first meeting the required criteria, and many of them indeed achieved this goal, with the consequent expansion of the eurozone to 19 members. But , Croatia, the , Hungary, Poland, and Romania, have failed to fulfil the pledge, and so after 2015, when adopted the single currency, the distinction between Member States inside and outside the eurozone began to solidify. In this article, I assume that the delay in meeting the convergence criteria and joining the eurozone is not just a reflection of uncertainties about the economic consequences of accession, or about preferences to maintain sovereignty over economic policy. There have also been other, external factors underpinning arguments for postponing membership. These are the tarnished image of the eurozone, mirroring the economic condition of its members, the fact that the group of Member States without the single currency was relatively large and influential, and the low risk of marginalisation within the EU at a time of overall stagnation in the integration processes. But these

The Polish Quarterly of International Affairs, 2017, no. 2 7 Sebastian Płóciennik factors, I argue, are fast receding in importance, and the consequences of this may include changes in the relationship between Member States inside and outside the eurozone, creating a new integration dynamic in the EU, albeit not necessarily a new wave of monetary union enlargements. Other scenarios are possible, too, including a deepening of intra-EU divisions.

Why Decisions to Join the Eurozone Are Being Postponed

Formally, the Member States with a “temporal derogation” on eurozone accession have not yet adopted the single currency because they do not meet the accession criteria—whether the Maastricht convergence criteria on fiscal stewardship, inflation, long-term interest rates and membership of the Exchange Rate Mechanism II (ERM II), and also the legal requirements, such as constitutional provisions making it possible to abandon the domestic currency. But all too often, and particularly in the Members States from , the failure to meet the criteria has reflected a political reckoning to postpone eurozone membership, driven by the belief that sovereign economic policy is a must for countries seeking to switch from a competition model based on low costs to an innovation-based one. Furthermore, questions have been raised about accession’s actual economic benefits for the candidate economies, and especially whether these economies are indeed part of an optimum currency area with the other EU Member States.1 The wide disparities in per capita GDP and economic structures may bring such a contention into question, which would translate into a high risk of asymmetric shocks that, in the absence of autonomous monetary policy and a domestic currency, would be hard to overcome quickly.2 Fears were also expressed about rising prices, which would affect purchasing power, slow economic growth, and hamper competitiveness.

1 The first to come up with the idea of an optimum currency area was Robert Mundell in the early 1960s. The concept was subsequently developed by Ronald I. McKinnon, Peter B. Kennen, Jeffrey A. Frankel, Andrew K. Rose, Paul Krugman, and many others. Generally, the goal is to identify criteria for countries to have a joint currency without exposing themselves to economic crises. For a theory overview, see: J. Jager, K.A. Hafner, “The Optimum Currency Area Theory and the EMU: An Assessment in the Context of the eurozone Crisis,” Intereconomics, vol. 48, no. 5, 2012, http://archive.intereconomics.eu. 2 In Polish literature, the most critical assessment of the eurozone and membership threats is provided in: S. Kawalec, E. Pytlarczyk, Paradoks euro. Jak wyjść z pułapki wspólnej waluty?, Poltext, 2016.

8 The Polish Quarterly of International Affairs, 2017, no. 2 Recovery of the Eurozone and a New Dynamic in European Integration…

Even if their economic rationale was not entirely without controversy,3 these considerations did not come out of nowhere, and they were augmented by factors exogenous to the countries in question, especially the eurozone’s poor economic condition, the strong political and economic position which non-members enjoyed within the EU, and the low political risk of staying out of the monetary union (due to a general stagnation in integration processes). In the beginning of the decade, the eurozone was not particularly attractive for potential candidates. In the years following the economic and financial crisis it wobbled on the brink of disintegration, torn by rising economic asymmetries and political conflict between those of its members who preferred stringent austerity and those seeking debt reduction and an expansionary fiscal policy.4 This coincided with poor economic performance compared to the EU member states outside the eurozone, as marked by low GDP growth and high unemployment (Figures 1, 2, 3). Given these considerable uncertainties, it would be hard to expect candidates to step up their preparations, and still harder to hope for a change in the position of those with opt-out status. Neither did the eurozone regard accelerated enlargement as its priority, especially after 2011, when it faced the threat of disintegration sparked off by a deep crisis in Greece. Additionally, EU Member States outside the eurozone accounted for more than a quarter of the EU’s total GDP and had the potential to protect their interests and effectively limit the risk of marginalisation within the EU, as a result of which their condition could not be ignored when economic policy directions were being established for the whole bloc. These countries also formed a large group with considerable weight on the European Council and Council of the EU, representing 32.5% of the EU’s total population, just shy of meeting the first criterion for a blocking minority (35% of EU inhabitants).5 Clearly, they also comprised more than the four Member State minimum

3 There are many benefits of a single currency, such as an end to exchange-rate risks in economic relations with monetary union members, lower transaction costs, reduced speculation and easier access to capital. 4 Among publications about this period, the following should be pointed out in particular: M. Blyth, Austerity: The History of a Dangerous Idea, Oxford University Press, 2013; M.E. Sandbu, Europe’s Orphan: The Future of the Euro and the Politics of Debt, Princeton University Press, 2015; J.E. Stiglitz, The Euro and Its Threat to the Future of Europe, Allen Lane, 2016; M.K. Brunnermeier, H. James, J.-P. Landau, The Euro and the Battle of Ideas, Princeton University Press, 2016; T. Piketty, S. Lorenzer, Die Schlacht um den Euro: Interventionen, Online-Ausg, C.H. Beck, 2015. 5 Based on Eurostat data for 2016.

The Polish Quarterly of International Affairs, 2017, no. 2 9 Sebastian Płóciennik needed to oppose a decision effectively. Furthermore, the group was cemented by the political weight of the United Kingdom, the second largest EU economy, which had great influence in Brussels and espoused a sceptical view of the trend towards deepening and politicising EU integration. This was among the reasons why the new Polish government, demonstrating similar preferences,6 saw in London a major partner in matters of European policy. Third, in the mid-noughties, the risk of differentiated integration that could marginalise countries outside the eurozone and force them to accelerate adoption of the single currency was insignificant. There was no political will, and any major moves to deepen integration were blocked by the expansion of populism and Euro-scepticism in many Member States, with the European Union focusing on defence of the status quo and unity in the face of the crisis. Alongside this were eurozone changes oriented towards streamlining fiscal management and launching mechanisms that would protect the area against further crises. Another barrier to deeper integration was institutional in nature, with existing treaties favouring the status quo in Europe and severely restricting room for the kind of purely inter-governmental decision-making that might provide a channel for the creation of new institutions of integration.

New Trends in European Integration

While these factors have for years stabilised the pattern of European integration by cementing the division into two integration tiers consisting of those within the eurozone and those outside it, much seems to indicate that this situation is shifting. The improved condition of the eurozone. Hard hit by the economic and financial crisis, and even the threat of disintegration, the monetary union managed in 2014 to enter a path of economic recovery, even if gradual and of little glamour. With time, its economic results began to exceed those of the main global competitors. For example, the eurozone’s economic growth in the past two and a half years reached 5.1%, more than in the U.S. over the same period (4.6%).7 In early 2017, the difference widened further, with Q1 growth for the eurozone twice as high as that of the U.S. (even despite the fiscal impulse provided by the Donald Trump Administration). The gap

6 W. Waszczykowski, Informacja Ministra Spraw Zagranicznych o zadaniach polskiej polityki zagranicznej w 2016 roku, Sejm RP, 29 January 2016, www.mfa.gov.pl. 7 C. Giles, C. Jones, “Eurozone recovery becomes surprise economic story of 2017,” Financial Times, 6 July 2017, www.ft.com.

10 The Polish Quarterly of International Affairs, 2017, no. 2 Recovery of the Eurozone and a New Dynamic in European Integration… between Member States in the eurozone and those without the single currency has also been narrowing, weakening the argument against accession based on the eurozone’s stagnation (Figure 1). This trend may indicate a solid foundation for growth in the single currency area.8 Indeed, during the crisis many Member States launched deep reforms towards making the labour market more flexible and providing a much friendlier environment for business. Fiscal consolidation, until recently criticised as too radical and having a negative impact on demand in he economy (Figure 2), is now bearing fruit, too. And this is not the only good news. As demonstrated by labour market statistics, the eurozone has been increasingly effective in coping with unemployment (Figure 3) and with its internal asymmetries, as seen in the convergence of Member States’ business cycles, the highest in two decades. And the euro is beginning to regain its position on the international financial markets. According to European Central Bank data, released in summer 2017, the euro’s contribution to the volume of international payments has increased of late, and so has the use of the euro as a reserve currency by central banks. This is a reversal of the adverse trends seen during the crisis.9 Obviously, this good news is not yet a guarantee of the single currency’s ultimate success. The eurozone has had brief spells of improvement only to be followed by serious breakdowns. And there are still unresolved issues, the biggest one being the economic condition of Italy,10 the area’s third-largest economy, fraught for years by banking, public-finance, and labour-market difficulties. Also, the eurozone has yet to complete an array of reforms, especially the formation of the banking union and reconstruction of its fiscal management. These reservations notwithstanding, much seems to indicate that the eurozone economy is indeed turning the corner, which may carry important political consequences, especially for candidate countries. Their publics will surely notice the improved condition in the eurozone, and may tilt towards a more favourable view of the idea of adopting the single currency (something currently opposed by 72% of Poles11).

8 J. Matthes, A. Iara, B. Busch, “Die Zukunft der Europäischen Währungsunion. Ist mehr fiskalische Integration unverzichtbar?,”IW-Analysen , no. 110, 2017. 9 European Central Bank, The international role of the euro, July 2017, www.ecb.europa.eu. 10 P. Legrain, “Italy on the Brink,” Project Syndicate, 8 December 2016, www.project- syndicate.org. 11 T. Nyczka, “Nowy sondaż CBOS. Polacy chcą Unii Europejskiej, ale nie euro,” Wyborcza.pl, 27 April 2014, http://wyborcza.pl.

The Polish Quarterly of International Affairs, 2017, no. 2 11 Sebastian Płóciennik

Figure 1. GDP growth rate in the eurozone, EU-28

Source: Eurostat.

Figure 2.

Fiscal deficit in the EU-28, eurozone (% of GDP)

Source: Eurostat.

12 The Polish Quarterly of International Affairs, 2017, no. 2