Counterfactual aid evaluation: when what you see may not be what you're getting

Prowse, Martin; Cabral, Lidia

Published in: Europe's World

2010

Link to publication

Citation for published version (APA): Prowse, M., & Cabral, L. (2010). Counterfactual aid evaluation: when what you see may not be what you're getting. Europe's World, 140-143.

Total number of authors: 2

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Counterfactual aid evaluation: when what you see may not be what you're getting Prowse, Martin Philip; Cabral, Lidia

Published in: Europe's World

Publication date: 2010

Citation for published version (APA): Prowse, M., & Cabral, L. (2010). Counterfactual aid evaluation: when what you see may not be what you're getting. Europe's World, (14), 140-143.

Download date: 21. maj. 2015 Europe’sWorld SPRING 2010 | #14 | E12 THE ONLY EUROPE-WIDE POLICY JOURNAL

Defence cooperation Soren Gade Jensen ”Home-grown” terrorism Thomas de Maizière Enlargement’s ills Mart Laar | Heather Grabbe Jobs strategy Mariano Rajoy € versus $ Charles Wyplosz U.S.-EU tensions Kurt Volker After ”Hopenhagen” Steen Gade Nick Mabey Arab democracy Khaled Hroub Fair trade Peter Lilley , Paul Tucker

IENSTBIER OTHER A UTHORS: INTERNATIONAL MATTHEW LEVITT, PATRICK MESSERLIN, ´I D I Rˇ ANUTA VESSELA TCHERNEVA, DEISY VENTURA SECURITY & DEFENCE , J , D , ¸ ´IA ERVIS ILKKA LAITINEN, HUGO MACPHERSON, JEAN-PIERRE MAULNY, DICK URR ALNIETE D G ZANDEE EUROPE KATINKA BARYSCH, HIDO BISˇˇCEVIC´, MOJMÍR K EZA EMAL NGEL , R HAMPL, GILLES SAINT-PAUL, CONSTANZE STELZENMÜLLER , K , , A ANDRA ERRY SUSTAINABLE EUROPE KNUT H. ALFSEN, NICK -F AIANU , S AHBUBANI , D RASSONI ISANI MABEY DEVELOPING WORLD LÍDIA CABRAL, F M P OSEN Leszek BalcerowiczANIEL | P , ECKHARD DEUTSCHER, MOSES M. IKIARA, SCHINGER , JEAN , D ONICA ISHORE DAM ÜRK I , A T MARTIN PROWSE, ROGER RIDDELL ARAB Global governance, M , K YBERG ERGSTEN N ANILO WORLD ABDULLAH BAABOOD, ALON B ARS Robert HutchingsOLFGANG | Iain, L BeggÖTTERING, D RED ROZDIAK P BEN-MEIR, NATHAN J. BROWN, D ARAGANOV , W K ERT HIXUE ERHOFSTADT EZZEDINE CHOUKRI FISHERE, -G S V ILLIAM ÜBNER OGHADAMANS UY CLAIRE SPENCER Pascal LamyAND |C.W F H SERGEI M H JIANG G

EUROPE'S WORLD GLOBAL GOVERNANCE SNAPSHOT

he search is on for 'global governance' predominantly the IMF, World Bank and the UN solutions to the world's economic and and its agencies – and their answers revealed Tpolitical problems. The trouble is, of some wide differences of approach. course, that there's not much agreement across Europe or around the world on what sort More than four-fifths of the panellists want IMF of policy instruments, institutions and rules reform, for example, with two-thirds wanting would open the way to a fairer international that immediately. But only a quarter or so think system serving the needs of North and South, the nature of its reform should be 'radical'. The East and West while avoiding the pitfalls that picture was broadly similar for the World Bank led to the global crisis. and the UN Security Council, and also for the G20 where 70% of our panellists wanted to see To take a snapshot of the main areas of agreement reform, but with only 17% envisaging sweeping and disagreement, Europe's World has consulted changes of one sort or another. some 50 leading figures as contributors to this issue's special section on global governance. The The panel was also asked about some of the new opinions they put forward – some in the form of global governance mechanisms that have been full-length articles, others in shorter comments mooted. Almost four-fifths backed the creation and others still in their replies to an array of of an international climate change agency, and questions – show that while there is consensus there were small majorities of 58% and 62% in some areas there are strong disagreements respectively for a carbon tax global coordination that stand in the way of a common European authority and an international financial derivatives position on global governance, let alone a unified and hedge funds authority. approach amongst the international community. The section on global governance highlights On the principle of global governance as a different strands of thinking on what is perhaps credible and effective mechanism, WTO chief the most important policy issue of today. But it’s Pascal Lamy opens our special section with a also a microcosm of the efforts of Europe’s World warning that coherence and credibility will be to create healthy and constructive debate on the major challenges. But he agrees with British many policy challenges that face us in Europe expert Iain Begg that Europe's half-century of and elsewhere. progressive and enlightened integration gives the EU the experience and authority that could enable Europeans to shape much of the form and content of global governance. Giles Merritt But European consensus on where we go from Editor-in-chief here is far from certain. About half of the Geert Cami Europe's World contributors to the special section Publisher constituted a panel representing very different areas of expertise and nationalities who were asked their views on the degree and urgency of reform to existing international institutions –

Spring 2010 Europe’s World | 1 Football belongs to everyone, everywhere

UEFA is building thousands of mini-pitches across Europe, creating new public spaces for young people to play.

With UEFA, football means solidarity. We redistribute the revenues from our competitions to all levels of the sport, amateur and professional. TABLE OF CONTENTS

Section 1 INTERNATIONAL ■ The 'Obama effect' has been to lay bare deep transatlantic tensions by Kurt Volker Commentary by Vessela Tcherneva...... 8

■ How the rich OECD nations should handle the emerging giants by Patrick Messerlin Commentary by Deisy Ventura...... 14

■ What Europe can do to secure a deal with Iran by Matthew Levitt ...... 20 SECURITY & DEFENCE

■ It’s high time the EU and NATO worked shoulder to shoulder by Soren Gade Jensen 26

■ How governments should compensate for defence spending cuts by Dick Zandee 30

■ Only a European re-think can tackle home-grown terrorism by Thomas de Maizière Commentary by Hugo MacPherson...... 34 ■ Europe is ready for a common borders policy by Ilkka Laitinen Commentary by Jean-Pierre Maulny...... 40 GLOBAL GOVERNANCE

■ Global governance is a challenge for democracy (but an EU opportunity) by Pascal Lamy ...... 48

■ Global governance could take a leaf from the EU’s book by Iain Begg ...... 53

■ The Europe's World panel on global governance ...... 57 Plus contributions from C. Fred Bergsten, Daniel Daianu, Kemal Dervis¸, Jirˇí Dienstbier, William Drozdiak, Monica Frassoni, Angel Gurría, Danuta Hübner, Wolfgang Ischinger, Sandra Kalniete, Sergei A. Karaganov, Kishore Mahbubani, Reza Moghadam, Jean Pisani-Ferry, Hans-Gert Pöttering, Jiang Shixue, Danilo Türk, Guy Verhofstadt...... 60

■ Worldwide reform means engaging public opinion first by Leszek Balcerowicz Commentary by Adam S. Posen ...... 70 ■ Why U.S.-EU economic co-operation holds the key to global governance by Robert Hutchings...... 76 ■ Ending boom and bust: The case for macroprudential instruments by Paul Tucker Commentary by Lars Nyberg ...... 80

Section 2 EUROPE ■ Why the euro is not on course to dislodge the dollar by Charles Wyplosz ...... 86

■ A jobs plan for Spain (and Europe too) by Mariano Rajoy Brey Commentary by Gilles Saint-Paul ...... 90

■ Taking stock of EU enlargement’s successes and failures by Mart Laar Commentary by Katinka Barysch ...... 94

■ We've got to get the EU’s Balkans enlargement back on track by Heather Grabbe Commentary by Hido Bišcˇevic´ ...... 100

■ Why Germany looks set to go on punching below its weight by Constanze Stelzenmüller ...... 104

■ The EU is making a big mistake on banking supervision by Mojmír Hampl ...... 108

Spring 2010 Europe’s World | 3 Doing more with less. Pure comfort. Buildings today account for up to 40% of the world’s PureComfort® CCHP (combined cooling, heating and power) total energy demand.* Addressing their high energy system solutions can more than double energy efficiency over consumption is critical. United Technologies offers most conventional power grid sources. solutions to reduce buildings’ energy use right now.

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*International Energy Agency, “Worldwide Trends in Energy Efficiency,” 2008. **From year-end 1996 through year-end 2009. ***National Science and Technology Council, “Federal Research and Development Agenda for Net-Zero Energy, High-Performance Green Buildings,” October 2008. TABLE OF CONTENTS

SUSTAINABLE EUROPE ■ A low carbon strategy for Europe by Nick Mabey Commentary by Knut H. Alfsen ...... 120 ■ The climate challenge now offers the EU a global role by Steen Gade ...... 125 Section 3 THE DEVELOPING WORLD

■ Why we need a radical re-think of official aid by Roger C. Riddell Commentary by Eckhard Deutscher...... 128 ■ The global slump makes a fair trade revolution more urgent than ever by Peter Lilley Commentary by Moses M. Ikiara ...... 134 ■ “Counterfactual” aid evaluation: When what you see may not be what you’re getting by Martin Prowse and Lídia Cabral ...... 140

Section 4 THE ARAB WORLD ■ What an effective Arab strategy for the EU should look like by Abdullah Baabood Commentary by Claire Spencer...... 144 ■ The West’s hollow talk of Arab democracy by Khaled Hroub Commentary by Nathan J. Brown ...... 150 ■ How Europe could alter the Arab-Israeli ‘political calculus’ by Ezzedine Choukri Fishere ...... 156 ■ European resolve (and cash) could end the Palestinian refugee crisis by Alon Ben-Meir...... 160

Section 5 VIEWS FROM THE CAPITALS

■ ATHENS – Greece is not just Europe’s black sheep – it’s truculent too by Nikos Frangakis ...... 164 ■ MOSCOW – Russia-EU relations getting warmer, but still not cordial by Dmitry Polikanov ...... 165 ■ TALLINN – Bloodied but unbowed, Estonia is again to knock on the eurozone’s door by Aksel Kirch...... 166 ■ BRUSSELS – The Belgian paradox: High EU profile, low EU interest by Hendrik Vos ...... 167 ■ MADRID – Spain’s EU presidency looks like a tricky balancing act by Deniz Devrim ...... 169 ■ ANKARA – Turks are now puzzling over EU’s back-handed compliment by Mensur Akgün ...... 170 LETTERS TO THE EDITOR From Herbert Reul, Sean Barrett T.D., David Frost, Renier Nijskens, Josep A. Duran i Lleida, Daniel Hamilton, Thomas Huertas, Othmar Karas, Angela Knight, William White, Eduard Kukan, Harm Evert Waalkens, Michal Rutkowski ...... 172

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EUROMIL

Europe’s World is published three times yearly with the support of Friends of Europe, the government of Catalonia and Casa Árabe / Editor-in-chief: Giles Merritt / Sub-editors: Rowena House, Paul Walsh / EW Background Briefing: Katharine Mill, Paul Walsh / Co-founder and publisher: Geert Cami / Editorial Director: Julie Bolle / Publication Director: Adam Nyman / Community Manager: Dominique Ostyn / Design & Production: Fast Retail Communication / Address: Bibliothèque Solvay, Parc Léopold, Rue Belliard 137, B-1040 Brussels / Tel: +32(0)27387592 / Fax: +32(0)25440325 E-mails: For suggestions of topics and authors or for letters to the Editor: [email protected]; for advertising rates and bookings: [email protected]; to get a subscription to the printed version: [email protected]. Europe’s World is available free online: http://www.europesworld.org

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6 | Europe’s World Spring 2010 EUROPE’S WORLD EDITORIAL BOARD The Editorial Board of Europe’s World gives the journal a truly European breadth and balance. Its ranks include senior journalists and political and business figures.

GILES MERRITT Editorial Board Chairman and Secretary General of Friends of Europe

MIGUEL ANGEL AGUILAR PAT COX VICOMTE ETIENNE El País columnist Former President of the European DAVIGNON Parliament Vice President of Suez-Tractebel and President of Friends of Europe JORGO CHATZIMARKAKIS MEP ANNA DIAMANTOPOULOU MIA DOORNAERT Greek minister of national education Diplomatic Editor of the Belgian and a former EU Commissioner for daily newspaper De Standaard and Employment and Social Affairs spokesperson of the Belgian Prime Minister JEAN-LUC DEHAENE MEP TOOMAS HENDRIK ILVES BARON DANIEL JANSSEN Former Belgian Prime Minister President of the Republic of Estonia Former Chairman of the Board of Solvay

MONICA FRASSONI SANDRA KALNIETE GLENYS KINNOCK Former MEP and co-President of Former Latvian Minister of Foreign Former MEP the Greens Affairs and a former EU Commissioner for Agriculture and Fisheries ROBERT GRAHAM PHILIPPE LE CORRE ROBERT MANCHIN Ambassador-at-large of the Financial Partner with Publicis Consultants Founder and Managing Director of Times and a former adviser to the French the Gallup Organisation Europe Minister of Defence JOSEF JOFFE JOHN MONKS MARIO MONTI Publisher-Editor of the German weekly General Secretary of the European President of the Università Bocconi newspaper Die Zeit Trade Union Confederation (ETUC) and a former EU Commissioner for Competition PASCAL LAMY CHRIS PATTEN ANNA TERRÓN I CUSÍ Director General of the World Trade Chancellor of Oxford University and a Secretary and Representative of the Organization former EU Commissioner for External Government of Catalonia to the Relations European Union DORIS PACK MEP CARL BILDT ANTÓNIO VITORINO Swedish Foreign Minister Former EU Commissioner for Justice and Home Affairs

GIAMPIERO ALHADEFF GEMA MARTÍN MUÑOZ Secretary General of the European Director General of Casa Árabe and Parliamentary Labour Party its International Institute for Arab and Muslim World Studies EUROPE’S WORLD ASSOCIATE EDITORS Europe’s World draws on its Associate Editors’ expertise to identify creative authors, select inspiring and provocative topics and evaluate the quality of specialist articles INTERNATIONAL SECTION DEVELOPING WORLD SECTION EUROPE SECTION ANDRE AZOULAY SYLVIE BRUNEL KRZYSZTOF BOBINSKI Counselor to His Majesty the King Professor at the Université Paris- Runs Fundacja Unia & Polska, a pro Mohammed VI and President of the Sorbonne (Paris IV) and a former European NGO based in Warsaw. Anna Lindh Euro-Mediterranean President of Action contre la faim He was for many years the Warsaw Foundation for the Dialogue Correspondent of the Financial Times

ALYSON BAILES JEAN-PAUL MARTHOZ TØGER SEIDENFADEN Visiting Professor at the University Editorial Director of Enjeux Editor-in-Chief of the Danish daily of Iceland and former Director of Internationaux newspaper Politiken the Stockholm International Peace Research Institute (SIPRI)

IVAN KRASTEV SIMON MAXWELL PAUL TAYLOR Chairman of the Board of the Senior research associate at the Associate Editor of Thomson Reuters Bulgarian Centre for Liberal Strategies Overseas Development Institute (ODI)

SECURITY & DEFENCE SECTION SUSTAINABLE EUROPE SECTION ANDERS MELLBOURN JAMIE SHEA JACQUELINE MCGLADE Adjunct Professor of politics and Director for Policy & Planning at the Executive Director of the European journalism at Halmstad University Private Office of the NATO’s Secretary Environment Agency (EEA) and former Director of the Swedish General Institute of International Affairs

BROOKS TIGNER HANS-JOACHIM SCHELLNHUBER Editor and Chief Policy Analyst of Director of the Potsdam Institute for Security Europe Climate Impact Research (PIK)

Spring 2010 Europe’s World | 7 Section 1INTERNATIONAL The 'Obama effect' has been to lay bare deep transatlantic tensions

Despite Europe’s public enthusiasm, Barack Obama’s first year in the White House has revealed official dissatisfaction in both the EU and the U.S. over transatlantic relations. Kurt Volker, former U.S. ambassador to NATO, sets out his agenda for repairing and strengthening them

resident Barack Obama took office Equally, one hears American frustrations in late January 2009, and there can that despite President Obama’s investment Pbe little doubt that he remains of time and energy, including several trips to highly popular in Europe a year on. But Europe, there has yet to be any substantial it is also hard to escape the conclusion increased European investment in joining that despite the best of with the United States to meet intentions on both sides global challenges, starting of the Atlantic, there is The unrealistic with NATO’s top priority, dissatisfaction with the state euphoria has given the war in Afghanistan. For of transatlantic relations. many Americans, working One hears criticism from way to a perhaps with Europe is seen as Europeans about a U.S. exaggerated sense process-oriented and time- lack of attention, about of disappointment consuming, without delivering engaging with Russia more real results. than with America’s own allies, especially in Central Europe, These criticisms are all a bit unfair, but about under-valuing the European on both sides the unrealistic euphoria of Union and about waiting for the Obama a year ago has given way to a perhaps Administration to make up its mind on exaggerated sense of disappointment and Afghanistan. bruised feelings.

8 | Europe’s World Spring 2010 The more realistic view is that both COMMENTARY European and American complaints reflect long-term underlying challenges, and that these By Vessela TchernevaBy A have come into sharper focus because it is no longer possible to blame them on the Bush The truth is that Administration. For one of the major effects of the Obama presidency is that by taking the Europe and America Bush Administration out of the equation, some uncomfortable truths have been exposed. have diverging interests First, despite all the rhetoric of European unity and the new Lisbon treaty, there are urt Volker propounds two worrying major policy differences among European ideas: the first is that for Washington nations on some of the most important KEurope has ceased to be a priority, foreign and security policy issues: Russia, and the second that different expectations on energy and Afghanistan spring to mind, each side of the Atlantic now make working although there are others too. together very difficult.

Second, because of these policy divisions, Paradoxically, Barack Obama enjoyed support the advent of the Lisbon treaty, which mostly from both Europeans and Americans because both hoped he could solve these two problems. promises structural and process changes, Americans expected Obama to close the gap appears unlikely to make a real difference to with their traditional European allies and bring Europe’s inability to act as a coherent player them closer to the U.S. agenda. Europeans that is able to make full use of its substantial welcomed his election because they hoped political, economic and security resources. that he would be more “European” in style Where its member states already agree, the and sensibility. new EU “foreign minister” appointed under the treaty will have solid ground on which to As a recent European Council on Foreign act. But on the most important and difficult Relations report put it, Europeans tend to challenges, EU governments will still hold believe that if Americans don't share the strongly to their national prerogatives and same position on a global issue it is because positions. they simply don't understand it. Thus bridging disagreements is just a matter of Europe articulating its arguments better. And as The signals from the selection of the Europeans prefer to use soft power instead of EU’s new President of the European Council military means of war, they genuinely expected and its High Representative for Foreign Obama to share that preference. Any deviation and Security policy show that the major from that expectation was seen in Europe as a European states recognise this. Rather than misunderstanding that can still be corrected. select well-known, charismatic and strong leaders, EU heads of government instead But this European illusion must have chose lower key consensus-builders whose evaporated with the last words of President role is likely to be that of coordinating Obama’s speech at the Nobel Peace Prize

Spring 2010 Europe’s World | 9 member states. And rather than putting their exacerbate them. The EU will be drawn best people forward for the foreign minister toward an extended period of inward- portfolio, many member states put a higher looking institution-building now the Lisbon priority on securing key economic portfolios treaty is in force and a new EU leadership is in the incoming European Commission. settling in. The U.S. will be inclined to focus its energies elsewhere – regional crises and Third, despite the efforts of committed rising powers – rather than investing further Atlanticists in both the Bush and Obama effort in Europe. Atlanticists on both sides Administrations, working together with Europe need to work to reverse these trends. does not in itself seem to be a priority for a United States that must turn its attention to These tendencies can be overcome. Both the economy, healthcare, Afghanistan, Iran, sides should offer fresh leadership to re-define Russia and engaging such troublesome actors and re-invigorate an effective U.S.-European as North Korea and Burma. strategic partnership. As its first and defining leadership team under the The theory put forward Just because the Lisbon treaty, Europe’s new by these Atlanticists, among United States leaders should surprise critics whom I count myself, is that the and assert a strong role, U.S. and Europe form a single has a different rooted in a values-based, community that shares core president, global outward-looking concept democratic and human values; and transatlantic of the EU as a global actor that we face the same global challenges have not and strategic partner with challenges and to deal with the United States. And the them effectively, the Atlantic gotten any easier – Obama Administration has an partners must work together. only more visible opportunity to reach out to But this theory only gains this new European leadership wider acceptance when the U.S.-European with a broader, bolder vision and a fresh partnership actually produces results. It is commitment to a transatlantic community hard to make the case when results are lacking willing and able to tackle global challenges and Europe is seen to be divided and inward- together. looking, making only grudging contributions to the common effort. The key to these efforts will be the setting of an ambitious transatlantic agenda The “Obama effect” has thus lifted the to drive co-operation forward. It should veil on a host of deep-rooted problems; include the following elements: just because the United States has a different president, global and transatlantic t
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10 | Europe’s World Spring 2010 stages, driven by a substantive agenda and COMMENTARY focused on joint action. It needs to allow for co-ordination between the U.S. and individual Vessela TchernevaBy A EU member states, as well as the European Union’s presidency and Commission. This ceremony in December. Speaking of the necessity of Afghanistan as a ‘just war’, Obama co-ordination should be part of the whole noted: “I understand why war is not popular process of U.S. and EU-decisionmaking, rather in many countries, but I also know this: The than the setting-up of a negotiation between belief that peace is desirable is rarely enough two sides after decisions have already been to achieve it.” made (see the new report by Daniel S. Hamilton and Frances G. Burwell, “Shoulder to Shoulder: Obama badly needs his fellow Americans’ Forging a Strategic U.S.-EU Partnership”). support if he is to cope with the economic downturn and all its consequences. His t
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Spring 2010 Europe’s World | 11 Find related articles on t
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SJHIU COMMENTARY The above agenda can be derailed if we fail in Afghanistan. Failure would be catastrophic Vessela TchernevaBy A for the human rights of the population there, would destabilise Pakistan, increase regional This gloomy picture explains Kurt Volker’s pessimism about the future of the EU-U.S. instability and empower Islamist extremism. relationship. Yet his prescription for remedying It would also probably cause the United matters is not entirely convincing because it States to reject the notion that Europe presupposes that the issues he lists would have can be an effective global partner, settling equal priority on both sides of the Atlantic. instead into the view of Europe as a mere regional player and, in contrast to most America’s biggest immediate test will other regions, one that requires little U.S. be Afghanistan, and for Europe it will be attention. We are already on a dangerous Russia. And while the U.S. acknowledges the path with European contributions seen challenge, Europeans still prefer not to face by Americans to have been only sparing. up to the difficulties they have in engaging Partly as consequence and partly as cause, with Russia. Moscow prefers to build bi-lateral the United States is taking things more relationships with Berlin, Paris or Rome instead into its own hands. Because the future of of talking to Brussels, and in Europe some EU member states have been cultivating Russia transatlantic co-operation depends on it, assiduously. Engaging credibly with Russia, the Europe and the United States must give EU’s biggest neighbour, a substantial trading highest priority to a shared, transatlantic partner and key supplier of energy and other approach on Afghanistan and Pakistan. resources will be the Union's greatest foreign policy challenge. President Obama’s first year has highlighted the real, underlying challenges to the The transatlantic link cannot be a goal in transatlantic partnership. His second year, itself when the two partners' agendas no and the first year of the new EU leadership longer overlap sufficiently. Americans will armed with the Lisbon treaty, should now be ‘reset’ their relationship with Russia in line a year of building: What’s needed is the with their broader agenda. Europeans don't deep, architectural work of establishing a really support the war in Afghanistan and will stronger U.S.-European strategic partnership in the future be even less willing to participate in it. And overall, Europe will increasingly have with a compelling agenda that will carry us difficulty with being the global partner of a U.S. into the future. whose "unipolar moment" as the sole superpower is gone for good. But the marginalisation of the traditional western Kurt Volker is a former U.S. Ambassador to NATO alliance is still to come. and senior State Department official. He is now Managing Director of the Center on Transatlantic Relations at Johns Hopkins University’s School of Advanced International Studies, and a Senior Advisor Vessela Tcherneva is Head of the Sofia Office at the Atlantic Council of the United States. of the European Council on Foreign Relations. LWPMLFS!KIVFEV 7FTTFMB5DIFSOFWB!FDGSFV

Spring 2010 Europe’s World | 13 How the rich OECD nations should handle the emerging giants

A new world is dawning, warns Patrick Messerlin, in which the comfortable certainties enjoyed for so long by the world’s industrialised countries are to be challenged by the emerging economies. The answer should be for OECD members to improve their own governance and lead by example

here are now stark differences between – Brazil, China, India, Korea and Mexico – OECD countries burdened by negative have already played a decisive role in two Tgrowth along with skyrocketing debt major international economic issues – the and key emerging economies that are world trade regime and the management of already back to their pre-2008 growth levels. the worldwide economic crisis – while the Europeans in particular have to recognise jury is still out on the third one – the global their shrinking weight in relative terms at the environment. IMF, a forum much closer to their finance ministers’ heart than the WTO where over the Few people appear to realise the last two decades the Europeans have already fundamental contribution of the emerging suffered from “diminishing giant” syndrome. economies to the success of the current world trade regime, something that has In the aftermath of the G20 Pittsburgh been of great benefit to OECD countries as Summit last year bruised European and well as to themselves. During the last three American officials insisted heavily on the decades, the amazing success of China’s fact that G20 membership was imposing trade liberalisation has done much more “new responsibilities,” and they invited to convince the other developing countries policymakers from the emerging giants to be of the gains from trade than all the OECD more fully involved in designing a new global countries' exhortations. China has undertaken economic framework – implicitly suggesting over the last 20 years a liberalisation process that it has not been the case so far. that it took 40 years for the U.S. and Europe to do. And China is the WTO member that has Yet the evidence does not support this made the deepest liberalisation commitment European and American view. Rather, it on services, while Brazil has been decisive in suggests that the “core” emerging economies cracking U.S. and EU agricultural protection

14 | Europe’s World Spring 2010 and India in raising high the issue of services COMMENTARY liberalisation. During key WTO ministerial negotiations in July 2008, Brazil was the By Deisy Ventura most pro-active negotiator. The immediate reasons for the failure of those negotiations Yes the OECD must are generally attributed to India and the U.S., yet most observers seem to agree that the get its act together, responsibility of the U.S. was the greater. but these emerging On crisis management in the wake of countries don’t really the financial meltdown of autumn 2008, the emerging economies have certainly been as need it diligent and active as the U.S. and the EU, judging by IMF indicators. The deterioration atrick Messerlin thinks that the failure of the overall fiscal balances of South Korea, of OECD countries to address pressing China and India has been just as severe Pissues like trade, the economic crisis as in the larger EU member states. Crisis- and the environment, will have dramatic related discriminatory measures taken in consequences for the main emerging 2009 by all the main emerging economies economies – Brazil, China, India, Korea and other than India and Brazil are comparable Mexico. He even goes so far as to argue that to those in the U.S. and throughout the deficiencies among the OECD’s members EU. The general levels of government debt threaten world peace. forecast for 2014 are better controlled in the core emerging economies than in either These points must surely raise questions the U.S. or the EU. Last but not least, these about the OECD itself. Is it really the right institutional arena for the world’s emerging core emerging economies have abstained economic powers? Mexico has been in the from increasing tariffs, and their stimulus OECD since 1994 and Korea since 1995, packages grant much more limited subsidies and the future membership of Brazil, China to the banking and car sectors than do and India has become an OECD priority, comparable packages in OECD countries. even though their accession still seems The exception to this, of course, has been like a distant goal. Of the South American China’s dramatic stimulation measures in a countries, small and highly-liberalised Chile dozen or so sectors. But these have been was the first to join the organisation, an event industrial policies, and hence will be a that coincided with the coming to power of source of severe trouble in the future. Chile’s first conservative government.

As to the environmental issues and the This raises the question; does the prospect overall problem of climate change, the of OECD membership exert a positive positions of the emerging economies were influence on the governments of would-be until mid-2009 negative or defensive. But member countries? And do these countries India did much to change the mood when really want to become members? By and it became pro-active in the climate change large, these emerging economic powers are

Spring 2010 Europe’s World | 15 ´i debate in the run-up to last December’s COMMENTARY Copenhagen summit, and then just before the meeting opened China announced a Deisy Ventura substantial cut in the increase, although not the level, of its emissions. The initial already introducing the reforms that are hesitation of most emerging economies on needed to join the OECD because that’s how climate change was no great surprise, given to secure their own economic future, not that attitudes to these issues depend heavily because of any wish to enter the so-called rich man’s club. OECD membership could on income levels; the higher incomes are even be considered a prize these countries the more attention environmental issues may receive for making sensible economic receive and the stronger public support adjustments. for solutions. This has been illustrated within Europe itself where the poorer EU Another question raised by Messerlin’s member states have opposed the measures article is whether OECD countries can being proposed by the richer ones. Where contribute to world peace and to the health the emerging economies have been more of emerging economies. The economic crisis sensitive than OECD countries is on has shown the limitations of the economic environmental issues like fisheries. At the models adopted by OECD members. same time, Brazil has improved its forest Developing countries and emerging countries and agricultural land management while are clamouring for markets to be opened the U.S. and the EU have been massively because exports to developed states are critical to their economic future. But the subsidising production of environmentally- crisis has led once-staunch defenders of unfriendly (particularly detrimental to liberalism – the United States, for instance – forests) first generation bio-fuels. to opt for a measure of protectionism.

So much for the core group of emerging Because the developed world is finding it economies. The credentials of other G20 so difficult to live up to its own principles, countries like Argentina, Indonesia, South the future of the World Trade Organisation Africa, Russia, Saudi Arabia, South Africa has been put at risk and relations between and Turkey has been less convincing. These richer and emerging countries have been are countries that have been more hesitant further complicated. in trade matters, more ambiguous in the instruments they have chosen for managing Among the coming economic giants, the crisis, and that are still more reluctant Brazil has emerged the strongest from the crisis. But neither Brazil nor other developing to deal with environmental issues. These countries have presented an alternative to attitudes also largely echo their less than OECD’s development model. All emerging convincing economic performances. countries are distinguished by deep inequalities in income distribution, which The fact that the core emerging eco nomies has disastrous consequences for the quality have already contributed substantially to of their institutions. Human rights abuses are the shaping of the new global economic common, especially when it comes to framework doesn’t mean that they do not economic and social rights, and environmental

Spring 2010 Europe’s World | 17 still face serious challenges, with the huge dis-inclined to accept disciplines that they income discrepancies between themselves see as American or European tutelage. At and the rich countries endangering their the same time, they themselves are still far own long-term growth and political from being able either to exert leadership stability. This could yet impair their future or introduce more discipline. involvement in the G20 process. Those of the emerging economies that have This means that the OECD countries will democratic political systems are too often have to lead by example. When reforming confronted, just like OECD countries, by their own domestic regulatory frameworks, the “iron law of tiny majorities” – when they should avoid any dramatic swings governments have to rely on very small away from allegedly “rational markets” to majorities which greatly complicate the allegedly rational governments. Rather they taking of hard decisions. Non-democratic should improve the quality of regulation emerging economies are in no better along with enforcement and monitoring. shape, as is illustrated by the factionalism These are things that were largely taken for among China’s policymakers, where there granted throughout the last decade, but as are those who support rural versus coastal the crisis revealed were far from adequate. provinces, and market-based reforms As regulating is a form of competition versus state-control. This factionalism between governments, focusing on has so far prevented China from making improved regulation looks increasingly like progress on subjecting the yuan to market the best channel of influence available to forces, has fragmented China’s overall OECD countries. stimulus package into sectoral industrial policies and is forcing Chinese people to What, in concrete terms, would such an keep high saving rates for covering health approach mean? In trade matters, OECD and retirement expenses. All of this is countries should keep their markets open, making more difficult the much-needed and open those that are still closed – in “rebalancing” of the Chinese economy agriculture (crucial to the sustained growth towards more domestically-based growth. of emerging economies like Argentina, Brazil or Indonesia) or in services (crucial for In this context, what actions should the countries like India or Korea). Above all, OECD countries envisage? It is fashionable these areas hold the key to generating these days to look to stricter international more domestically-based growth in all the rules as “the solution”, but that’s not a emerging economies. All of this implies the strategy well-suited to times like ours that much stronger support of OECD countries, are dominated by an on-going shift of the and especially the U.S., for a successful tectonic plates in international economic conclusion of the Doha Round. relations. The combined emergence of new world powers with the diminishing The OECD countries' crisis management influence of the current powers is not has demonstrated a number of macroeconomic propitious for stricter disciplines. The flaws, lax debt policies for instance, that have world’s rising powers will increasingly be been amply underlined by the IMF. But there

18 | Europe’s World Spring 2010 are equally severe microeconomic flaws that COMMENTARY so far have been barely noticed, including over generous and largely uncontrolled subsidies Deisy Ventura to the banking and car sectors. Stern action in these areas needs to be taken by OECD issues don’t receive the attention they deserve. Although projects like biofuel development in countries as a matter of emergency. Brazil have been broadly welcomed, they are a drop in the ocean when set against the Climate change also requires the strong environmental devastation that takes place in involvement of OECD countries. Once the these countries. The northern hemisphere’s dust of the Copenhagen conference has timidity at Copenhagen has done little to begun to settle they should make concrete settle this matter. But the greatest common trend commitments to substantial financial weakness of both emerging and developed transfers to the poorest of the emerging countries is their failure to make sustainable economies. They should also be very careful development a reality. when choosing the instruments they will use; carbon taxes for instance are much more friendly to world trade, being similar to value added taxes, than cap-and-trade policies which are prone to discrimination of all kinds and so are potentially protectionist.

This year, Korea – one of the best performers during the global crisis – will hold the G20 chair, so giving strong support to Korea’s initiatives offers a splendid opportunity for the OECD countries to show that while they can still be proud of today’s slowly disappearing post-WWII world, because it has been the source of remarkable progress, they also do not fear the new world that is emerging.

Patrick A. Messerlin is professor of economics at Sciences-Po (Institut d'Etudes Politiques) in Paris and from 1999-2002 was Special Adviser to the World Deisy Ventura is a professor at the Institute Trade Organisation's Director General. of International Relations of the University of QBUSJDLNFTTFSMJO!TDJFODFTQPGS
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Spring 2010 Europe’s World | 19 What Europe can do to secure a deal with Iran

Economic sanctions against Iran have so far had little impact on the Iranian government’s nuclear enrichment strategy, admits former U.S. official Matt Levitt who helped design them. But he argues that greater EU efforts to put pressure on Tehran could bring real results

gainst the backdrop of the Iranian against Iran.” In December, 5IF
5JNFT of London government’s continuing crackdown reported that Tehran had been working on Aon its critics, Western powers are a triggering device for a nuclear bomb. Iran preparing for a fourth round of multilateral responded by test firing the Sajjil-2, the latest sanctions and other measures in the hopes version of its 1,200 mile range missile that of persuading Tehran to alter course on its brings south eastern Europe within range. controversial uranium enrichment policy. But even with Russia now apparently on Targeted financial measures have, of board, will more sanctions work? And is course, so far not stopped Iran from pursuing there a specifically European role to be its nuclear programme. But sanctions were played in such a strategy? never intended to do so. As a former U.S. Treasury official who was involved in crafting There is convincing new evidence that the campaign of targeted financial measures the Islamic Republic has continued pursuing aimed at Iran, I know that sanctions are no a secret nuclear weapons programme in silver bullet. On their own they can only do defiance of the International Atomic Energy so much, but coupled with such other tools Agency (IAEA) and UN Security Council as robust diplomacy and a credible military resolutions. Last September, the United States presence in the region, financial measures and some European allies exposed a new can create diplomatic leverage that should secret enrichment facility near Qom which, also focus on Russia, China, the Gulf States according to a recent IAEA report, suggested and America’s European and Asian allies. Iran may have additional secret sites. Iran acknowledged building “contingency centres" Sanctions can help to accomplish three like the Qom facility in response to “the goals; to disrupt Iran’s illicit activities; to augmentation of the threats of military attacks deter third parties from either knowingly

20 | Europe’s World Spring 2010 or unintentionally facilitating Iran’s illicit on the U.S. and EU designations of the activities; and to make Iran re-consider these Khatam al-Anbya construction company, activities. This last involves convincing the which is one of the most significant of the revolutionary and unelected leadership that entities owned or operated by Iran’s Islamic the nuclear programme is a threat to regime Revolutionary Guards Corps (IRGC) so far survival, not a guarantee of that. targeted. With the increased militarisation of the Iranian regime, and the abuses of But negotiation and diplomacy alone the IRGC-affiliated Basij militia, now is the will not convince Iran to abandon its time to target IRGC affiliates. Many of nuclear programme. The EU could therefore the IRGC entities involved in the regime’s become a critically important player. In nuclear and missile programmes and that the first place, the EU can continue to give their support to international terrorism actively seek international consensus on are also involved in the violent suppression multilateral sanctions through the UN to be of political protests at home. This makes implemented in 2010 now the the IRGC a possible target of unofficial 2009 deadline for Sanctions can help Iranian public resentment and diplomatic progress with Iran to accomplish three increases the likelihood that has expired. As important as the Iranian public will blame the entities to be listed will be goals; to disrupt the regime rather than the the unanimity of the decision Iran’s illicit activities; West for tightened sanctions. to impose sanctions, so it to deter third parties is vital that the EU should The EU could both add engage in robust diplomatic from facilitating to its own list and press for discussions with China and Iran’s illicit activities; inclusion on the UN list Iran’s Russia to develop consensus and to make Iran national maritime carrier, over sanctions with teeth. re-consider the Islamic Republic of Iran These should focus on Shipping Lines (IRISL), which entities engaged in illicit these activities the U.S. accused back in conduct in support of Iran’s September 2008 of being proliferation programme, in particular those, involved in illicit commerce. The State such as Bank Mellat and Bank Melli, already Department noted at that time that the designated by the U.S. These would follow IRISL had already been identified by the up on the warnings in UN Security Council UN Security Council as being engaged in Resolution 1803 calling on member states “proliferation shipments.” The IRISL has also to exercise vigilance over the activities of been implicated in shipping arms to terrorist financial institutions in their territories with groups, as in the January 2008 seizure all banks domiciled in Iran (Bank Melli and of the Monchegorsk, an IRISL-chartered Bank Saderat were singled out specifically), ship bound for Syria with components for and their branches and subsidiaries abroad. mortars together with powder, propellant, and shell casings for 125mm and 130mm Together with the US, the EU could press guns. Dutch customs automatically label the international community to follow up merchandise shipped by IRISL or Iran Air

Spring 2010 Europe’s World | 21 at the highest risk category and inspect the increasingly blunt warnings about doing cargo, and the UK government has banned business with Iran. The FATF is a 34-member British companies from doing business with organisation seeking global standards against the Iranian shipping line. money laundering and terrorism financing. The FATF has repeatedly warned about Iran But multilateral action is difficult to and has instructed member countries to achieve and can often lead to lowest common develop “counter-measures” to deal with its denominator decisionmaking. In parallel to illicit financial activities. demands for robust action at the United Nations, the EU and U.S. should pursue There is an EU role, too, in the area of financial sanctions focused on IRGC-affiliates informal sanctions. This would amount to and all other individuals and institutions little more than leveraging market forces. involved in Iran’s illicit activities. EU governments’ engagement with the private sector by drawing attention to the Another promising area where the EU risks of doing business with Iranian entities could take the lead would be to actively engaged in illicit conduct would have a support the efforts of multilateral bodies significant impact. Already denied access to like the Paris-based Financial Action Task U.S. dollar accounts, an EU ban on Iranian Force (FATF), which has issued a series of banks doing business in euros would have

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22 | Europe’s World Spring 2010 serious consequences for Iran, especially on the purchase or transfer from Iran of the coming hard on the heels of the latest U.S. same. The EU and US could also encourage government fine of a European bank, a countries to require ports and/or authorities record $536m penalty imposed on Credit to collect detailed, accurate, and complete Suisse for engaging in the illicit facilitation data regarding all cargo being shipped to of Iranian banking transactions. or through their countries (especially from risk-prone jurisdictions like Iran), to conduct This sort of outreach should be expanded rigorous risk assessments, and to proceed beyond the banking sector to insurance, with actual inspections as necessary. shipping, and other industries. Even in today’s economy, and to a Given the rapid progress certain extent because of There is an EU role, Iran is making on its nuclear it, the private sector is very too, in the area of programme, it may be time to sensitive to reputational consider more drastic and less risk and is acutely aware informal sanctions. targeted measures. Secretary of of its due diligence and This would amount State Hillary Clinton has spoken fiduciary obligations to to little more than about the possibility of inflicting its shareholders. As one leveraging market "crippling sanctions" on Iran. European diplomat put One promising avenue is Iran’s it, “what the EU needs to forces. An EU ban reliance on foreign-refined look at is measures that on Iranian banks petroleum. Insufficient refining restrict the Iranian banking doing business capacity means Iran re-imports sector from accessing the 25-40% of its needs from European financial sector, in euros would have refineries abroad. Targeting this transferring money out and serious consequences could be a powerful tool, with holding back accounts.” This for Iran the precedent being the would have a severe impact dramatic failure of the regime’s on Iran, but would first have to overcome gas ration card programme in June 2007. The countries’ competing trade interests. cards were loaded with a six month ration, but many Iranians reportedly used up their Iran is desperate for Western technology, entire ration within weeks. Actions like and Europe is a key market. The EU could targeting Iran’s access to refined petroleum play a critical role in denying Iran access are more likely than confrontation to to key technologies like the know-how to eventually convince the regime that the bomb liquefy natural gas, and in developing a more is more of a liability than an asset. systematic approach to dealing with Tehran's efforts to transfer technology and arms to Matthew Levitt is a senior fellow at The Washington radical allies in the Middle East. The EU could Institute for Near East Policy and adjunct professor expand its current policy banning the sale or at Johns Hopkins University’s School of Advanced transfer to Iran of "all arms and related material, International Studies. From 2005 to early 2007 he was as well as the provision of related assistance, Deputy Assistant Secretary for Intelligence and Analysis investment and services" to include a ban at the U.S. Treasury. .-&7*55!XBTIJOHUPOJOTUJUVUFPSH

Spring 2010 Europe’s World | 23 People are about NATO’s

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It’s high time the EU and NATO worked shoulder to shoulder

Afghanistan and Kosovo are worrying examples of the inefficiencies created by the impasse in relations between the EU and NATO. Soren Gade Jensen, Denmark’s Defence Minister, makes the case for improved co-operation between the two, leading to a more effective and comprehensive approach

he security threats of today’s The EU and NATO are among the important globalised world are too complex to actors, but unfortunately the relationship T be handled by any one nation, or between the two has too often been seen even by a single international organisation. as a zero-sum game – what’s good for one International terrorism, the proliferation is bad for the other – and to some extent of weapons of mass destruction, failed that’s still the case. Yet rational analysis states and fragile ones, the consequences shows that this is nonsense. The EU and of climate change, and cyber attacks all NATO relationship should instead be seen as require closer co-operation and an armoury a win-win endeavour, in which co-operation of civil and military responses. Effective benefits both organisations. multilateral co-operation is going to be in great demand. Although both the EU and NATO have achieved important steps forward in recent Almost 116,000 people at present serve years, there is still a surprising need to in 17 peacekeeping operations led by the explain why a close relationship between UN, which is an eightfold increase in UN them is so necessary. It seems obvious to me peacekeepers since 1999. The UN is tightly that closer EU and NATO co-operation is vital stretched, and increasingly is turning towards if we are to more effectively address today's other organisations for co-operation, just as security threats and conduct effective crisis was intended in the UN Charter. management operations.

26 | Europe’s World Spring 2010 The consequence of the current impasse practical implementation of the comprehensive in the relations between EU and NATO is that approach has primarily focused on the resources are not used in the best possible way. interaction on the ground between military units, Yet 21 nations are members of both organisations civilian experts and humanitarian organisations. and all their members have common objectives Experience has shown that there is a need for a and share the same values. more integrated approach on a political level as well as on an operational planning level. Military The sensitivities the relationship suffers and civilian engagements should be planned and from are well-known. But the strong support carried out in a much more synchronised and given by the U.S. to making the EU’s Common dynamic manner, rather than in a coordinated, Security and Defence Policy (CSDP) more but sequential and separate way. capable, combined with France’s reintegration into NATO, and now the Lisbon treaty, add more Enhancing the EU-NATO relationship would ingredients to a political recipe that could lead be a very important element in taking the whole to improved EU-NATO co-operation. Now is the concept of the comprehensive approach much time for a fresh start. further than has been the case so far. But the unfortunate reality is that a lack of clarity In many of the peace support operations surrounds both organisations’ co-operation being conducted around the world, we have mechanisms. This is especially true of situations seen a shift towards more robust military where the EU is engaged with a civilian mission engagements in unstable environments, and in an area where NATO is conducting military also an increasing number of multi-faceted and operations, at present Afghanistan and Kosovo. hybrid operations where military and civilian This lack of clarity limits possibilities for efficient capabilities are being deployed at the same co-operation, and thus the prospect of a more time. It has become very clear that military comprehensive approach. capability is far from offering the only solution to many of the crises we now face. You may win We face many challenges in Afghanistan. a war with military means, but you cannot win Most EU and NATO countries are contributing the peace. military forces to the ISAF mission. It is a tough job being carried out under strenuous To obtain positive results in the shortest conditions. A crucial part of the comprehensive possible time, military efforts need to be approach in Afghanistan is to build up and embedded in an overall strategy which also spans strengthen the capacity of the Afghan security political, diplomatic, civilian, humanitarian, forces and institutions. Without law and order and development efforts. This comprehensive Afghanistan will not be stable and without approach is what is needed, and will continue stability there can be no development. to be a Danish priority. The potential for EU and NATO co-operation Working together, the EU and NATO could in Afghanistan is obvious. Afghanistan is in many – along with UN, the African Union and others ways a test case for EU-NATO co-operation on – contribute efficiently to the application of a the ground. That means we have to cooperate genuine comprehensive approach. So far, the wherever and whenever conditions necessitate it

Spring 2010 Europe’s World | 27 and when it makes sense – not just where we find could be made a little easier if we were to take a it convenient. The EU and NATO urgently need number of practical initiatives. to improve their co-operation in Afghanistan because results on the ground will improve We should promote and pursue initiatives in the chances of long-term success, and will at the area of synchronised defence planning. A the same time strengthen the transatlantic synchronised and parallel planning process in dialogue. the two organisations would be an advantage for member states in their national planning The political choices open to European processes. It would also bring greater clarity nations should never be reduced to being as to what resources are actually available between the EU and NATO. We need both for either EU or NATO operations. We cannot organisations. NATO is the cornerstone of disregard the fact that we only have one set of our collective defence, and is also a forum forces. for transatlantic dialogue, a framework for international operations and a driver for We should also pursue initiatives for the Europe’s defence transformation. At the same common acquisition of equipment where there time, the EU has emerged as a serious security are critical shortfalls. The financial and economic actor, not just regionally but also globally. crisis has seen cuts in the defence budgets of The EU has proven its value in a number of many European countries, so resources are civilian and military operations, and I expect increasingly scarce, and capacities like transport it to further develop its military and civilian helicopters are very expensive. Multinational crisis management capabilities in the years solutions are an important tool for overcoming ahead. With the UN’s increased “outsourcing” of these critical shortfalls in both current and peacekeeping missions to regional organisations, future operations. Why do the same job at the the demand for EU crisis management tools will same time in two different organisations, when surely increase. The bottom line is that the EU 21 nations are members of both? The EU-NATO as well as NATO will continue to be an essential Capability Group offers a very good platform for framework for international crisis management enhancing this. operations. Combining the tools at the disposal of the EU and NATO would open the way to There is an obvious room for improving truly efficient multilateral co-operation in these EU-NATO relations and co-operation. The steps operations. needed to do so can be pragmatic, informal or BE
IPD. It is not so much a question of launching We cannot disregard the well-known yet another initiative, it is about political will. We sensitivities that exist in the EU-NATO Europeans need to generate the political will relationship. We have to do much more to needed to ensure the relationship between EU move ahead and break the current stalemate. and NATO better matches the security realities We owe it to the men and woman who already of the 21st century. contribute so much effort to existing EU and NATO operations. They risk their lives to help alleviate critical situations in hotspots and Soren Gade Jensen is Denmark's Defence Minister. crisis zones around the world, and their tasks GNO!GNOEL

Spring 2010 Europe’s World | 29 How governments should compensate for defence spending cuts

Most European governments cut their defence budgets last year, intensifying fears that the EU’s military outreach, and thus the goals of the European Security and Defence policy (ESDP), will be seriously weakened. The European Defence Agency’s Dick Zandee puts his case for a revolutionary approach to defence co-operation

t first it was called a “peace dividend”, equipment procurement and reduce the but now it’s seen as a very real numbers of military personnel they send on Aproblem. In the years following the foreign missions. end of the cold war, European defence budgets shrunk alarmingly. Only in recent Defence ministers are going to have years have they begun to to contend with some stabilise, with some national uncomfortable facts. Defence defence budgets even European inflation goes up faster than showing small increases as governments normal inflation, and one the result of political support that have already factor that contributes to for military campaigns in the this is the price of military Balkans, Africa and the Middle scaled-back on equipment, which each year East. The EU’s member states military spending will cost 5-10% more than together spent`193bn on have so far failed the previous year. Military defence in 2005,`201bn in to co-ordinate deployments are in any case 2006, `204bn in 2007 and very expensive, with the `200bn in 2008. these measures average expenditure for, say, on an international a Finnish soldier deployed But in the fall-out from basis in KFOR in Kosovo running the global financial crisis, at about`95,000 for a six many European defence month deployment period, ministers are once again having to slash and for the EUFOR operation in Chad spending. The impact of these cuts will the comparable bill goes up to`250,000 be felt over the next few years when per soldier. The 1,800 Dutch troops in European governments are forced to delay NATO’s International Security Assistance

30 | Europe’s World Spring 2010 Force (ISAF) operation in Afghanistan cost money through unnecessary duplication. twice what they did four years ago. All in More standardisation is needed and we all, modern missions cost far more than must encourage Europe’s very different peacekeeping missions of the past. Last national military systems to work together. year France had to spend an extra `260m in its missions to address urgent operational The figures speak for themselves; there requirements. This was double what it are still four main battle tanks in the EU, spent the year before, and five times more seven different attack helicopters and 23 than in 2007, meaning that most probably types of armoured fighting vehicle. Sixteen it will have either to cancel or postpone naval shipyards produce an assortment of military spending in the future. frigates, submarines and other equipment, whereas only three shipyards supply the In the face of defence spending cuts, United States Navy. In Europe, 80% of how can European countries defence investment is spent best maintain their military with national suppliers. capabilities? Those European Co-operation governments that have between EU To address the already scaled-back on countries should fragmentation of defence military spending have so far not be limited just spending in Europe, failed to co-ordinate these co-operation between EU measures on an international to procurement as countries should become basis. Their cuts have also countries also need the rule rather than been very uneven, so that to pool and share the exception. And this some governments greatly co-operation should not be reduced certain services, but their resources limited just to procurement left others intact. The Danes, as countries also need for instance, gave up their submarines to pool and share their resources. The while the Dutch sacrificed their maritime European Defence Agency’s project for a patrol aircraft. But the bottom line is that European Air Transport Fleet is now looking with less money available, the only way at how to pool training and logistics as European countries can maintain if not well as procurement, how to exchange improve their military capabilities is by flight hours and how to make aircraft setting priorities together. available to others. Role-specialisation and task-sharing have long been taboo, Last year EU member states set 12 but are now increasingly necessary for priorities aimed at addressing shortfalls in more and more countries. Multinational aircraft equipment and at assuring supplies co-operation between clusters of European of the devices needed to deal with roadside countries is now addressing this problem. bombs and shoulder-fired missiles. But Nordic countries have shown the way, these priorities can only be achieved if with Norway and Sweden having already European governments put an end to aligned their military education, training, nationally-focused policies that are wasting procurement and other investments and

Spring 2010 Europe’s World | 31 with Finland and Denmark now joining external and internal security is no the effort. The establishment of the longer relevant. Illegal immigration, drug ‘European Air Transport Command’ by trafficking, environmental challenges Belgium, Germany, France, Luxembourg and the disruption of energy flows are at and the Netherlands is another example the top of Europe’s homeland security of European defence collaboration. agenda. The three pillar EU structure From 2010 onwards the Education Agent created by the Maastricht treaty in the Training Course will replace five separate aftermath of the Cold War was out of national commands – saving costs and touch with these issues. But now of improving air transport aircraft. course all that is at an end with the introduction of the Lisbon treaty and We should also encourage further Catherine Ashton’s new role as High collaboration between military bodies Representative for the Common Foreign and civilian bodies. Terrorism now poses and Security Policy, as well as Vice- Europe’s greatest security threat and President of the Commission and head the traditional separation between of the European Defence Agency.

EUROPE’S WORLD BACKGROUND BRIEFING

The cuts are deep, and going deeper

The defence budgets of EU member states were cut are ill-equipped for a global security environment sharply in 2009 and analysts predict that the cuts will that requires investment in modern body armour, go deeper still. The U.S., the UK and France were the night vision equipment and mine resistant armoured only NATO countries that met their minimum of 2% vehicles. The heavy weaponry of the Cold War defence spending pledges as they respectively spent era is no longer of much use. Yet these countries 4.7%, 2.9% and 2.3% of their GDPs on defence last are either unable or unwilling make the spending year. That meant a one percent drop in spending for commitments needed. Last year, Lithuania’s defence the U.S. but a 4.7% increase in spending for the UK budget was 1.16% of GDP, down 6.7% on the and a 5.4% increase for France. previous year, and Poland’s defence budget was trimmed by 5%. Most European countries slashed their defence budgets last year. Italy and Spain made cuts of European countries last year spent $280bn on 6.9% and 3.9% respectively, which was more or defence, compared to the $738bn spent by the U.S. less the norm among European countries. These On paper, Europe boasts more personnel in active widespread defence spending cuts threaten dire duty (1,536,274) than the U.S. (1,445,000), but in consequences as European defence capabilities reality only a small number of European troops can lag far behind those of the U.S., with complaints be used effectively and few can be deployed to about sub-standard weapons, communications and combat zones. The EU’s Nordic Battlegroup, for transport equipment already becoming more and instance, couldn’t take part as planned in the EUFOR more commonplace. Countries new to NATO like mission to Chad in 2007, and the mission itself was Latvia, Lithuania, Bulgaria, Romania and Poland are so under-resourced that EU forces had to fall back left most vulnerable by recent cuts because they on using Russian helicopters.

32 | Europe’s World Spring 2010 Thanks to the Lisbon treaty the fully. While a “European Army” is an Commission will find it easier to unattainable goal, European defence synchronise research investment co-operation should aim at pooling, projects like Software Defined Radio and sharing and even integrating military Unmanned Aerial Vehicles; this is because means. EU member states need to join under the European Co-operation together in small groups to invest in Framework for Security and Defence this military equipment, and we should avoid can be done on a more systematic basis. creating any core groups that exclude Each project can now be monitored others. The EU’s member states can by the EDA, the Commission and the perform a lot better on defence if they European Space Agency, and this will spend their scant resources wisely, but ensure that taxpayer’s money isn’t this means collaborating. spent twice. Another advantage will be that civilian and military communities collaborate more, and as their interaction increases they won’t be needed as much Dick Zandee is head of the Planning & Policy Unit of the in conflict zones and across Europe. European Defence Agency. %JDL;"/%&&!FEBFVSPQBFV

But cross-pillar co-operation should not be limited to investment in technology. A variety of national and international E.W. ADVISORY BOARD MEMBER initiatives have been taken in the area of maritime surveillance, but most lack co-ordination. Last November, the Council decided to aim for an integrated approach to maritime surveillance that would involve both civil and defence actors. This directive should work more effectively across pillars, agencies and national borders than previous efforts. For too long civil-military co-ordination has been a buzz-word in Europe but no The Center for Strategic Studies - University of Jordan more than that, so now is the time to The Center for Strategic Studies (CSS) was established in turn it into a practical reality. 1984 as an academic unit of the University of Jordan to conduct research in the field or regional conflict, international relations and security. A major develop- ment that has influenced the Center's course of research In today’s world of multiplying and begun in 1989. With this dynamic process, the CSS expanded its scope of interests to include research into security threats, the coming decades will democratization, political pluralism, the peace process, development, the economy and the environment. be critical to Europe’s defence capabilities. Even when we emerge from the economic crisis our resources will be Tel: (962) 6 5300 100 Fax: (962) 6 535 5515 E-mail: [email protected]. www.jcss.org constrained, so European nations will have no choice but to co-operate more

Spring 2010 Europe’s World | 33 Only a European re-think can tackle home-grown terrorism

There’s no conflict between the freedom of the individual and the demands of public security says Thomas de Maizière, Germany’s Interior Minister. What’s needed is new thinking on how to prevent the radicalisation of young people in Europe's Muslim communities

slamist terrorism has in recent years Freedom and public security are not become central to security policy in irreconcilable opposites. They complement I Germany and many other Western and even depend on one another. Public countries. The terrorists’ intention is to security is a pre-requisite for the unfolding sow mistrust and stoke fears; their aim is of freedom; and protecting freedom is to weaken the democratic rule of law and at the core of a state’s responsibility for to shatter citizens’ trust in our society. public security. On our side, we are determined not to let this happen, but the reality A state’s monopoly on is that frequent terror alerts New security laws the use of power is justified if do not help because they to fight terrorism citizens can rely on the state tend to increase rather than to provide for their security. reduce insecurity among have sometimes But this does not imply the population. created the false that we need ever newer image that states security laws. The prevention The debates across of threats, along with law Europe on new security threaten rather than enforcement that involves laws to fight terrorism have protect the freedom the prosecution of offenders, sometimes created the false of their citizens are crucial responsibilities, image that states threaten but they do not demand as a rather than protect the freedom of their pre-requisite the adoption of new laws. citizens. Frequently, it is assumed that there is a conflict between freedom and Of course security authorities need public security; even though in fact but suitable instruments to fight terrorism. there is none. First as terrorists take advantage of new

34 | Europe’s World Spring 2010 technologies, the legal and technical means COMMENTARY of security authorities must also be adapted. State intervention is right and important, By Hugo MacPherson but terrorism cannot be fought by the security authorities alone. Nothing wrong Prevention is better than repression. We with strategies, but should do everything in our power to avoid radicalisation, to interrupt radicalisation it’s local-level work processes at an early stage and to guide that pays off radicalised persons back to our society and values. An important task in the years homas de Maizière outlines three factors ahead will be to erode the foundations of he thinks essential to a re-think of the terrorism, and this requires a commitment Thome-grown terrorism threat in Europe. by everyone. He emphasises preventative and community- Western countries face a worsening based approaches because by looking at the problem of home-grown terrorism. Despite root causes of how and why some people are some of the more visible signs that may radicalised we can perhaps intervene earlier. exist, society at large is often unaware of He also calls for Muslim communities to accept special responsibility for fighting Islamist this radicalisation process. This is where we extremism, and lastly he says closer East-West need to step in, and that means we need to and intra-European co-operation is key. find answers to three questions. First: Where and how do people become radicalised? But this looks more like a wish list than a Second: Why are they attracted to radical game plan. Reams of research have already ideas? Third: What can we do against it? explored why people are radicalised, and they’ve found that no "profile" of potential terrorists In Germany, radicalisation takes place exists. That makes identifying people who are to a large extent through radical mosque vulnerable to radicalisation very difficult. communities or private prayer rooms, and also through the internet. State surveillance The community-based approach that de is one possible counter-measure, and is Maizière suggests is a good start. Work is now used, but it is just as important to work underway in the UK to raise awareness of the myriad factors that can lead to radicalisation closely with the Muslim population. with local political leaders, police, teachers and youth workers all increasingly aware The signs of radicalisation can be spotted they have a part to play in recognising the much earlier at local level than by the early signs of radicalisation. security authorities. Parents, friends or even the Imam must be persuaded that they These are delicate relationships that can will be acting responsibly if they decide to only be built up over time, so a vital contact the relevant state agencies in such ingredient for any counter-terrorism effort is cases. Doing so is not about denunciation gaining the support of Muslim communities.

Spring 2010 Europe’s World | 35 but rather it is about helping these (usually) accept radical ideologies if they do not feel young people find their way back into society. part of society. This is especially true of young people who feel excluded, and who The state can nevertheless do much to have experienced real or even just imagined provide support. The security authorities discrimination. When they lack attractive are responsible for monitoring the more social or professional prospects, they often visible signs of radicalisation, and other think they could find a new and more state agencies can help potential terrorism welcoming home within a radical group. recruits to leave the extremist environment and become reintegrated in society. Society’s task is therefore to give them Nothing, though, can replace the support a feeling of belonging, and to offer them a and help of these young peoples’ immediate more enticing perspective on life. And that environments. means a new sense of commitment by civil society as a whole. Social cohesion must The second question – why are some become more than a mere catchword. Our people attracted to radical ideas? – has been society needs to engender a greater respect thoroughly explored both by researchers and acknowledgement of others. It needs and security practitioners, who generally to acquire more knowledge about different agree that people are more inclined to cultures and religions. And it needs to create

E.W. ADVISORY BOARD MEMBERS

36 | Europe’s World Spring 2010 a tightly-knit network of personal relations COMMENTARY between the members of different social and religious groups. These are the essential By Hugo MacPherson ingredients of a new effort to overcome and eventually prevent prejudice. Any suspicions of “government spying” on young Muslims or perceptions of a culture It is equally important that our citizens of Islamophobia are likely to see Muslim community leaders rejecting the idea of should consider it their duty to commit joining forces to tackle the threat. Even themselves to the principles of liberal a soft approach is better than nothing, democracy. It is everyone’s task to actively because no counter-radicalisation effort can counter extremism and speak out on survive without support from the Muslim radical statements, whether in the public communities. or private sphere. Governments have to shoulder some of the Muslims have a particular responsibility as blame for the phenomenon of home-grown regards the fight against Islamist extremism. terrorism. Research suggests that perceptions Within their own communities, or in social of neo-colonialist foreign policies of some frameworks such as youth work, they have EU countries have helped the radicalisers’ the opportunities that others do not. Non- recruitment of young people. But it’s forging Muslims rarely have much contact with partnerships outside Europe that is going to be equally important, even if fraught with Muslims who are in the process of becoming complications. radicalised, and in any case their arguments would not be so well received. Working alongside countries like Saudi Arabia and Pakistan doesn’t automatically The UK and the Netherlands in particular yield high-quality intelligence and a greater have notched up a number of very positive understanding of the terrorist threat. These civic engagement projects involving Muslims, countries are often slow to identify extremist and we in Germany intend to make use of groups operating within their borders, and the experience that has been gained by they also tend to be powerless to stop facilitating and supporting similar contacts them. But it’s also true that radical groups with Muslim groups. from these countries do sometimes influence Europe's young people, especially through Another element of preventive counter- the internet, so we should be investing more in technological methods to combat these terrorism that is essential is that Europe on-line threats. and the Western world as a whole should cooperate much more closely with key The bulk of radicalisation nevertheless still Muslim countries. We need Turkey, Saudi takes place among young people through Arabia, Afghanistan, Pakistan and the personal relationships based on face-to-face Maghreb countries as partners in the fight contacts. If home-grown terrorism is to be an against Islamist terrorism, and that in turn important focus of our security efforts, then means improved operational co-operation home is where we must start. Al-Qaeda- between security authorities. These countries inspired terrorists thrive on the way we

Spring 2010 Europe’s World | 37 SECURITY & DEFENCE AGENDA

The Security & Defence Agenda (SDA) is the only established forum in Brussels devoted to debating the future of global security and defence trends. Our events bring together representatives from EU institutions, NATO, national governments, industry, specialised and international media, think tanks, academia and NGOs to discuss European and transatlantic security and defence policies.

Topics discussed include:

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SECURITY & DEFENCE AGENDA ˆLˆœÌ mµÕiÊ-œÛ>Þ]Ê*>ÀVÊjœ«œ`] £ÎÇÊÀÕiÊ iˆ>À`]Ê ‡£ä{ä]Ê ÀÕÃÃiÃ]Ê i}ˆÕ“ /\ʳÎÓÊ­ä®ÓÊÇÎÇʙ£Ê{nÊ\ʳÎÓÊ­ä®ÓÊÇÎÈÊÎÓÊ£È E: [email protected] W: www.securitydefenceagenda.org have a clear interest in maintaining their COMMENTARY own stability, and that means they should be anxious to allow terrorist groups as little By Hugo MacPherson room for development as possible in their territory. At the same time, it is in our interest continue to underestimate them. They are to obtain from them as much important not, as Thomas de Maizière apparently information about terrorist structures and hopes, operating to "sow distrust in our societies", but rather they are motivated activities as we can. by a desire to see their vivid revolutionary fantasies – based though they may be on Improved co-operation shouldn’t stop a warped version of Islam – made reality in there. We need to establish an extended Europe and around the world. dialogue with Muslims and with Muslim countries, especially those countries So is a Europe-wide re-think what's needed to from which many of the Muslims living combat the home-grown terrorism threat? Yes, in Germany originate, and which have a Europe can do better on sharing information great influence on their religious practices. on the activities of radical groups, on creating That makes it doubly important that we profiles of recent radicalisation cases and should convince these countries to accept by promoting counter-terrorism best practice. that their own Islamic authorities have a Above all European governments should be special responsibility in the fight against looking again at policies that have contributed to the radicalisation of young people. radicalisation. And because Europe's Muslim communities But protecting our citizens against the are not all the same we should be cautious threat of Islamist terrorism is a responsibility about any calls for a Europe-wide counter- shared by all of us – the Federal government, terrorism strategy. It might look neat on paper, lawmakers, civil society, our EU partners and but it is the slow-burning local community- Muslims both in Germany and abroad. We focused approaches that are beginning to need one another, and in many areas we can show dividends. Building a European framework only make a difference if we act together. for sharing information comes later.

Hugo MacPherson is a London-based specialist on how to engage with young Thomas de Maizière is Germany’s Interior Minister. Muslims who are vulnerable to violent NC!CNJCVOEEF extremism. NBDQIFSTPOIVHP!ZBIPPDPVL

Spring 2010 Europe’s World | 39 Europe is ready for a common borders policy

Control of the EU’s external borders is improving, says Ilkka Laitinen, who heads the Frontex agency. But he warns that without a coherent Europe-wide approach to illegal immigration and cross-border criminality it will be of little use

urope’s borders are both permeable Some 29 countries, EU member states and and impermeable; the EU’s associates, are either in Schengen or in Ephilosophy is that its external the process of joining. Its main feature is borders should be as permeable as the mandated absence of internal border possible to legitimate flows of passengers controls, and this creates an obvious need for and goods, and impermeable to illicit strong external controls. Any challenge not activity. So, to better met effectively at the zone’s understand the challenges EU governments are external borders becomes a of border control we need common, European one for all to answer the question doing a lot the countries in Schengen. “permeable to what”? Border to tighten up management mainly revolves co-operation at The Schengen zone’s around combating illegal Europe’s borders, border security is therefore immigration and the closely- only as strong as its linked problem of human but much more weakest link, and that’s why trafficking. On top of that is still needed Schengen has dictated a there is cross-border crime shift of resources away from such as the smuggling of weapons, drugs internal borders and a strengthening of and dangerous substances and the wider external ones. It also led to the creation problem of terrorist activity. of Frontex, the EU border security agency responsible for coordinating member These are, of course, challenges common states’ operational co-operation. to most countries around the world, but especially so in Europe because we are part Frontex is at the forefront in responding to of a novel experiment called Schengen. all these European-level border challenges.

40 | Europe’s World Spring 2010 Intelligence information of course comes COMMENTARY from national authorities, enabling us at Frontex to do risk analysis and develop By Jean-Pierre Maulny European-level situational pictures. We have uncovered smuggling and trafficking routes Land borders are as well as new modi operandi being used by criminal networks. Frontex also guides and important, but coordinates joint operations by EU member states’ border services, focusing them on maritime security border areas where they are needed most. demands the most EU governments are doing a lot to tighten up co-operation at Europe’s borders, but attention much more is still needed.

lkka Laitinen is right that Frontex must do Inevitably, joint maritime operations are more to deal with cross-border criminals, but Frontex’s most visible ones because of the Ihe seems to overlook the role of maritime dramatic nature of search and rescue on the operations. The EU needs to co-ordinate security high seas. But while these naval operations on its land borders, but its maritime security are important, and take up the lion’s share needs are even more pressing. Because the of our budget, this is just one aspect of sea is an open space, unco-ordinated national the challenge. At least half of arrests take efforts to secure sea borders will founder. place at land borders; air travel is by far the Harmonising maritime security among member most popular route for irregular immigration states should become Frontex’s top priority. The to EU countries, and the vast majority of EU’s recent Operation Atalanta highlights the that is initially legitimate, involving people potential for success, Frontex should take note who have short-stay visas. Overstayers and encourage more co-ordination among the member states and the EU agencies. represent by far the biggest slice of all illegal immigrants in the EU. A record 11 ships and 20 member states have been taking part in Atalanta, the first Trends in illegal migration and cross- major naval operation under the European border crime are also far from stable. Security and Defence Policy. The mission’s Of late there has been a distinct shift popularity also explains its success, because in the routes used by irregular migrants unlike military forays in Afghanistan, its coming to the EU via the Mediterranean protection of fishing boats and container – with interceptions of boats moving ships against piracy look to Europeans like steadily eastwards since 2006, from the tangible results. Canary Islands (down 89% between the first and second quarters of 2009), via There’s going to be a growing need for Malta and Lampedusa, to Greece (up 68% naval missions in the future as 90% of the during that period). Poland, for instance, EU’s international trade goes by sea, and that saw a sudden rise in asylum claims by huge percentage is likely to increase. With thousands of Georgians in a matter of pirates upping the ante and attacking more

Spring 2010 Europe’s World | 41 months last year, and air routes used by of border control, when migrants have traffickers and facilitators can change in exhausted all legal avenues allowing them a matter of weeks. to stay in Europe and national authorities return them to their countries of origin. Common to all crime – cross-border or Frontex’s contribution is to coordinate otherwise – is what we might call the “hidden joint return operations by a number of crime dilemma”; the hard statistics we have member states working together. Apart generally result only from what we detect. It from the obvious logistical and financial is very difficult to estimate the extent of a complexities of return operations, there problem you cannot see. We are legal, political and know how many suspected Intercepting illegal diplomatic questions that are illegal migrants we detect at migrants or cross- beyond Frontex’s control. borders, but our estimates border criminals Returns can only be made via bi-lateral agreements of the numbers who cross is all very well, illegally and are not detected with receiving countries, can, at best, be only but if there is are made on the basis of approximate. The number no coherent and national legislation, cost a of persons currently staying uniform method of great deal of money and are illegally in all the EU’s member potentially very sensitive states is often estimated dealing with them, to political developments. at eight million, but no one then border control The outcome of these really knows. Recent revisions is of little use return operations also has of the methodology used to considerable and immediate arrive at this figure suggest that it should be impact on immigration routes and the NPEJ
revised downwards to around three million, PQFSBOEJ of people traffickers. but then again future methods of estimation may once more raise the figure. However effective it may be, border control is only part of the puzzle. How What happens at the EU’s external and individual member states deal with illegal internal borders is not the whole story. immigration can differ very widely. Detention Awareness of what is happening beyond periods for undocumented immigrants can the border, what happens inland, and range from 18 months in one EU country co-operation between the myriad services to just a few days in another. The demand and agencies involved in border control- for work, asylum or refugee status also related activities – particularly on gathering varies from country to country, for a variety information and intelligence – is fundamental of reasons, some which we are only now to improving border security. beginning to understand. The lack of a common EU immigration policy together The complexity and inter-connection with the different practices of national of these various aspects of border control authorities have an immediate feedback is illustrated by return operations. In effect for border services, because not one sense, this is the end of the process surprisingly traffickers and other criminals

42 | Europe’s World Spring 2010 adapt their own methods to the policies and COMMENTARY practices of individual member states. Jean-Pierre Maulny At a European level then, it is fair to and more ships in the Straits of Malacca, say that the challenges are considerable, the China Sea and the Gulf of Aden, EU to some extent unknown and change governments will find they have to monitor constantly in nature and form. The policy the situation more closely than ever and must response must therefore be as informed, be prepared to use force when necessary. flexible and forward-looking as possible. The European Commission and Council So it was reassuring when the European have recognised this and have, besides Council decided to continue the Atalanta the creation of Frontex, put in place a mission in 2010, and when two more states number of legal and financial measures, asked to join it. A recent list of European and new technologies to enhance the maritime initiatives shows that the EU is EU’s collective response. now taking maritime security very seriously indeed. In December 2008, the EU decided We also now stand at an important to link-up all maritime surveillance systems, policy cross-roads. The Lisbon treaty has and in the second half of last year during the entered into force, allowing for much better Swedish presidency there was a major effort inter-agency co-operation on all matters to create closer ties between the European affecting border security. The Stockholm Security Maritime Agency, Frontex and the programme together with the EU internal European Defence Agency. Two other projects security strategy will determine EU Justice now in the pipeline are the surveillance of and Home Affairs policy for the next the Mediterranean by six countries led by few years, including border security. And, France, and the surveillance of the North Sea by 10 countries led by Sweden. thirdly, a change to Frontex’s mandate is being considered that would allow the What are the implications of all this agency to become more efficient and for Frontex? IIkka Laitinen emphasises that intelligence-driven. maritime security operations are already Frontex’s most visible activity, and in the Then there are new technological future it could further contribute to maritime solutions either in place or very soon security in important but less high-profile to be so. These include the mandatory ways. It could, for instance, oversee the use of biometrics to promote security distribution of assets to EU member states to of documentation (ePassports), biometric address maritime security, and it could share visas (under the Visa Information System) its maritime security expertise with non-EU that will become a reality during the course countries like Libya, Morocco and Tunisia. of this year, and the Automated Border Crossing systems that are already in use in Laitinen might also have mentioned a many EU countries. A key innovation will be number of other ways that Frontex could the European Commission’s forthcoming secure Europe’s borders through maritime proposal for a much-needed European initiatives. Many member states still lack

Spring 2010 Europe’s World | 43 The online Security Jam 2010 How to make the world safer?

Officially supported by the European Commission, NATO, and the governments of France, Sweden and the United States, this global online brainstorm was co- organised by a coalition of international think tanks.

A report with the best concrete recommendations from the 4,000 written contributions from participants in 124 countries on 7 continents will be presented in April 2010 to, amongst others, leaderships of the EU and NATO.

Highlights of the Jam included NATO’s Supreme Allied Commander Admiral James Stavridis logging in from his plane at 10,500 metres, UN Ambassador Kai Eide providing insights live from Kabul and explorer Alain Hubert contributing his thoughts on environmental security from the Princess Elisabeth Station in Antarctica.

Additional participants included:



General Håkan Anne-Marie General Radika Coo- Pieter De Crem, Syrén, Chairman Slaughter, Director Vincenzo maraswamy, UN Belgian Minister of of the EU Military of Policy Planning, US Camporini, Italian Undersecretary General Defence Committtee State Dept Chief of Defence for Children and Armed Conflict

Josette Sheeran, Dmitri Rogozin, Steven Erlanger, Admiral Carl Bildt, Swedish Executive Director of the Russian Ambassador The New York Times Paris Giampaolo Minister of Foreign Affairs With the support of World Food Programme to NATO Bureau Chief Di Paola, Chairman of the NATO Military Committee

Mohamad Gilao, Political Advisor, Transitional Federal Government of Somalia Ambassador John E. Herbst, Coordinator for Reconstruction and William E. Kennard, US Ambassador to the EU Stabilization, United States Department of State General Stéphane Abrial, Supreme Allied Commander Transformation Sherri Goodman, Senior Vice President of CNA, Former Deputy US Undersecretary Rear Admiral Neil Morisetti, UK Climate and Energy Security Envoy of Defense Song Zhe, Chinese Ambassador to the EU Jaap de Hoop Scheffer, Former NATO Secretary General Jacqueline McGlade, Director of the European Environment Agency Marc Perrin de Brichambaut, OSCE Secretary General Miroslav Lajcˇák, Minister of Foreign Affairs of the Slovak Republic Mark Pyman, Transparency International’s Director for International Defence and Security ...and some 4,000 others... Entry/Exit and Registered Traveller system. COMMENTARY EUROSUR will also soon become the focal surveillance and intelligence instrument Jean-Pierre Maulny for all national authorities and agencies. the means to scan sea-borne containers thoroughly, so Frontex should take charge Although all this is encouraging, all the of container scanning in Europe and bring signs are that mobility will increase in the it up to U.S. standards. Frontex also needs future, with even more business and leisure to develop capabilities to monitor a wider travel, and quite possibly more refugees and geographical area so that it can better track more irregular immigration. The problem piracy, migration and the illegal trafficking of also risks being further aggravated by drugs and small arms. political and social unrest in neighbouring societies as well as longer-term problems Frontex’s efforts will, of course, only be like climate change. one plank in a wider European maritime defence and security strategy, and it’s a The EU’s borders are by definition strategy that still has a long way to go. It permeable, and we need to make them needs to build closer links between civilian more permeable still to legitimate border and military bodies, and should also aim to crossers because our economic create a single European naval industrial base, development depends on it. But we must as opposed to the various national industrial also make them less permeable to illicit bases that currently supply EU forces. An EU users. Integrated border management is maritime defence strategy should also set just one part of a much larger problem out security headline goals similar to the that requires an overall strategy if we are ESDP’s defence headline goals. to meet it. Intercepting illegal migrants or cross-border criminals is all very well, but if there is no coherent and uniform method of dealing with them afterwards in an efficient, effective and humane way, then effective border control is of little use.

Jean-Pierre Maulny is Deputy Director of the Paris-based Institut des Relations Ilkka Laitinen is Executive Director of Frontex. Internationales et Stratégiques (IRIS). FYFDVUJWFEJSFDUPS!GSPOUFYFVSPQBFV

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Spring 2010 Europe’s World | 45 VIEW FROM CATALONIA

CATALONIA, COMMITTED TO INTEGRATION, SOCIAL HARMONY AND COHESION

wide-ranging consultation process involving more than 1,500 people and taking in more than 2,300 contributions. The process aimed to understand the changes that have taken place in Catalonia, identify the demands and social concerns that these changes generated, and to respond to these 0SJPM
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These unprecedented demographic changes rate of 3.5% of GDP over a twelve-year period, and mean that Catalonia now boasts a population of between the years 1977 and 1997 the birth rate of over seven million people with a large number the native population declined considerably. The arriving over a very short period of time. It’s incorporation of women into the labour market a positive situation, our society has accepted has also contributed to this change. In the 1990s, the reality and irreversibility of change and has the rate of female employment was very close to committed itself to integration, in similar terms to the European average, and was almost ten points those expressed in many EU documents. above the Spanish average. Since we can’t change these facts and in any case don’t want to change The national agreement on immigration, signed on them, it is clear that the majority of the million 19 December 2008, expressed this commitment. It plus new Catalans are here to stay. This moves us was widely supported by the Catalonian government beyond the concept of guest workers and places with 90% of parliamentary representatives, municipal integration at the heart of our political agenda. associations, economic and social agents, as well as the main non-governmental organisations In harmony with EU policy, we clearly need policies signing up. The document defines public policies that manage Catalonia’s demographic changes. and actions that must be put in place between There must be policies to deal with worker mobility now and 2020 to manage immigration. It contains for both qualified and unqualified workers, as well as more than a hundred measures and addresses policies on return (both voluntary and compulsory), key citizen concerns. These were raised during a policies on circular migration, and policies on the VIEW FROM CATALONIA problem of unaccompanied minors. And there must and enjoy common activities together. This doesn’t be maximum co-ordination with the other European interfere with the school’s academic agenda. Now countries on all these issues. But the first priority there are 1,238 of these classes. Community is the integration process for the large majority of education aims to help students succeed at school, foreigners who have come to stay. This fact must be foster civic responsibility, and to build relations clearly and unequivocally accepted. between adult education centres, local institutions, leisure activities and remedial classes. To encourage social cohesion we have to listen to our population and address their concerns. These We are acting with greater urgency to integrate concerns include the administration of migratory the new arrivals into a common public culture. flows, minimising competition for public resources, Within this culture, different people can share the and facing up to the challenge of living in a diverse same values, the same language, the same legal society, as opposed to a society with a diversity framework and some basic rules for getting on with of parallel societies. The challenge is to strike a each other. Above all, this culture should encourage balance between plurality and social cohesion, respect for elementary rights and duties. while respecting both. The agreement formulated clear responses to these issues. Catalonia must Public participation – a field where the EU could manage migratory flows in accordance with the achieve greater co-ordination between the member labour market, prioritise internal human resources, states – and the fact that Catalan is the public give legal status to migrants and raise awareness language in a multi-lingual society, have also about the reality of new influxes. And to avoid helped this effort. human decapitalisation Catalonia must work in conjunction with the countries of origin and the Catalonia has seen its demographic base renewed common EU policy on skill management. We also on many occasions over the last hundred years. need to adapt the public services and create a It will gain in significance and cohesiveness if it universal reception service that gives equal access asserts itself as a country of immigration. Through to all. On this issue, the European Union would do forward thinking it can allow people to set down well to raise common standards with regard to the roots and discover opportunities. Catalonia should recognition of social rights. unite through what people do together and not by what their descendants did. We need to recognise Our response is cross-sectional and involves much ourselves as a country of immigration not only co-ordination between institutions. Education in order to maximise opportunities, but also so has been greatly adapted. Catalonia is a pioneer that we know how to respond to risks. These in reception classes and community education. thoughts are brought together, and expressed in, The reception classes are located within ordinary our agreement. schools and are co-ordinated by the teaching staff of the school itself. The staff specialises in integration, social cohesion and the promotion of multilingualism. The aim is to integrate newly 5IJT
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SPECIAL 38-PAGE SECTION Global Governance is a challenge for democracy (but an EU opportunity)

Creating global governance mechanisms that are efficient but also responsive to national concerns will not be easy, says Pascal Lamy. But the WTO’s Director General and former EU Commissioner sees useful lessons to be drawn from Europe

his new decade is marked by the mechanisms for framing human behaviour – worst-ever economic crisis that’s also need to be examined, debated, understood Tthe first to have a global reach. The and operated together as coherently as crisis has poured a good deal of cold water possible. In sum, we need stronger and on the hopes and expectations created more effective global governance. 20 years ago when the fall of the Berlin Wall ushered in an unprecedented era of As with any system of power based on economic openness and poverty reduction nation states, what is needed is “good” and a marked expansion of freedom, ideas, global governance; a system that offers a culture and technology. balance between leadership, efficiency and legitimacy, and which can ensure coherence. The world today is in serious distress. Millions of jobs have been lost as a result Global governance poses a number of of the economic crisis; we’ve also seen challenges. The first is the difficulty of pandemics along with environmental identifying leadership at a global level. The problems, and this is impacting on millions second is legitimacy, and particularly what of people in rich and poor nations alike. is often perceived as decisionmaking at an Nuclear proliferation, too, is on the rise, international level that is too distant, non- creating yet another of these global accountable and not directly challengeable. challenges that need global solutions. Our The third relates to coherence. In theory growing inter-dependence requires that the there should be no problem here because laws, social norms and values – all the coherent action by a nation state in the

48 | Europe’s World Spring 2010 ON GLOBAL GOVERNANCE various aspects of international governance and by the holocaust, leaving millions of men should be translated into coherent global and women dead and many more millions in action. But we all know that nation states also search of peace, stability and prosperity. One have a monopoly on incoherence because should therefore be cautious about ascribing in practice they often act incoherently. universal values to what so far has only This is where the third challenge to been a part of our European world. Other global governance lies; how to deal with paradigms emerging elsewhere in the world efficiency that is at times only partial and reflect different conditions elsewhere. is also incoherent. And the fourth and final challenge is the remoteness of power and At the heart of the European project the multiple levels of government that also has been the creation of a space of call efficiency into question. pooled sovereignty, a space in which the EU’s members agree to govern among Managing global problems by using themselves without having permanent traditional models of national democracy recourse to international treaties. The essence has important limitations. And yet the very of the European governance paradigm is the credibility of our national coming together of national democracies is at risk if global Global governance political wills to act together governance fails to establish poses a number in the framework of a common its own democratic credentials project and an institutional set- because citizens around the of challenges. up that can make it work. It’s world feel that the issues that The first is the combination of these three affect them daily aren’t being leadership, the elements rather than just the adequately dealt with. second legitimacy governance methods used. In these troubled times for and the third There is also the fact the European Union, it is no coherence that Community law takes easy matter for it to present precedence over national law, itself as a new paradigm of global governance. and then there’s a supranational body like Yet the European construction is one of the European Commission that has been the most ambitious experiments to date in given the monopoly of initiating legislation. supranational governance, and the way Europe There is also the EU’s Court of Justice whose has coped with the sort of challenges I've just decisions are binding on national judges, outlined is a useful reminder that defined and and a parliament composed of a "senate" of organised inter-dependency among nation member states, the council of ministers, and states is perfectly possible. a "house of representatives" elected by the European demos, the European Parliament. The building of Europe is a work in progress, and the European paradigm Taken together, these are the things that is itself very specific to the conditions make the European Union a radically new and pressures that prevail in Europe. Our economic and political entity when it comes to continent was ravaged by two world wars international governance. But today’s EU could

Spring 2010 Europe’s World | 49 never be the product of these innovations beyond aid commitments to the developing alone. Indispensable and indisputable though world. And yet for all that Europe has so far they are, those institutional innovations are still had only a limited influence on setting world inseparable from the conditions from which development policies. they emerged. It is agreement on the substance that permits agreement on the form. The second problem area is the Common Foreign and Security Policy. The good news I believe that the construction of the is that European citizens demand more EU internal market, the European Monetary and better foreign policies from Europe. Union and trade policy are all areas where But this also touches on one of the areas European integration has scored above where symbolic barriers – those of dreams average. The fact that the European Union and nightmares, of collective identities and numbers 27 member states and around 500m myths – remain powerful. It’s why I think that citizens, represents over a quarter of world building a European foreign and security trade and accounts for the world's largest policy requires a permanent compromise GDP – and on trade speaks with one voice – between interests and values. The EU’s new gives Europe the capacity to defend its vision High Representative for Foreign and Security of trade opening accompanied Policy, a Vice-President of by rules. There are a number the European Commission of lessons that we who now chairs the General On the environment, Affairs Council is a step in Europe has played a global can draw from more the right direction. But it will leadership role that reflects than 60 years of also take a common will to the large consensus existing European integration act together and a common within the EU on the need to concept, a sort of shared protect and preserve the environment. Yet the project, to get there. institutional set-up within which Europe acts, the mixed competences and different voices, There are a number of lessons that prevent Europe from being as effective in we can draw from more than 60 years of this area as it might, with the recent climate European integration. change summit in Copenhagen a warning. But it’s an area where Europe still has a The first is that institutions alone cannot chance to break even. do the trick. Neither can political will without a clearly defined common project. Nor can In my view there are two other areas a well thought through common project where Europe is not punching its weight in deliver results if there is no institutional the world. On development aid, the EU is the machinery. The reality is that we need world’s largest donor and its flag can be seen the three elements together to create an at almost every major humanitarian crisis. integration dynamic. Europe’s aid effort is backed by strong public support, with some 72% of Europeans polled Even if these three elements are present recently in favour of honouring or going there is a risk that a real or perceived

50 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE legitimacy problem remains, creating a glass deal where nations commit to emissions ceiling for further integration. The reality is that reduction accompanied by measures to supranational institutions like the European facilitate adaptation and mitigation. And it is Union require a long-term investment that what the international community is striving is often incompatible with the short-term to achieve on nuclear non-proliferation. It attention span of many of its leaders, who is true, too, for the regulation of finance, as are often elected on thin majorities or with the financial crisis so clearly demonstrated. fragile coalitions. Global legitimacy requires long-term care and attention. Commitments that are anchored in a multilateral context, and that can be Governance systems can be likened to monitored accordingly, allow for greater the three states of mass. The national level efficiency and coherence. represents the solid state, the international system is more like gaseous mass and The second lesson for global governance in-between these lies the is respect for the principle of European integration process Supranational subsidiarity; the international as a kind of liquid state. But system should not be whatever the state of the mass, institutions like overburdened with issues to make a governance system the European Union better dealt with at local, work demands a combination require a long-term regional or national level. of political will, capacity to decide and accountability. investment that is The third lesson is that In this respect, European often incompatible "coherence starts at home" integration offers some useful with the short-term because it lies first and lessons for global governance. attention span foremost with the members of international organisations. Lesson one is the of many Take the United Nations; we importance of the rule of of its leaders can and must have the "UN law and of enforceable Delivering as One", but we commitments. Global governance has to be also have to see "UN members behaving anchored in stakeholders’ commitments and as One" in the different organisations that in rules and regulations with mechanisms make up the United Nations family. that deserve respect. This is at the heart of the post-war multilateral trading system, The last of these lessons is that since which has developed over 60 years of the political demos remains essentially trade regulation among nations and has national, the legitimacy of global governance a binding dispute settlement system to would be greatly enhanced if international ensure compliance with its rules. issues become part of domestic political debates. National governments need to be It’s also at the heart of what the held accountable by their voters for their international community is trying to do international level behaviour. Democracy on climate change – achieve a multilateral at the national level has to have more

Spring 2010 Europe’s World | 51 of an international dimension to foster coherent and effective global governance. legitimacy at the global level. The fact that With time, the G20 could even be an answer the governments which represent states in to reforming the UN Security Council. international organisations are the result of citizens' choices through domestic elections A structure of this type needs to be is not in itself enough to ensure those underpinned by core principles and values, international organisations’ legitimacy. More and this is precisely what Germany’s is needed, so national actors – whether Chancellor Angela Merkel proposed with political parties, civil society, parliaments the creation of a Charter for Sustainable or citizens – must ensure that global level Economic Activity. It is a commendable effort issues are discussed. to provide a "new global economic contract" that would anchor economic The good news is that many globalisation on a bedrock of of these issues are already The global economic ethical principles and values, works in progress, so we need crisis has accelerated and so renew citizens’ trust not expect a big bang. The the move towards a that globalisation can work global economic crisis has for them. accelerated the move towards new architecture of a new architecture of global global governance … Globalisation poses a governance in what I think of We should have both serious challenge for our as the "triangle of coherence". the G20 and the democracies, and our On one side of the triangle governance systems must lies the G20, replacing the international agencies respond to that. If our citizens former G8 to provide political reporting to the feel that global problems leadership and policy direction. “parliament” of the are insoluble, that will risk On another side lie the emasculating our democracies. member-driven international United Nations The same will hold true if organisations that provide our citizens see that global expertise and specialised inputs such as rules, problems can be addressed, but that they policies and programmes. The third side of the themselves have no influence on the result. triangle is the G192, the United Nations that is the global forum for accountability. Our governance systems must more than ever offer citizens avenues for shaping In the longer term, we should have both the world they want their children to the G20 and the international agencies inherit. And the European Union remains reporting to the “parliament” of the United the laboratory of international governance, Nations. A revamping of the UN’s Economic a place where the new technological and Social Council could lend support to frontiers of international governance are the recent resolution adopted by the UN being tested. General Assembly on a UN-wide coherence system. This would constitute a potent mix of Pascal Lamy is the Director General of the World leadership, inclusiveness and action to ensure Trade Organisation. FORVJSJFT!XUPPSH

52 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE Global governance could take a leaf from the EU’s book

Everyone knows that international policy co-ordination would be of benefit to all, but what structures, what mechanisms? Iain Begg looks at some of the EU devices that could help shape global governance thinking

n an increasingly inter-connected Governance arrangements that facilitate global economy, the actions of one co-ordination offer a number of clear- Igovernment have repercussions cut advantages. Burdens can be shared, for others. Co-ordination among them inconsistencies and incoherence in policy matters a great deal, yet it is hard to stances can be avoided, and participating achieve because what is in the common governments’ collective response can be far interest, especially in the short-term, does greater than the sum of the parts. Co-ordinated not always makes sense for any single policy also makes it less likely that any single country, especially in times of crisis when country will be picked-on by financial markets, governments are under intense political or that a domino effect is engendered that pressure to ‘do something’. might lead to a vicious circle of defensive policy reactions. Around the world, governments have, on the whole, accepted that overt protectionist Why then is co-ordination so difficult policies are ultimately counter-productive, to achieve? One obstacle is that countries despite the temptations that arise in a severe have different priorities that can affect downturn. But they are less willing to see their willingness to commit to specific other policies in the same light and the policy orientations; another is that the current crisis has revealed shortcomings in incentives to be a free-rider are often mechanisms for assuring co-ordinated policy sizeable – why risk your own public action at the global level. After the collapse of finances if someone else is willing to risk Lehman Brothers, it rapidly became clear that theirs? But often the problem is simply that governments lacked an effective international the institutional mechanisms that could toolkit for this, and as a result anarchy could enable better co-ordination are not in well have broken out. place, a problem that can be exacerbated

Spring 2010 Europe’s World | 53 when the crisis for which co-ordination with no effective executive or administrative might be the answer is unanticipated and back-up. As a highly integrated region, the unfamiliar. EU has had to confront the challenges of co-ordination and has developed a The financial and economic turmoil of number of over-lapping mechanisms. the last two years has obliged governments These include the Stability and Growth when constructing policy responses to Pact (SGP) for the 16 eurozone members learn by doing. This has inevitably given that is intended to curb irresponsible rise to mistakes and misunderstandings, fiscal policies, the Lisbon strategy aimed such as some of the immediate actions at promoting economic reform and other taken to protect national mechanisms for achieving banking systems from the specific goals like social shockwaves of the Icelandic The real advantage cohesion or shared energy bank meltdown in 2008. This would come in times policy objectives. had the effect of passing the of economic crisis hot potato to the next in These various EU line,rather than providing a where a co-ordinated mechanisms reflect sound solution. Despite the response should different motivations. First difficulties in orchestrating help to mitigate there is that of imposing rescues of financial interme- the burden on any discipline on what should diaries, especially those be avoided, what should be with significant levels of single country and encouraged and the role of cross-border activity, there assure a credible co-ordination commitments are some examples of collective solution in reinforcing governments’ successful co-ordination that implementation of nevertheless stand out. The unpopular measures, world’s leading central banks engineered especially where there are vested interests. a 50 basis point cut in interest rates Another, less well-recognised motivation is in October 2008 and, albeit somewhat stimulating policy learning to facilitate the haphazardly, the major economies put adoption of improved policy. This can be together national stimulus packages that achieved by exploiting ideas and practices de facto became a co-ordinated fiscal from other countries, and is most likely stimulus strategy. to work well when there is a supportive governance framework. What these examples reveal is that although a co-ordinated outcome was All the EU co-ordination processes have eventually achieved, it was cobbled their detractors and could undoubtedly work together rather than created by design. much better, but they provide a possible The main institutional forum for the key basis for the development of co-ordination decisions is now the G20, but before as part of global governance reform. That that it was the G8, the G7 and other makes the distinctive principles behind configurations, meeting infrequently and these EU approaches worth exploring. The

54 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE rationale for the SGP is to deter and and could be assigned a similar role in penalise fiscal policy behaviour that has implementing agreed fiscal rules alongside potentially adverse ramifications for other the more robust Financial Stability Board eurozone countries. The SGP solution agreed by the G20 last April. The latter’s was to impose rules backed by sanctions mandate, though, is mainly to police the which, though widely regarded as rather financial sector, so it might be better to toothless, arguably had a moderating effect consider a new, multilateral Fiscal Stability on national excesses – at least until the Board. Although, the notion of sanctions onset of the present crisis. in the form of fines at a global level is even more far-fetched than in the EU, the scope Could such a commitment for naming and shaming device be envisaged at global In a severe downturn, is still considerable. And level, and how might it be speed of action and the IMF can also exercise organised? The essence of the some influence through SGP is the rule that public appropriate sequencing the conditions it attaches finances should be kept within are essential and, to loans. In good times, the the prescribed limit of a 3% although the actions incentive for governments deficit, and should aim for taken by the G20 did to comply will come balance over the medium-term, principally from financial but with more flexibility in times eventually stabilise markets, which can be of recession. When the original the world economy, expected to penalise those SGP was adopted in 1997, its vital time was lost that depart too much from critics objected to the simplistic agreed targets. nature and inflexibility of the and the recession policy rule and its dubious was aggravated But the real advantage economic rationale, while non- would come in times of compliance by Germany and France in 2002 economic crisis where a co-ordinated raised doubts about its effectiveness. The response, embodied in transparent targets pact was then reformed in 2005 to make that are mutually consistent, should help it more flexible. Although the European to mitigate the burden on any single Commission is responsible for surveillance country and assure a credible collective of member states, a decision on whether to solution. In a severe downturn, speed of instigate disciplinary measures is taken by action and appropriate sequencing are Ecofin, the body bringing together all the essential and, although the actions taken national finance ministers. The disciplinary by the G20 did eventually stabilise the measures theoretically include the eventual world economy, vital time was lost and imposition of a fine on countries that fail to the recession was aggravated. However, rein in deficits, but in practice the principal the gradual reversion to business as usual weapon is naming and shaming. will pose a sterner test, because the recession’s depth differs from country to In principle, the IMF, too, has a duty country. The central bank money sloshing to engage in surveillance of economies around the system will eventually have to

Spring 2010 Europe’s World | 55 be mopped-up and fiscal policy tightened. good policy, providing a pool of ideas, But if done in an unco-ordinated or, worse, fostering exchange of experience and incoherent manner, the effect could be to establishing mechanisms like peer review trigger precisely the sort of W-shaped and benchmarking that can help to identify double-dip recession that many fear. better solutions to policy problems.

Could something similar be constructed Find related articles on at global level? The OECD already provides www.europesworld.org some co-ordination through its Going for t

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In contrast to the SGP’s focus on what countries should or should not do, the Lisbon approach is to stress what they could do by being sufficiently Iain Begg is a Professorial Research Fellow at the receptive to different influences. It seeks European Institute, London School of Economics to achieve this by creating templates for and Political Science. JBJOCFHH!MTFBDVL

56 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE The Europe’s World panel on global governance

For our global governance scorecard, a panel of 26 top United Nations Development Programme should be political and economic analysts gave their opinions on the reformed, but only 16% thought that the reform need for reform in global institutions. This mini-survey threw should be radical, while 50% said no reform at all up some surprising results, and above all emphasised that was needed. The panel also disagreed on other UN top analysts can be thoroughly divided on these issues. agencies like the Food and Agricultural Organisation, the World Health Organisation, UNESCO and the Most agreed that leading global institutions like the World Intellectual Property Organisation,” 45% said International Monetary Fund, the World Trade Organisation that UNESCO needs reforming, but only 17% thought and the UN Security Council need reform. Of 26 analysts, its reform should be radical. On whether new global 17 stated that the WTO needs to change, and 19 said Institutions are needed, opinion was again divided. the same of the UN Security Council. An overwhelming Over three-quarters of the panellists thought that an majority of 21 out of 26 believe that the IMF needs reform international climate change agency is needed, but and seven of them think that reform should be “radical”. only slighty over half see a need for a carbon tax global co-ordination authority. A minority of 11 out of When it came to other institutions, particularly the UN 26 thought there is a need for an international agencies, opinion diverged widely. Half said that the derivatives and hedge funds authority.

JOAQUÍN ALMUNIA ANDRÁS INOTAI JING MEN European Commissioner for Competition Director General, Institute for World InBev-Baillet Latour Chair of European Policy Economics of the Hungarian Academy Union-China Relations, College of Europe of Sciences (IWE)

JAN KRZYSZTOF BIELECKI HENRIK ISAKSON President & CEO, Bank Polska Kasa Opie Senior advisor, National Board of Trade JOSEPH QUINLAN and former Polish Prime Minister (Kommerskollegium) Fellow, Johns Hopkins University

DANIEL DAIANU WOLFGANG ISCHINGER former Romanian Finance Minister Chairman, Munich Security Conference ADAM DANIEL ROTFELD Chairman of the International Advisory Committee, Polish Institute of International Affairs JOVAN DONEV MICHAEL JENNINGS Executive Director, EuroBalkan Senior Lecturer, School of Oriental and African Studies (SOAS) DINGLI SHEN Director, Fudan University's Center for American Studies, Shangai FRANZ FISCHLER JEAN-PIERRE JOUYET former European Commissioner for Chairman, Autorité des Marchés Financiers Agriculture and Fisheries (AMF) FRANS-PAUL VAN DER PUTTEN HEINZ GÄRTNER JENI KLUGMAN Research Fellow, Netherlands Institute of Research Fellow, Austrian Institute for Director of the UNDP’s Human Development International Relations (Clingendael) International Affairs (AIIA) Report Office MANFRED WEBER DOBRILA GOVEDARICA ENEKO LANDABURU General Manager and Member of the Executive Director, Open Society Fund Head of the European Commission's Board of Directors, Association of German Bosnia-Herzegovina Delegation to Morocco Banks

NICK WITNEY ULRIKE GUÉROT JEAN-PIERRE LEHMANN Senior Policy Fellow, European Council on Head of the Berlin Office, European Council Founding Director, Evian Group Foreign Relations (ECFR) and former CEO of on Foreign Relations (ECFR) the European Defence Agency

MARIO HIRSCH CLARE LOCKHART SERGEI KARAGANOV Director, Luxembourg Institute for European Director, Institute for State Effectiveness Dean of the School of International Economics and International Studies and Foreign Affairs of the Research University – Higher School of Economics, Russia

Spring 2010 Europe’s World | 57 RIPE FOR REFORM ? Degree of Change Timing of Change Reform1 Radical2 Gradual Immediate

UN Security Council 73% 37% 42% 33%

World Bank 83% 21% 37% 37%

IMF 80% 26% 16% 66%

UN agencies

Development Programme (UNDP) 50% 16% 29% 16%

Food and Agriculture Organisation (FAO) 58% 21% 29% 21%

High Commissioner for Refugees (UNHCR) 37% 17% 21% 8%

World Intellectual Property Organisation (WIPO) 37% 12% 17% 12%

Industrial Development Organisation (UNIDO) 45% 17% 17% 17% Educational, Scientific and Cultural Organisation 45% 17% 29% 12% (UNESCO) International Labour Organisation (ILO) 50% 8% 33% 8%

World Health Organisation (WHO) 45% 8% 33% 17%

G20 70% 17% 50% 17%

Financial Stability Forum 45% 17% 17% 33%

BIS 33% 8% 17% 12%

WTO 63% 12% 45% 17%

OECD 62% 4% 45% 8%

1 % of all panellists favouring some degree of reform 2 % of all panellists urging radical reform

ALMUNIA KARAGANOV gradual change gradual change JOUYET LANDABURU LANDABURU immediate change gradual change immediate change UN DAIANU immediate change Security IMF ALMUNIA DAIANU Council immediate change immediate change KARAGANOV gradual change

BIELECKI BIELECKI FISCHLER immediate immediate radical change radical change radical change

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NEWCOMERS WE NEED ?

YES NO

International Climate Change Agency 79% 21%

Carbon Tax Global Co-ordination Authority 58% 42%

International Financial Derivitives and Hedge Funds Authority 62% 38%

KARAGANOV JOUYET yes LANDABURU yes yes

ALMUNIA International DAIANU yes Climate Change Agency yes

BIELECKI FISCHLER no yes

KARAGANOV JOUYET yes LANDABURU no no

Carbon Tax ALMUNIA DAIANU yes Global Co-ordination yes Authority

BIELECKI FISCHLER no yes

KARAGANOV JOUYET no LANDABURU yes yes

International Financial ALMUNIA DAIANU no Derivatives and Hedge Funds yes Authority

BIELECKI FISCHLER no yes

Spring 2010 Europe’s World | 59 C. Fred Bergsten Director of the Peterson Institute for International Economics

“The global crisis has accelerated governance reform” The current global economic market exchange rather than Similar changes now need to system was constructed in the PPP rates. be made at the International middle of the 20th century, Monetary Fund. At least 10% and could not be expected The global governance structure of the quotas and voting to fit the realities of the 21st can only achieve political rights, and at least five of the century. The most fundamental legitimacy, and thus substantive 20-24 seats on the Executive change is in the composition effectiveness, if it accurately Board need to shift primarily of economic capability, and reflects these realities. An from over-represented Europe thus systemic responsibility, historic step forward is the primarily to under-represented among the major countries. replacement of the G7/8 as Asia. Even more important, the steering committee for the both substantively and Emerging and developing world economy by the G20, symbolically, is that the next countries now account for half of whose members are Managing Director should be 50% of the world economy emerging markets. selected from an emerging when national output levels market economy. are converted at purchasing More informal but functionally power parity (PPP) exchange equivalent reforms have taken The global crisis has rates. They are growing two place in the governance of accelerated governance reform to three times as rapidly as the World Trade Organisation. in all these institutions. That the rich countries, so every Its EF
GBDUP co-ordinating momentum must now be year their share of the global committee now includes sustained and completed if market rises by one or two Brazil, India and sometimes the new economic order is to percentage points. Soon they China as well as the traditional both prevent future crises and will constitute a substantial “trade G2” of the European provide ongoing prosperity majority of global output, even Union and United States along and stability for all. with their GDPs converted at with Japan.

Daniel Daianu Former Romanian Finance Minister

“G20 could turn into a global economic security body” The G20 is the right instrument would enable it to hook up with principles and decisionmaking, for our times, as it fits the the UN, where India and Brazil as they affect international extraordinary redistribution should become permanent financial institutions (IFIs), and of economic power we are members of the Security Council. that would certainly be in tune seeing in the world. And G20 with today’s increasingly multi- could also turn into a global A re-suscitated IMF should polar world and the “wake economic security body as that usher in a re-working of up call” that is the current

60 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE economic crisis. The IFIs growth and international governance structure. As to should for their part return trade. the EU it needs to be much to John Maynard Keynes' more cohesive vision of the Bretton Woods The policy mismanagement internationally if it is to be rules he helped create in that helped create global an equal partner of the U.S. 1944 that the inherent imbalances, along with and China in the daunting instabilities of financial market failures of global challenge of dealing with markets must be reined in if significance, have to be climate change and other we are to foster economic tackled by a common global global threats.

Kemal Dervis¸ Director of the Brookings Institution’s Global Economy and Development Programme and former Administrator of the United Nations Development Programme

“ G20 should increase the legitimacy of the international institutions” The great crisis of 2008-2009 Bank and IMF, with the and the World Bank. Global has led to one major change specifics awaiting more work, co-operation requires burden – and thus to progress – particularly when it comes to sharing and co-ordinated in global governance; the the significant shift towards action within the framework of G20 replacing the G7 as emerging countries needed these institutions. the premier international in voting weights and to the forum for discussing global mechanisms of multilateral Progress on issues such as co-operation. The London macroeconomic policy long term financial stability, and Pittsburgh G20 meetings co-ordination. climate protection, effective built confidence, proposed an control of infectious disease increase in the war-chest of The recent sequence of events and the peaceful management the IMF at a critical time and should remind us that an of nuclear energy depends on contributed to rebuilding the informal meeting of leaders, how the G20 will be able to confidence shattered by the even when they represent the provide leadership, while worldwide financial collapse. most important countries, recognising that all nations cannot replace the governing and peoples must have a say The proposals made were bodies of the international and must be part of a legitimate broadly adopted at meetings institutions of the UN international system. in Istanbul of the World system, including the IMF

Jiˇrí Dienstbier Chairman of the Czech Senate's Foreign Affairs Committee and former Foreign Minister

“Nation states cannot meet the challenges of deregulated globalisation“ The legal, economic, financial way sufficient to meet the Some problems – notably and taxation instruments that challenges of deregulated terrorism, development and have long been developed globalisation. environmental issues – can be by nation states are in no resolved only at a global level.

Spring 2010 Europe’s World | 61 Others must be adressed at home as they struggle for longstanding proposal by by regional groupings like political influence and power. Jacques Delors to create a UN the EU, or within the nation The important thing is that Economic Security Council. states at regional or municipal we should aim to better The message we need to draw levels. This sort of model will understand the hierarchy of from the phenomenon of in any case be permanently the problems we face, and globalisation is that we need tested by the changing global that we should define and more effective global tools environment as well as by respect the levels at which and institutions. the ambitions of the players they need to be tackled. An both on the world scene and example of this could be the

William Drozdiak President of the American Council on Germany

“ An alternative is regional institutions to act in the service of global governance” The quest for effective global to the G20 and its amalgam governance. NATO and the governance needs to focus on of both wealthy and European Union, perhaps the pragmatic models, not emerging powers. The G20 two most important on utopian visions. The encompasses 80% of the multilateral institutions in the United Nations has made world’s population and a West, have proven value in some very real contributions similar proportion of global preventing war and building in peacekeeping, health and economic output, and in the prosperity. The test of their development over the last eyes of the world it has greater future worth will be how they 65 years, but will never live political legitimacy than the adapt to the post-American up to the grandiose dreams G8 which barely accounts world of the 21st century. Can that some have had of world for 12% of the world’s NATO forge a new strategic government. The more population. When thinking concept that broadens the salutary ambition would be to about global governance, definition of security to re-shape existing multilateral the important measurement include nation-building institutions in ways that is the balance between the through effective police harness the forces of widest possible representation training and economic globalisation while respecting of global interests and development? And can the the reality of nationalism as the most effective way to European Union extend its the dominant force in terms implement policies. Too often, mandate to help other regions of power and order around the consensus means the lowest of the world achieve peace world. denominator and thus the and prosperity? Both least effective kind of action. institutions must adapt to the The most successful reform changing security demands so far has been the dramatic Rather than look to global of our time, and find new ways shift in global economic institutions, an alternative is to work together on solutions power from the G8 group of to employ regional institutions that have proved so elusive industrialised democracies to act in the service of global in the past.

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Monica Frassoni Co-President of the European Green Party

“The only global governance model that would work is federal” The only model of global the new instruments of global do so by acting at different governance that would work communication. levels; the EU must resume its in a world as complicated as discussions on its future shape, this is federal; a system with a Is this just a dream? Certainly, but the UN must reform itself and clear definition of (very) limited it’s also a political programme. those wanting to go further on competences, a common Let’s face facts; in the UN, climate change or disarmament charter of human and civil rights, the WTO and even in the EU, should create an ambitious an executive branch and a "governance" is still mostly "coalition of the willing" whose widely representative institution done through intergovernmental members would agree to give up that we might compare to a negotiations that are tragically part of their national global parliament. In this way, slow, obscure, disappointing, sovereignty to find common the few decisions taken would expensive, time consuming and solutions. Failing these steps, be recognised by all concerned all too often unfair in their results. there will be no chance of and a genuinely global “public global governance, but only the opinion” would be able to form What we have to go for is a real present global confusion. and express itself, using all global democracy. And we must

Angel Gurríaí Secretary General of the Organisation for Economic Co-operation and Development (OECD)

” G20 could give the momentum needed to usher in unprecedented international co-operation” When Canada’s Paul Martin we face, and the need to build to a new growth path, and this and fellow finance ministers – a stronger, cleaner and fairer requires leadership as well as including myself, as Mexico’s world economy. International competence, accountability and then Minister of Finance – set organisations like the OECD are transparency. up the G20 many years ago, we ready to play a role in offering had the right vision. The rapid analysis and policy options, The G20 framework for strong, and far-reaching globalisation and in monitoring and ensuring sustainable and balanced of markets has to find its follow-ups to G20 leaders’ growth could give the counterpart in closer and more policy decisions. momentum needed to usher in effective policy co-ordination. a period of unprecedented The G20 accounts for 85% international co-operation. Today’s financial, economic of global GDP, and 90% of Improved co-ordination on the and social crisis is confirming global population, and has economic, social and the truth of this, while the already given a convincing environmental fronts could do upgrading of the G20 to the demonstration of its much to avoid future crises and level of heads of state and capacities for effective crisis underpin a more prosperous government testifies to the management. Going forward, world economy. scale of the common challenge the world needs to be put on

Spring 2010 Europe’s World | 63 Danuta Hübner MEP Chair of the European Parliament's Committee on Regional Development and former EU Commissioner for regional policy

“The dynamics of crisis have fundamentally altered the global financial system” The dynamics of crisis The growing importance of the On the fiscal side, however have fundamentally altered world’s emerging economies is crucial co-ordination may be, the architecture of the already shifting responsibilities it will be practically impossible global financial system, for overseeing the global to achieve. Tax benefits leak and have also changed our economy from the level of easily across frontiers, and understanding of it. The facts the G7/8 to G20 and perhaps the free-riding that results is have changed, and now our G20-plus. But however many difficult to police. Here we will minds must follow. The upshot communities are eventually have to cope with second- is that we are presently represented, groups such as best responses. undergoing a fresh learning today’s G20 will have to stay process as to the interaction committed to maintaining an We have already seen that the of market participants and open trading system. fastest channel to spreading policymakers. the crisis around the world The major challenge facing was the financial marketplace. This "new normalcy" requires governments across the And although we knew how to the development of a collective world will be the international stabilise volatile capital flows, capacity to steer the global harmonisation of rules the available funding was economy. Until the crisis and regulations. If national nowhere near enough. The broke, unbalanced patterns of governments seek to resist the lesson we have still to learn is demand in the global economy creation of a global rulebook that no matter how stringent could have been resolved by for, say, financial services, banks the new reforms are, they will co-ordinated efforts, but as and other financial institutions not be effective unless we also we all know, these were sadly will shop across borders for the back them up with adequate lacking. friendliest system. financial resources.

Wolfgang Ischinger Chairman of the Munich Security Conference

“We need fundamental reform of the international institutions” With the change from G8 to In the first place, G20 essential where these policy G20, global governance has decisions must be areas overlap. Third, to be been given a new face. At long implemented coherently by all successful global governance last, the forum of the world’s participating states. Second, requires a fundamental reform biggest economies more fully global governance refers to of the present international represents all parts of the all realms of international institutions, with the globe. But global governance is politics – economics, welfare International Monetary Fund’s more than that. and security – so international voting rights an example of co-operation is even more reform that is long overdue.

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We will also have to discuss have an informal element; Conference can help to find how to re-design the United without private consultations common ground on how to Nations if we want to meet the beforehand, official decisions meet these challenges, and most pressing challenges of by institutionalised bodies will contribute to enhancing the 21st century. And finally, be difficult to reach. Fora like conflict prevention and global governance will always the Munich Security conflict management.

Sandra Kalniete MEP Former Latvian EU Commissioner for agriculture

“Global governance requires predictable and fair funding” Because the major problems sheer size that matters, so the sovereignty is the only available we all face are global, they can world will in future either be alternative to global irrelevance. only be tackled by action at a run by a G2 made up of China global level. And this in turn and the U.S., or perhaps by a Global governance also requires a fundamental reform G3 that includes the EU. requires predictable and fair of the architecture of global funding for tackling the most governance. It’s an enormous The world’s smaller states – urgent global problems. The political challenge. and even bigger ones – are most obvious source of such becoming increasingly irrelevant funding is global taxation of But change is already beginning if they try to act alone without carbon emissions and also of to happen. Frameworks like being active participants financial transactions. These the G20 and last December’s in regional integration and taxes would not only help to Climate Change summit in co-operative frameworks. Each fund development Copenhagen underline the EU member state – whether programmes but would also inadequacy of most of our large or small – has to realise play a vital role in steering present international institutions. that its ability to be a global such policies as those needed player depends on Europe’s to curb global warming and Among the ideas now being collective ability to govern the reduce harmful currency floated there is that of an "Age EU effectively and to make speculation. of Continents", in which it is timely decisions. Pooling

Sergei A. Karaganov Dean of the School of International Economics and Foreign Affairs of the Research University – Higher School of Economics, Russia “Despite its decline, Europe will be a shining example of how the world should be governed”

Several major trends will from the U.S. to East and world could and should be dominate the next two South Asia. But although governed. decades. There will be the Europe’s geopolitical decline continuous shift of economic will continue, it will remain Russia, after reaching a peak and political power from a beacon of stability and a of its new influence in 2007- Europe and to some extent shining example of how the 2009, will also face geopolitical

Spring 2010 Europe’s World | 65 decline, moving in the direction world would be feasible, even And a “Union of Europe” of becoming a resource and if hard to envisage today? between Russia and the EU, food subsidiary of Great China, In the field of economics and with common human, economic Inc., with a risk, too, of cultural finance – a G2 of the U.S. and energy spaces – the only decline. Key factors will be: and China leading the G20, or hope to prevent the further t

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Kishore Mahbubani Dean of Lee Kuan Yew School of Public Policy, National University of Singapore

“Europe provides both the problem and the solution to reforming global governance” We are entering a new EU is also over-represented reforming global governance. era marked by the end of in IMF voting shares. The western domination of world Benelux countries have a Such EU principles as history and by the return of greater voting share (4.57%) avoiding military conflict, Asia. All global institutions than China (3.66%). Not greater trade and economic and processes will have surprisingly, European integration, fair and to be reformed to interest in preserving over- equitable representation accommodate this new era, representation has become in key decisionmaking but this will not be easy. a key obstacle to reforming bodies and accountability global institutions. for governance decisions The West, especially Europe, are the same principles is heavily over-represented Paradoxically, though, the that will be needed to globally. Europe makes EU’s success in promoting reform global governance. up 12% of the world’s genuine regional harmony Europe provides both the population, yet it has 40% and co-operation within problem and the solution of the permanent seats in Europe provides the best to reforming global the UN Security Council. The possible role model for governance.

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Reza Moghadam Director of the International Monetary Fund’s Strategy, Policy and Review department “ We at the IMF have already begun the process of reconciling effectiveness and legitimacy” As we begin to emerge from countries are looking ahead and legitimacy will need to the current crisis, the great and committing to drawing be reconciled. At the IMF – unknown is whether the spirit periodically on IMF analysis which is itself struggling with of global co-operation and to assess the consistency of these issues – this process co-ordination that staved-off their policies. Whether the has already begun, with major collapse will survive to lay the G20 members will be able quota realignments and more foundations of a sustainable to achieve sufficient policy transparent management recovery. collaboration and action selection procedures now at remains to be seen, but the the top of the governance Fortunately there are act of committing to a process agenda. encouraging signs, the is a crucial step forward. most important being the If these efforts succeed, we emergence of the G20 as The G20 is nevertheless still will face the interesting a very successful forum an exclusive group in which prospect of thinking about for economic and financial some 165 countries are not completing the transition in dialogue and co-ordination. represented. This means that global governance from the To their credit, the G20 at some point effectiveness G7 to the G20 to the G186.

Jean Pisani-Ferry Director of BRUEGEL, the Brussels-based economic think tank " After a brilliant start, global co-operation and governance may disappoint in the years ahead" The G20 summits of 2008-2009 be less easy to deal with than rate policies will be key, as any helped resist the temptations of the apex, with two issues of re-balancing of global economic protectionism and delivered a particular relevance. The first is growth requires the U.S. and global agenda on new financial the future of the co-ordination China to engage in major regulation, concerted stimulus process launched last year at overhauls of their own growth efforts, a major increase in Pittsburgh, whose goal is a models. Domestic adjustment the IMF’s resources and an rebalancing of global growth. has started on the U.S. side, but unprecedented commitment to How can a heterogeneous group it’s by no means certain that macroeconomic co-ordination. of countries succeed, when the U.S. political process will some – not least the U.S. and take external dimensions into It wasn’t a negligible harvest, China – have no tradition of account when confronted by so now the question must allowing foreign oversight of the hard choices that lie ahead. be whether this co-operative their domestic policy choices? And welcome as it was, China’s spirit can last long enough to stimulus shouldn’t be seen survive the acute phase of the External surpluses and deficits as a first step towards more crisis? For the aftermath may and corresponding exchange consumer-oriented growth.

Spring 2010 Europe’s World | 67 The task ahead for Chinese long irritated the rest of the it lacks the human resources to policymakers is daunting, world, and so far, the G20 has play a full role in international and China’s refusal to bow to achieved no progress on this. financial diplomacy. China U.S. and European pressures An even more difficult question is also afraid of being made on revaluing the renminbi is whether the emerging world co-responsible for decisions it doesn’t bode well for future is ready to take part fully in the will have little ability to influence. macroeconomic and monetary fashioning of new global rules. co-operation in the G20. Again, China’s answer will be The upshot of all this is that key; for all the talk of G2, Beijing after a brilliant start, global The second issue is the still seems very reluctant to co-operation and governance redefining of global governance take on its full share of global may disappoint in the years responsibilities. Europe’s responsibilities. It will still be a ahead, even though it is to be huge over-representation in poor country when it overtakes hoped that the acquis of 2008- international organisations like the U.S. as the world’s leading 2009 will provide the basis for the IMF and World Bank has economic power, and right now its further development.

Hans-Gert Pöttering MEP Former President of the European Parliament and Chairman of the Konrad-Adenauer-Stiftung

“The European Parliament must play a central role if we want a democratic model of global governance” In the context of ongoing fight against climate change. the attention of policymakers, globalisation, global governance Saving our environment is by its and at the same time new ways is surely needed to provide very nature a global question, are needed to ensure that solutions for key political and there is no doubt that only citizens' voices are heard loud problems that are more and more global agreements can counter and clear. exceeding their longstanding the ecological dangers we have geographical limits. The focus of ourselves created. The European Parliament as political decisionmakers cannot a directly elected body that is stop at a border when our This makes it a prime example the only supranational problems are so international. for the problems of modern parliament in the world, must global governance. Interest play a central role if we want The best example of these new groups and multinational a democratic model of global challenges is, of course, the corporations are competing for governance.

Jiang Shixue Deputy Director of the Chinese Academy of Social Sciences’ Institute of European Studies

“China would never accept the idea of a G2” With the emergence of so many we need to keep a number This means that the idea of a global issues, strengthening of principles in mind: First, so-called G2 alliance between global governance has become global governance should be the United States and China is not just important but very implemented in the framework of totally nonsense. China would necessary. To make it effective, a multi-polar world order. never accept such a notion.

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Second, global governance And third, as part of the major say in designing the should never be used as a process of strengthening global rules that will relate to global pretext to intervene in any governance, the interests of governance. nation’s internal affairs and the developing countries must sovereignty. In other words, it be protected. In particular, the And last but not the least, the needs to be accompanied by emerging economies, such as United Nations must be given an co-operation, participation and the BRICs (Brazil, Russia, India important role in any future global mutual respect between nations. and China), must be given a governance arrangements.

Danilo Türk President of the Republic of Slovenia

“We need global institutions capable of making international co-operation inclusive” There is scarcely any more co-operation inclusive, whether that group can move pressing a question then that of participatory and sustainable. the world in the right direction, seeking a new model of global Today’s polycentric world offers but there will be an early test; governance. The world needs an us a real chance of achieving reform of the International alignment of its major economic the former, but reform of our Monetary Fund. Let us press for and military powers to ensure existing global institutions is global financial reform that global order and peace. going to be needed if we’re to would include as an early get the latter. measure IMF reform and real At the same time, the world changes to its quota system, its needs global institutions The lynchpin of the two is the decisionmaking process and its capable of making international emerging G20. It is hard to say lending policies.

Guy Verhofstadt MEP Leader of the Liberal Group in the European Parliament and former Belgian Prime Minister

“I ntegration that transcends borders is the logical response to 21st century realities” There is in this day and age no structures to tackle common Only in this way will we build a single state big or rich enough problems. Unlike the great global system that is prepared to meet the global challenges. empires of the past, these to take decisive action on the The internationalisation of regional blocs are meant to political, economic, financial, our economies and financial create a functioning politico- commercial and environmental systems along with climate economic equilibrium based on challenges facing our planet. change and terrorism have consensus and common purpose. increasingly made policy Integration that transcends the measures by nation states If we are to adjust global borders of the old nation states inappropriate and irrelevant. governance accordingly, these is the logical response to 21st regional powerhouses need century realities. This will lead National governments are to be represented in the UN us to a safer, more democratic choosing more and more to join Security Council and at the IMF, and more prosperous world in together in regional co-operation the World Bank and the WTO. the 21st century.

Spring 2010 Europe’s World | 69 Worldwide reform means engaging public opinion first

There are real fears that the deep-seated reforms demanded by the global financial and economic crisis will not get the public support that is needed, warns former Polish finance minister Leszek Balcerowicz. He sets out a six-point approach to long-term recovery

rises such as the present one economic crises, but without looking at them seriously disrupt our economic in a longer-term growth perspective. And yet Cgrowth, but the question we should another one deals with crisis management, also be asking is in what ways do they meaning what governments should do once a affect longer-term development? It’s an crisis erupts. In the case of a financial crisis this important question, yet it has attracted usually includes fiscal and monetary easing as surprisingly little research. well as rescue operations for larger financial institutions. The prevailing approach to crisis Traditional growth theories focus on management has been short-term, and as systematic growth forces was amply demonstrated which by definition operate Integrating different during this latest crisis, was based on what I would call, all the time, although with streams of analysis varying degrees of intensity. perhaps rather pointedly, These forces consist, into a new and the self-justifying doctrine of among others, of capital coherent approach intervention. accumulation, employment to economic growth and technical change. And This holds that whatever going deeper, there are is a huge challenge crisis management measures underlying institutional factors to policymakers are adopted, they are like property rights, market invariably justified by the competition, tax and regulatory burdens argument that the alternatives would have and the effectiveness of the rule of law. been worse and might well have provoked catastrophe or even a meltdown of financial Another strand of economic research markets. Metaphors like ‘if there is a fire, focuses on the causes of the financial and you don’t worry about pouring on too much

70 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE water’ have been deployed to support this COMMENTARY approach, even though they remove from the analysis such elementary questions as By Adam S. Posen how to measure what are optimal doses of anti-crisis medicine that won’t weaken We can argue about the forces of market recovery, while also assessing the longer-term legacies of their the causes of the crisis management measures. crisis, but agree on This latter problem has only recently its lessons begun to surface in the debate under the heading of governments' “exit” strategies eszek Balcerowicz is absolutely right from sharply increased levels of public debt, that we must seize on the current from sharp increases in central banks’ money Lcrisis as an opportunity for reform. supply levels and from the increasingly He is also right that the policy response to widespread belief that large financial the crisis, though necessary, must not be institutions will go on being “too big to allowed to lastingly set back growth and fail”. Integrating these different streams of progress in Europe. Finally, I fully support analysis into a new and coherent approach that the reform efforts must be linked to a to economic growth is a huge challenge to public understanding of the causes of the policymakers and academics alike. But a crisis. Unfortunately, the specific causes and measures he advocates falsely interpret number of points strike me as relevant to those causes, and the situation in Europe the current situation. that has come out of the crisis.

First, because financial crises as deep as First, on causes Balcerowicz’s emphasis the present one are socially so costly, it is on monetary and fiscal laxity is misplaced. only natural to try to prevent them. But just The crisis was largely due to the excessive as with medicine, this demands an accurate laxity of bank supervision and regulatory diagnosis of a problem's causes. The enforcement in the financial sector. The proximate reason for all financial crises is the idea that it was macroeconomic policy that excessive growth of credit – a credit boom caused the crisis doesn’t fit the facts – many which goes bust. But the underlying reasons countries that had bubbles, including the for the boom differ from crisis to crisis. In UK, had much higher interest rates and the present case, as the De Larosière report much tighter public budgets than the U.S., and many countries that didn’t have bubbles emphasised, a major contributory factor were exposed to large capital flows and was the serious failure of public policies; global low interest rates (if the latter is what the U.S. Federal Reserve’s excessively loose matters). The timing is also wrong, with monetary policy was followed by many other the Federal Reserve’s supposed excessive central banks, while other factors included ease coming into play well after the bubble defective financial regulations, expansionary was underway. Those countries that did a fiscal policies in countries like the U.S., better job of regulating and supervising their Britain and Ireland which suffered serious financial systems suffered less damage.

Spring 2010 Europe’s World | 71 housing bubbles, a lack of appropriate There exist no policies that could suspend macro-prudential regulations, and so on. the operation of all these linkages without Preventive measures should therefore damaging longer-term growth. Continued fiscal focus on these policy failures rather than expansion is certainly not the answer, as after degenerating into hostility towards hedge a while it damages both private spending and funds and other private equity devices. business investment. But there are reforms that can facilitate the adjustment of the economy, My second point is that there are a and thus ease social pain by countering the number of obvious economic channels growth in long-term unemployment. These through which booms that turn into busts reforms include measures to remove the will affect growth. These include increased labour market rigidities while also speeding- unemployment, the reduction of excessive up the repair of banks’ balance sheets. The debt burdens and therefore of credit- speed with which economic recovery can be driven spending, the restructuring of those achieved would largely reflect the extent to sectors that had expanded in response to which these steps are taken. excessive spending, and the curtailment of lending by previously over-extended Third, and on a closely related note, financial institutions. most if not all EU countries were already in

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72 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE need of substantial structural reforms long COMMENTARY before the crisis broke. This was due to a combination of their fiscal problems, their Adam S. Posen lack of competitiveness and the aging of their societies. Today’s crisis makes these Second, and reflecting this reality, the reforms more imperative than ever. real challenge is to unwind the emergency guarantees and state interventions into the My fourth point, other than for those financial system, while restoring the necessary degree of regulatory discipline. This will who still believe in a free lunch, is that the take a true buy-in from the public now that employment and growth implications of the the moral hazard of governments bailing- EU’s commitments in the area of climate out both too-big-to-fail institutions and change policy need to be carefully analysed. too-widespread-to-lose forms of savings has Multiplying the number of burdens being become the expectation. Fiscal and monetary placed on the European economy is not discipline, on the other hand, will for the the best policy to be implementing in the most part be restored shortly, although with aftermath of a crisis of the scale we now some pain and protest. But the recognition face. of bond market requirements, even if not of strict adherence to the Maastricht fiscal Fifth, it is difficult to overestimate the criteria, is binding throughout Europe – and importance of fiscal discipline on longer-term with one notable exception, was problematic growth. It is all too easy to find examples of before the crisis, long-term interest rates and inflation expectations in European economies countries that subsequently suffered badly reflect this reality. because of sustained expansionary fiscal policies. By the same token, I cannot think Third, the vast majority of economies in of a single case when the long-term growth the eurozone and in eastern Europe are right prospects were damaged by excessive fiscal to treat the crisis as an exogenous demand stinginess. Given the fiscal legacy of the shock – something that is coming from outside current crisis, no efforts should be spared their control, and is temporary. Whether in the in anchoring fiscal discipline firmly in the EU form of Finnish and German programmes to countries. Institutional measures such as a support work-sharing or the Czech Republic fiscal frameworks and public debt thresholds and Poland’s tolerance of one-time currency can do much to help. Ultimately, though, depreciations without changing monetary it is public opinion that will determine policy frameworks, those economies that are governments’ fiscal stances, so fiscally without structural imbalances are right to ease temporarily in response to a demand conservative public opinion would be a shock. The minority of European countries that great economic asset as it would constrain need more fundamental rebalancing, such as policymakers’ profligacy. It is therefore up Ireland, Hungary, and Spain, obviously face a to opinion leaders to strengthen this sort different set of challenges. of attitude. We would be wrong on the politics as well My last point is that crises are of course as the economics, however, if we did not unpleasant, but they are also widely thought publicly recognise that the majority of European

Spring 2010 Europe’s World | 73 Four prestigious venues in Brussels

www.concertnoble.be www.skyhall.be Elegance and refinement Space and flexibility

www.bibliothequesolvay.be www.hotelwielemans.be Prestige and character Charm and authenticity SPECIAL SECTION ON GLOBAL GOVERNANCE to facilitate growth-enhancing reforms. This COMMENTARY isn’t always the case, though, as the policy conclusions that will be drawn from the Adam S. Posen present crisis will largely depend on what the public perceives as the reasons that caused states in terms both of population and economic the trouble. If European public opinion weight responded rightly to the crisis, and did were to put the blame on previous market not cause it. The one-size-fits-all re-statement reforms, the policy lessons to be drawn from of the same old list of neo-liberal critiques of pre-crisis Europe, which the Balcerowicz article the crisis may go off in the wrong direction. appears to support, is misguided in the current This was precisely the case in Russia in 1998 context. Yes, the Kurzarbeit-type measures and in Argentina in 2000, as in both cases could, if allowed to persist, impede labor the dominant stream of public opinion re-allocation in normal times, and a reliance on blamed previous reforms for the crisis even devaluations is a long-run loser. And yes, there though the truth was that both crises had certainly still are structural concerns about been caused by fiscal irresponsibility and Europe’s low trend productivity growth, made insufficient reform. the more pressing by the demographic burden. Yet most of Europe had made great strides on Having said that, if public opinion across labour market liberalisations before the crisis, Europe holds policy errors or the lack of and dogmatic financial liberalisation has proven reform as responsible for the crisis, then to be excessive. There certainly is room to there is a chance that the right policy re-think the recommendations. lessons will be learned and that sound growth policies will result. The key to overcoming the crisis and its difficult legacy is the way that Europe’s citizens perceive the origins of the financial crisis that erupted in the autumn of 2008.

Adam S. Posen is a Senior Fellow at the Leszek Balcerowicz is a former Deputy Prime Peterson Institute for International Economics, Minister and Finance Minister of Poland (1989-1991; and an external member of the Bank of 1997-2000) and a former President of the National England’s Monetary Policy Committee. Bank of Poland (2001-2007). MCBMDF!THIXBXQM BQPTFO!QJJFDPN

Spring 2010 Europe’s World | 75 Why U.S.-EU economic co-operation holds the key to global governance

The globalised economy and the rise of new economic giants demand a radically reformed international system, says Robert Hutchings. But it will nevertheless fall to Europe and America to fashion these new structures for global governance

espite the many calls for a “new co-leadership. It was noteworthy that the Atlanticism” or a “new transatlantic International Monetary Fund found itself Dbargain,” the U.S.-European relationship totally sidelined, making it the first time is still imprisoned by old habits and ways of since its creation at the 1944 Bretton Woods doing business. Yet, it is an inescapable reality conference that it has played no role in a that almost all the new challenges lie outside major financial crisis. It was for this reason the traditional NATO relationship, and many that the Europeans, led by UK Prime Minister of them are in areas where U.S. and European Gordon Brown, called for a summit meeting of views have long diverged. the G20 world economic powers to consider a “Bretton Woods II” world financial architecture, It would be too much to ask that there bypassing not only the IMF but the G7 as well. be a U.S.-European meeting of the minds on every global issue, but on many of these issues This initiative and the three G20 summits U.S.-European strategic convergence seems which have since taken place – Washington both possible and necessary. These include in November 2008; London in April of last management of the global financial and trading year; and Pittsburgh in October – have system, addressing energy security and climate been a promising start. With European change, and re-fashioning existing international and U.S. leadership, several measures institutions to address all these problems. were undertaken to strengthen financial oversight and monitoring via the IMF and Perhaps it has taken the global economic a Financial Stability Board that replaces crisis to compel Americans and Europeans the old Financial Stability Forum. The G20 to revitalise their co-operation and exercise leaders also agreed to recapitalise the IMF

76 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE and multilateral development banks via an the same level as the U.S. The size of the impressive $1.1 trillion package of measures IMF’s executive board should be reduced to assist the poorest countries. The G20 from 24 to 20 by consolidating European was formally designated at Pittsburg as the representation. Although the United States premier forum for international economic and its European partners have pledged to co-operation, but although it is far more reform IMF governance, so far they have been inclusive and representative than the G7, loath to relinquish their privileged positions. the G20 is itself far from ideal because Europe is so greatly over-represented,with The global financial crisis also has contributed France, Germany, Italy, the UK and the EU all to a growing crisis of the world trading having seats at the G20 table. system, with governments responding to anti- globalisation pressures by pursuing mercantilist The essential next step is to bring the policies. Bi-lateral and regional trade agreements new economic powers more have been proliferating, most of fully into the global system and them the kinds of discriminatory to have their growing power trade deals that the U.S.-led and influence reflected in the One possible formula international order was designed IMF, World Bank and other would be for the U.S. to prevent. Meanwhile, the institutions. The emerging to relinquish its sole Doha Development Round, market economies account veto in return for launched in the aftermath of for 30% of global GDP, 45% 9/11, risks becoming the first of total exports, and 75% of the EU to reduce its post-war multilateral trade foreign exchange reserves, yet voting share at the negotiation to fail. Doha’s failure the traditional Western powers IMF from 30% to the would aggravate protectionist of the OECD continue to hold pressures and could cause 63.8% of the total voting shares same as the U.S. irreparable damage to the in the IMF, with the G7 alone World Trade Organisation’s own constituting 43.7% of the total. credibility.

Symbolically, a good place to start would Yet despite their rhetorical commitments be for the United States and Europe to to completing the Doha round, neither the give up their conventional claims to the U.S. nor any other economic power has done top World Bank and IMF jobs and open much to move it forward, and the reasons for those leadership positions to candidates this inaction are not hard to find. In the U.S. from other countries. Procedurally, emerging and elsewhere, it has sparked widespread economic giants like China and India should opposition from workers and trade unions, be accorded substantially greater voting and only tepid support from the wider power. One possible formula would be for public. It is, in short, the familiar story of the U.S. to relinquish its position as the gains being widely distributed while losses sole country with veto power in return for are sharply focused, usually by sector, often the EU’s agreement to reduce its combined by region. Reviving Doha will only be possible voting share at th IMF from 30% down to if the American public and the Congress see

Spring 2010 Europe’s World | 77 large, headline-grabbing benefits that could to transatlantic trade that are not covered in offset opposition from those who would be the multilateral round. adversely affected. The abstract appeal of free trade would need to be accompanied by On energy and environmental co-operation, a widely shared conviction that it is fair as the G20 has increasingly taken on a key well as free. role that reflects the fact that its members account for more than 85% of global economic A bold international move would be activity, energy consumption and greenhouse needed to overcome entrenched positions, gas emissions. As in global finance and and that means a deal involving substantial trade, solutions to the world’s growing energy concessions by the U.S. and the EU on and environmental challenges call for new agriculture in return for commensurate mechanisms and the greater involvement of commitments by India, Brazil, China and others China, India and other rising powers. to open their own markets for services and agriculture. With the Europeans, simultaneous Another legacy of the outmoded pursuit of an “enhanced transatlantic market” international system is that the International would make a new U.S.-EU Doha initiative on Energy Agency includes none of the major agriculture more attractive to both sides, as energy supply countries. The U.S. and it would aim at reducing additional barriers Europe should take the lead in expanding

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The Madariaga – College of Europe Foundation is dedicated to promoting original thinking on the role of the European Union in an era of global change, engaging citizens and international partners in a creative debate on the issues that shape Europe’s future. Through research and action, the Foundation pursues a three-fold mission of challenging the citizen, empowering Europe, and preventing conflict.

Created in 1998, the Foundation bears the name of the College of Europe founder: Spanish writer, historian, diplomat and philosopher Salvador de Madariaga (1886- 1978). The Foundation works in close cooperation with the College, which provides it with a valuable access to a pool of academic expertise and a vast network of professors and alumni.

78 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE its membership to include China, India, Having said that, the United States and Russia and other non-OECD countries, and Europe nonetheless have an indispensable in elevating the IEA, along with an expanded role to play in fashioning a new global order Energy Charter Treaty, as a forum for energy that can integrate the rising powers and security through negotiation among suppliers, accommodate their interests, while at the consumers, and transit countries. same time preserving the basic liberal values that have underpinned the western-led post The EU and U.S. should also exercise WWII system. But an attempt to deal with new leadership in fashioning a new global problems within the framework of existing environmental regime that includes institutions cannot provide the solutions the world’s rising economic powers. As required. This is where the international Copenhagen’s outcome has made clear, a community has been stuck for nearly two global mega-deal is probably not feasible decades since the end of the Cold war; under current economic conditions, so the trying to adapt those institutions to new most realistic outcome would seem to be challenges and open them to new members, flexible national plans with political, rather while invoking a sense of common interests than legally binding, commitments to cap that were more relevant to the last half of carbon emissions by 2050, reviewed and the 20th century than they are to the early monitored by an international body analogous 21st. That effort at incremental adaptation to the WTO trade policy review mechanism. has almost run its course; now a new burst of To induce China and India to join such a creativity and leadership is needed. consensus, the U.S., EU and Japan would need to take the lead in assembling a clean It has been a popular rallying cry since the energy fund with significant private sector end of the Cold war that on almost every participation – a more ambitious version issue of the day Americans and Europeans of the International Partnership for Energy would be better off working together than Efficiency Co-operation (IPEEC) established working separately. It is an inspiring message, at the G8 summit in L’Aquila, Italy, last July. and may even be true, but the years since the collapse of the old order have shown that just In sum, the world is on the cusp of the because Americans and Europeans should most profound shift in global power and act together in this new era did not necessarily influence in a century. Managing this quiet mean they would do so. revolution calls for nothing short of a new international system, with a radical revision of existing institutions and patterns of doing business. The existing international system, th fashioned for the world of the mid-20 Robert Hutchings is Diplomat in Residence at century, is not very relevant to the new global Princeton University’s Woodrow Wilson School of agenda, and the emerging re-distribution of Public and International Affairs. He becomes Dean power roughly from west to east is unlikely to of the Lyndon B. Johnson School of Public Affairs permit any new global order to be managed at the University of Texas in March 2010. IVUDIOHT! by a U.S.-European condominium. QSJODFUPOFEV

Spring 2010 Europe’s World | 79 Ending boom and bust: The case for macroprudential instruments

What can be done to make the world's financial markets more resilient and the 'real economy' more stable? Paul Tucker, Deputy Governor of the Bank of England, sets out his thinking on why new macroprudential policies are needed

here is a widespread agreement that policy and the micro regulation of individual we must all do our utmost to avoid financial institutions. Along with regulators, Ta financial crisis like this again. And central banks have a clear interest in helping to do so we need a more resilient financial to develop ideas in this area, not least to system that will be less prone to boom avoid an unrealistic burden being placed and bust. Part of the solution lies in the on monetary policy. The recent crisis has regimes that restrain the behaviour of banks reminded everyone that the business cycle and dealers so that they can withstand and the credit cycle are not always the adversity. But another part lies in whether same. the authorities can lean against the boom phase of the credit cycle. The key elements of this debate can be put under the following headings: policy That's why in late November the Bank of aims and objectives; policy instruments; England published a discussion paper on whether to deploy those instruments on the possible role of macroprudential policy the basis of rules or by using discretionary in helping to restrain the future build-up judgment; and international co-operation. of risks within the financial system, and Behind its technical detail, there lies the the threat these can pose to the economy straightforward question of whether our generally. The aim would be to make the economies can create regimes in which financial system more resilient and the real the authorities are ready and able, as economy therefore more stable. With its the Federal Reserve's Chairman William focus on systemic risk, macroprudential McChesney Martin put it some 50 years ago, policy sits between pure macroeconomic "to take away the punchbowl when the party

80 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE threatens to get out of control." Having COMMENTARY a body that meets regularly to consider precisely that issue might serve us well By Lars Nyberg because it would mean that during the good times at least one body remains focused on Cross-border how the good times might go sour. But that sort of body is feasible only if we can design banking is the the instruments and mechanisms needed to hold to account the relevant authorities. problem, and also the solution To begin with the aims and objectives, in big picture terms these include quelling asset he most striking feature of the crisis price booms, targeting credit growth and is its international dimension. Earlier strengthening the resilience and performance Tfinancial crises have mainly been of the banking system during credit booms national, and so were of national concern. and busts. The Bank of England discussion But globalisation and the development of paper aired the possibility of focusing on large cross-border financial institutions have the resilience of the banking system over the changed all that, so problems arising in one credit cycle because that would indirectly corner of the world spread rapidly to others. affect credit supply conditions and so help to lean against credit-fuelled booms. The heart of the matter is the mismatch between responsibilities and powers. The responsibility to clean up the mess in a So why not target asset prices? Essentially national financial system that was caused because we at the Bank of England feel that by the failure of a cross-border institution the threat to financial stability is greatest when may well lie in one country, while the main exuberance in asset markets is accompanied powers to regulate and supervise it rest by excess credit growth and indebtedness. with another. Needless to say, the incentive It is the impact of falling asset prices on structure for the banks and other financial an over-leveraged and liquidity stretched players is unsettling because so many mixed financial system that imperils the provision of signals are likely to be sent. essential financial services to both businesses and households. But, in that case, why not This could lead a government to one of cast the objective solely in terms of targets two conclusions. One would be essentially for credit growth? We doubt it would be to close its borders to financial services and take a protectionist stance on regulation, feasible. Macroprudential instruments could supervision and crisis management. be deployed to influence the terms on which Protagonists of this view have a fully credit is supplied by the banking sector, but justified fear of having to pay for problems the resulting growth of credit will also depend caused by some institution or market over on demand conditions which lie beyond the which they have no control. But this would direct reach of macroprudential instruments. nevertheless be a costly and reactionary Also, residents of industrialised countries are road to follow, as well as a tremendous free to borrow abroad, so total credit growth blow to European integration that carries

Spring 2010 Europe’s World | 81 cannot be controlled by constraining domestic The case for focusing on particular classes lenders. But there is no good reason to turn of lending is as follows; imagine that the our backs on the free flow of capital across authorities judge that a boom in lending borders, so we need a macroprudential regime to a particular sector of the economy had that caters for that. become overly exuberant and so threatens stability. Assume that this lending was to Focusing on the dynamic resilience of the shadow banking system (say conduits, the domestic banking sector’ would be likely special investment vehicles and so on). If to act to some degree as a circuit-breaker the authorities were to raise the headline on domestic credit supply. minimum capital ratio, banks So there would be an effect To make the financial could respond in a number of on credit conditions, and so ways, including the perverse plausibly some indirect taming system more reaction of cutting lending of the credit cycle during the resilient and the real to parts of the real economy upswing. And, crucially, during economy therefore that were showing no signs of the subsequent downswing, exuberance, while continuing the macroprudential dial could more stable, to lend on overly relaxed terms be relaxed where necessary macroprudential to the exuberant shadow to lean against the risks of policy sits between banking system. In the real a perverse downward spiral pure macroeconomic world this might well happen if in the supply of credit, the lending of this sort seemed to economy and the strength of policy and the offer terrific returns. A regime the banking system. micro regulation of like that would not command individual financial support for long. Of course, Turning to policy instruments, the focus should sometimes the obvious ones are capital institutions be aggregate credit conditions, and liquidity requirements for but if the relevant authority banks, and how much collateral they must were always to delay its intervention until take when lending to borrowers on a secured everything was booming, it might be harder to basis (often known as ‘haircuts’). Let’s take restore calm to the party. by way of illustration just one approach; that of applying a top-up or ‘surcharge’ over To turn to the key question of whether and above the usual regulatory minimum clear-cut rules or the discretionary judgement capital requirement. Those surcharges could of the authorities should determine the use of be applied to headline capital requirements policy instruments, it’s worth saying that many or at a more disaggregated level, through ‘risk commentators would ideally like policymakers weights’ on different classes of lending and to use simple rules. This helps people to exposure. To lean against accumulating risks understand what is going on, and makes it to stability, they would need to vary counter- easier to hold policymakers to account. But cyclically, increasing in a credit boom and accountability for a flawed rule helps nobody perhaps falling during a cyclical contraction very much, and we at the Bank of England are in the supply of credit. doubtful that such a thing as a simple rule

82 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE either exists or could be developed. If that COMMENTARY view is correct, then judgment would always be needed to make reasonable policy choices. Lars Nyberg That in turn would call for an assessment of the resilience of the system, credit conditions, sectoral indebtedness and systemic spillovers. with it the loss of future welfare gains for In short, all the available evidence would need the EU as a whole. to be weighed. A different and more promising avenue from a European perspective would be to In very broad terms, this would be akin to move in the opposite direction by further applying Basel-Capital-Accord Pillar II-type enhancing cross-border co-operation. This judgments to banks in general. Doing so will admittedly be challenging as one would would share with the Pillar II element of need to find new ways of managing national micro prudential regulation a focus on the interest conflicts that arise in cross-border circumstances that warranted a capital crises, meaning better burden-sharing charge different from the Pillar 1 minimum. mechanisms. It’s never going to be easy, but But it would also differ in a number of discussing these matters ahead of a crisis important respects; first, any changes would rather than during it would greatly improve have to be applied to all banks in the the chances of success. authorities’ jurisdiction, with individual banks being affected differently depending on their Inevitably, globalisation and cross-border integration will also increase the role for exposure to risk. Second, raising of capital supranational solutions. The development requirements would depend on the problems of European supervisory agencies and of a facing the whole system, including how badly European Systemic Risk Board are important banks were exposed to each others’ risks. steps towards creating the sort of framework Third, although in the micro prudential that can effectively oversee an integrated EU setting Pillar II always adds to the Pillar I financial services sector. minimum, a macroprudential authority might actually reduce risk weights and therefore The failure of financial regulation and capital requirements during a credit cycle’s supervision has been a painful feature of downswing. Fourth, application of a capital the crisis, for the existing frameworks were charge would need macroeconomic as well demonstrably ill-equipped to curb exaggerated as financial system inputs, so to the extent risk taking in upturns and, conversely, that top-down stress tests were employed destructive herd behaviour in downturns, or to contain the rapid spread of problems as one of these inputs, there could not be throughout the financial system. Extensive a standard battery of mechanical scenarios. efforts are now being made to design a They would need to be tailored to the risks regulatory and supervisory framework that will confronting the financial system and the reduce the risks of a major new financial crisis. economy as a whole. As Paul Tucker puts it: “…putting in place a workable framework for macroprudential It would be important to constrain such policy is now one of the great challenges facing a macroprudential regime so as to ensure our generation”. I couldn’t agree more.

Spring 2010 Europe’s World | 83 transparency, accountability and a degree of increased the risk weight on, say, domestic predictability. That in turn would call for a very mortgage lending. The measure would apply clear timetable for taking decisions, and for only to banks headquartered domestically or public explanations of those policy decisions. operating out of a subsidiary, but could not Even if the relevant authority had not actually apply to branches of foreign headquartered used its policy instruments, a public explanation banks, still less to purely cross-border activity. of the areas of banking it had examined might It is easy to imagine that, rather than borrowing help to focus the minds of banks’ managements from domestically-domiciled banks, mortgage and the boards of directors. brokers would arrange for households to borrow from a lender based abroad, or at least What of the international dimension? There with the loan booked abroad. In terms of the are big questions about whether a country accumulation of debt in the sector concerned could do any of this on its own, and whether – in this hypothetical case, households – tight co-ordination would be both needed and there might be little or no effect. That would would be effective enough. obviously not be great for the risk of default by the borrowing sector concerned, but A useful illustration might be a case where domestically based banks would have been the financial stability authorities in one country required to build their defences. If so, the

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EGMONT (Royal Institute for International Relations) is an independent think thank based in Brussels. As a study centre, EGMONT carries out research in a number of fields that are considered a priority for Belgian diplomacy, such as ‘European Integration’, ‘Security and Global Governance’ and ‘Central Africa’. EGMONT also acts as a forum for the exchange of ideas and opinions on international politics and serves as an interface between diplomats and civil society. It achieves its objectives by organising conferences, debates and seminars on its own premises and abroad. In addition to research and conferences, EGMONT has devel- oped specialised programmes for foreign diplomats and young professionals interested in international and European affairs. Since 2002, EGMONT similarly offers the “Youth and Europe” Programme, consisting of educational sessions aimed at high school students (17-19 years/old) and meant to develop their understanding of the European integration process.

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84 | Europe’s World Spring 2010 SPECIAL SECTION ON GLOBAL GOVERNANCE damage to those domestic-based banks COMMENTARY of any financial strain would be reduced, and the eventual economic costs might be Lars Nyberg lower, especially if they were able to take up some of the slack created by withdrawal At the same time, we all realise that it of credit supply by foreign banks to sound would be futile to think that we can rule borrowers. out future crises in the financial system. One of the most important lessons of this crisis is the importance of effective crisis One might even go further than that. management. In the first place, a domestic authority increasing capital or liquidity requirements When a crisis breaks out, it is important on lending by its banks to a particular that the rules of the game should be as sector could act as a signal to international clear as possible, so if we are to minimise counterparts like to the home authorities the risk of future crises we need a system of overseas banks. It would clearly be in which banks’ shareholders and creditors important to share this sort of analysis know they must not expect any government with peer organisations elsewhere, even if bail-outs. things went no further than that.

More market transparency would of course strengthen that international dialogue and might usefully form part of a wider discussion on the use of macroprudential instruments. For putting in place a workable framework for macroprudential policy is now one of the great challenges facing our generation, and an active exchange of ideas is needed. The thoughts set out here draw on existing work by other regulators and central banks, but a lot more work is needed before policies of this sort could be put into practice. There are plenty of other elements to such a regime, but at least a debate is now under way.

Paul Tucker is Deputy Governor of the Bank of Lars Nyberg is Deputy Governor of Riksbank, England. QSFTT!CBOLPGFOHMBOEDPVL
Sweden’s central bank. -BST/ZCFSH!SJLTCBOLTF

Spring 2010 Europe’s World | 85 Section 2EUROPE Why the euro is not on course to dislodge the dollar

America’s use of the dollar as a formidable instrument for its own economic management has long excited international criticism and resentment. But Charles Wyplosz explains why the euro is still far from poised to take over from the enfeebled U.S. currency

hina’s central bank governor Zhou and that most want to hold, as the irritation Xiaochuan has expressed his of the People’s Bank of China so clearly Cdispleasure with the U.S. dollar; he illustrates, is a privilege that some consider is not the first one to do so and certainly 'exorbitant’. It allows the U.S. to raise won’t be the last, but as he sits on top of a seigniorage, a tax-like levy that central banks cash pile of some $2.3bn, people noticed. obtain by selling bank notes that cost them Many others around the world have also virtually nothing to print (nowadays central been displeased with the dollar, and they banks often don't even print bank notes, have seized on Governor Zhou’s outburst they just grant loans, but this is a minor to try feverishly to usher in a world where technicality that detracts from the powerful no one currency will rule the world. And it's and accurate image of seigniorage). Even only fair to say that Mr. Zhou’s remarks led better, it allows U.S. residents to borrow the G20 to promise a new issue of SDRs, the worldwide in their own currency and on Special Drawing Rights that are the currency better terms than others, thus financing unit created by the International Monetary huge public and private deficits that many Fund (IMF). see as the root cause of the global financial crisis and the probable cause of the next Outrage at the dollar’s supremacy meltdown. It allows U.S. financial institutions is understandable. Being able to print a to act as bankers to the world, a privilege currency that everyone instantly recognises that they have so far severely misused in

86 | Europe’s World Spring 2010 this century, while Governor Zhou – or colleagues would have to fish for bonds his predecessor – was busily stocking up from governments they perceive to be as China’s reserves with more dollars every safe as that of the U.S., and which are also day. More profoundly, perhaps, there is a able to issue enough bonds to meet the sense of unfairness. The dollar’s role was needs of central banks. The total debt of the enshrined in 1944 at the Bretton Woods eurozone governments currently amounts conference, three generations ago, so how to about `9,000bn, but not all of that is far should the shadows of the past extend considered to be top quality. The supply and is it not time to move on? of euro-denominated instruments that are adequate to be held elsewhere as reserves Dumping the dollar may be a fine idea, is not that large. The German government, but we nevertheless need an international which issues the Bund futures contracts, currency-like instrument for settling could of course oblige by running large international payments. Governor Zhou is budget deficits for as long as the euro were well aware of that, and quickly to remain the world’s reserve followed up on his outburst The only way the currency, but it is far from with a more sedate statement euro area could sure that this would be a very that the People’s Bank of wield more power welcome development. China was definitely not about to sell its dollar mountain, has nothing to Still, some seigniorage but from now on would be do with the role would be earned as people acquiring other reserve assets of the euro itself around the world store than U.S. dollars, euros for but relates to the banknotes, whether for good instance. That of course raises reasons as a safe-haven for the question of whether the “balkanisation” of cash, or for bad (illegal trade) euro could displace the dollar Executive Directors in reasons. The euro has in fact in the vaults of central banks the IMF’s Board already won a significant around the world? Unlikely share of this market, with though it is, let’s assume that it could happen some `100bn worth of banknotes shipped and ask ourselves what would change? abroad by the ECB, which compares to about $400bn in U.S. banknotes circulating outside The first thing to change would be the the United States. Some additional benefit seigniorage business. World international would accrue to eurozone governments reserves amount to some `4,000bn and because their borrowing costs in what would are likely to keep on rising fast if China have become the leading world currency and other emerging-market countries would decline, but the overall effect is insist on accumulating ever greater foreign unlikely to be massive. currency holdings. Would that mean the instant enrichment of the European Central Over the last decade, European interest Bank (ECB)? Hardly, as reserves are mostly rates have not been systematically higher held in the form of government bonds than American ones. Where the U.S. which pay interest. Governor Zhou and his really made a profit was by borrowing

Spring 2010 Europe’s World | 87 from the likes of Governor Zhou at short that could have some effect, albeit a tiny maturities and low interest, and then one, on the complicated formula. The only lending elsewhere at long maturities and way the euro area could wield more power higher rates. Lending is the business – and has nothing to do with the role of the euro profit – of banks, and that’s a reflection of itself but relates to the “balkanisation” of the towering role of Wall Street. If the euro Executive Directors in the IMF’s Board. were to gain a truly international status Eight of the 24 board members are that could help challenge Wall Street, but European, each with a smallish voting that would also require serious changes in power. The case has long been made for the way European governments deal with all eurozone countries to merge into a their financial markets and financiers. My single constituency with a single Executive own bet would be on London, already the Director, who would then have more voting leading market for euro assets, to reap the power than his U.S. counterpart. It has profits rather than Frankfurt or Paris. yet to happen, though, because no EU country is willing to give up its own seat Why, then, do so many for the common good. people in the world want to see the end of the dollar’s The euro’s accession It is also far from clear supremacy, and why do to international what the dollar’s role as some in Europe get excited the world’s reserve currency at the prospect of seeing currency status confers in practical terms the euro become currency could open on the U.S. in international supremo? If the economic a window of economic and financial advantages are limited and opportunity terms. America’s GDP is in financial domination unlikely, any case by far the highest what’s left is political power. for European in the world, and will be for The dollar is often seen as financial markets many years to come. The America’s wonder weapon euro area’s overall GDP is and the source of its close to that of the U.S., dominance in international economic and but there is nothing like a single eurozone financial negotiations, so the question voice, no more than there is a single is would Europe capture that role if the eurozone Executive Director at the IMF. euro were to become the main reserve And Wall Street is by far the single largest currency? financial centre in the world, with the City of London only a distant second. A first answer concerns the IMF. Power And if U.S. banks do not necessarily top within the Fund is formally determined by the world league in terms of size (it used quotas and, for the time being at least, to be Japanese banks, then Swiss and the quotas do not directly acknowledge a British banks), the truth is that nowadays currency’s reserve role. Indirectly, however, big banks may be more a curse than if countries wanting to borrow from the a blessing. In financial as in economic IMF were to insist on borrowing in euros, matters, therefore, America’s domination

88 | Europe’s World Spring 2010 is towering and this may much more The reason is that ECB policies determine explain U.S. influence in world affairs than developments in an economic area about does the special status of the dollar. as big as the U.S. economy. And it is less and less the case that the dollar’s As noted earlier, the euro’s accession to depreciation is seen as an appreciation of international currency status could open all the other currencies. Nowadays, public a window of opportunity for European comments and perceptions recognise that financial markets. To reap this advantage, for one currency to go up another must go however, continental Europeans would down and the euro is often the other one. need to start developing a love affair Nor is it that commodity prices blindly with their financiers, even though this is follow the fate of the dollar. Sure, oil certainly not the direction in which they prices are still formally set in dollars but have been moving of late. Germany’s that does not mean that they are fixed. In Chancellor Angela Merkel has even fact, commodity prices now tend to rise expressed the opinion that when the dollar depreciates, the U.S. model has been and OPEC even uses a shown to be deeply flawed. Could the ECB formula that automatically It is of course, and although one day challenge adjusts oil prices to track the solution she proposes the U.S. Federal the average performances might perhaps make it of the dollar and the euro. safer, it would certainly not Reserve? In a way make it better-performing. it already does. ECB So what should we make Nor does French President policies determine of all this? First, that U.S. Nicolas Sarkozy’s berating developments in an power in international of “financial capitalism” economic and financial suggest that Paris is about economic area about matters is only tenuously to mount a convincing as big as the U.S. linked to the dollar’s challenge to New York, not economy supremacy, contrary to least because the Paris appearances and to the Bourse now belongs to the beliefs of many. Second, that New York Stock Exchange, just as do the euro is a long way from over taking the those of Amsterdam and Brussels. For the dollar. Europeans could nevertheless wield foreseeable future, continental Europe is considerably more financial and economic unlikely to provide fertile ground in which power if they were to speak with one voice, finance can flourish. but that seems at least as difficult for them as dislodging the dollar. Finally, could the ECB one day challenge the U.S. Federal Reserve? In a way it already does. Financial markets around the world pay nearly as much attention to ECB Charles Wyplosz is a professor at the Graduate president Jean-Claude Trichet’s utterances Institute of International and Development Studies as to those of Fed chairman Ben Bernanke. in Geneva. DIBSMFTXZQMPT[!HSBEVBUFJOTUJUVUFDI

Spring 2010 Europe’s World | 89 A jobs plan for Spain (and Europe too)

Spain’s troubled labour market highlights the unemployment problems across the EU, says Mariano Rajoy Brey, opposition leader of the Partido Popular. He puts forward a reform agenda for Spain that has EU-wide relevance

hether or not Europe is in for An improvement in Spain’s labour a “double-dip” recession with a market had to wait until new policies were W second downturn yet to come, the brought in by the government of José Maria crisis we currently face is jobs. That means Aznar. I was proud to contribute to those that most EU governments will be judged developments at a time when job numbers on how well they tackle unemployment, and increased substantially. From 1996 to 2004, this holds particularly true for Spain. the year we lost the general election to José Luis Rodriguez Zapatero’s PSOE socialist The Spanish labour party, 5.5m new jobs were market is in need of reform, created, a figure which had and it’s not a new problem. Whether or not grown to 20.5m by mid- For decades, Spanish society Europe is in for 2007. Nowadays, Spanish has been resigned to low a “double-dip“ people are proud of two rates of employment. The main accomplishments; the country’s highly acclaimed recession with a political transition of the transition to democracy second downturn yet 1970s and the economic after Franco’s era was not to come, the crisis we upturn of the 1990s, both of accompanied by comparable currently face is jobs which were made possible by economic improvements. centre-right governments. Back in 1975 there were 12.5m people employed in Spain, and 20 But now things are moving in the other years later despite an increase in public direction. The rate of job losses in Spain sector employment that figure hadn’t is the highest in Europe, and probably changed. Private sector jobs had actually the highest in the western World. Nearly shrunk during this period. 80% of job losses in the eurozone were at

90 | Europe’s World Spring 2010 one point concentrated in Spain. Although COMMENTARY Spain’s Labour Market is so defective that basic reforms are called for, Mr. Zapatero By Gilles Saint-Paul is so concerned with short-term political advantage that he has rejected the need Of course we need for reform. This approach may enhance the government’s relationship with the reform, but there's trade unions, but it clearly damages the country’s medium-term welfare, especially no magic wand with regard to those people who currently he nice thing about Mariano Rajoy’s proposals are unemployed. is that they don’t reflect the whims of a Tpolitician but instead are firmly grounded in A comprehensive labour reform strategy the debates on unemployment that economists for Spain means we should pay attention have had among themselves for decades. There to four main areas: First, education. We are certainly gains to be made from reducing mis- in Spain spend billions of euros trying to matches between vacant jobs and job-seekers, and the structure of bargaining clearly has an important improve the skills of both our working and impact on unemployment levels. So his proposed unemployed populations. The results are far reforms square well with the conclusions drawn from satisfactory. Because of the shortage from theoretical and empirical research in our of people with adequate qualifications, discipline. It is comforting for an economist to hear many vacant jobs go unfilled. Yet we still such views from a political leader. have the highest unemployment rate in On the other hand, I was somewhat surprised by Europe. Mariano Rajoy’s optimism both on the feasibility of the proposed reforms and the likelihood that they The current system needs to be replaced, might trigger a process with adverse unintended and at the same time accompanied by consequences. We only need to look at recent history strict public spending controls and better for lessons on why the rigidities we complain about performance monitoring. New evaluation are so resilient, and how reforms can go wrong. procedures and official certification should Most economists complain about the dual nature be introduced in areas like foreign language of the Spanish labour market – a feature that skills and computer literacy skills. economies like France, Portugal and Italy share, though to a lesser extent. But we should remember Labour market mediation also needs to than this structure was introduced in the late 1980s be reformed. The public employment agency by a government desperate to create jobs after a is quite efficient at managing unemployment decade of unemployment rates of about 20%. At benefits, but performs poorly in terms of that time, a comprehensive reform wasn’t politically labour market matching. Few Spanish people feasible because it would have provoked strong can say that they found a job thanks to the opposition from the unions, even though it was those unions which were largely responsible for national or a regional employment agency. the rigidities that had led to high unemployment New forms of partnership between the public in the first place. The compromise was continued and private sector, such as outplacement protection for permanent jobs, while making it easier firms, produce better results. to hire people on temporary contracts.

Spring 2010 Europe’s World | 91 Collective bargaining for wage and general enjoy very high severance compensation, working agreements are overdue for reform. and temporary workers who have very little It is well known that labour bargaining gives social protection. This is a difficult issue that better results when carried urgently needs attention. Job out on a national or even protection is unfairly divided company basis, yet regional The reforms I am between these two classes or collective bargaining tends proposing concern of workers. The system is to be the norm in Spain, even the Spanish labour inefficient, and lay-offs though it often ignores the depend almost exclusively on problems of unemployment market, but have the kind of contract a worker and absenteeism. relevance elsewhere has, as opposed to the skills in the EU or the performance of an But the most important individual worker. and most difficult area of reform concerns inequality. The Spanish The reforms I am proposing of course labour market works on a two-tier basis, split concern the Spanish labour market, but between first-class workers, who if dismissed probably have some relevance elsewhere

EUROPE’S WORLD BACKGROUND BRIEFING

On jobs, the worse may well be yet to come

European Central Bank president Jean-Claude Trichet But these gains risk being short-lived. With state last year drew an ominous W in the air to describe subsidy schemes running short of money, job- how he thought Europe’s economies would fare in shedding could be widespread in 2010, so many 2010. Many indicators suggest that his ‘double dip’ EU member states are bracing themselves for the prediction looks likely to be borne out. second dip of Trichet’s W. The International Monetary Fund (IMF) predicts that eurozone unemployment Although many EU countries were badly hit by will rise by almost 2% this year, and in Germany it unemployment last year – Latvia’s rate went from could peak at 10.6% because many of the schemes 9.1% to 20.9% and Lithuania’s from 4.8% to 13.8% that gave temporary shelter to the German economy – year-end figures suggested Europe was hauling its will expire. way out of the first dip of the recession. Spain is likely to be the worst hit this year, with The GDP of the EU-27 grew by 0.4% in the last quarter its overall rate jumping from 17.9% to 20.1%. of 2009. For some, this was a vindication of state Other countries badly affected will include Ireland, employment subsidy schemes which protected many EU with joblessness going from 12% to 15.5%, and jobs from a 14.1% fall in industrial orders. In Germany, Lithuania, 13.8% to 17.6%. Italy’s rate is due to rise subsidy schemes helped unemployment to drop from from 9.1% to 10.5% and in the Netherlands it will 8.2% to 8.1% by November. And unemployment in the almost double to 6.6%. EU was rising at an average of only 0.1% per month by the end of 2009, a marked improvement on 2008 when And the double dip is set to continue into 2011, when it was rising from between 0.2% to 0.3% per month. the IMF predicts that EU unemployment will hit 12%.

92 | Europe’s World Spring 2010 in the EU. For although other European COMMENTARY countries may have done better with their own labour markets, overall the results are Gilles Saint-Paul dissatisfying, particularly when it comes to the relationship between labour markets In the short run, the dual structure was successful and the welfare state. because it created jobs. But when in the early 1990s the next recession set in, an important drawback soon appeared – jobs were being For the most part, welfare systems and destroyed at a faster pace than usual. This wasn’t labour market reforms should be brought in really surprising as it is easy to get rid of temporary at national level. However, reforms like those workers by simply not renewing their contract. For proposed above are easier to implement if this and other reasons, economists have grown there is a co-ordinated European strategy. wary of the dual contract structure of the Spanish, The Lisbon Agenda agreed back in 2000 Portuguese, French and Italian labour markets. In was a missed opportunity because although the current recession, temporary contracts surely explain why unemployment has been growing it was intended to be the first economic so fast in Spain. But I believe it is only part of package that combined European and the story; the other part being that the structure national competences, it signally failed to of economic activity in Spain was heavily biased propose significant reforms even though the towards construction, and a painful structural European Commission had been warning adjustment must now take place with labour being that the Welfare State was no longer re-allocated to other sectors. It is even possible that sustainable for many EU members. temporary contracts may actually prove helpful in speeding that re-allocation process.

After a lost decade, we need to re-launch Many, however, now advocate eliminating the a new strategy for economic reform in dual structure and moving towards a single Europe. This strategy should genuinely labour contract. I think they forget that this dual seek to ensure that our economies are the structure is the result of a political modus vivendi, most competitive in the world, and that our and certainly there appears to be no viable social systems become genuinely political process able to change it. That’s why the dual model has spread over the years from Spain sustainable. And to repeat my introductory to Portugal, then to France and more recently to remarks, political success should be Italy. It is hard to see how a single labor contract measured in terms of jobs and welfare. If could reconcile the interests of permanent workers, we don’t act now it will be the EU that is temporary workers, and employers. If it were more deemed a political failure. rigid than temporary ones, but more flexible than current permanent ones, temporary workers might benefit but permanent ones would be more exposed. And employers would lose a margin of flexibility in managing their workforces. Everybody may want a single employment contract, but not one that’s the same as everybody else’s.

Gilles Saint-Paul is a professor at Toulouse Mariano Rajoy Brey is leader of Spain’s Partido University's School of Economics. Popular. HBSSJEP!QQFT
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Spring 2010 Europe’s World | 93 Taking stock of EU enlargement’s successes and failures

There’s no doubt that the EU’s ambitious enlargement strategy has been at a huge financial cost, says former Estonian prime minister Mart Laar. But it has been a great success economically, and not just for the newcomer states

t’s not easy to weigh the successes and four decades of straining against their failures of the EU’s “Big Bang” enlargement. communist dictatorships, the Soviet bloc’s IFive years is still a comparatively short time captive nations regained their freedom and in which to draw conclusions, and today’s started on their homeward trek – to Europe. apparent successes can still The division of Europe was at turn into failures almost The EU’s enlargement an end and the re-unification overnight. Yet the enlargement strategy has yielded of Europe in fact began to that took EU membership impressive results. yield results long before the from 15 to 25 countries EU took a hand. and later 27 was among the The central and most important events in the eastern European The situation in central and European Union’s 50 year countries have eastern Europe following the history, and changed Europe collapse of communism was beyond recognition. created mature and far from easy. The chaos that effective systems ensued served to underscore We can all remember the of democratic the many problems that had grim past, in which central government. On previously been hidden behind and eastern Europe was at the façade of communism’s first divided during World the economic front, Potemkin village. The tragic War II between Stalin and they have also made events that soon followed in Hitler, and then at the Yalta astonishing progress former Yugoslavia and parts of conference in early 1945 was the former Soviet Union were delivered into Stalin’s hands, who promptly the bitter fruits of freedom. So for central and cut it off from the rest of Europe with his eastern Europe the prospect of eventually Iron Curtain. And then, after more than being able to join the European Union was of

94 | Europe’s World Spring 2010 enormous importance. Of course applicant COMMENTARY countries would have to embrace certain rules and values – democracy, the rule of law and By Katinka BaryschBy A an open market economy – and looking back it would have been hard, if not impossible, Sure there are for them to do so without the magnet of EU membership. problems, but

The truth is that the EU’s enlargement an on-going EU strategy has yielded impressive results. In the enlargement area of democracy, despite all the pessimistic forecasts at the beginning of the transition strategy is a process, the central and eastern European no-brainer countries have created mature and effective systems of democratic government. astward enlargement has been one of the EU’s greatest successes. By opening its doors On the economic front, they have also made Eand stretching out a helping hand, the EU astonishing progress. One has only to look to has contributed to transforming 10 central and Eurostat, whose data compares the newcomer eastern European countries from post-communist countries’ per capita GDPs calculated in PPP confusion into open market, well-functioning democracies. Of course the EU’s new members (purchasing power parity) with the EU. Overall aren’t perfect; the 2008-09 global financial crisis growth has been impressive, especially over has laid bare their economic weaknesses. The the last 10 years; Slovenia leads with 89.8% fight against corruption, cronyism and crime has of the European average, the Czech Republic slowed in some places, and massive investments came second with 80.4% and Slovakia and in skills, technology and infrastructure are still Estonia were third and fourth respectively. needed to bring the eastern Europeans up to The fastest progress was recorded in Estonia, western European living standards. which moved 25.4 percentage points closer to the EU average. But as Mart Laar argues, there is no doubt that people in the new EU countries live longer, The World Bank calculates that GNI (gross healthier, happier and more secure lives than national income) per capita in PPP has at they would otherwise enjoy. The clear conclusion least doubled in the transition countries. is that the EU must continue enlargement to help stabilise the regions that lie beyond its In 2008, for central and eastern Europe as expanded eastern border. Yet the accession a whole, GDP per capita in PPP stood at process is widely perceived to be in trouble, with 63.26% of the European average, whereas 20 would-be members queuing for decades while years ago in 1989 even the most optimistic the EU is busy gazing at its own navel. communist statistics put it at only 40%. This picture is not quite accurate because But these growth figures also raise enlargement is still progressing. At the end of questions about the social costs involved. last year Slovenia finally lifted its veto on Croatian Economic growth of this sort won’t be membership talks (the result of a spat over a

Spring 2010 Europe’s World | 95 EU Sustainable Energy Week 22-26 March 2010

Take a week to change tomorrow www.eusew.eu

The EU Sustainable Energy Week 2010 is an event of the Sustainable Energy Europe Campaign

96 | Europe’s World February 2010 sustainable if it is achieved at the cost of COMMENTARY massive poverty and skyrocketing inequality, the collapse of health systems, lower levels of Katinka BaryschBy A education, falling birth rates and high infant mortality. Of course the closing years of the small stretch of coastal access). Croatia is likely to communist era also brought serious problems be a member within a couple of years and Iceland in all these areas. Poverty and inequality could soon follow. Serbia has just handed in its official application for membership, following jumped to new heights, while people’s health applications from Albania and Montenegro over and levels of social protection fell. Then, the previous 12 months. Serbs, together with after the early first shocks of transition, the Macedonians and Montenegrins, now travel to situation in all these areas had by the late the EU visa-free – a hugely important change 1990s begun to improve, and continued to for the people of the western Balkans. Turkey do so for ten years. has beefed up its machinery for managing the accession process and has started negotiations Poverty – meaning the at-risk-of-poverty in the tricky area of EU environmental rules; rate after social transfers – has during some observers still hope that movement that time fallen throughout central and towards a Cyprus settlement could unblock other eastern Europe, although it is still at 19.1% negotiating chapters. when the European average is 16%. The Czech Republic nevertheless shares with the But it is also true that enlargement is progressing more slowly than in the run up to the 2004 / Netherlands Europe’s lowest poverty rate of 2007 “big bang” enlargement. There are several 10%, followed by that other radical reformer, reasons for this. The current group of candidates is Slovakia. And when it comes to income less well prepared and in many ways much harder inequalities central and eastern Europe is to absorb than the 2004 intake. The countries of now below the European average. the western Balkans suffer from dodgy business environments, structurally high unemployment, Health has also improved in central and weak and corrupt state administrations and, in eastern Europe. Life expectancy at birth is some places, organised crime. three years longer in several of the newcomer countries, and has risen by 4.59 years in Some people in the western Balkans say that Romania. Infant mortality also decreased the EU should not be too tough: after all Bulgaria significantly, and is due soon to reach the and Romania didn’t match EU standards in many same levels as in the EU-15 countries. areas when they joined. That is true, but many EU politicians and officials have since regretted allowing those two countries to join in 2007 This rosy picture does not mean that the because once in they further relaxed their reform social situation in the EU’s new member efforts. So the argument is now that for the EU to states is without its problems. Many have made a mistake once is not a good enough regions of central and eastern Europe still reason to repeat it. lag well behind the older member states; life expectancy may have improved but it is Turkey – although better prepared than most still lower than in older EU states. On the western Balkan applicants – poses a different set of other hand, fertility which declined rapidly challenges. Turkey is a proud country with a dynamic

Spring 2010 Europe’s World | 97 in the transition countries during the 1990s, the impact of communist rule has been partly as a result of negative demographic so strong and the wounds so deep that trends begun under communism, is picking even now they have not attained the up again, and in countries like Estonia, is same developmental levels as those of now among the highest in Europe. the developed world in 1989. Poverty and inequality remain high and their Much less positively, criminality is demographic situations are catastrophic. higher in the new EU member states, and diseases like tuberculosis and AIDS In many successor states to the Soviet are not only too prevalent but are also Union, the fundamental organisation of linked to heavy drinking and smoking. society has not changed despite reforms Despite the many positive developments like as privatisation. It is misleading to in central and eastern Europe, these speak of the failure of the reforms as in countries are still poor when compared many of these countries the reforms have to the European average. not yet begun. Democracy isn’t working and the basic rules of a market-based economy The wounds inflicted during almost don’t exist. This may suit the Nomenklatura, half a century of communism cannot but it undermines the interests of these all be healed in 20 years. And when countries' populations. this fairly obvious truth is not fully understood, a kind of Soviet nostalgia One reason for these negative now exists; people sometimes forget the developments is that with all its rules conditions in which they actually lived the European Union did not strike these under communism, and how bad it was. countries as a reliable option. And the Ironically, feelings of this sort are at times further away from the EU a country is, accentuated by a new consumerism that the greater the problems it has with ignores the value systems that brought transition. This partly explains the freedom to the captive nations of central improving situation in Balkan countries, and eastern Europe. Pope John Paul II which are gradually coming into the EU. was absolutely right when he warned in The prospect of membership for western his encyclical ‘Centesimus Annus’ against Balkan countries has begun to have a both the left-wing welfare society and positive influence on developments there, ultra liberal consumerism. moving them towards the rule of law and functioning democracies. This has in turn To understand the achievements brought peace and greater stability to of enlargement, we should compare the EU’s own borders. This makes it developments in the newcomer states important to keep EU enlargement on to those achieved in other parts of the track and to further develop European former communist empire, notably those neighbourhood policies. This widens the that make up the Commonwealth of EU’s own ring of stability, and while Independent States (CIS). In the countries enlargement is undoubtedly a costly that made up the former Soviet Union, process, when compared to the possible

98 | Europe’s World Spring 2010 dire consequences of acting otherwise, it COMMENTARY costs next to nothing. Katinka BaryschBy A The worth of the 2004 “Big Bang” enlargement can most of all be seen in economy and growing expectations of regional light of the current economic crisis. Back leadership. It does not fit so easily into the EU’s in the 1930s, the Great Depression led accession paradigm, whereby the EU sets the rules and each candidate must demurely apply them to in one way or another to the collapse of prove its suitability as a member of the club. democracy not only across central and eastern Europe, but also in large parts of These impediments on the part of the western Europe too. It is clear, that without candidate countries are met by a sense of the EU, central eastern Europe would enlargement fatigue on the part of the EU. There have collapsed economically just as in the are now more EU citizens against any further 1930s. The European Union’s rejection of enlargement (46%) than are in favour (43%), protectionism, combined with the support according to a Eurobarometer survey last year. given by its structural funds has helped Rising unemployment within the EU will reinforce to stabilise the economic situation there. this scepticism as many Europeans associate Eurostat’s figures even suggest that overall enlargement with influxes of cheap labour. The the new member states are managing kind of political leadership needed to defuse the economic crisis better than much of such fears is lacking. Berlin and Paris have toned down their calls for a ‘privileged partnership’ with so-called old Europe. Cyprus and Malta Turkey, but they are still openly dubious about fared best in economic growth terms in admitting so populous and predominantly Muslim 2009, followed by Poland, Bulgaria, Slovakia a country. France continues to hold up various and the Czech Republic – all of which were chapters in Turkey’s accession negotiations. above average in Europe. The EU cannot afford, though, to be ringed to The Europe that has been built up as a the east by countries that are poor, disgruntled result of the “Big Bang” enlargement is and unstable. It is not only the current candidates more diverse, but diversity has always been that need the EU as an anchor, so too do the EU’s among Europe’s chief assets. Nowhere else other eastern neighbours: Ukraine, Belarus, in the world do so many cultures and Moldova and, across the Black Sea, Georgia, languages co-exist, not only without Armenia and Azerbaijan. The EU’s ‘Eastern conflicting with each other but also forging Partnership’ is designed to draw these countries closer, but its attractiveness will be much reduced greater unity from diversity. This may still if the EU cannot offer a membership perspective, be a dream, but it is certainly a dream however faint. The relative prosperity and worth fighting for. democratic stability of its new members should serve as a constant reminder of what the EU can – and must – achieve in its neighbourhood.

Katinka Barysch is deputy director of the Mart Laar is a former Prime Minister of Estonia. Centre for European Reform in London. WFJLPMVLNBOO!HNBJMDPN LBUJOLB!DFSPSHVL

Spring 2010 Europe’s World | 99 We've got to get the EU’s Balkans enlargement back on track

For a variety of reasons, says Heather Grabbe, the EU’s strategy for bringing in the countries of the Western Balkans is losing momentum and credibility. She sets out the policy shifts that are now needed

he EU has to succeed in the Balkans. If it environmental accidents on the Danube, and can’t keep the peace in its own backyard metaphorically with organised crime using the T its foreign policy won’t be taken seriously Balkans as a major route for the trafficking anywhere else. But Štefan Füle, the EU’s new of weapons, drugs and people. EU interior Enlargement Commissioner has an impossible ministers see lax border controls, failings in balancing act. He has to keep the accession the rule of law and persecution of minorities process moving steadily forward enough to causing migration as a threat to the security of motivate the south east European countries, their own countries. but not so fast that EU leaders complain and threaten to block it. It’s a Catch-22; the So Balkan and EU leaders alike are stuck with Enlargement Commissioner has to promise an increasingly unpopular policy. Enlargement membership is just around the corner to has consistently lost support in public opinion motivate the would-be members, but cannot surveys around the EU as it is seen as expensive offer a date or promise short-cuts because and as the potential source of more migration conditionality would then lose its credibility. and crime. But when EU foreign ministers meet in Brussels to discuss the Balkans they know there Yet if these countries consistently fail to is no alternative to the accession process. What meet the conditions, Brussels cannot just other policy could the EU possibly offer that walk away from the Balkans. The region is in could resolve the region’s problems? Eventual many respects already part of the EU; it is an EU membership, with conditions to encourage enclave within the EU, sharing borders with reforms along the way, is the strongest political member states like Greece, Bulgaria and Italy incentive and most substantive support the EU that have been the source of much inward can offer to any country. investment. The European single market is the Balkan region’s most important trade partner, But enlargement policy has steadily lost and problems in the region spill over into the credibility and public support in the Balkans EU very quickly – quite literally, in the case of too. The process is slow and bureaucratic by

100 | Europe’s World Spring 2010 nature, and the EU has had to add conditions COMMENTARY to deal with the legacies of war. Many Serbs blame the EU for giving independence to By Hido Biš ceviˇBy A c´ Kosovo (even though not all member states recognised it) and for demanding the delivery of indicted war criminals to the Hague Tribunal. It's as much a Some Bosnians and Macedonians feel that the EU has failed to deliver on promises made challenge for Balkan around the peace deals at Dayton and Ohrid. governments as for Across the region, reform fatigue and the sense that living conditions are not getting better Brussels have made people jaded about promises of a brighter European future. eather Grabbe points rightly to the complexity of relations between the EU In the popular imagination, the accession Hand south eastern Europe, in particular process occupies a familiar paradigm for the with candidate and potential candidate region: the distant imperial capital which countries. Last year saw both a winning over imposes its rule and demands tributes has and a slipping away from these objectives; the over the centuries shifted from Constantinople EU was very much in the process of redefining to Vienna and now to Brussels. Power resides its priorities and its future strategic course in the Berlaymont, and fealty must be sworn against the backdrop of the Lisbon treaty and its to the blue flag with gold stars, yet people still promised new institutional landscape. With the feel little improvement in their daily lives. EU’s inward-looking preoccupations, and with the accession negotiations with Croatia having How can the new Commissioner overcome been blocked for most of the year, stagnation and this psychological trap of broken promises slowdown inevitably affected national agendas and half-hearted reforms? An important way right across the region. There were signs, too, of will be to offer interim rewards that motivate a re-nationalisation of policies that are meant countries to keep going, and raise public to be increasingly shared, and that's because so support. Robert Cooper, a senior EU diplomat, many unresolved issues in the Balkans are either has described EU foreign policy as “Speak bi-lateral in nature or relate to status issues in softly and carry a big carrot”; the EU is offering different countries. the Balkans the biggest carrot it has, yet it still looks rather small because membership is so Yet in the comparatively short time since the far away. The answer is to chop the carrot up EU’s last enlargement round, it has become and offer pieces along the way to keep the clearer than ever that it is vitally important to would-be members interested by giving them ensure that candidate countries have a dual financial benefits and inclusion in EU policies commitment to the EU agenda as well as to and programmes, as well as strong political their national or regional concerns. engagement. Despite all the setbacks, Balkan countries The EU is now proffering a huge chunk of have continued with their reform programmes, carrot in the shape of visa liberalisation, which albeit to different degrees. This was generally is the benefit most prized by citizens of Balkan recognised in the latest Communication of the countries. This is an example of successful European Commission on enlargement, with

Spring 2010 Europe’s World | 101 conditionality at work. The EU set very specific civil servants are pushed in the same direction conditions for these countries to meet, and instead of being given different messages from a concrete and certain reward within a few different parts of the EU. It is all too easy for years. Some Balkan countries have worked hard the EU’s present member states to undermine to tighten border controls, improve document conditionality by whispering in a Balkan security and introduce biometric passports, and prime minister’s ear that their own country’s in return the EU is marking the new year by lifting special relationship with his means that these visa requirements for Macedonia, Montenegro conditions matter little so there is no need and Serbia, with a review for Albania and Bosnia- to change the system. As to credibility, the Herzegovina due mid-year. EU needs to show it is capable of delivering on its commitments, with its political leaders A few lessons from history would also genuinely offering membership at the end of help Commissioner Füle. Between 1989 and the process. 2004, the same formula of a membership promise plus tough conditions helped post- For conditionality to work, the EU has to be communist central and eastern Europe – such strong in both its promises and its threats, with as his native Czech Republic – to achieve no special pleading from any of the member a massive transformation. In the countries states. Unfortunately, the EU has in both cases that were emerging from central planning frequently failed in the Balkans. Self-styled and authoritarian rule, the EU’s conditions “friends of the Balkans” have too often argued for 15 years provided both an anchor and a that one country or another is so important catalyst. The anchor of EU-focused reforms and so European that the Commission should gave a sense of stability and direction to the not demand such difficult tasks as reform of public administration even when governments the judiciary or delivery of indictees to The changed every year, while the promise of Hague. Other EU leaders have questioned the accession was a catalyst that made reforms enlargement process, arguing for a “digestion go faster because the rewards of membership period” after Croatia’s accession, during which were only a few years away. no more new members should join. Both proposals would undermine the conditionality So why isn’t this formula working in the that helps would-be member countries to Balkans? The growing academic literature transform themselves. on enlargement suggests that conditionality needs favourable circumstances on both the On the demand side, conditionality supply and demand sides if the accession transforms countries most effectively when bargain is to work effectively. On the supply would-be members have strong states, side, the EU has to be consistent, coherent a cross-party consensus giving priority to and credible in the demands that it makes. accession and substantial inflows of foreign It needs to be consistent in asking for the direct investment (FDI). The central European same reforms year after year, regardless of countries that had the most capable national changes of government. This is a critical factor administrations made the fastest progress when party coalitions in Balkan countries are towards EU membership. But in the Balkans, unstable and governments fall so often. states are weak.

The EU needs to be more coherent in After the fall of Berlin Wall in 1989, there the demands it makes, so that politicians and was a strong push towards the reunification

102 | Europe’s World Spring 2010 of Europe through the EU accession process. COMMENTARY This united all the mainstream parties in favour of undertaking any reforms that the Hido Biš ceviˇBy A c´ EU demanded, with euroscepticism generally setting in only after these countries had visa liberalisations for some of the western achieved membership. But in the Balkans Balkans countries further strengthening their some nationalist leaders are already membership prospects. questioning whether it is worth meeting the EU’s demands. But no one would deny that major issues concerning western Balkan countries’ accession Inward investment keeps hope alive even are still on the table, and that they even exert a when economic restructuring is causing job geopolitical influence of sorts. This makes it all losses and social pain by bringing in new the more important to see stability and regional capital, job opportunities and hope that co-operation there as strategically vital. An all- better times are ahead. But FDI into the out effort must now be made to complete the Balkans is a trickle in comparison with the enlargement process and ensure there is no amounts that flooded into Poland, Hungary strategic vacuum. and Estonia in the 1990s. But political leaders in the region also need to The situation in the Balkans is far from recognise their share of responsibility for dealing hopeless, but the EU needs to maintain its with and resolving the remaining issues. They credibility by taking much more care in the need to uphold the present pace of reform and to future. It also needs to keep working on state enhance the rule of law. Above all, perhaps, they capacity-building in the region and work on must genuinely embrace regional co-operation bringing in more foreign investment. because it holds the key to economic integration and thus to their EU accession. Last but not Enlargement has been the EU’s one really least, they should pool resources in a new successful external policy. The EU is providing regional platform and in multilateral large-scale much of the support that the Balkans needs projects that can accelerate their economic to become fully part of the European development. mainstream, escaping its ghetto of economic stagnation and organised crime. There is Now that the Lisbon treaty is in force, the EU’s every reason for Štefan Füle to forge alliances efforts to play a more assertive global role will with the many European leaders who support certainly hinge on its success or failure in enlargement to make conditionality credible, creating a durable stability architecture in south consistent and coherent, and at the same east Europe. The western Balkans also has a time to strengthen the EU’s promise to the clear historical responsibility for ensuring that it Balkans that they really will join when they becomes an integral part of the European really meet the conditions. political economy, in other words part of the solution and not the problem.

Heather Grabbe is Director of the Open Society Institute-Brussels and was Senior Advisor to Hido Bišˇcevi´c is Secretary General of the Enlargement Commissioner Olli Rehn from 2004-09. Sarajevo-based Regional Co-operation Council IFBUIFSHSBCCF!PTJFVPSH for south-east Europe. IJEPCJTDFWJD!SDDJOU

Spring 2010 Europe’s World | 103 Why Germany looks set to go on punching below its weight

Last autumn’s elections freed Angela Merkel from the constraint of her ‘grand coalition’ with Germany’s Social Democrats. But Constanze Stelzenmüller forecasts little change to Berlin’s traditionally cautious foreign policy stance

ow that Angela Merkel is back in the more by egoistic national motives than any of its Chancellery in Berlin with a much predecessors, most egregiously when courting Nmore comfortable coalition partner in Russia for the sake of Germany’s energy security the Liberals rather than the Social Democrats, and at the expense of Eastern Europe. the question uppermost in many minds is: what does this mean for German foreign and In contrast, Merkel set out with a series of security policy? Will Germany stop punching calculated gestures that seemed designed to below its weight in Europe and the world? reassure the world about Germany’s reliability, predictability and loyalty to its allies. She It’s worth remembering that those hopes paid deferential visits to France, NATO, the first flourished in 2005, when Chancellor EU and Poland immediately on taking office, Merkel began her first term. Her predecessor, and assiduously cultivated a good working Gerhard Schröder, at the helm of a centre relationship with President George W. Bush, left government, had taken a reluctant and also made a point of meeting with Russian Germany into a military intervention to stop NGOs during her first state visit to Moscow. genocide in the Balkans, and had joined other Western nations in the attempt to Nonetheless, her foreign and security stabilise Afghanistan after the ouster of the policy proved during her first term to be both Taliban. But his relationship with the Bush cautious and selective. She was a front-runner administration soured irredeemably after his on climate change, but after the financial refusal to join in the war against Iraq. A Paris- crisis broke in late 2008 she unabashedly Berlin axis to lead the EU created resentment championed protectionist measures like the and mistrust all over Europe, and ended in cash-for-clunkers scheme which seduced mutual recrimination. Schröder’s “red-green” Germans into exchanging their old cars for government often appeared to be motivated new ones with the help of a juicy tax rebate.

104 | Europe’s World Spring 2010 Deaf to pleas from NATO, German troops, still Those who had been hoping for forceful fettered by caveats, remained in Afghanistan’s and responsible German leadership on foreign less-dangerous north. After last September’s policy issues have tended to blame Merkel’s incident in which German troops called in an cautious and tactical approach on the fact that air strike on two fuel trucks hijacked by the she was hampered by the grand coalition with Taliban in Kunduz, killing dozens of civilians, the SPD forced on her by voters in 2005. And the opposition forced a Bundestag debate – her own actions, together with those of her new and Angela Merkel’s first government policy Free Democrat (FDP) Foreign Minister Guido statement on Afghanistan in four years. Many, Westerwelle after the new coalition government including Germany’s military, wished that she took office in early November, appeared to had defended the mission as forcefully earlier prove them right. on in her tenure. Coalition agreements and policy Merkel for quite a while remained aloof declarations are usually the first to be shredded from her fellow Germans’ near-unanimous by what Harold MacMillan famously called adoration of Barack Obama. And while, unlike “events, dear boy, events”. They nonetheless her predecessor, she did not cultivate Moscow, remain instructive as declarations of intent, she left the running of Russia and energy and useful as benchmarks to compare policy mostly to her SPD coalition partner, with later developments. Particularly when and to the powerful “Eastern those markers are laid down Committee” (Ostausschuss) of Merkel set out with with as much deliberation as the German industry federation gestures to reassure by Chancellor Merkel and her – thereby effectively preventing the world about new team. the formulation of EU-wide policies in Russia and energy. Germany’s reliability, Yet the messages they Merkel has left no doubts about predictability and contained are oddly mixed. the depth and sincerity of her loyalty to allies Germany’s European neigh- commitment to the safety of bours received unambiguous Israel; but on Iran, an important trading declarations of commitment. The Sarkozy-Merkel partner for German industry, her government relationship has been mostly cordial on the has preferred to avoid confrontation. On surface, but fraught with policy disagreements; NATO enlargement and reform, German so the fact that Merkel went to France not just policy seemed to consist mostly of resisting once, but twice – on the day after taking office whatever it was the Americans wanted. again and then on Armistice Day (a first for a Finally, the deal to salvage veteran German German Chancellor) – went down well in Paris. carmaker Opel just before the election with Similarly, when Guido Westerwelle chose Poland the help of Russian financing (it has since as his first stop (another first for a German foreign fallen apart) was made despite the fact that minister), he was received with real warmth. it jeopardised thousands of jobs in other Opel plants elsewhere in Europe – a blatantly On the EU, the message is rather more protectionist move which might have been ambiguous. The October 24 coalition agreement invented by Gerhard Schröder. promised a return to Germany’s traditional

Spring 2010 Europe’s World | 105 role as balancer between large and small message might be summarised thus: In my EU countries, between western and eastern second term, I do not need to come to Europe, and between the older and newer America bearing gifts. members. Westerwelle described the integration of eastern Europe into the EU as the mission As for Afghanistan, zu Guttenberg was the of his generation. On key issues like ESDP, first German defence minister courageous enlargement and the neighbourhood policy, enough to admit that conditions in northern however, the agreement’s language ranges from Afghanistan are “war-like” – but he is now politely measured to barely lukewarm. embroiled in a brouhaha over responsibility for the Kunduz bombing. When the Bundestag But it was the new German government’s mandate for the German contingent in response to the opening up of the new EU Afghanistan came up for renewal in mid- top jobs after the ratification of the Lisbon December, fear of opposition and public treaty that disclosed its real priorities: no disapproval kept the government from asking German was nominated for President or High for more troops; both the Chancellor and Representative, although rumour has it that zu Guttenberg made it clear that no more Berlin covets the top job at the European troops would be forthcoming until the January Central Bank. Meanwhile, Merkel’s nominee 28th strategy conference in London. Foreign for the German Commissioner, is the prime Minister Westerwelle, meanwhile, threatened minister of Baden-Württemberg, Günther not to attend the conference if it became Oettinger, a man who by many is not considered a “mere troop contributor’s meeting”, and to have distinguished himself in that job. instead demanded a “comprehensive political approach”. Given the scarcity of ideas in the As for transatlantic relations, the German capital on precisely that topic, and Chancellor, her foreign minister and her the fact that the state of the economy remains new defence minister, Karl-Theodor zu fraught, it is hard to imagine that Berlin could Guttenberg, hotly pursued each other to contribute anything else than troops – but any Washington. Invited to speak before both such attempt will have to overcome massive houses of Congress in joint session (only public disapproval. the second German Chancellor to have been accorded this honour since Konrad On Russia, too, the messages have been Adenauer in 1957), Merkel gave a ringing confusing, to say the least. In the aftermath of speech in which she offered America the Russo-Georgian war of August 2008, Merkel’s “partnership in leadership” – thereby finally first government had discreetly dropped the responding to an invitation issued in 1990 label “strategic partnership” for Berlin’s bi-lateral by George Bush Sr., which had never been relationship with Moscow; it was replaced by answered. But the offer of partnership the term “modernisation partnership”, a none- was strangely lacking in substance: Merkel too-subtle down-grading. The new coalition threatened Iran with “harsh sanctions”, and agreement also clearly describes a relationship reiterated Germany’s security commitment that is selective and conditional, avoids “one- to Israel, but offered no policy initiative sided dependencies” and takes into account of any kind. Indeed, Merkel’s subliminal neighbours’ sensibilities. Yet on a recent visit

106 | Europe’s World Spring 2010 to Moscow, Westerwelle referred once more to The first steps taken by Angela Merkel’s new Germany’s “strategic partnership” with Russia. centre-right coalition show much that is The rhetorical swingback was dutifully noted by interesting, but no real shift in strategic priorities. the journalists accompanying the minister – but In her first policy address to the Bundestag, was there a meaning attached to the gesture? Merkel emphasised that dealing with the economic crisis – which she warns is far from Both conservative and liberal politicians over – will be her main preoccupation. Other in Germany have said repeatedly that they priorities, distractions, a reluctant public and a see disarmament and arms control as a key pre-disposition towards the incremental and the strategic priority, and enthusiastically endorsed tactical rather than the innovative and strategic the Global Zero initiative. Yet the only specific may well come to mean that the foreign and German initiative on offer is a demand that the security policy of Angela Merkel’s second term is U.S. should remove its remaining two dozen or to be much like that of her first. so tactical nuclear weapons from German soil. The huge popularity of this idea is inversely related to the military value of these weapons Constanze Stelzenmüller is a Senior Transatlantic – not least because so many Germans see the Fellow in Berlin with the German Marshall Fund. issue as one of morality. $4UFM[FONVFMMFS!HNGVTPSH

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Spring 2010 Europe’s World | 107 The EU is making a big mistake on banking supervision

If there's no repeat of the financial crisis, says Czech central banker Mojmír Hampl, then the planned new pan-EU agencies to supervise banking, securities and insurance may work. But that's a very big ‘if’

t the close of last year, EU finance French central banker and IMF chief ministers gave their green light to a Jacques de Larosière. His spring 2009 Anew supervisory architecture for the report in the wake of the previous autumn’s Union’s financial markets. Now it is up to financial meltdown surprisingly ignored the European Parliament to many vital issues that in the address this hypersensitive We have a single main had also been largely issue, the most controversial overlooked in the whole part which is, of course, the financial market, but financial overhaul debate, powers and responsibilities of it is configured for both before and after the the three new pan-European good times only. In release of de Larosière’s supervisory agencies for bad times national findings. banking, securities and taxpayers pay for insurance. It will be a far- As the crisis has shown, reaching decision that will trouble because the important thing is that affect European finance for there is no pan- there are too many rather many years to come, and European taxpayer than too few supervisory although some complain and regulatory institutions that the finance ministers' overseeing European December compromise doesn’t go far financial markets – in the whole EU enough, there’s actually a case for saying there are almost 70 of them. Jacques the opposite is true. de Larosière and the political debate he has fostered completely gave up on The springboard for this fundamental simplifying and consolidating institutions policy shift was the report by former at the national level first, and only then

108 | Europe’s World Spring 2010 perhaps building something supranational forward without one. Last June it was on that foundation. Instead of that, we agreed at EU level that the decisions are starting directly with what will be of the European institutions should entirely new Europe-wide institutions. not impinge on member states’ control This is a classic bureaucratic response: of fiscal policy, but how this fits with faced with a problem, create a new pan-European regulation is hard to institution. What a mistake. If we merely say. Many of the decisions to be taken add new institutions to EU countries’ by the new European institutions may already Byzantine arrangements, we will bring about costs that will only emerge fail to address the effectiveness, flexibility much later. and smoothness of information transfer through the EU-level supervisory system. Let’s recall the beginnings of the crisis: Find related articles on the case of Northern Rock, for instance, www.europesworld.org is now seen as a notorious example of t

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&JDIFOHSFFO The new regulatory model also fails to address a persistent weakness of the single European financial market – how There is an interesting paradox to pay the costs (or “share the burden”) here. Many day-to-day cross-border when a multinational bank fails. A services ranging from freight transport systemic solution must precede, not to hairdressing face major barriers and follow, any setting-up of new European restrictions. Yet if the provider of these institutions. services goes bankrupt or runs into difficulties, there is little likelihood that We Europeans may proudly say that any national government would be called we have a single financial market, but it on to bail it out. How many “systemically is configured for good times only. In bad important” hauliers are there? By times it is national taxpayers who pay contrast, banks and others can use for any financial sector trouble because European “passports” to provide financial there is no pan-European taxpayer. services throughout the EU, which may In the EU we have so far failed to have significant public finance agree on any plausible burden-sharing implications. A nice idea, but half-baked: models, yet it will be difficult to move it fails to specify which taxpayers should

Spring 2010 Europe’s World | 109 cough up if something goes wrong and “technical” should not be translated as savers want their money back, as with “inessential”). They will also be allowed the Icelandic banks in the UK, the to settle disputes between national Netherlands or even Switzerland. supervisors, and more important still, should the Council declare a state of With these crucial issues unresolved, financial emergency – such as, perhaps, we are creating a Europe-wide the one we are living through right now decisionmaking system that breaks the – the EU agencies might exceptionally golden rule of any institutional set- be given a pre-dominant position up: Decisions should be over national supervisory made by those who bear If we merely add authorities. Needless to say, “disputes” and responsibility and who new institutions ultimately would pay. With “emergencies” are exactly to EU countries’ too many decisionmaking the future situations likely powers at European level, already Byzantine to matter most to national national authorities will be arrangements, we policymakers and their answerable to their citizens will fail to address taxpayers. and foot the bill, yet will the effectiveness, not make the decisions. All in all, an outcome flexibility and where in good times decisions Conversely, the European smoothness of about systemically important institutions will bear neither information transfer national financial institutions are made at European level, the costs nor the responsibility, through the EU-level but will have the power. This while in bad times national may ultimately create perverse supervisory system taxpayers pick up the tab incentives for both of them would be a loss for the whole – all the more so if, as seems likely, there is EU. And it is hardly likely to prevent another a step-by-step increase in the power of the crisis. In good times, we probably won’t be European institutions. able to tell the difference, but the grim reality is that we should be preparing the system for bad times. Why is it that we in the How disturbing then that the powers EU are once again building the house from for these institutions that have been the roof down? proposed by the European Commission 5 and endorsed by EU finance ministers are far from negligible and may yet be increased. The three new agencies will not only enforce common technical standards that may eventually Mojmír Hampl is Vice Governor of the Czech National become binding throughout the EU Bank and a member of the EU’s Economic and if endorsed by the Commission (and Financial Committee. .PKNJS)BNQM!DOCD[

110 | Europe’s World Spring 2010 5& 2
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What the Chiefs Say is a public affairs platform designed for senior executives from leading organisations to voice their expectations and concerns.

In this issue, business and industry leaders present to Europe’s policymakers their policies and priorities.

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REINVIGORATING THE GROWTH ENGINE STARTS WITH SMES by Jan Hommen capital. The business climate for SMEs and start-up companies in the European Union still leaves room for improvement. In particular in comparison with the United States, entrepreneurial initiative and risk-taking in Europe are still hampered Jan Hommen by a complex regulatory environment and administrative barriers. This is a worrying reality, Chairman Executive especially if one realises that SMEs are the Board backbone of the European economy. */(
(SPVQ Moreover, it is of great importance that SMEs themselves are encouraged to develop partnerships The European economy is trying to recover from with banks at earlier stages than is the case today. the deepest recession since the nineteen thirties. Strong relationships between banks and SMEs will As the financial crisis started within the financial facilitate timely discussions on business plans and services industry, financial institutions have an thus a smoother credit process. important responsibility to go back to the basics of finance and have a clear eye for what lies at The European Commission recognises the the heart of our business : collecting customer importance of entrepreneurship. It rightfully balances and redeploying these in the economy, defines it as the mindset and process to create by means of mortgages and corporate, private and develop economic activity by blending and other types of loans. With the Back to Basics risk-taking, creativity and/or innovation with programme ING initiated last year, we are taking sound management, within a new or an existing important steps to reinforce our traditional role organisation. It is thus to be hoped that, to create the conditions for social and economic especially with the strong economic headwind of progress by taking and spreading the financial today, the European Commission will step up its risks of households and companies. efforts to strengthen this economic backbone.

Since the abolition of EU internal frontiers, the To support the business climate, the administrative Internal Market has boosted economic growth burden on businesses needs to be lessened and and prosperity, and helped creating millions incentives to think across borders increased. of extra jobs. We could not have achieved Initiatives to develop increased social security that success without the entrepreneurial spirit for entrepreneurs can do a lot to support small and innovative behaviour that characterises so entrepreneurs in Europe. Removing tax obstacles many SMEs. During the financial upheaval will improve the functioning of the Internal and economic instability of the past two years Market and avoid unnecessary compliance costs entrepreneurs have shown a remarkable ability for business being passed on to consumers. to be agile and flexible, driven by a firm belief in their ideas and business in order to succeed. Reinvigorating the growth engine of the European Financial institutions have a responsibility to economy through sufficient provision of capital support these entrepreneurs by fuelling their is a responsibility taken seriously by ING. We will ideas and business spirit with capital. continue to support the European Union and other key players in its efforts to improve the However, reinvigorating the traditional European businessclimate for Europe's entrepreneurs. growth engine requires more than an injection of 5& 2
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SOFTWARE AND CLOUD SERVICES – ENABLING THE EUROPEAN ECONOMY by Jean-Philippe Courtois of innovation and entrepreneurship. The cloud computing approach lowers the barriers to entry for all, including the 8,000 start-ups participating +FBO1IJMJQQF
in our BizSpark program in Europe, many of which Courtois are already providing some very innovative cloud- President, Microsoft based services, creating great opportunities for International the European ICT industry. Senior Vice President, Both policymakers and the technology industry Microsoft $PSQPSBUJPO have an important role to play in preparing

Photo by Paul O'Driscoll Europe for this next generation of computing in order to drive a competitive economy. Technological innovations can dramatically change the way we live our day to day lives, As cloud computing introduces a wide range of the way we work, and in fact, it can change game changing technologies, the rules of the entire industries. In the next 5-10 years, ‘cloud game must be adapted accordingly. Policy must computing’ promises to be the next significant be enabling: Creating incentives for innovation, turning point in the way we use technology. encouraging broadband access and expansion, and ensuring choice and interoperability. Policy must When we talk about cloud computing, we refer also protect citizens and businesses: safeguarding to the delivery of computing capability over privacy and security of data, upholding Internet the Internet. This concept is familiar to anyone safety, and protecting intellectual property rights. who has a personal Hotmail account; however, We at Microsoft are committed to developing our its application in the business world is less cloud computing services with these key issues at understood. Historically, businesses have run the heart of our approach. their IT in house, with applications and data on servers at their physical location. As businesses Besides the positive economic opportunities increasingly look to drive down costs and focus on cloud computing will create, improved access their core competencies, there is a move towards to efficient and flexible computing power has the cloud – taking advantage of the economies of the potential to enable breakthrough innovation scale that can be achieved by consuming services across many critical societal issues such as across the Internet and paying only for what you education, healthcare, sustainability, and use. There are obvious benefits such as shifting research. We support the EU’s various initiatives capital expenditures on hardware to operational and programs helping to lay the ground for expenditure. Other benefits include an ability to cloud computing and a new Digital Agenda. In have a more agile IT capability that can respond particular, policies should focus on SME adoption to spikes in demand as needed and a reduced and skills, a digital internal market, and improved carbon foot print. Microsoft’s vision is one that broadband. It is only through partnership embraces all of these benefits while providing between governments and industry that we can customers with the flexibility to place some data progress towards an open, green and competitive in the cloud and to keep some on-premise. knowledge-based society. XXXNJDSPTPGUFV With this flexibility created through the software plus services model, we are seeing a great deal 5& 2
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LPG - AN ANSWER TO EUROPE’S RURAL ENERGY CHALLENGES by Loïc Driebeek and Power (CHP) is a well-established technology that allows heat and electricity to be produced simultaneously from the same fuel source – LPG. The potential of Micro-CHP is enormous as it could turn energy production into a two-way process using smart grids for electricity. We need the framework and the conditions for Micro-CHP -P¿D
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One example of an energy efficient technology powered by LPG is Micro-CHP. Combined Heat 5& 2
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LISBON AND NORTHWEST #253 : ALIGNED RISK ASSESSMENT IS KEY TO US-EU COUNTER-TERROR COOPERATION by Adam Isles e.g., operatives with clean records and explosives concealment – should be examined, with a particular focus on transit passengers, who pose a greater risk assessment problem because of their lack of connections to the transit airport Adam Isles jurisdiction.

Director Strategy Current screening capabilities should then be and Policy Consulting evaluated for their ability to distinguish potential 3BZUIFPO operatives from the great mass of travelers on legitimate journeys, and gaps between terrorist tradecraft and current capabilities must be In the wake of the December 25th bombing identified. Police, border, and transport security attempt on an Amsterdam to Detroit airliner, officials should all participate in this assessment, authorities in the European Union and the United and legislators on both sides of the Atlantic with States have signaled high-level commitment to an appropriate clearances should then be briefed. aligned aviation security approach. Disruption of The oldest and hence most trusted relationships cells long before operatives ever reach an airport across the Atlantic are bilateral; hence guidance is, of course, an underlying shared goal. That said, is needed from key EU member states on how to notwithstanding the change in U.S. Administration, reflect these relationships in a post-Lisbon Union. tensions across the Atlantic remain over which tools to employ. The European Parliament is on If America and Europe fail to align on risk, al the verge of utilizing its newfound post-Lisbon Qa’ida will exploit the seams to launch attacks power to reject, as too privacy impinging, an on planes over the Atlantic in hopes the ensuing agreement that would give U.S. authorities access reactions will drive a wedge between allies. We to European-stored financial data for use in need instead a joint, unflinching, unwearied effort detecting and tracking terrorist activity, and it to consider the new capabilities that may be will also soon review a 2007 agreement on air required including a more complete approach passenger data. Members of the U.S. Congress to information analysis. Aligned technology may, in turn, question the Visa Waiver Program’s acquisitions and airport standard operating continued viability, particularly given that, in procedures would ideally result. So would greater addition to the Christmas Day attack, a number information sharing with appropriate privacy of other recent attempts – the failed 2006 U.K. protections, based on agreed common principles. aviation plot, the 2001 Richard Reid attempt to More important, our alliance would be anchored name a few – not to mention the September 11th in a joint, current understanding of the threat we attacks, used Europe as a launching point. both face, and must face together.

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CYBERDEFENCE AND SECURITY POLICY PROTECTING SENSITIVE SYSTEMS AND INFORMATION FROM CYBERATTACKS by Ilias Chantzos

networks remotely managed through command and control centres. It is distressing to know that these well-organised botnets, distributed around the globe, are available for hire with little ability to Ilias Chantzos know the originator and intermediaries involved. Director Government Targeted and tailored attacks, while different in their Relations, EMEA characteristics, often have the same objective: to and APJ, render their prey vulnerable while either extracting 4ZNBOUFD confidential information or crippling services altogether. Again, Ghostnet and Google are recent examples of stealing confidential information. We Orchestrating a “defence in depth” approach feel that information is the prize at the heart of delivers multiple, agile layers of protection in all attacks, perhaps for financial gain as we have order to detect, stop and ultimately prevent cyber seen in our Underground Economy report1 or to attacks. It is essential to have a proactive approach collect data for modern information-centric warfare on threats in order to anticipate, counter, and strategies. No matter what the circumstance, attribute them. We also understand that security access to or denial of access to information has cannot be limited to the boundaries of a perimeter become the aggressor’s objective. or of a country – networks know no borders. If we look at historical examples of intelligence in Clearly cyberdefence goes beyond deploying warfare we can refer to WW2, where the breaking firewalls, antivirus software and intrusion of the Imperial Japanese Navy codes led to the detection. But what else can be done to ensure removal of Admiral Yamamoto, and yet it was vital intelligence is delivered and protected, thus the failure to deliver this intelligence in a timely giving a decisive advantage against adversaries? manner that allowed the surprise attack on Pearl Harbour. Therefore, safeguarding information and NATO is describing cyber threats as an area that making it available becomes a critical component requires consideration by strategists and policy of any national security strategy because, either makers. European policy needs to further develop accidentally or due to a malicious outsider or so as to adopt a security posture that links the insider, a major security incident can affect a work done in defence with the protection of the country’s strategic assets. civilian critical infrastructure. A cyberattack would usually follow four stages: When talking about cyberdefence we refer to Incursion, Discovery, Capture, and Exfiltration. defence against activity that originates primarily Solutions to shield information for defence and from hostile actors who have political or quasi- intelligence purposes are available; the key to political intentions that can impact national security. success is continued co-ordination among The attack can target critical infrastructure such governments and involvement from industry as communication centres, energy grids, water experts, through public private partnership, distribution systems or military command posts. information exchange and co-ordination. We have seen large, well-known ‘denial of service’ Cyberdefense should become more of a European attacks on government systems, such as Estonia, priority, and as information is an exceptional Lithuania and Georgia, using sophisticated botnet resource it is what needs to be defended the most.

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CREDO FOR SOCIAL AND ”SYNCHRONIZED ARMED FORCES EUROPE” by Col. (ret.) Bernhard Gertz The challenge for us is to optimise “unity in EUROMIL diversity“, and the goal of frictionless co-operation of national armed forces based on a division of $PM
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TO TACKLE FOOD SECURITY, START LOOKING TO SCIENCE by Friedhelm Schmider by putting more land under the plough. The supply of agricultural land is severely limited and gone are the days when we would wish to cut down forests to grow food, whether here in Europe or anywhere else. Deforestation for Friedhelm Schmider food is the single largest contributing factor to the rise in greenhouse gases. Forests and wild Director General lands preserve biodiversity and help maintain &VSPQFBO
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ecological balance. Forests, parklands and Protection Association wilderness areas are both rightfully treasured and severely threatened in most of the world. To protect them we will have to grow more food The FAO estimates that, even with more on the existing land base. equitable distribution, food production will need to increase 70% by 2050 to cope with a 40% What has this to do with pests and plant disease? increase in world population. This translates Without advanced pest and disease control into an additional one billion tonnes of cereals about 50% of Europe’s present food crop alone to be produced annually. production would be lost. Even with the most effective techniques, about 30% is destroyed by Agriculture’s task is to produce more food pests and disease, so there is plenty of room for to feed a growing population on the existing innovation. The crop science industry therefore farmland base, while adapting to the impact has an essential contribution to make to food of climate change, preserving biodiversity, productivity. Without advanced crop science we reducing greenhouse gases, safeguarding the most certainly will not measure up to the food environment and staying within the narrowing supply challenge. The crop science industry is limits of the public purse. That’s an enormous also committed to making its contribution in a challenge, and not just for farmers, but for sustainable way that protects the environment legislators because failure will pose a real and promotes biodiversity, and not just in threat to people’s lives. We can take some words but in our actions. We prescribe and comfort in the fact that we have much of the support the safe, environmentally sound use science, technology and know-how to meet the of our products, which include the full range of demand: we will have to deploy it wisely and chemical and biological agents necessary for an keep on innovating. integrated approach.

Europe is simultaneously the world’s largest Actively reducing the productivity of European producer of food, the biggest exporter of food farms will have the inevitable consequence of and the biggest importer; and our imports expanding the farmland base; and somewhere exceed our exports by a substantial margin. more forests will be turned into food. It will also Europe will either be a big problem or part of drive up food prices and thereby reduce the the global solution to the food productivity availability of good nutrition. Isn’t that a pretty challenge and this challenge must be reckoned good description of a food crisis? I don’t think with right here in Europe for very Eurocentric it’s the way we want to go. reasons: the linked imperatives of affordable nutrition and social stability being chief amongst them. We can’t solve the problem 5& 2
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THE EUROPEAN CHALLENGE OF PUBLIC HEALTH by Wouter Lox

The fact that more and more research is skeptical about the beneficial effect of generic salt reduction programs for the overall population leads to a more outspoken non-consensus in the scientific world with regard to the relationship between salt reduction and improved public Wouter Lox health. In view of this non-consensus, EuSalt calls for a regular assessment of salt reduction Managing Director programs and their impact on public health EuSalt improvement and decreased mortality. There is clearly no conclusive evidence illustrating the overall positive effects of salt reduction programs The EU salt industry believes in the importance of for the overall population. a healthy lifestyle, and questions the effectiveness of nutrient reduction programs. Moreover, founding entire policies on just one nutrient is misleading towards the European Public health is one of the major challenges of the citizens in EuSalt’s view, as it does not incite 21st Century. In today’s society specific attention consumers to change dietary patterns or is given to the improvement of public health by lifestyles. a.o. putting policy programs in place to fight obesity or to reduce cardio-vascular mortality. Instead of focusing on single nutrients, EuSalt National and international policymakers set out believes the Commission should be promoting strategies aimed at improving the consumers’ weight control and well-balanced, healthy lifestyles. health. One of the recent examples, are the Salt plays an undeniable, vital role in daily life; nutrient reduction programs, and especially salt adopting a salt reduction program implicates risks reduction programs. for nutrient imbalance for specific population groups with specific nutrient requirements. Governments are in the process of imposing salt reduction programs. Various recent scientific EuSalt therefore proposes to focus the health studies question however the scientific logic policy on lifestyle changes and dietary patterns and feasibility of the long term effort to limit salt and not on sole nutrient reductions. EuSalt intake in healthy humans. calls for thorough and regular assessment of the impact of the programs that have been or will be Although no one denies the fact that salt has put in place. an impact on blood pressure and that high blood pressure is a risk factor for cardiovascular With regards to the public health domain, EuSalt diseases, there are however many factors – as a responsible stakeholder - invites the influencing this risk. Changing our lifestyle may concerned policymakers to look at a broad and help reduce blood pressure more than simply transparent consultation of stakeholders to tackle reducing salt. Eating more fruit and vegetables, this particular challenge. EuSalt has signed the EU reducing the intake of calories, lowering stress, Commission Register and is keen to be involved in increasing physical activity and losing weight the upcoming consultations on health. have proven to be more effective in lowering blood pressure than just reducing salt. XXXFVTBMUDPN SUSTAINABLE EUROPE

A low carbon strategy for Europe

Many of Europe’s outdated and inefficient power stations have to be replaced in the coming two decades. Nick Mabey sets out the strategic steps that EU governments need to take together to create a low carbon economy at the least cost

openhagen notwithstanding, the investments can move Europe toward a low world’s transition to a low carbon carbon pathway in the long-term. If Europe Ceconomy is now well under way; delays the pace of its decarbonisation global revenues of companies whose goods agenda, it will miss the most cost-effective and services relate to climate change already opportunity in a generation to clean up its exceed those of the aerospace and defence infrastructure. sectors, and are on course to reach nearly `1.35 trillion by 2020. And because Europe The present economic recession adds has long recognised the benefits of the low new impetus for accelerating low carbon carbon transformation, it has played an transformation in Europe; lower emissions international leadership role by adopting due to the downturn are creating an commitments to reduce its emissions ahead historic opportunity to step-up the pace of of any other major economy. decarbonisation. Recent analysis shows that the fall in emissions caused by the recession And now it is time to accelerate the pace has reduced the cost of achieving the 30% of the European low carbon transformation. target well below the estimates for reaching With massive investments to be made in 20% when that target was agreed as EU the coming years to upgrade and create policy in December 2008. And science, too, infrastructure that will operate for several is calling for faster action; mankind has about decades, a critical question is how these five years to begin the low carbon industrial

120 | Europe’s World Spring 2010 transformation needed to move to a 2°C COMMENTARY world. The International Energy Agency (IEA) estimates that every year of delay in climate By Knut H. AlfsenBy A action will add an extra `336bn to the clean investment needed in the energy sector globally between 2010 and 2030. These are the right measures, but it’s The low carbon economy will, on balance, increase employment and economic wrong to say they’ll activity in Europe as imports of fossil fuels cost little are replaced by domestic investment in new technology and in highly efficient ick Mabey argues that Europe should infrastructures. But as with any transition, move ahead and implement policies it will also create winners and losers. To Nsuch as those that made up the EU maintain public support, a just transition Climate Package adopted in December 2008. He must ensure that jobs are protected and also argues that we need to focus much more industry losses minimised. The best way to on infrastructure ranging from buildings and manage this transition is to put the right utilities to roads, railways, airports and harbours policies in place quickly to capture the full because whether we can meet emission targets benefits of the transformation. will in the long-term depend on the quality of that infrastructure. Investment in new low The main pillar of the EU’s present carbon infrastructure and green infrastructure banks (GIBs), he argues, will make it easier to policy for combating climate change and lower greenhouse gas emissions. accelerating the transition to a clean energy economy is the Climate Package that was Mabey’s arguments are only valid in some adopted in December 2008. The EU’s respects. The climate would benefit if European member governments agreed to reduce their nations were to adhere to the blueprint he collective greenhouse gas (GHG) emissions outlines, but it is far from clear that Mabey is by 2020 by 20% from 1990 levels, and right when he states: "the low carbon economy to derive 20% of Europe’s final energy will on balance increase employment and consumption from renewable sources. The economic activity." intention is that this emissions reduction target will rise to 30% in the context of a Analyses of "green growth" and transition global agreement where other developed paths towards low carbon economies have countries take on comparable targets and only recently been initiated, and many people still resist the low carbon economy because major developing countries contribute they think it will lead to job losses. Reducing “adequately”. emissions will carry a cost, but the cost will be minimal compared to the cost of possible The EU has already committed to climate change damage. Business as usual is reducing emissions by 80-90% by 2050, and not an option. The 2003 heatwave in Europe assuming a linear trajectory this would mean was a reminder that extreme weather reduces at least a 40% reduction by 2020. But right productivity as well as causing fatalities.

Spring 2010 Europe’s World | 121 now the EU has no real roadmap for moving Because the geography of Europe has beyond its current 2020 target apart from placed its major renewable energy resources hazy statements that an additional 5% could on the periphery – North Sea wind, come from international offsets generated Mediterranean solar power and Eastern in developing countries and a further 3% European biomass – a pan-European from land-use changes. electricity grid will be needed if it is to efficiently decarbonise its power sector and A credible policy strategy is needed meet the increased demand for clean power for speeding up Europe’s low carbon from electric cars. transformation. The EU’s Emissions Trading Scheme (ETS) remains the main Emissions from transport are growing tool for achieving emission reductions, rapidly and contributing a steadily greater but unfortunately the current debate has share of the total. Tougher standards and centred solely on reducing the short-term more government support are going to be cost of compliance with the ETS, with a needed to boost R&D programmes on greener heavy focus on the use of international vehicles, advanced engine technologies, offsets. Although offsets reduce immediate hybridisation and electric cars, high-speed compliance costs, they lower the incentives rail networks and other public transport for transformational change in Europe. The systems. Policies for promoting innovation UK’s Climate Change Committee has built will play a pivotal role in consolidating the its assessment of Britain’s long-term carbon first-mover advantage of Europe’s low carbon budget on the assumption that net flows industries, and in maintaining a market share of offsets will cease in large quantities by lead in clean technology. 2030, by when all major economies will have binding reduction caps. Yet relying These policies in support of low carbon on a future stream of low-cost offsets to industries can catalyse a new generation of reach the EU’s increasingly stringent targets low carbon jobs and stimulate the re-tooling carries the risk of high costs in the future. of Europe’s more traditional industries. Estimates vary, but most analysts agree that Transformational change requires strong public policy support for low carbon innovative policies that scale-up investments industries can have a noticeable employment in energy efficiency, low carbon infrastructure effect. EU estimates suggest that improving and transport. In the short-term, a strong current policies so that the 20% target for focus must be placed on achieving domestic renewables in final energy consumption energy efficiency targets. Adopting more can be achieved by 2020 will provide a net rigorous efficiency standards for buildings effect of about 410,000 additional jobs. And and appliances will help both companies a 30% reduction target for Europe could and consumers achieve immediate cost- potentially yield an increase of 1.1m jobs in efficiency gains. In the medium and longer- 10 years’ time. term, a fundamental challenge is to ramp up investment in smart grids, low carbon As well as putting in place much infrastructures, buildings and transport. stronger decarbonisation policies, Europe’s

122 | Europe’s World Spring 2010 governments are going to have to support COMMENTARY the introduction of new skills into the European workforce. Without the right Knut H. AlfsenBy A incentives for training and re-tooling, Europe risks a serious shortage in low carbon jobs. When Mabey says "a just transition must be A recent UK study by the Aldersgate Group ensured where jobs are protected and industry of companies has emphasised the need for losses are minimised", we must remember that a large and rapid transition is likely to rapid and accelerated investment in skills. distort current industrial structures. While job numbers and industry production volume might Most of the public discussion across be maintained in a transition to a low carbon Europe about the job creation potential of economy, the types of jobs and the nature of the environmental policies has concentrated on industry will certainly change. clean energy jobs, but as the low carbon transformation deepens, more attention Much will depend on how the other main should be placed on investing in new skills international players respond to climate change. in areas that span resource efficiency, If the U.S., China and India move slowly toward energy efficiency, clean transportation, the low carbon societies, it is hard to see Europe de-materialisation of products and green moving quickly without large transitional costs. buildings. Where I certainly agree with Nick Mabey is that if we are to be sure of continuing public But public policy alone is not enough support we must explain very clearly the sort of to catalyse change. Without an adequate transitional economy that is needed. We must finance strategy, low carbon industries will engage the public in discussion of the measures not flourish on the scale required. More that can meet the challenge of climate change. aggressive investment is needed to lay That’s the only way we’ll be able to put in place the foundations for new global European the right policies with the necessary urgency. industries. This in turn means more creative ways of mobilising funds from risk-averse investors and channelling them towards energy efficiency, low carbon infrastructures and transport.

In the UK, Germany and even the U.S., the idea is now growing of developing green infrastructure banks to help support the low carbon transition. A green infrastructure bank (GIB) could leverage private capital and scale-up the volume of low carbon investment in Europe. GIBs could put in place multiple public-private financing Knut H. Alfsen is Research Director of the Centre mechanisms to shift capital towards low for International Climate and Environmental carbon infrastructures. Green banks would Research Oslo (CICERO). LIBMGTFO!DJDFSPVJPOP

Spring 2010 Europe’s World | 123 probably become self-financing in the mechanisms. In the first place, it would medium term, and would certainly deliver provide public sector expertise to deliver greater confidence and faster growth in low public good outcomes within a commercial carbon markets. environment, eliminating some of the conflicts of interest that can otherwise Sector-specific banks are not new. arise. It would also provide an on-going The European Investment Bank (EIB) was innovative capacity to respond to the many, launched in 1958 to facilitate the fledging usually unexpected, demands that the low European economic integration process. The carbon transition will generate. And in the Luxembourg-based bank is policy-driven, second place, a GIB could increase market based on the priorities of its member state confidence because national governments shareholders and raises its funds in the would be backing their own policies through international capital markets and then uses direct investment, thus signalling private these for loans to projects in Europe and sector investors that low carbon investment elsewhere that further EU policy objectives. is a solid proposition. The EIB already directs large amounts of its portfolio towards low carbon activities, There is no low cost, high carbon future and is in effect already becoming a pan- for Europe. Failure to lead the global European GIB. But national GIBs are also transformation to a low carbon economy needed to undertake more complex and would leave the EU exposed to massive specifically national tasks, especially those climate change damage and soaring fossil concerned with energy efficiency and low fuel prices as peak oil hits in the next few carbon infrastructure. In many countries, a decades. GIB could be based on an existing national development bank, although there is also With a low carbon economy the only a strong argument for creating new and viable alternative, the question now is how dedicated institutions that would have quickly will Europe drive its transition? Delay strongly focused expertise. often seems attractive as a least cost option, but not in this case. Europe in any case GIBs could provide opportunities for needs to replace much more of its ageing governments to boost low carbon investment energy infrastructure in the coming two by ensuring that guaranteed funds are decades, and failure to make its new earmarked for green infrastructures. They generation of power plants, buildings and could act as loan guarantors on behalf of the factories low carbon will lock high costs into government, while at the same time reporting the future. The Chinese have a saying that on levels of success and syndicating low you cannot cross a ravine by taking small carbon investment programmes such as steps, and now is the time for Europe to national energy efficiency schemes. jump into its low carbon future.

Advocates of the GIB approach are in little doubt that a specialised infrastructure Nick Mabey is founding Director and CEO of Third bank is preferable to ad hoc financial Generation Environmentalism (E3G). OJDLNBCFZ!FHPSH

124 | Europe’s World Spring 2010 The climate challenge now offers the EU a global role

With so much of the climate change agenda linked to development aid priorities, Steen Gade, chair of the Danish Folketing’s environment committee, sets out his vision of an EU action plan

ast December’s COP 15 climate commitments and actions – without creating change summit in Copenhagen fell any doubts about the EU’s own willingness Lfar short of being the “Hopenhagen” to continue along the Kyoto track. conference so many had wished for. It didn’t agree on much more than It is very much to be continuing the discussions Copenhagen fell hoped that the EU will take until Mexico this December. far short of being the lead in all three of these The meeting took note, and processes. That would mean no more than that, of the the “Hopenhagen” that making new money “accord” in which almost all conference so many available to developing the 115 countries present had wished for. countries has to begin right recognised the need to limit now; the short-term finance temperature rises to 2°c. In that sense offer from the EU of `2.4bn it was a failure, a year from now until 2012 In that sense, Copenhagen yet it also clarified will have to be delivered was a failure, yet it also three challenges extremely quickly. One of the clarified three challenges to most effective ways would be be met by the end of this year. to be met by the end through forest conservation The first, and most promising, of this year schemes like the Amazonas is to fulfil the promises on fund. If the EU is to be trusted financing. The second is to try in Mexico in the developing world, it has to commit to develop the accord into a binding global additional spending to that already earmarked UN-agreement. The third is to continue the for the 2015 millennium development goals negotiations until Mexico on all the more (MDGs), not least because we already know specific areas – above all reduction targets, that the mid-term goal of 0.56 % of GNP by

Spring 2010 Europe’s World | 125 2010 has not yet been reached. It will be a both the spirit and the wording of the 2007 major challenge for EU countries as a whole Lisbon strategic partnership between Africa to reach the MDG target of 0.7% of their and the EU. It is also going to be important GNP by 2015 while at the same time giving to recognise that developing countries are additional climate change funding. But that often in very different situations, so the is what we in the EU have promised, and concrete policies to be thrashed out need the short-term delivery of climate change to take into account the differences that help must begin before the summer of this exist between the LDCs and BRIC countries year. At the same time, the EU has to reach like China, India and Brazil. But of course a decision on long-term financing, following what unites these different groups is that the European Commission’s estimate that real partnerships with the EU are in all these the world’s developing countries will need cases the way forward. `100bn a year by 2020. It’s going to be up to the EU to If the Copenhagen Helping developing give clear guarantees that it countries adapt to a low will contribute its fair share. accord is to be carbon economy is closely transformed into a linked to the same agenda If the Copenhagen accord binding UN decision, as better development aid. is to be transformed into the EU will have to This means partnerships a binding UN decision, the for creating national plans EU will have to work hard to work hard to dispel that have clear climate dispel all the mistrust among all the mistrust goals, greater co-ordination developing countries about its among developing between aid donors, more own willingness to sign up to transparency and the steep reductions like reducing countries about its involvement of civil society, CO2 emissions by 30% by own willingness businesses and national 2020 rather than by 20 %. This to sign up to reducing parliaments. On top of all this, the climate agenda level of EU commitment is CO emissions by going to be needed before the 2 demands much more regional mid-year meeting in Bonn, if 30% by 2020 co-operation on development the EU wants to take the lead aid than we have seen in the on the global scene. Copenhagen’s legacy at past. The climate agenda offers us a chance present is a lot of mistrust. to breathe new life into the relationship between donor and developing countries. This is what is needed if the EU is to be in a position to play a leading role in This whole process of adaptation is the years ahead. But these initiatives are crucial for developing countries, and it is no more than a pre-condition for the even up to the EU member states to emphasise more concentrated, clever and effective EU the consequences of climate change. This climate change initiatives that will be needed includes detailed physical information about in relation to developing countries. The key climate change and about the vulnerability word here is going to be equality, in line with both of nature and of human kind. It includes

126 | Europe’s World Spring 2010 imparting knowledge about infrastructures like way, be the most effective way to stimulate water systems, crops and health. Many of the technology transfers. In Mali I have seen for problems that these countries are already myself the way a solar-driven water pump dealing with will worsen, with new problems has transformed the lives of the women being added to them. Adaptation therefore has and how solar power has extended school to be integrated into all existing development hours into the evenings and given villages a plans and initiatives. This is where the EU can refrigerator to store medicine for the sick. really make a difference by making climate change an integral part of its development aid The new climate-related development and its donor co-ordination efforts. agenda must aim at renewable energy both in de-centralised rural environments and in The second major challenge to be met integrated regional and centralised versions. is finding ways the EU can create low What we in Europe need to do is to use carbon development projects, especially our own experience of renewables and of those that focus on energy. We know that energy efficiency to shape a new partnership more than a billion and a with developing countries. half people are still without The EU can really That means scientific and power, and therefore have no make a difference educational co-operation, real prospect of development. the creation of networks The EU already has a very by making climate between, for example, good platform on linking change an integral electricity companies and energy to its development part of its the broad involvement of aid thanks to the Lisbon private sector companies partnership with Africa. This development aid to enable them to develop needs to be further developed and its donor new business opportunities, instead of inventing any new co-ordination efforts especially in energy efficiency instruments. Renewable and renewables. energy must also be strengthened, with a strong focus on solar and wind. The Climate change has been called the European Development Bank needs to make biggest challenge that will face the next more long-term financing available to the generation and for Europe it is a chance to energy facility, as well as to infrastructure. play a major role on the global scene in this fast-changing world. We Europeans will not Traditional thinking has limited get too many such chances in the coming infrastructure projects on energy to hydro- years, and my earnest hope is that we will projects and coal or oil based plants, understand all its possibilities and dare to but wind farms and solar plants should take the lead. not only be for rich countries. There are considerable technology transfer and long- term employment gains to be made in solar Steen Gade is chairman of the Danish Folketing’s and wind. Co-operation between the EU and environment committee and president of Globe the African Union can, if designed the right Europe. 4UFFO(BEF!GUEL

Spring 2010 Europe’s World | 127 Section 3THE DEVELOPING WORLD Why we need a radical re-think of official aid

It’s not the volume of development aid that really matters, says Roger Riddell, but its effectiveness. He charts the rumbling debate of recent years on reforming aid-giving and highlights the major problems to be resolved

n the 60 years since its early beginnings, International discussions about aid have official development aid (ODA) by the long been dominated by the issue of how Iworld’s richest countries has expanded much aid is being given, and in what form. into an intricate web of This is important because donors and recipients. G8 donors pledged the more aid that is given, Practically every country is the greater the likelihood of either a donor or recipient, to increase aid more people being lifted out and some like India and China by $50bn a year of poverty. The main problem are both. When the Cold by this year. has not been so much the war ended there were some The latest estimates failure of governments to doubts about ODA’s future, pledge to increase aid, but but the last decade has in suggest they will the failure of so many to fact seen aid by the main manage only $13bn honour those pledges. This donor governments growing has happened before and in volume. is happening now. At the G8 meeting at Gleneagles in 2005, donors pledged to Yet, for all that, there's a lot wrong with increase aid by $50bn a year by this year, aid. The gap between what it does and what yet the latest estimates suggest they will it could do is widening fast. manage only $13bn. And only five of the 27

128 | Europe’s World Spring 2010 EU member states are on course to meet COMMENTARY their self-imposed target of giving 0.56% of national income in official aid. By Eckhard DeutscherBy A Besides the amount of aid, attention We’ve already has also been focused on its effectiveness. This is important because improving aid re-thought aid; effectiveness contributes to narrowing the gap between what aid actually does and It’s action we what potentially it could achieve. need now

Until recently, donors' efforts were focused exclusively on trying to improve oger Riddell puts his finger on a number the quality of their own aid. This changed, of problems that for years have plagued though, when in March 2005 the Paris Rdevelopment co-operation; insufficient Declaration on Aid Effectiveness was focus on results, a patchy record on living up to signed by all the major donors as well aid commitments and, especially, the absence as a significant number of recipient of a properly designed international system for governments. This marked the first formal development co-operation. acknowledgement by donors that wider systemic issues matter greatly in aid-giving. He also refers to the Paris Declaration on In other words, that what one donor does, aid effectiveness and the Accra Agenda for or does not do, has an impact on the Action, the two key pillars for enhancing aid overall effectiveness and impact of aid. effectiveness. Together, they go much further Donors and recipients agreed on the need in addressing these problems and rethinking to work more closely together. development co-operation than his article acknowledges. In September 2008, a major stock- taking exercise of the Paris Declaration was By being very results orientated, the aid held in Accra, Ghana, and it produced the effectiveness effort aims to change behaviour Accra Agenda for Action. The meeting’s and recalibrate the system to make it work main conclusion was that implementation where and for whom it matters – on the of the Paris Declaration had been too slow ground with co-operation driven by their and needed to be speeded up. needs and priorities of poor countries and poor people. But the main problems with the Paris Declaration are more fundamental. First, it is The broad alliance of development not a binding agreement. Like the pledges stakeholders taking the aid effectiveness donors have made to increase aid, under agendas forward has addressed such issues as the Paris agreement no donor is required the predictability and volatility of aid flows, the to change its prevailing practices. Second, fragmentation and proliferation of aid, untying the declaration fails to mention some of aid’s aid and the use of recipient countries’ systems

Spring 2010 Europe’s World | 129 major systemic problems or to identify the key t
Most aid does not go to those who need underlying reasons for their persistence. it most. Less than half of all official aid is channelled to the poorest 65 countries of The central problem of the aid system is the world. that there is no system. The way aid is given and received suffers from two fundamental t
Aid is given on a short-term basis, often problems. In the first place, no attempt switched to different recipients and is is made to determine accurately which volatile and unpredictable. Afghanistan, Iraq countries need development aid or to assess and Pakistan together received less than each recipient’s specific requirements, even 2% of all official aid in 1999. Five years though we know that the gap between what later, they accounted for 26% of all official is needed and what is provided is very large. aid (including debt relief), nearly a 30-fold And in the second place there is no system increase. Aid volatility has risen over the for raising aid funds or for ensuring that aid past two decades, reducing the effectiveness goes to those who need it most. Aid-giving of aid by a loss equivalent to $16bn. is voluntary, and no sanctions or penalties are applied either to those who choose not t
The number of donors recipient countries to provide aid, or who pledge to provide have to deal with has increased dramatically, aid and then renege on their promises. The from an average of 12 in the 1960s to 33 by aid channelled to different countries is the 2005; currently at least 30 countries have sum of the separate decisions made by to deal with more than 40 separate donors individual donors of how much aid they will each. In 1996, 17,000 separate donor-led give to their chosen recipients. If one donor aid activities were recorded and 10 years decides not to provide aid to a particular later this had risen to 81,000. It is estimated country, no other donors feel the need to that over 30,000 donor missions to recipient make up the shortfall. countries take place each year, averaging over 100 a year. In some countries, a new The reason why these systemic problems donor mission arrives every day. matter so greatly is that directly or indirectly they are the cause of a number of major t
Less than half of all aid that poor distortions and practices which together countries receive passes through the severely undermine the effectiveness and recipient governments' financial systems. impact of aid. Aid-giving decisions are Most aid is packaged up into different made by rich country governments. While projects, overseen and often managed by all acknowledge that the prime purpose the donors. Less than half of all aid is of aid is to contribute to sustainable completely untied with the recipient free development and poverty reduction, their to choose where to purchase the goods decisions continue to be influenced by and services it needs. The tying of aid from short-term political considerations and their donor countries raises the costs of aid own national and commercial interests. to recipients by between 20% and 30%, The following illustrates some of the equivalent, in aggregate, to a loss of about consequences. $8bn a year.

130 | Europe’s World Spring 2010 t
Donors have in recent years been COMMENTARY creating a succession of new mechanisms and funds to channel aid to recipient Eckhard DeutscherBy A countries to address such specific needs as increasing food production, expanding for delivering aid. It also focuses on aligning primary school enrolments, extending issue-specific funds with the development immunisation programmes to address efforts of particular countries. Yes, we’re still HIV/AIDS, TB and malaria problems, or a long way from having solved all these addressing environmental and climate problems, and especially those connected with change problems. These run in parallel with, the fragmentation and proliferation of aid but are usually not linked to mainstream aid donors, but there is a real effort to make programmes. The allocation of money from progress. these funds is predominantly controlled by the donors, although that’s the reverse of This is being made possible because the aid what was agreed in the Paris Declaration effectiveness agenda has given us a roadmap and often skews the budgets and sectoral and a unity of vision that is unprecedented. It priorities of recipient countries. has generated strong political will for reform, and political will is likely to prove more relevant Almost since official aid was first than any legal resolutions. But political will is given, politicians have both warned of also fragile, and can only be sustained if aid’s systemic problems and proposed we can point to concrete results. Enhanced alternatives. These include raising aid development results are the most relevant funds through an automatic compulsory yardstick, and the one we should apply. mechanism based on the ability to pay; pooling aid resources and allocating them on The main reason is the link between aid the basis of need; and, if there are grounds levels and impact. Roger Riddell laments the for believing that the recipient government disproportionate fixation on inputs, meaning is unable or unwilling to use the aid funds aid volumes in relation to positive outcomes. transparently, “ring-fencing” the aid in a The truth is that the focus on results has fund to be administered independently. increased dramatically. In years past, donors made aid commitments on the expectation of Most of these good ideas have been sound development returns. While we at the eclipsed by the focus on increasing aid OECD’s Development Assistance Committee levels. A common response to anyone (DAC) are watching closely to see how donors advocating these solutions to aid’s systemic live up to their commitments, the most decisive problems is the counter-argument that they impact on long-term aid levels is going to are part of the very nature of the aid system, be the donor countries’ ability to deliver and and that it is naive to suggest that it can be demonstrate results. changed. They warn that if governments are unable to decide for themselves how to give Riddell’s article suggests that a solution to aid and then check on its use, then they systemic problems would be the creation of a simply won’t provide it. global fund that all donors would contribute

Spring 2010 Europe’s World | 131 Westinghouse AP1000 On schedule for 2013On schedule Check usout at generations with safe, clean and reliable electricity. Westinghouse nuclear willhelp technology provide future procurement and construction contracts have signed. been announced, including only the sixfor which engineering, of choicetechnology for more than plants halfof new the In United the States, AP1000 the as planned in2013. on-budget manner,scheduled with first the cometo online construction and are they being built inan on-time and In China,four AP1000s new markets across globe. the oftechnology choice for active and emerging plant new The Westinghouse AP1000 www.westinghousenuclear.com Placement of the containment vessel bottom headat Sanmen, Unit 1. TM nuclear power plant isthe TM are currently under TM has been selected as the asthe selected hasbeen

WESTINGHOUSE ELECTRIC COMPANY LLC There are two ways to respond to these COMMENTARY arguments. One is to point out that that aid’s systemic problems are getting worse and fast Eckhard DeutscherBy A and frustrating progress on the core objective of ending extreme poverty. Resolving key to on the basis of their assessed ability to pay, systemic problems would probably have with the proceeds then distributed according a greater effect on extreme poverty than to need. But in practice channeling all expanding the amount of aid given. The other development assistance through a single entity is to draw attention to high-level discussions strikes me as neither feasible nor desirable, for where the sorts of changes needed to fix it would invariably stifle innovation and the aid are being presented as politically viable. competition of ideas. It could even be argued At the 2006 Spring meetings of the IMF that this approach might well accentuate and World Bank, UK Prime Minister Gordon some of the problems that are highlighted Brown made a plea for the operational work in his article – attention would shift away of the IMF to be made “independent of from results and towards the distribution political influence and wholly transparent”. of this global aid pot, and a centralisation Why stop there? The argument about short- of needs assessment would remove control term political distortions and independence over development strategies further from poor applies with equal force to the aid system. countries. And at last September’s meeting of G20 finance ministers a background paper tabled What is needed much more is decisive action a proposal for all except the very poorest on the aid effectiveness agenda’s ambitious countries to pay into a global climate fund roadmap for change. This will in itself amount and for the money to be disbursed to the to a radical overhaul of development countries needing it most. Once again, why co-operation. stop there? The same argument should be extended to the aid system as a whole. But I would go further. Roger Riddell’s article rightly states that aid is a core component of The aid system needs a radical overhaul. international relations. Yet aid alone will not The catalyst for change lies in political leadership, be the solution to the development challenge. and EU governments provide almost 60% of all Global factors beyond aid have a huge impact official aid and are also among the world’s most on development, and the donor world needs forward-thinking donors. Now, the Lisbon treaty to become less insular and more involved in offers Europe a new opportunity to speak out the development dimension of policy areas like about the need for fundamental change in the climate change, trade, investment and finance, aid system and to lead the discussion about security and migration. Aid agencies need to how to bring this about. work with the many other actors who shape poor countries’ development.

Roger Riddell is the author of “Does Foreign Aid Really Work?" and is a board member of Oxford Policy Management and a Principal of The Policy Eckhard Deutscher chairs the OECD’s Development Practice (UK). SPHFSSJEEFMM!UIFQPMJDZQSBDUJDFDPN Assistance Committee. &DLIBSEEFVUTDIFS!PFDEPSH

Spring 2010 Europe’s World | 133 The global slump makes a fair trade revolution more urgent than ever

A radical change in the handicaps to export-led growth by the world's poorest countries is now urgently needed, says Peter Lilley, a veteran Tory politician who is co-founder of an all-party British pressure group

he worldwide recession has had an the recession, not least for the countries that enormous impact on financial security, most need our help. We should know better Tnational budgets, and economic than to give in to this sort of protectionism. confidence from London and New York or In the 1930s protectionism turned a recession Tokyo to the poorest nations, into a prolonged slump that where for the bottom billion The developed was counter-productive for poorest people, economic world’s trade the rich and catastrophic for contraction can be a matter of policies not only the poor. life or death. Yet an attainable solution is close to hand, and limit access to Fortunately for today's rich that's why I and my colleagues developed markets, but cash-strapped countries, at Westminster – Clare Short, but also impose the less developed countries, John Battle, Ming Campbell, unlike our banks, don’t need Lord Hastings – have launched complex and costly a bail-out package, nor do an All-Party UK-based campaign trade regulations most of them want one. As called "Trade Out of Poverty". and support unfair Mo Ibrahim wrote recently in subsidies which &VSPQFhT
8PSME Africa doesn’t It is always tempting at need rescuing, it needs a times of economic uncertainty render products from square deal. This sentiment to turn inwards and raise the developing countries was echoed by Rwanda's draw bridge in the belief that uncompetitive President Paul Kagame one is doing the right thing by in the British newspaper tending to one’s own and putting the rest on 5IF
(VBSEJBO when he called for solutions in hold to be dealt with in better times. But this which Africa would be an active participant risks compounding the negative effects of and not just a recipient.

134 | Europe’s World Spring 2010 African countries, and the Third World as COMMENTARY a whole, need to be given the opportunity to create their own wealth. Historically, the By Moses M. Ikiara single most important driver out of poverty for countries from Japan to South Korea Right diagnosis and Brazil to Mauritius has been trade with other countries. Increased opportunities for but the prescription trade could ensure that the recession does not set back the poorest countries and, falls short better yet, trade will ensure it lifts itself out of poverty. eter Lilley is right about the problems faced by low-income countries, but he Although the developed world pays lip Pdoesn’t put his finger on the entire service to the need to open its markets solution. He argues correctly that without a fair to the poorest countries, it maintains a deal on trade, low-income countries will never number of barriers that impede their efforts be able to create their own wealth. They need to trade their way out of poverty. The help to expand their export capacity, and the developed world’s trade policies not only measures Lilley proposes for cushioning these limit access to developed markets, but also countries against the recession are appropriate impose complex and costly trade regulations enough. But although they match the growing and support unfair subsidies which render consensus on what needs to be done, the products from developing countries key question is how do we make sure that uncompetitive. "Trade Out of Poverty" is commitments made by richer countries to now actively working towards making the poorer countries are honoured? Lilley doesn’t necessary changes to these unfair trade address that at all. policies. We advocate five clear steps that the developed and developing world must When the G8 met in Italy last July at L’Aquila take together to make it possible for the it pledged $20bn to improve food security, poorest countries to beat the recession confirmed its members’ aid commitments, and earn their way out of poverty. moved to re-launch the World Trade Organisation’s Doha round of trade talks and Rich nations like those of the EU, the approved an initiative to halve the average United States and other OECD members transaction costs for migrants’ remittances. All must open their markets unconditionally of these pledges are commendable, but will to all those defined by the World Bank as the G8 leaders stick to them? What we need Low Income Countries. The tariffs levied now are the instruments to make sure that by developed countries have come down these commitments are honoured. substantially during successive trade rounds, but the highest remaining tariffs tend to Lilley also fails to set out all of the conditions be those levied on agricultural products that would lessen the dependence of poorer and labour intensive manufactured goods countries on development assistance. Market – precisely the goods that the poorest access is fine, but will have little real impact

Spring 2010 Europe’s World | 135 countries can most readily produce. The poorest unconditionally, without requiring U.S., for example, levies more duty on them to open up their markets to exports imports from Bangladesh and Cambodia from the industrialised world. than on French and British imports that are six times greater in value; American duties The world's poorest countries on imports from Bangladesh and Cambodia represent a fifth of the global population, in fact exceed by far the development aid but account for less than a fiftieth of each receives from the U.S. world trade. The export industries of the poorest countries are small in scale, The normal procedure under the rules unsophisticated and usually specialised in of the World Trade Organisation is for products which cannot easily be produced tariff reductions to be reciprocal. But the in the developed world. By no stretch of important step to be taken now is for rich the imagination are they a ‘threat’ to the countries to open-up their markets to the industries of the developed world.

EUROPE’S WORLD BACKGROUND BRIEFING

EU heads for 70% of aid to Third World

The economic downturn has so far done little to than `29bn to poorer countries, but by 2008 that had dampen Europeans’ enthusiasm for development aid. doubled to almost `60bn. In a recent Eurobarometer survey, 90% said they think development is important, with 50% saying that poverty Sweden is the most generous EU country, having is the greatest challenge faced by developing countries. given1.3% of its GNI in aid in 2008, with the Dishearteningly, though, only 25% of those questioned Netherlands next at 0.83%. Greece and Italy are the had heard of the Millennium Development Goals, the least generous, spending 0.21% and 0.22% of GNI UN’s blueprint for tackling extreme poverty by 2015. on aid respectively.

Almost three-quarters (72%) of the people surveyed The OECD’s aid simulation for this year suggests that think that European countries should honour, or even the economic crisis will have done little to reduce go beyond, their commitments to the developing EU spending. It forecasts the EU again topping the world, but only 26% said the EU is the best suited global list of aid donors with a total `70bn in to assist developing countries. The United Nations is development assistance, a handsome 70% of all widely seen as the key player. official development assistance worldwide.

EU governments appear to be taking note of the general The EU puts other large aid donors to shame. The public desire to give more aid. In 2003, the European U.S. aid total of `10bn in 2001 had doubled to Commission pledged that EU aid commitments should `20bn in 2008, but still only represented 0.19% be at least 0.39% of Gross National Income, and in 2008 of GNI. In that year, EU member states spent 0.4% and last year the member states honoured this promise. of GNI on aid, that totalled almost `40bn more than the U.S. Japan’s development aid stood at Aid contributions by EU member states have grown `7bn, or 0.19% of GNI, and Canada gave `5bn, steadily in the last decade. In 2000 they donated less or 0.32% of GNI.

136 | Europe’s World Spring 2010 Since the poorest countries take less COMMENTARY than 2% of the rest of the world’s exports it is of minimal significance to rich countries Moses M. Ikiara whether those markets are opened wider or not. By contrast, the rich countries represent unless poorer countries are given favourable the market for over 90% of the exports of terms of trade. Wealthy and more powerful the poorest countries, so the barriers we countries should remove their own export impose are absolutely crucial to them. subsidies, abolish tariffs and help poorer countries' exporters to switch to value added A number of trade arrangements such goods that get better trading terms. as the EU’s 'Everything But Arms' already claim to give unconditional access to least Strict immigration rules also need to be developed countries. Unfortunately, the softened so that people from low-income devil is in the detail, and those details countries can travel abroad to learn the secrets comprise rules of origin and other non-tariff of economic success. Barriers should be lifted regulations that undo much of the good so that companies from poorer countries can intended by this kind of agreement. In short, establish a presence in major commercial trade rules must be simplified. centres and gain access to global supply chains. Remittances from migrant workers Complex rules of origin mean that already make a major contribution to the countries entitled in theory to tariff-free GDPs of low-income countries, and if foreign access to developed markets actually end transaction costs were lowered their impact up paying tariffs. Rules of origin also impede could be greater still. developing countries’ ability to take part in the complex supply chains that characterise Multinational corporations can also be modern manufacturing. The importance encouraged to do their bit; they should be of Rules of Origin was demonstrated by given incentives to transfer technology to firms the relative performance of exports under in the low-income countries they operate in. the African Growth and Opportunities Act Sourcing a greater share of their raw materials (AGOA) introduced by the U.S. in 2000 and from those countries, and reinvesting their the EU's Everything But Arms initiative of profits there would also help. 2001. Exports from sub-Saharan Africa to the U.S. and Europe were fairly similar during This brings us to development assistance. the 1990s but since then exports to the U.S. Aid should be targeted so that poorer countries have quadrupled whereas exports to the can harness it to improve their own economies. EU have stagnated. The main reason was Assistance should pay for regional training the AGOA's simple rule of origin, allowing centres of excellence, schools and universities, African garment makers to use textiles from and it should aim to strengthen democratic elsewhere. institutions, encourage good governance and combat corruption. It should also support Other non-tariff trade barriers that limit viable regional trade blocs, small and medium- poor countries’ ability to trade include differing sized enterprises and farmers.

Spring 2010 Europe’s World | 137 sanitary and phyto-sanitary Poor countries need the Doha Development regulations set by developed more investment Round, the EU tentatively countries that impose agreed to abolish export prohibitively high compliance in physical subsidies by 2013, although costs on developing countries. infrastructure like the offer was withdrawn Harmonising regulations roads, ports and when the Doha negotiations across developed markets stalled. As far as domestic would facilitate trade and electricity. Yet over subsidies are concerned, fears lower the cost of compliance. the last 20 years the that their removal will harm proportion of aid EU agriculture are grossly In addition to these changes budgets devoted to exaggerated, since only a few in external trade policies, rich agricultural products from low countries should remove their infrastructure has income countries are in direct export and domestic subsidies, fallen by two-thirds competition with those grown particularly on products that in Europe, and in any case EU the poorest countries are best placed to farmers have alternative crops to turn to. grow and manufacture. This change, though apparently daunting, is not that far from Ironically, the highest tariffs in the world the expected evolution of trade policy. In are between neighbouring poor countries,

E.W. ADVISORY BOARD MEMBER

138 | Europe’s World Spring 2010 which partly reflects the fact that tariffs are COMMENTARY the easiest source of government revenue to collect. The high tariffs that poor countries Moses M. Ikiara impose on each other are one reason why less than a tenth of African exports go to Aid will only work well if appropriate other African countries, while nearly three- conditions are attached; it has little purpose quarters of European trade is within Europe. unless it contributes to structural growth in low- To beat the present recession, the poorest income economies. To achieve this, paternalism countries need to remove the barriers and the pursuit of political interests must be between each other even if they retain avoided and the donor-receiver relationship tariffs against exports from the developed between rich countries and low-income world. Rich countries can facilitate this countries also needs to be revised. Instead of move by providing the advice and expertise talking down to low-income countries, developed to re-design tax systems, while at the same countries should treat them as their political time providing aid to top up lost revenues equals. One only has to look at the way China during the period that tariffs are being and newly industrialised countries like Malaysia, replaced by revenue from domestic taxes. Singapore and Korea are relating with Africa to see that this is possible. These are policy changes that could do much to help the poorest countries weather the recession. This does not mean, however, that there is no place for development assistance in the form of aid. Poor countries will only be able to take advantage of the opportunities provided by preferential market access if they develop their own export capacity. This requires as high priority more investment in physical infrastructure like roads, ports and electricity and also in administrative infrastructure to meet international trading standards of quality, traceability and so on. Yet over the last 20 years the proportion of aid budgets devoted to infrastructure has fallen by two-thirds. Donor countries in the EU and elsewhere must put renewed emphasis on aid- for-trade to help developing countries build up capacity for trade.

Peter Lilley is a Member of the UK's House of Commons and a former Secretary of State Moses M. Ikiara is Executive Director, Kenya for social security and for trade and industry. Institute for Public Policy Research and Analysis GFFECBDL!QFUFSMJMMFZDPVL
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Spring 2010 Europe’s World | 139 “Counterfactual” aid evaluation: When what you see may not be what you’re getting

Development aid specialists have long argued about how development assistance should be evaluated so that both host governments and aid donors can have a clearer picture of what works and what doesn’t. Martin Prowse and Lídia Cabral debate two contrasting visions of how to make aid more effective

ow effective is development Forum on Aid Effectiveness. The Paris/Accra assistance? It’s a question that has agenda suggests that aid effectiveness can Hcome under close scrutiny in recent be improved by changing the processes years, and in 2005 the Paris Declaration that make up an aid management system, set five key “aid effectiveness” principles. not least by introducing better donor Point one is that local “ownership” should co-ordination mechanisms and harmonising be strengthened by ensuring that the strategies and policies. It also suggests that government of a country receiving aid sets progress in improving aid effectiveness can the agenda. Second, that aid donors should be judged mainly by measuring the degree of align their thinking and programmes with the compliance with these changes in processes host government’s policies and management and systems. systems. Third, improved harmonisation of different aid donors’ development programmes A very different approach to measuring through closer co-operation and agreed the effectiveness of aid has been taken by divisions of labour. Fourth, better evaluation advocates of “counterfactual evaluation”, of development results and, fifth, mutual who don’t focus on process issues but on accountability so that both aid recipients and the degree to which aid improves the well- donors are equally accountable. being of the poor. These evaluations set out to answer what they call the counterfactual Progress on implementing these important question of whether beneficiaries’ well-being principles was assessed in September 2008 would have changed even if the intervention in Accra, Ghana, at the third High Level had not taken place?

140 | Europe’s World Spring 2010 This sort of evaluation is often done by beneficiaries as part of an experiment? randomly selecting participants from a wider Advocates of randomised experiments population, and then randomly assigning suggest that it is easy to avoid unethical participants to a “treatment” group (which evaluations. For example, it is common that receives an aid intervention) and a “control” the entire eligible population is not reached group (which does not). As participants in by a project immediately, either because the control group are similar to those in the of budget constraints, or because the treatment group, any significant difference intervention is being rolled out over a period between the two groups is said to be of time. In the latter case, those to receive attributable to the aid intervention. the intervention later can be the comparison group for the first participants. Moreover, Advocates of this approach, the so-called randomistas argue that what is really unethical “randomistas”, argue that weak aid evaluations is to go on spending billions of dollars on have contributed to a lack ineffective interventions. of consensus around the The so-called simplest of questions, which is “randomistas” The third criticism of “what works”? Believing their argue that weak aid randomised experiments approach to aid evaluation is a concerns context. Will superior model, they have gone evaluations have successful interventions in so far as to suggest that all aid contributed to a one region or country have should be based on randomised lack of consensus the same effect in a different experiments. Not surprisingly, around the simplest region or country, or through this trend has sparked a variety a different institutional of reactions, six of which are of questions, which structure? A fourth critique outlined below. is “what works?”. focuses on experiments’ They suggest that all design; for example, do The first concerns policy intervention and control horizons. Randomised aid should be based groups stay separate, or experiments often need on randomised is there some direct and time to ensure that aid experiments indirect leakage between the interventions have become two groups? fully embedded before the final survey is conducted. This may conflict with the The fifth point looks at wider political shorter time horizons of governments dimensions of aid relationships. The case and donors who often want evidence for randomised experiments on efficiency produced quickly to fit in with budgetary, grounds may ignore political currents that legislative or political windows. are a critical element of development assistance. Aid donors and recipients often A second response focuses on moral have (undeclared) strategic interests that and ethical concerns about using a control need to be factored in when assessing the group. In other words, should we intentionally impact of aid. The sixth and last critique withhold an intervention from potential highlighted here concerns the scale and

Spring 2010 Europe’s World | 141 Help put together the green economy puzzle

In his EU-2020 strategy, Commission President José Manuel Barroso confirmed that economic, ecological and social sustainability will be the main driver of EU policies in the next ten years.

The Greening Europe Forum is a major initiative designed to tackle these issues, with a programme of activities and reports that will bring together all key stakeholders for new analysis and for frank and open debate on Europe’s sustainable future.

This is an opportunity for companies, institutions, governments & NGOs to be involved in this Friends of Europe initiative.

The Greening Europe Forum is a Friends of Europe initiative. For more information please call Nathalie Furrer on +32 2 738 75 93 or send an email to [email protected]

Friends of Europe is a Brussels-based think tank dedicated to the analysis and the wider understanding of European policy issues www.friendsofeurope.org reach of evaluations. The argument here is that receives substantial financial support. while RCTs may be well-suited to small-scale Reconstructing a control group through development projects, they are not appropriate matching intervention and control units for evaluating larger aid-funded operations and according to their recorded characteristics, broad policy changes. Investments in large- for instance, offers plenty of potential. Other scale infrastructure, and also major policy shifts statistical impact evaluation approaches like public sector reforms, are not at all suitable which don’t use a counterfactual design can because of the difficulties of establishing also serve this purpose. counterfactual data. This is important because, as the Paris agenda shows, the grain of aid The debate on measuring the effectiveness flows has been moving towards direct budget of aid is far from over. Counterfactual evaluations support and other forms of programmatic have certainly raised interest in better evidence aid which focus on broad governance and and more formalised and rigorous evaluation institutional issues which may not be amenable techniques. But so far there has been limited to a counterfactual design. progress in assessing the new aid orthodoxy, with its main focus on processes and systems. At first glance, then, it appears that two And although counterfactual designs are good major trends in improving the effectiveness of at telling us what works, most are not very good aid are moving in opposite directions. Yet, there at telling us why they work. In other words, may be more synergies between these two counterfactual evaluations that rely solely on trends than initially meets the eye. Three areas quantitative methods may be unable to tell us merit greater attention. The Paris/Accra agenda very much about how or why success occurs – promotes programmatic forms of support, they often can’t tell us about key transmission such as general and sectoral budget support. mechanisms such as cultural values, or local And although establishing a broad “with versus norms or practices associated with the without” counterfactual approach is difficult, it intervention in question. So complementing may be possible to do so within an over-arching counterfactual evaluations with qualitative evaluation made-up of different elements. forms of research like focus groups, semi- structured interviews or just participant Second, it may also be possible to use a observation may give evaluators a clearer idea before and after counterfactual design (so-called of whether success in one intervention can be interrupted time series designs) when there is replicated elsewhere. In fact, both quantitative enough available longitudinal data using quarterly and qualitative research within counterfactual or monthly figures. This sort of analysis needs evaluations looks like a good way of giving the analysts to be aware of any other important governments and donors a clearer picture of policy shifts that may have been implemented what works and what doesn’t. at the same time, or changes in administrative procedures and even how data was captured. Martin Prowse is a researcher at Antwerp University’s Institute of Development Policy and Management Counterfactual evaluations could also and Lídia Cabral is a research fellow at the UK’s help governments decide which interventions Overseas Development Institute.
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Spring 2010 Europe’s World | 143 Section 4THE ARAB WORLD What an effective Arab strategy for the EU should look like

Europe’s attempts to forge a strategic partnership with the Arab world have been mismanaged and under- resourced, says Abdullah Baabood. He suggests that the 65-year old, 22-nation League of Arab States offers a viable framework for future co-operation

he European Union has yet to develop Cotonou Agreement with African, Caribbean a coherent strategy toward the Arab and Pacific countries and the EU’s stalled Tworld. Ever since the suspension of the agreement with the Gulf Co-operation Euro-Arab Dialogue (EAD) as a consequence Council, the GCC. These have not only of the Iraqi invasion of Kuwait, which split the left Arab countries like Iraq and Yemen Arab world and weakened the out of any institutional League of Arab States, Europe EU’s relations with arrangements but have has followed a differentiated added to fragmentation of approach in conducting its the Arab region have the Arab region, deepened relations with Arab states. been conducted intra-Arab divisions and through initiatives indirectly contributed to So for almost two decades, and policies that lack the weakening of the Arab the EU’s relations with the regional order. Arab region have been overall design and conducted through various coherence Europe initiated the initiatives and policies that Euro-Arab Dialogue (EAD) lack both overall design and coherence. in the mid-1970s following the first oil There has been a proliferation of unrelated shock, but with limited experience in policies like the Euro-Mediterranean inter-regional co-operation, the EAD got Partnership, the EU-Africa Partnership, the off to a false start with the two sides

144 | Europe’s World Spring 2010 having different expectations. The EU, at COMMENTARY that time the European Community (EC), wanted energy security in exchange for By Claire SpencerBy A economic and technical co-operation, while the Arab side hoped to exchange its new It takes two to found oil power for political support in the Arab-Israeli conflict. These divergent dialogue, so where’s motivations forestalled meaningful Euro- Arab co-operation, so the EAD endured the Arab League? a quiet death when in the 1990s the Arab world became more divided still following the Iraqi invasion of Kuwait. he ‘Arab world’ is an elusive construct, as Abdullah Baabood readily admits. But the Europe subsequently tried to kindle absence of a clearly delineated European closer relations with sub-regional Arab T ‘Arab strategy’ hardly prevents Arabs from groupings like the Arab Maghreb Union integrating towards a common cause. The Arab (AMU) and the Gulf Co-operation Council League, as he says, comprises 22 different so as to keep some sort of a dialogue alive states and entities and some 350m people with these strategically important parts across an area straddling the Mediterranean of the world. But the AMU relationship basin, the Levant, Asia’s borders, the Horn of did not develop as envisaged and was Africa and the Gulf. The first two are in Europe’s eventually subsumed into the EU’s wider immediate backyard and the rest are on the Mediterranean policies, which were to edges of other geopolitical sub-systems. culminate in the Barcelona Process and its Euro-Mediterranean Partnership (EMP), The demise of the Euro-Arab Dialogue some 20 years ago was entirely a consequence of and lately its successor, the Union for these geopolitical complexities. It takes two to the Mediterranean which has somewhat dialogue and there has to be both a purpose confusingly been combined with the and substantive outcomes for either to see the European Neighbourhood Policy (ENP) to point. This is where the Euro-Mediterranean create “a ring of friends” from which the Partnership stepped into the breach from GCC is deliberately excluded. 1995. The logic of engaging some, if not all, of the Arab world in the Barcelona process These EU policies were developed with was clearly influenced by the promise of the largely strategic considerations in mind in parallel Oslo process to deliver peace between the wake of the Union's eastern enlargement Palestinians and Israelis. The EU’s Barcelona and the security and migration challenges partners, whether on the Mediterranean littoral that were expected from the south. But or not, were chosen because of their proximity the European idea of developing a zone to Israel and Europe, and for the possibilities that an all-encompassing free trade zone of shared prosperity that would ensure would offer them. The hope was that these stability and security in the Mediterranean possibilities could support the political solutions has yet to bear fruit. The income gap anticipated through Oslo. between the Mediterranean’s northern and

Spring 2010 Europe’s World | 145 southern Mediterranean regions is still political dialogue consists of little more than widening and it would be hard to claim the two sides reiterating their positions. This that Euro-Mediterranean policy has helped political dialogue has therefore done little resolve the region’s lingering conflicts. to unlock trade disputes or even enhance Europe’s security of oil supplies from the The EU’s relationship with the GCC states Gulf. In 2008, the GCC states unilaterally also bears stark witness to the reluctance of suspended the FTA negotiations, a move that Europeans to engage constructively with amply reflected their disappointment with the Gulf. Europe has for long subjected this Europe’s apparent refusal to acknowledge important, strategic and sensitive sub-region the region’s strategic significance. to what might at best be termed benign neglect. In the 20 years since the signing of It is increasingly obvious that the EU now the 1989 Co-operation Agreement, EU-GCC needs to rethink its strategies with regard to negotiations for a free trade agreement both the Mediterranean and the Gulf regions (FTA) have failed to reach a conclusion and if it is to ensure that the Mediterranean Union in 2008 were suspended. Co-operation in is not just a continuation of old policies other areas that include the energy sector under a new name. For the Mediterranean has been very limited, while the stagnant Union to make a real impact it needs to be

E.W. ADVISORY BOARD MEMBERS

The Austrian Study Center for Peace and Conflict Resolution – ASPR (www.aspr.ac.at) was founded in September 1982 as an independent, non-profit and non-partisan Luxembourg Institute for organisation. It aims to contribute to European the promotion of peace and peaceful conflict transformation and to the dissemination of practical and International Studies ideas for peace. The ASPR was the founder of the European University Center for Peace Studies (EPU) and established a European Peace Museum in Schlaining Castle. The ASPR has become active in various peace-building training programmes 21 rue Philippe II and projects. For these and other efforts the ASPR was awarded L-2340 Luxembourg UN “Peace Messenger” status in 1987 and in 1995 the ASPR Phone: +352 466580 and the EPU were awarded the UNESCO “Prize for Peace Education” and, in 2002, the UNESCO UniTwin Award. Fax: +352 466579 E-mail: [email protected] Web: www.ieis.lu

146 | Europe’s World Spring 2010 equipped with the levels of financial and COMMENTARY political capital that its Barcelona Process forerunner was denied. In the case of the Claire SpencerBy A GCC, the EU needs to move beyond the free trade negotiations and get down to When Oslo failed, Barcelona’s supporting genuinely substantive co-operation issues, mission also failed. The substance of the EU’s even if that means that the EU has to sign Barcelona offer to the Mediterranean Arabs, above all those without oil revenues, was bi-lateral FTAs with each of the GCC’s economic development through trade, with member states. pressures towards liberalisation and political reform as a counterpart. Looking towards The EU also needs to create appropriate the Gulf, however, none of this made sense: connections between the different strands of What the EU could offer, the GCC in large its policies in the Arab world, for example by part already had. What the GCC wanted from creating linkages between its Mediterranean EU states was above all military hardware, and the Gulf strategies. The European high-end imports and expatriate technical, Commission’s 2004 strategic partnership educational and managerial assistance. Most document for the Mediterranean and the GCC governments could, and still can, pay for Middle East did very little to advance the these, so with them there’s little or no room EU’s political footprint in the region or give for the EU’s Mediterranean-style aid-and-trade it greater coherence. Dividing the Arab world leverage. into Mediterranean and Gulf sub-regions What unites the remaining countries and leaving other Arab countries out is not identified by Abdullah Baabood – Iraq until helpful to Arab governments’ own regional recently, Yemen, Sudan and the Horn of integration efforts, and today a number of Africa – is their aid dependence. The EU and Arab countries that include Iraq, Yemen and other international actors have struggled to Somalia are clearly feeling the effects of a create, rather than reform, viable governance weakened Arab regional order. structures in these weakened states, even where the U.S. (in Somalia and Iraq) holds a At sub-regional level a pragmatic case critical responsibility for their fragility. No room may exist for continuing separate dialogues here, either, for more than attempted leverage. with the Mediterranean and GCC countries, Dialogue with several rather than a single set but in reality there is much to gain by linking of stable state leaders is the norm. the EU’s various policy threads with different Missing from all these equations is any Arab countries, and most especially those imperative from within the membership of the of the Gulf and Mediterranean. For the Arab League to address these different needs vulnerable Gulf states, the Mediterranean and circumstances themselves. Why look to the and Levant is their security hinterland as EU to provide, persuade, cajole or impose what well as being the backbone of their cultural a functioning Arab region should be looking identity. The Gulf, meanwhile, offers a source to do for itself? A more deeply committed of investment and employment, for the and integrated set of Arab League leaderships Mediterranean region; it is second only to could set their own terms for dialogue with Europe in terms of foreign direct investment the EU, and condition where and how the

Spring 2010 Europe’s World | 147 (FDI) in the Arab Mediterranean countries, Some regional arrangements like the United so combining Gulf financial muscle with Arab Republic (UAR) between Egypt and European know-how and technology could Syria in 1958 lasted only three years. Other go a long way towards improving the regional acronyms have come and gone, prosperity and stability of the whole region. sometimes acrimoniously. The ACC – the Arab Co-operation Council grouping Egypt, The non-Mediterranean and non GCC Iraq, Jordan and North Yemen – survived Arab countries – Iraq, Yemen, Sudan, only a year after its birth in 1989. The Somalia, Eritrea, Djibouti and the Comoros Arab Maghreb Union (AMU) has been a – could be incorporated flop, and although the into the EU’s Mediterranean The EU needs to Gulf Co-operation Council, policy as the GCC is a sub- consisting of Saudi Arabia, regional organisation while rethink its strategies Kuwait, Oman, Bahrain, Qatar the Mediterranean is not. with regard to the and the UAE has fared better, Mauritania and Jordan are Mediterranean it has nevertheless been held both members of the EMP but back by rivalries. they are hardly Mediterranean and the Gulf if countries. Alternatively, these the Mediterranean The LAS is altogether countries could come under Union is not just a more durable and resilient. a more encompassing new continuation of old It was set up in 1945 with overall EU policy towards the the main aim being to Arab region that would build policies under a new “draw closer relations on and reinforce existing inter- name between member states and regional relations while linking co-ordinate collaboration the Gulf to the Mediterranean. between them, to safeguard their independence and sovereignty and The seemingly neat term “the Arab to consider in a general way the affairs world” is an amorphous description and and interests of the Arab countries”. It has can be misleading. Being “an Arab” is as served as a forum for member governments slippery a notion as being “a European”. to co-ordinate their positions, to deliberate Heterogeneity and diversity are key features on matters of common concern, and where of the Arab world, and after all the term possible to settle some disputes and limit is used to describe the 22 countries that conflicts. The LAS has had a long history as belong to the League of Arab States (LAS), a platform for fostering trade and economic whose combined population is some co-operation, including the creation of a 350m from different ethnic and religious Pan-Arab Common Market through the backgrounds who inhabit lands extending Greater Arab Free Trade Area (GAFTA). from the Atlantic to the Gulf and from the Saharan desert to the Anatolian foothills. Despite its many shortcomings, not to say many premature obituaries reporting In stark contrast to Europe, the Arab its demise, the Arab League has not only world has seen little formal integration. survived but also has helped resolve many

148 | Europe’s World Spring 2010 regional conflicts while playing an important COMMENTARY role in intra-Arab co-operation and economic integration. Any weakening of it has had a Claire SpencerBy A negative impact resulting in wars and even the failing of member states like Somalia European development assistance and political and to some extent Yemen. It is therefore frameworks are directed. surprising and odd given the European The real answer, perhaps, lies less with passion for promoting regional integration the much commented on deficiencies of EU that the EU has no formal dialogue with the policy, than with the prevailing divisions within League. Europe has thus under-achieved in the Arab world. One shared wound is the its sub-regional policies towards the GCC debilitating lack of a Palestinian state, despite and the Mediterranean while neglecting the endless attempts to counter Israel’s resistance only regional organisation grouping all 22 to the clear demand formulated in recent Arab countries. years by the Arab League; namely, to withdraw from the occupied territories in return for full In short, the EU needs to re-think its diplomatic normalisation with all 22 of its whole strategy towards the Arab world and members. The other shared wound is the highly play a much more constructive role to unequal division of resources, not only across promote the integration of the region. It the region but within individual Arab states should recognise the League of Arab States and societies. as the most suitable partner with whom If the Arab League cannot devise its own differentiated policies like those with the approaches to dealing collectively with these GCC and EMP/ENP along with any others issues, no amount of EU strategising from relating to Arab countries could be filled outside will do it for it. This is not to say that into an overall framework. A more the EU’s own exploitation of the gaps between encompassing and coherent EU-Arab policy its external relations and foreign policy should include such common issues as objectives is entirely blameless. The history of economic co-operation and integration, individual EU member states breaking ranks scientific and education co-operation, across the Arab world also has much to answer cultural dialogues, energy security and for. Unavoidably, any Arab regional integration climate change, conflict resolution, stability strategy worthy of the name has to begin at and regional security as well as good home. governance, democratisation and civil society relations. It is a sad comment on the present situation that these elements are not seen by EU policymakers as the components of a strategic approach.

Claire Spencer is Head of the Middle East and Abdullah Baabood is Director of the Cambridge- North Africa Programme at Chatham House. based Gulf Research Centre. BTC!DBNBDVL $4QFODFS!DIBUIBNIPVTFPSHVL

Spring 2010 Europe’s World | 149 The West’s hollow talk of Arab democracy

Political leaders in America and Europe are vociferous in their calls for the Middle East to embrace democracy. But Khaled Hroub says that the reality is the West connives in keeping Arab autocrats in power

he non-democratisation of the Arab cultural specificity pretext into a (somehow region results from an unholy alliance racist) alienation of local democratic and Tbetween Western interests, local liberal forces and a paving of the way for the autocrats and what is claimed to be its rise of Islamist radicalisation. ‘cultural specificity’. Within this alliance, there have been various trade-offs. Western This trade-off has not always led to mutual interests are served by puppet prize giving. Sticks as well as rulers who in return enjoy We have wasted carrots have been used and support and recognition. As not only by the powerful West to the justification of cultural decades and missed against weak Arab regimes, specificity as it pertains to our chances to but more surprisingly in the governance in Arab countries, establish democracies opposite direction too. The all this is window-dressing for that could have Western agenda for reform the revolting reality that in and democracy has been effect says: ‘Let’s be honest, empowered liberal used more often than not as it’s better for both the West forces a threat, a typical message and we the local dictators not being: “help out in the war to have democracy here’. against Iraq or we press for democracy and human rights in your own In a nutshell, it was much easier in the country. An Arab message in return would post-colonial Middle East for the West to do be: “stop pressing on the reform issue or we business with un-democratic regimes where won’t co-operate in the ‘war on terror’!” deals could be made without accountability or transparency. The result of this decades- Two other major issues have sustained long trade-off has been the transformation of the trade-off; Israel and the rise of the

150 | Europe’s World Spring 2010 Islamist movements. Israel has been seen COMMENTARY by the vast Arab public majorities as an alien and illegitimate entity imposed by force on By Nathan J. BrownBy A Palestinian land with Western support. To have this perception channelled through Yes, but that’s democratic means and shaping policies towards Israel would further complicate no reason to any hopes of a peace deal between Arab countries and Israel. It is far easier to give up on Arab launch negotiations and eventually sign democratisation peace agreements between Israel and authoritarian regimes like Egypt and Jordan, haled Hroub tells us that Western and in the future with Syria, where there is governments have cast aside their no need for any parliamentary agreement. K values by working with despotic Arab In Morocco, Tunisia, Mauritania, Qatar, regimes. The Islamist spectre and the excuse Oman and Bahrain, where various low-level of “cultural specificity” have been used to contacts and Israeli representations exist, justify this cynicism, and in those cases where these countries’ undemocratic nature has democratisation has been pursued it has only been used against selected adversaries. allowed the ruling elites to impose whatever These claims are all too accurate. Democracy relationship with Israel they choose. and human rights have been trumpeted as the centrepiece of Western policy, but from The rise of radical Islamism has been Saddam Hussein to Yasser Arafat they have no less obstructive when it comes to the been used primarily as a club to beat those democracy debate in the Arab world. The leaders the West doesn't like for reasons decades of unholy alliance between Arab unrelated to their despotism. Democracy has autocrats and the West have seen radical been soft-pedaled for cooperative regimes Islam emerge as a ‘salvation’ force. If free like Egypt, Jordan and Saudi Arabia, and and fair elections were to be held in any Arab tossed out the window when the would-be country, the Islamists would come to power. beneficiaries have beards. That was the case in Algeria in 1991/2, in Iraq in 2005 and in the Palestinian West Bank and But I nevertheless have grounds for contesting Khaled Hroub’s conclusion. He writes that Gaza in 2006. In most other cases where a the “non-democratisation of the Arab region ‘limited space for democracy’ was allowed, results from an unholy alliance between Western such as in Jordan, Morocco, Kuwait, Yemen interests, local autocrats and claims of ‘cultural and Bahrain, the Islamists immediately filled specificity'." This consists of one mistake, one that space. For the southern shores of the exaggeration and an erroneous policy lesson. Mediterranean to be controlled by Islamist parties is seen as worse than a nightmare for The mistake is that Hroub tries to explain the West in general and Europe in particular. the absence of democracy, yet for all its current popularity, democracy is in historical terms a rare The reality is that we have wasted form of government. It is democracy’s emergence, decades and missed our chances to establish not its absence, that needs to be explained.

Spring 2010 Europe’s World | 151 EUROPE’S WORLD BACKGROUND BRIEFING

Democracy's mixed fortunes in the Arab world

All but three Arab states – Iraq, Lebanon and the assembly, half of whose members are elected, has Palestinian Authority – are authoritarian regimes and only consultative powers. Morocco holds multi-party even they, according to the Democracy Index of elections, has a national list for women and is led The Economist, qualify only as ‘hybrid regimes’, well by a coalition government, but the king appoints the below the categories of ‘full democracies’ or ‘flawed prime minister and cabinet, and is able to dissolve democracies’. parliament.

That the only Arab countries to scrape into this lowest In Egypt, the principal opposition to the government category are unstable states emerging with highly is the Muslim Brotherhood, and it is forbidden from fragile institutions from years of occupation and war organising as a party so its members must stand as doesn’t say a lot for the state of democracy in the Arab independents. But presidential candidates are now world. Although most countries in the region now allowed to challenge Hosni Mubarak, who won 88.6% hold elections, in some cases including all-women lists, of the vote in the last election. Mubarak has been their legislative assemblies have very limited powers in power since 1981 and rules under a state of compared to the executive. emergency.

Most Arab countries remain a one-man – or one-family Elsewhere in the Arab world, gerrymandering is – show, according to Jordanian academic Mustafa reportedly widespread. Elections in Bahrain are Hamarneh, with bureaucracies that work for the leader, described by observers as free and fair, but electoral not the state. districts are skewed against the Shia Muslim opposition: The size of constituencies varies from 500 in Sunni The seven emirs of the United Arab Emirates appoint districts – favourable to the ruling al Khalifah family – the prime minister and cabinet, while the legislative to 12,000 in Shia-dominated areas. . democracies that could have empowered The whole notion of democracy has Arab liberal and democratic forces. The West’s been eroded and discredited, with the blind support for autocratic Arab regimes has radicalisation that engulfs many Muslim eliminated all hope of peaceful change. The societies now spilling over into their democratic process has lost its aura and its emigrant communities in the West. It is a thrust, not least because democratisation phenomenon that has wider causes and seems to lead to the rise of political movements deeper historical roots than current affairs the West finds unacceptable. Palestinian because it results from the closing down of democracy that led to the victory of Hamas all avenues of change thanks to the active is only the most recent example, for over involvement of the West. the decades the illiberal and undemocratic policies of the West in Arab countries have When in 2002 the Bush Administration weakened liberal forces, and led instead to the launched its Middle East Partnership rise of Islamist fundamentalism. Initiative for democratisation in the Middle

152 | Europe’s World Spring 2010 East, it turned out to be too little, too COMMENTARY late – and it died too soon. The allocated budget was just $29m, but its rapid death Nathan J. BrownBy A can also be ascribed of its short-sighted design. Yet the official burial of the idea of Democracy triumphs when entrenched social democratising the Middle East in fact took forces and mobilisable constituencies find that place at the hands of Barack Obama, who they cannot defeat each other, so they allow has shown little interest in the issue right strong political institutions to mediate their differences. For the Arab world to democratise, from the start of his presidency. Obama’s political opposition will have to link to organised praise of Egypt’s Hosni Mubarak as a man constituencies, and that is something that to who one could do business with demoralised date only Islamists have done. Existing regimes opposition groups in Egypt who have been will have to conclude, like 19th-century Europe’s struggling against the long-serving autocrat ruling groups, that they have no alternative but and his designs to pass power on to his son, to negotiate the inclusion of those they have Gamal Mubarak. been trying to keep out.

Not only the United States has furthered Hroub’s exaggeration is his over-emphasis on the non-democratisation of the Arabs, Western policy when explaining the absence of democracy. Western policy has, to be sure, been ineffectual, hypocritical and damaging. But it is only part of the problem—and therefore E.W. ADVISORY BOARD MEMBER changing it is only part of the solution. At best it can aid long-term trends toward democratisation. The real challenge for Western policymakers is to find a way to integrate long- term support for democratisation into policies that are all too often reactive and based on a need to respond to last week’s headlines. The Center for International Relations (CIR) is an independent, non-governmental establishment dedicated to the study of Polish for- eign policy and those issues of international politics, which are of As to the erroneous policy lesson, although crucial importance to Poland. The Center’s primary objective is to offer Hroub does not prescribe any specific policy, political counseling, to describe Poland’s current international situation, and to continuously monitor the government’s foreign policy moves. he implies that the best policy might be a The CIR prepares reports and analyses, holds conferences and seminars, revolutionary break with current regimes and publishes books and articles, carries out research projects and organizes working groups. We have built up a forum for foreign policy debate an insistence that democratisation be placed involving politicians, MPs, civil servants, local government officials, at the centre of Western policy. Even if such a journalists, academics, students and representatives of other NGOs. path was theoretically wise, and Hroub does Center for International Relations not claim that it would be, the story of the Emilii Plater 25 00-688 Warsaw, Poland Bush Administration’s freedom agenda should Tel. +48-22-646-52-67 caution us against such a path. Bush simply Fax. +48-22-646-52-58 wished away the tension between democracy www.csm.org.pl promotion and other Western interests – with the result that eventually everyone become disillusioned. We need a steadier, long-term policy, not a messianic new vision.

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lll#[dgjb"ZjgdeZ#Xdb I]ZaZVY^c\:JYZY^XViZYXdc[ZgZcXZVcYZkZciegdk^YZg for Europe has been no less active. Two COMMENTARY recent examples are Libya and Saudi Arabia, with Europe playing a major role in Nathan J. BrownBy A ‘rehabilitating’ Libya and ‘bringing it back to the international community’. Internationally For democracy to emerge in the Arab world, ostracised, Tripoli has become the new two things must happen: Those with alternative Mecca for European leaders trying to win political visions must be free to mobilise their multi-billion dollar oil and investment deals. constituencies, and Arab leaders must learn to see their challengers as legitimate political The rehabilitation of the Qaddafi regime has actors. Western powers can contribute to such never included any push to ease political developments, but low-level assistance to oppression in Libya, but an even more telling organisations with pleasant but safe agendas case is Saudi Arabia. No European leader will do little to help. The usual types of risks antagonising the Saudis by raising the democracy promotion generally do no harm, issue of democracy and human rights there. and might even do some good, but they need Saudi women are prohibited from driving the support of diplomatic muscle. And that can cars, travelling on their own, working or only be delivered by a clear policy that makes studying without the permission of a male it clear that Arab regimes’ relations with the member of the family. Saudi societies and West will be affected by their treatment of those of some other Gulf States lack minimum opposition groups. levels of political freedom and participation. This discussion usually leads directly to the The TUBUVT
RVP is excused by Arab regimes in familiar question of whether the West should the name of cultural specificity; the same “engage” with Islamists? The answer is that pretext used by Western governments to this is the wrong question. The right ones are: justify their ‘value-free’ policies towards “What can the West do to encourage Arab these regimes. regimes to engage with Islamists?” and “How can the West encourage Arab regimes to Lump together all the trade-offs between allow reformers to convert armchair theorising the West and a number of Arab regimes, into effective – but non-revolutionary – along with the Israel factor and the Islamist mobilisation?” Engagement must be among factor, and the alarming conclusion is that competing political visions in the Arab world. the West cannot afford democracy in the Western policymakers can help in modest region. Western talk about the necessity of ways, and if they fail to do so they risk democracy in the Middle East rings all too continued political cynicism and radicalism in hollow. the region. And even if they opt to do so they must be aware that the pay-off may be a generation away.

Nathan J. Brown is professor of political science and international affairs at George Khaled Hroub is Director of Cambridge University's Washington University and a senior associate Arab Media Project and author of "Hamas: Political at the Carnegie Endowment for International Thought and Practice". ,NB!DBNBDVL Peace. OCSPXO!HXVFEV

Spring 2010 Europe’s World | 155 How Europe could alter the Arab-Israeli ‘political calculus’

If the EU wants to make a real contribution to resolving the Arab-Israeli conflict, says Ezzedine Choukri Fishere, it should consider imposing an ‘occupation tax’ on all dealings by Europeans with the Israeli settlements in East Jerusalem and the West Bank

rab intellectuals and policymakers What Europe can do is to focus on what it is have often accused Europe of using more suited for, which is to influence the core Afinancial generosity to cover up its dynamics of the Arab-Israeli conflict. political impotence over the Arab-Israeli conflict. If Europe is to be taken seriously as Over the last two decades, the EU’s desire a global player, they argue, it must also flex to look more and more like a nation state some muscle when it delivers the banknotes. has guided its position on the Arab-Israeli And in Arab eyes European officials implicitly conflict in the wrong direction. Europe’s plead guilty when their excuse is to point inability to play a political role in the Middle to Europe’s complex multilateral politics East peace process was wrongly diagnosed and bureaucratic EU decisionmaking. But as resulting from a European bias towards Europe’s Arab interlocutors, are unimpressed Israel. Policy advisors argued that gaining by these explanations: they want Europe to Israel’s trust was necessary if it was to stop just talking like a Great Power and start recognise that Europe should play a role in acting like one. the peace process. Almost nothing became too dear to win this elusive trust; technology And that’s not likely to change. We transfers, European quotas in the United Arabs will continue to play on Europe’s guilt Nations, association agreements, upgraded feelings, just as EU officials will continue relations and even, reportedly, the prospect to seek ways to make Europe look like a of joining the EU. coherent global actor. Driven by this irresistible desire to appear But more realistically we should stop relevant, European policy revolved around asking the European Union to emulate a seducing Israel while at the same time nation state. Europe cannot sponsor or lead bribing the Palestinian Authority. Financing a negotiation process between Arabs and Israel’s occupation of Gaza and the West Israelis, let alone impose a solution on them. Bank served both objectives at the same

156 | Europe’s World Spring 2010 time, at a cost to European taxpayers of But it can do other things. The EU can several billion euros. Yet this policy earned enhance its influence if it abandons the fantasy Europe neither recognition nor relevance. of acting like a state and instead trades visibility Palestinians continued to trivialise Europe’s for effectiveness. Instead of being obsessed contribution, and Israelis to loathe it for with participating at conferences (with three ‘financing Palestinian terror’. So in the end representatives speaking in ‘one voice’), Europe paid out a lot of money just to Europe can if it chooses affect the dynamics expose its own weakness. How much worse at the core of Arab-Israeli peacemaking, help can things get before this counter-productive the parties face their existential challenges EU policy is abandoned? and still be faithful to its own principles and broader interests in the region. The idea that Europe can seduce the occupier into giving it a role in ending The core dynamic of Arab-Israeli conflict occupation seems wrong-headed, while trying is and has long been the inability of the to convince Israel that Europe is even-handed parties to overcome their short-term political is also a waste of time. Israel doesn't want an constraints and take decisions that are even-handed mediator but an unconditional strategically sound but utterly unpopular. supporter. This is partly why Israel prefers the United States Europe’s Arab The return to power as sole mediator, and it is interlocutors want in Israel of Likud, and also why its acceptance of a Europe to stop the failure of the Obama monopoly role for the U.S. Administration to get it to evaporates as soon as any talking like a Great freeze West Bank settlements American president starts Power and start illustrate this dynamic. developing views different acting like one Strengthening Israel’s grip from those of Israel. When this on East Jerusalem and happens, America’s inability to project power the West Bank, as well as the Golan makes all the difference. In other words, no Heights, simply brings Israeli politicians matter what blandishments are showered more votes. Advocating withdrawal from on Israel, when push comes to shove it these territories, which is a sine qua non is the ability to use power – not charm – condition for peace, drives away Israel’s that determines whether or not an outside voters. Palestinian rejectionist factions power has a say in Arab-Israeli peacemaking. thrive on this just as much as their Israeli Europe’s failure to play a role in resolving this counterparts; so advocating concessions conflict does not result from imagined anti- to Israel doesn’t win more moderate Israeli views but from the fact that the EU is Palestinian politicians greater popularity not a state. States are not given roles; they either. On both sides, politicians agonise in acquire them by the power assets they can private over the strategic concerns that are deploy in the service of their foreign policy. being undermined by short-term political And Europe cannot deploy the type of power realities. But there is little they can do needed to tilt the balance in Arab-Israeli about it; some call this leadership deficit peacemaking. and others a sane political calculation.

Spring 2010 Europe’s World | 157 To change this dynamic, external players occupation a more costly one) is needed to now need to influence the political calculus start a meaningful peace process. inside Israel and Palestine by lowering the political cost of peace and raising the cost Europe has already tried incentives for of occupation and thus enabling politicians withdrawal, but those incentives alone to choose peace. Israel’s preparedness to clearly will not do; the cost of occupation return Palestinian territories, with certain must also be raised. In plain English, an conditions, is the trigger for any meaningful ‘occupation tax’ is needed. This would be Arab-Israeli conflict resolution process, but different to applying sanctions, which in any no Israeli government will be willing or even case risk triggering a “Masada Complex" that able to do that unless the political calculus would push Israel to further extremes. But a inside Israel changes. Making withdrawal sanction targeting the tools of occupation a tolerable political option (or making – not Israel as a whole but the whole

EUROPE’S WORLD BACKGROUND BRIEFING

What the EU spends on aid to the Palestinians

The EU has been the largest aid donor to the Palestinians building to repair war-damaged infrastructure and meet since the Oslo accords of 1993, when of the $2.4bn basic humanitarian needs. pledged to support the peace process 38% was from the EU. The deal at that time was that the U.S. would Relief payments already form a large part of the budget: work on a political settlement while Europe focused on the EU provided over half the 2008 budget of the United aid and state-building. Nations Relief and Works Agency (UNRWA), set-up in 1949 to help Palestinian refugees in Lebanon, Syria and The European Commission’s 2000-2009 aid commitments Jordan, as well as those in the West Bank and Gaza. to the Palestinian Territories amounted to `3.41bn, not including donations by individual EU member states. For Corruption within the Palestinian Authority and the recent 2008, `497m was committed, and the programmes split between the PA and Hamas have compounded the co-ordinated by the Commission total about a quarter of problem, especially for the people of Gaza. Here, the all assistance to the West Bank and Gaza Strip. EU pays the salaries of doctors, nurses and teachers, but also those of Palestinian Authority officials who Most EU aid is now channelled through PEGASE, a have been unable to work since Hamas seized power. European Neighbourhood Policy instrument set up in Money is being wasted as long as the political situation early 2008 to support the Palestinian Authority’s reform is unresolved. programme. Of `440m pledged by the Commission for 2008, `325m was through PEGASE to fund direct assistance An international donor conference to fund the for public services and infrastructure investment. rebuilding of Gaza held in Sharm el-Sheikh in March of last year raised $4.4bn, including `436m from the Whether this money will reach its targets remains to be Commission. The EU says it has fulfilled its pledge but seen. In recent years, the failure of the peace process has that other countries, including many Arab states, have meant EU funds have been diverted away from capacity- yet to fulfil theirs.

158 | Europe’s World Spring 2010 settlement’s enterprise and the violation of option for Europe, and a blessing for Israelis Palestinians’ human rights. and Arabs alike. It would send a clear message to Israel’s voters that Europe; An ‘occupation tax’ should start while committed to the security of Israel, with turning the current exclusion from will not compromise its own standards by EU preferential customs treatment of accommodating Israel’s imagined need to settlement’s products into a full-scale ban occupy Palestinian lands. At the same time, on imports from settlements – and any it would restore credibility to European transactions with them. Companies and claims that human rights standards are banks should be barred from doing business universally applicable, and would also help in or with settlements, and especially with those people in Israel who are fighting construction companies and for its soul and democratic their suppliers. At the same ideals. An occupation tax time, pressure should be External players now alone is obviously not going exerted on the government need to influence to bring peace, but neither is of Israel to end its financial the political calculus negotiation. Both are needed assistance to settlements. inside Israel and and neither suffices alone. The ‘occupation tax’ Palestine by lowering Bringing the two sides to a should also include action the political cost of new negotiation process, or aimed at ending the impunity peace and raising the even drafting a blueprint for a that to all practical purposes is political solution, is something enjoyed by the Israel Defense cost of occupation only the United States can Force (IDF). IDF officials argue do, with support – at best – that some level of human rights violation from Europe and others. Yet affecting the is inevitable during occupation and that internal political calculus in Israel is a task the IDF record is not much worse than that Europe is more fit to lead. It is a role any other occupation army. They are that Europe can afford, given its unique right; an occupation cannot be sustained situation between being a constellation of without the systematic violation of human states, who have shared interests and similar rights. And this is precisely why these constraints, and a group of nations bound violations must be made costly: to signal by principles and values. Such a role would to Israeli voters that the cost of occupation better protect its broader interests in the is bound to rise. This can be done if Middle East and allow it to remain faithful to Europe supports ‘first’ the investigation of its values. suspected war crimes and other violations by the IDF of international humanitarian law and, second, the establishment of international Ezzedine Choukri Fishere is professor of international tribunals when those crimes occur. politics at the American University in Cairo and a former advisor to the Egyptian foreign minister. He Despite its apparent difficulties, this sort has also been the United Nations Middle East envoy of occupation tax would be a wise policy in Jerusalem. F[[FEJOF!F[[FEJOFDIPVLSJDPN

Spring 2010 Europe’s World | 159 European resolve (and cash) could end the Palestinian refugee crisis

Until the plight of the 4.5m Palestinian refugees is eased, argues Alon Ben-Meir, there will be no solution to the Arab-Israeli conflict. He sets out a plan for EU action on re-settling the refugees

resident Barack Obama’s meeting resettlement and rehabilitation in the West with Israel's Prime Minister Benjamin Bank and Gaza. The EU must therefore take PNetanyahu and the Palestinians' the lead and use its formidable economic President Mahmoud Abbas last September and political clout to help bring the tragedy fuelled speculation that there would of the Palestinian refugees to an end. By be palpable progress in the Middle East doing so, it would establish itself as an peace process. Yet so far all attempts at indispensable interlocutor in the Arab- reconciliation have yet to be translated into Israeli peace process, thus enhancing its action. Continuing Israeli settlement activity own strategic and economic interests in the on the West Bank and in Jerusalem has kept Middle East. George Mitchell and his colleagues in the American negotiating team shuttling back Of all the issues that divide the Israelis and and forth to the region, but the historically Palestinians, spanning as they do territorial contentious issue of the Palestinian refugee claims, secure borders and the future of East crisis remains. This has already disrupted Jerusalem, the Palestinian refugee problem numerous efforts toward a final agreement, continues to stymie all pragmatic solutions. and is likely to present the biggest hurdle for The majority of Palestinians believe that the negotiators in the future. creation of Israel in 1948 precipitated the problem, so the solution lies in the Right Instead of waiting for final status talks of Return to the state of Israel as a matter to resume, the international community led of principle. Israel has hotly refuted this by the European Union should now take argument, and in every encounter with the steps to improve the political atmosphere Palestinians since 1988 has made it clear surrounding the Palestinian refugee issue. that to sustain its Jewish majority, which There is only one realistic solution that the Israelis consider a sine qua non for could be envisaged as part of a two-state any agreement, the solution must be found solution, and that means compensation, through resettlement and rehabilitation in

160 | Europe’s World Spring 2010 the West Bank and Gaza. This will fulfill the political formula. Waiting for an Israeli- the call for Palestinians to return to their Palestinian peace deal to be signed could take homeland, albeit not to their original homes. years, and as matters stand the refugee issue Other refugees may opt to resettle in their could collapse any final status agreement, present country of residence as long as as happened in Camp David. To change the these countries are prepared to accept the political dynamics, the EU should take direct refugees as their own citizens. action to alleviate the crisis as a precursor to a future peace deal. Instead of seeking to Many Palestinian and Arab leaders change the political narrative about the need have since 2000 conceded in private as to resettle the Palestinians in their homeland, well as in negotiations with Israel that the EU should first create the means to make apart from a symbolic 20-30,000 refugees that possible. returning to Israel proper as part of family reunification, the solution lies The EU has championed the largely in resettlement and The historically cause of Palestinian refugees compensation in the new state since Israel’s inception, and of Palestine. Such a solution is contentious issue has been the largest donor based on the 1967 Resolution of the Palestinian to the United Nations Relief 242, of the UN Security Council, refugee crisis has and Works Agency (UNRWA) which calls for “achieving a already disrupted for Palestine refugees. just settlement to the refugee numerous efforts Considering, too, the natural problem.” This is opposed to alliance the Palestinians have the 1948 Resolution 194 of the toward a final with the EU as a possible UN General Assembly, where agreement, and is balance to the close U.S.-Israeli article 11 states that “the likely to present relationship, the EU is in an refugees wishing to return to the biggest hurdle ideal position to dramatically their homes and live at peace for negotiators change the status of the 4.5m with their neighbours should refugees registered by the UN. be permitted to do so at the in the future This is also an opportunity for earliest practicable date.” It Europe to solidify its role as an should be noted that in every final status international mediator, with a vested interest negotiation between the two parties, a solution in the success of the Middle East. to the Palestinian refugees was discussed only in the context of resettlement and To have a substantial impact on the way compensation. The understanding between this conflict has been framed, the EU will the two parties was based on the premise need to take a number of steps to change the of UN Resolution 242, which superseded the entire structure in which the refugees exist. non-binding Resolution 194. This would require capital of perhaps up to $10bn, far more than the `264m allotted for Considering the historical magnitude and UNRWA – , as well as a close relationship with the politicisation of the Palestinian refugee the Palestinian Authority and neighbouring issue, it is necessary at this point to change Syria, Lebanon and Jordan, where many of the

Spring 2010 Europe’s World | 161 refugee camps are located. Raising the funds before any final status negotiations. The EU to support the resettlement of refugees into should not only adopt this idea but promote the West Bank and Gaza would help to lay the it publicly as an official position. Guaranteeing foundation for the state of Palestine, but needs money for resettlement will lure many to be accompanied by a support system. Palestinians into thinking practically about this issue, rather than using it as a political This would be in line with the plans of the tool. Billions of dollars for resettlement will Palestinian Authority’s Prime Minister Salam have the effect of changing the debate and Fayyad to establish a de facto state in the forcing people to think about how to use West Bank and Gaza. Fayyad’s state-building the money constructively. The EU must also vision has engendered Western enthusiasm emphasise that this is not a controversial along with financial and political support idea, as past negotiations have been based on from the Obama Administration and the EU. the premise of UNSC 242 and the concept of Although Mr. Fayyad invokes Resolution 194 re-settlement into the West Bank and Gaza. on the Palestinian refugee question, he also emphasises that “the government will do all There are those who argue that while within its power and authority to bolster the the solution to the refugee problem is legal right and the living conditions of the financial, with the right of return exercised refugees in the occupied territory, particularly inside the new Palestinian state, it is a in refugee camps, including the provision of solution that will be difficult to attain all the resources it can afford to support and unless linked to a viable Palestinian state. alleviate the suffering of the refugees in all If that is not achieved as part of a package, aspects of their lives.” Palestinians and Arabs will feel they were "bought". This is why it is absolutely critical Every country that speaks of the need to that the resettlement of refugees should find a solution to the Palestinian refugees facilitate rather than obstruct the creation must contribute to this effort, including of a Palestinian state. the U.S., Russia, China, the oil-rich Arab states and Israel itself. Re-settlement of the Moving Palestinians out of refugee refugees means large-scale investment in camps and into viable communities in their jobs, contracts for housing and schools and future state will also have a huge impact measures to ensure that existing Palestinian on the whole Arab community. Not only communities can absorb the influx. The EU should the Arab world help the EU to fund needs to partner with the PA to create a this project, but they should give logistical ministry for resettling refugees. Improving and organisational support for a significant the economic situation in the West Bank transfer of people. Arab states that have and Gaza will be key if Palestinians are to be used the plight of the refugees to cover up motivated to leave the refugee camps. for their own shortcomings can finally do something beneficial for the people who This approach is fundamentally different have been living in squalid conditions for to previous attempts, because it is based decades. And Israel should welcome this on finding a solution to the refugee crisis development as it would help to mitigate

162 | Europe’s World Spring 2010 the call for a return to Israel proper and ease the PA to pull their families out of refugee some of the human rights claims against status and into proper housing. them. By taking the lead and raising money, the EU can assure the Israelis that all the Resolving the Palestinian refugee problem money raised and the needed permits for requires not only money from the EU, but construction will be for the sole purpose of above all political and organisational know- moving Palestinians into their homeland in how to overcome the many detractors whose the West Bank and Gaza. political fortunes depend on the continued plight of the refugees. What is now needed is The goal must be to change the current a bold and visionary solution that is totally situation of the refugees, not by giving them consistent with the right of return to the aid – which is a major role for the UN – but future Palestinian state. by establishing the funding and grounds where refugees can start returning to their homeland by the thousands and investing Alon Ben-Meir is a Senior Fellow at the World Policy in their new communities. For the 60% of Institute, and a Professor and Senior Fellow at New refugees already living in camps in the West York University’s Center for Global Affairs. Bank and Gaza, this will mean working with BMPO!BMPOCFONFJSDPN

E.W. ADVISORY BOARD MEMBERS

The Institute for European Environmental Policy (IEEP) is an independent centre for the analysis and development of policies affecting the environment in Europe and beyond. We undertake research, policy advice and consultancy work on several policy areas, covering issues such as climate change, biodiversity, agriculture, fisheries, governance, impact assessment, innovation, industrial pollution control, transport, EU enlargement, and more. Our main sponsors and clients are the European Commission, the European Parliament, international agencies, national government departments and agencies, and NGOs. We work with like minded institutes across Europe and internationally. IEEP also organises a regular environmental policy forum in Brussels. Our offices are in London and Brussels. For further information please see our website at http://www.ieep.eu. IEEP Brussels Office: Tel: +32 2 738 74 82 Fax: +32 2 732 40 04 IEEP London Office: Tel: +44 207 799 22 44 Fax: +44 207 799 26 00

Spring 2010 Europe’s World | 163 SectionVIEWS FROM THE CAPITALS 5 VIEWS FROM THE CAPITALS

ATHENS But the new Papandreou where neo-liberal forces still Greece is not government at first insisted have the upper hand, these that its plan to restore growth very forces that brought the just Europe’s through assistance to lower- crisis to a head… We know that black sheep – it’s income groups should be stuck this establishment likes to shift to, with the cutting back of the burden of the crisis to the truculent too public expenditure and higher middle-and lower-level strata of taxes coming a distant second. society”. By Nikos Frangakis, Greek public opinion has been President of the Greek Centre The rough ride that Greece has of European Studies & Research had in the financial markets (EKEME) 5IF
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164 | Europe’s World Spring 2010 VIEWS FROM THE CAPITALS decided to hitch its economy MOSCOW This year, though, EU-Russian to the eurozone it did so to relations are set to warm up try and rein in its deficit-prone Russia-EU again. Moscow has waited finances. With the help of the relations getting patiently for the future of the EU’s structural funds, the Greek Lisbon treaty to be resolved, economy defected double- warmer, but still focusing instead on bi-lateral digit inflation and was able to not cordial relations with the key EU meet the Maastricht criteria members states and citing the just in time for the euro’s chaos of EU structures as the By Dmitry Polikanov, introduction in 2001. Even from the Russian Center for reason for not engaging directly then there seemed to be some Policy Studies (PIR Center) with Brussels. But now that creative accounting so that the Catherine Ashton is in place as Maastricht criteria could be met. the EU’s new Foreign Minister, And in the years up to 2004, the The question of the EU’s visa this should change. Greek economy failed – some requirements for Russians still say didn’t even try – to adapt to provokes fierce controversy in the disciplines of the Stability Moscow’s political circles. The *O

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Spring 2010 Europe’s World | 165 This time a round there is In the absence of a TALLINN little hope ‘though’ of a swift comprehensive agreement, conclusion as neither party Moscow and Brussels both Bloodied but has a clear long-term strategy know they could build unbowed, Estonia with respect to the other. The confidence in one another Kremlin positions itself as a by ironing out a number is again to knock European power, but seizes every of practical issues. In the on the eurozone’s chance to stress its sovereignty, coming months, the Kremlin independence and samobytnost will promote a new treaty door (indigenous values). Relations on European Security (TES). with Europe in any case take This is one of President By Aksel Kirch, of the Tallinn University for Technology Dmitry Medvedev’s pet policy 5IF
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166 | Europe’s World Spring 2010 VIEWS FROM THE CAPITALS Estonia's external balance to for EU membership is still BRUSSELS be improving, with companies significantly high. The last having rapidly cut labour costs, Eurobarometer survey (in The Belgian while a moderate decline in November 2009) shows that paradox: High EU prices contributed to improved about 62% of Estonians believe competitiveness. Risks to the EU membership is “a good profile, low EU liquidity of the Estonian financial thing”, whereas in neighbouring interest sector have also diminished, so Latvia only about 23% of people many Estonians now argue that support EU membership. And By Hendrik Vos, their country’s steady course Estonia’s political leadership Head of the Centre for towards joining the euro area is seems in no doubt that it should EU Studies, Gent University now further diminishing its future make use of this situation. Belgian Prime Minister Herman financing risks. When people are generally Van Rompuy ‘s appointment positive concerning the EU’s as the first president of the 3JTLT
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Spring 2010 Europe’s World | 167 During negotiations on a economic crisis, especially so often in the course of a new federal government, the future of Antwerp’s single year. The Commission’s the differences between the large Opel plant, deflected latest overview shows Belgium Flemish and the francophone attention from such to be currently facing 88 Walloons were such that it took contentious issues as the infringement procedures at nine months before a coalition federal budget and diverging the court on the grounds of of Dutch-speaking and French- positions over Belgian asylum non- or poor transposition of speaking Christian Democrats and migration policies. European directives, with only and Liberals, supplemented Van Rompuy’s surprise Spain and Italy the objects with francophone Socialists of a greater number of cases. could be formed. Headed In the last three years, the by Leterme, the government 5IBU
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168 | Europe’s World Spring 2010 VIEWS FROM THE CAPITALS MADRID Spanish foreign policy lacks individual items and allow it to vision and consistency and play a much more important part Spain’s EU that contradictory statements in shaping the EU’s future. presidency looks by the Prime Minister make Another step that Spain could his foreign policy appear to be take to engage more closely like a tricky more the sum of its parts than with the political heart of the EU balancing act a coherent concept of Europe would be to combine traditional or Spain’s place in the world. Spanish interests like Latin By Deniz Devrim, These accusations quickly drew America and the Mediterranean of the Barcelona Centre for a rebuttal from Foreign Minister with new areas. Raising such International Studies (CIDOB) Miguel Ángel Moratinos, who issues as enlargement and has pointed to what he calls relations with EU’s eastern Spain has taken up the rotating the committed multilateral and neighbours on the agenda, EU presidency at a crucial constructive approach of the and defending a stronger EU moment in the European Spanish government. foreign policy, would give Spain a project, and the presidency also louder voice. And to reverse the presents a unique opportunity Spain is widely seen as one of prevailing negative discourse in for Spain to redefine its role the EU’s success stories, yet it Spain, Madrid could seek allies in within today’s enlarged EU of 27 has consistently failed to wield other member states that come member states. much strategic influence. It is in favour of further enlargement. counted among the larger EU This follows last year’s lively member states and has broad Spain’s six-month EU debate among Spanish opinion global interests, notably in presidency also gives it an leaders on Spain’s status within South America, but it has been opportunity to lay the the enlarged EU. Some hold increasingly difficult to define foundations for a new approach Prime Minister José Luis Zapatero Spain’s position. to the rotating presidencies. For responsible for what they say the first time in EU history, its is Spain’s vanishing influence presidency runs in parallel with within the Union, and claim )PX
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Spring 2010 Europe’s World | 169 ANKARA Bagˇis, aimed at normalising as several EU ambassadors. Ankara’s relations with the Bagˇis‘ offer had marked a Turks are now Greek Cypriots was going to be significant retreat from the puzzling over the ignored. previous Turkish position of January 2006, which linked EU’s back-handed The intensified negotiations Turkey’s meeting of its Customs compliment on the Cyprus problem in Union responsibilities to issues the coming months have like direct flights into Ercan By Mensur Akgün once again raised hopes of a airport on the Turkish side of of the Istanbul Kultur University settlement. But the outcome of the island. last December’s General Affairs When EU foreign ministers last Council already looks like yet December praised Turkey’s another missed opportunity. #BHˆJT
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170 | Europe’s World Spring 2010 This charming house will give an extra special touch to your event.

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Part of

www.edificio.be LETTERS

Letters to the Editor Europe’s World’s aim of stimulating debate on key issues draws many thoughtful reactions from leading policymakers. We feature here a selection of letters commenting on articles in our Autumn 2009 issue

Energy security: The steps Europe now needs to take by William Martin and Jonathan Gillman

From HERBERT REUL, pipelines and install reverse The completion of the internal Chairman of the European flows. energy market, for example, Parliament's Committee will greatly enhance security of on Energy. The 2008-09 crisis certainly supply by guaranteeing third- did demonstrate where party access to storage sites Sir, additional action is needed. and pipelines. This is a much William Martin and Jonathan Diversification of transport more practical way forward Gillman were right to point to routes – and, possibly, than for the EU to stockpile last winter’s gas supply crisis suppliers – is clearly required gas. Financially viable projects as a reminder that energy in some regions of Europe, will come from the private security must be tackled mainly the countries of former sector. Public contributions effectively and urgently. such as those granted under Unlike them, however, I "OPUIFS
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172 | Europe’s World Spring 2010 LETTERS government will prolong the more solar panels than all way in recent years and further lifetime of at least some nuclear southern European countries. legislation is in the pipeline. power stations but so far rules This is not an effective These measures have largely out constructing new plants. allocation of funds at the pan- been advanced in the name of European level. limiting climate change and I fully agree with Martin and completing the internal market. Gillman over the necessity to Another key element of a sound It is evident, however, that be careful with subsidies for energy strategy will be to limit Europe’s energy security will renewable sources of energy. growth in demand. Energy benefit too. Perhaps it’s time They should not distort efficiency in the building we shifted the focus of debate markets for decades. sector, for example, offers away from the environment Germany is a good case huge potential savings. and the internal market, and in point: we have installed emphasise the energy security ten times more wind power Martin and Gillman criticise aspects of our policy rather generators than the UK, even the shortcoming of the EU’s more. though Britain has a much approach to energy. Yet our longer coastline, and many energy policy has come a long IFSCFSUSFVM!FVSPQBSMFVSPQBFV

From SEAN BARRETT, climate change and evolving to and external infrastructure, Chairman, Oireachtas greater levels of sustainability. some of which will depend on Joint Committee on This is all taking place in Russia. However, we need to Climate Change and accordance with Directives promote flexibility within our Energy Security. on emissions trading and internal market and above all we renewable energy sources. need to dramatically improve Sir, A foreign policy that emphasises the efficiency with which we Martin and Gillman argue that the early exercise of overt use energy and the rate of the EU’s competence in the power cannot take priority over deployment of renewable energy area can be used to the EU internal market project. energy. Ireland is at the end of protect its most vulnerable Institution building towards a long pipeline and has a vital members. But the bold action market development is the interest in any action designed they advocate risks eroding most effective way of exporting to secure the future reliability trust with Russia. Europe needs the conditions for social and and affordability of gas in a more measured approach representative democracy. The Europe. which prioritises the expansion prize of peaceful co-existence and diversification of supply goes way beyond, but ultimately I want to see the day when routes to and from Russia. ensures, energy security. relations with Russia are based on mutual respect, are The liberalised markets created As Chairman of the Irish grounded in self-interest and in Europe in gas and electricity Legislature’s Joint Committee above all are sustained by our do not yet include the whole of on Climate Change and Energy interdependence and common Europe’s territory. Developing Security I advocate an approach future. markets in Europe are adjusting which places first things first. to the political realities of Yes, we need more internal 4FBO#BSSFUU!0JSFBDIUBTJF

Spring 2010 Europe’s World | 173 Africa doesn’t need rescuing, just a square deal by Mo Ibrahim

From DAVID FROST, as Mauritania, Zimbabwe, continent. Their starting point Director of the Kenya, Niger or Guinea clouds was that Africans must drive Directorate for Strategy, what is a generally positive their own development with Policy Planning, and picture. Mo Ibrahim's Index of rich nations supporting their Analysis, Foreign and African Governance provides efforts. Commonwealth Office. an invaluable reminder to us all of the overall picture and The Commission's Report, Sir, trajectory of African politics endorsed by the African Union The UK government would while at the same time holding and the 2005 G8 Summit at agree with much of what Mo African leaders up to scrutiny. Gleneagles, identified many of Ibrahim has written. It is true the issues which Mo Ibrahim that conflict dominates the Acknowledging the positive refers to. These include trade majority of media stories on developments is not, however, access and infrastructure Africa. Unfortunately this to downplay the daunting development, improvements presents a one-dimensional health and education, picture of Africa which fails essential if the Millennium to do justice to an immensely /FXT
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174 | Europe’s World Spring 2010 LETTERS

From RENIER NIJSKENS, also requires much larger substantially limit the Director, Africa financial incentives, with flow of essential “A” Class Department of fewer ties to EU conditions investment into Africa. the Belgian Federal Public and more links to the sort A clearer separation of Service of Foreign Affairs. of progress that is measured the political sphere and by home-grown (and truly the private economic Sir, effective) tools such as environment – and an end Quick fixes are all too the African Peer Review to ‘pleasing’ and ‘greasing’ familiar in the field of Mechanism and the Ibrahim – could work wonders. international development. Index of African Governance. But if Mo Ibrahim’s ‘square Public opinion within deal’ for Africa is to last, all On the African side, Africa could also become partners must be guided by a Ibrahim’s ‘square deal’ an extraordinary tool common, genuine and long- would benefit from a to help strengthen the term ‘win-win’ objective. number of improvements continent and improve its Achieving this will demand which go beyond the greatly stature. The African people change both in Europe and improved technical and deserve a greater say in the in Africa. management of their public affairs and, thanks to the &6
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Spring 2010 Europe’s World | 175 Nice location, shame about the neighbours by Nick Witney

From JOSEP A. DURAN I eternal allies or enemies, but without being able to rely on LLEIDA, Chairman of the perpetual interests.” a U.S. lead resolution. Congress of Deputies' Foreign Affairs Committee, According to Witney, the In my view, Witney’s Spain. Middle East poses Europe’s diagnosis is correct. But second greatest challenge. it should not be a reason Sir, Europe’s relationship with for despair. From this year Nick Witney is right to warn the Middle East runs deep. on, Europe can avoid being that if Europe is not careful It extends far back in history sidelined, particularly when it may find itself caught up with wounds that have yet in an awkward crisis in the to heal. Middle East. This scenario &VSPQF
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176 | Europe’s World Spring 2010 LETTERS In spite of Europe’s Obamania, the transatlantic relationship remains tricky by Werner Weidenfeld

From DANIEL HAMILTON, themselves with U.S. interest and outlook, both Richard von Weizsäcker priorities on a number of across the Atlantic and Professor and Director issues. Moreover, a number within Europe, could mark of the Center for of headaches in U.S.-EU the limits of charisma. And Transatlantic Relations at relations, including spats as the geopolitical framework the Paul H. Nitze School over trade protection and for transatlantic partnership of Advanced International issues such as 100% cargo shifts, the relationship is Studies, Johns Hopkins screening provisions and challenged to adjust University. potential taxes on European accordingly. Nonetheless, tourists, stem from the U.S. the transatlantic partners Sir, Congress, not the Obama Werner Weidenfeld correctly administration. points to the high hopes 'PS
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BDDPSEJOHMZ personal popularity, the opportunities and challenges issues themselves – from of the new world of rising Afghanistan, Pakistan and powers. Whether Europeans have the will for such to tackling the world’s Iran to global economic partnership, and whether most pressing challenges. governance and climate Americans have the patience, Nonetheless, their approach change – offer tough tradeoffs is an open question. will be less Eurocentric than and few easy choices. many Europeans expect. For one Obama’s popularity has In short, while tone and style not persuaded key European have changed for the better, governments to fully align differences in national EIBNJMUPO!KIVFEV

Spring 2010 Europe’s World | 177 Europe’s reform of financial supervision is headed in the right direction by Hans Hoogervorst

From THOMAS HUERTAS, guarantee schemes and to would establish a single rule Banking Sector Director at improve early intervention book for the entire EU. This the UK's Financial Services and resolution procedures would reinforce the oversight Authority (FSA) and Vice- for banks. of cross-border groups, whilst Chair of the Committee day-to-day supervision would of European Banking These measures should be remain within the purview of Supervisors (CEBS). welcomed. As should the national authorities. Commission’s proposal Sir, to introduce a European The initial Commission As Hans Hoogervorst Systemic Risk Board along proposal would do two observes, a public safety net with European Supervisory things. It would grant the of central bank lending and Agencies (ESAs) for banking, Commission the right to government intervention in securities and insurance. But unilaterally amend the the European financial sector we must be realistic about technical standards that the is necessary. But the moral what the former can achieve, ESAs had approved and it hazard it creates must be would grant the Commission counter-balanced by strong the unilateral right to declare regulation and adequate #BOLT
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178 | Europe’s World Spring 2010 LETTERS Why global rules to prevent another crisis are so elusive by Lorenzo Bini Smaghi

From OTHMAR KARAS, inadequate regulation and political will into legal reality member of the European international co-operation, as and implement agreed Parliament's Committee well as strengthening the role of standards such as Basel II in a on Economic and the Bretton Woods institutions. coherent and effective manner. Monetary Affairs. Governments therefore have to In terms of tighter regulation, take their responsibilities more Sir, the EU has been at the forefront seriously and implement the While I support Lorenzo Bini of the global response. It changes already agreed within Smaghi’s central argument that is launching a number of the G20. In the long-term, the the International Monetary regulations covering credit rating problem of the ‘soft power’ of Fund and the World Bank both agencies, capital requirements international financial regulation need to be strengthened as and new structures for financial can only be addressed part of the global response to supervision. This is in line with through the creation of a the worldwide financial crisis, its ambitious goal of dealing new global supervision entity I do not believe the IMF could with systemic risk, as well as along the lines of the World have prevented the current Trade Organisation. This is an crisis even if it had been ambitious goal, one that will stronger. The Fund is especially 5IF
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Spring 2010 Europe’s World | 179 Let's use this crisis to re-think global governance by Anna Diamantopoulou

From ANGELA KNIGHT, to take over the existing pan- a million people. It is the largest Chief Executive of European regulatory committees. contributor of corporation tax the British Bankers' As far as the banking industry is plus other employment taxes – Association. concerned, a European Banking all essential for building schools, Agency will shortly replace the for hospitals and other vital Sir, current Committee of European public services. Anna Diamantopoulou presents a Banking Supervisors and will vision for using today’s economic have more authority. All this Furthermore, the banking crisis to reform the ‘governance’ will help the co-ordinated future industry is also committed structure and to sow the seeds for we need, but in other areas, to financial inclusion and a more equitable period of global Europe must not act alone. has dramatically reduced the growth. The vision is laudable For changes in the UK to work, number of households with no though I cannot agree with all of Europe must recognise that the access to a bank account. In her proposals for achieving it. only true, sustainable regulatory furthering our desire to reach changes in an international into the poorer ends of society, Indeed, unsustainable economic industry are those which are the banks are Britain’s biggest imbalances – between developing decided internationally and are corporate charitable donors. and developed economies and co-ordinated internationally. between the world’s savers and One solution for future stability And with regard to the environ- spenders – played a major role in is the so called “Tobin tax” but ment, our banks are key players bringing about the crisis. this is unlikely to work. This idea in lending and financing green is impractical and utopian, which projects in the UK and abroad Britain’s financial services is why, three decades after it as well as looking to their own industry has long highlighted the was first proposed; it has never use of natural resources. Some need for fundamental reform of actually been implemented. It is are now either carbon neutral or global regulation under the remit necessary to solve the problems committed to achieving this. of the global standard setters. and set out the future together We also argued that emerging with our international partners. Business and social justice go hand economies should play a greater But it is just as necessary to in hand. Profitable businesses role in shaping the future. Many ensure that the steps decided mean greater employment and positive changes are now in train, upon are coherent, well thought larger contributions to the public with the emergence of the G20 as out, practical and well grounded. purse. If we are to enjoy a long- the major global body promoting term stable outlook again we must and implementing these changes The task is to balance growth with consider these issues and future being strongly welcomed. social justice and environmental changes. As well governments concern. The financial services must focus on how to address the The EU has a part to play and already play an important role in global economic imbalances which is reforming its regulatory supporting these objectives. In were the foundation of the crisis in structures through establishing a the UK, for example, the industry the financial system. Europe-wide forum for financial provides employment either stability and a series of agencies directly or indirectly for around BOHFMBLOJHIU!CCBPSHVL

180 | Europe’s World Spring 2010 LETTERS

From WILLIAM R WHITE, which have occurred in financial regulators to try to former Head of the response to the crisis. lead by example. Evidently, Monetary and Economic Perhaps the most important convergence based on Department of the has been the increased moral “follow me” is not likely to Bank for International authority given to the G20. work over time. We must Settlements. This recognises that many hope that, with time, the emerging market economies promises offered by the Sir, are now of significant existence of the G20 forum There are good reasons importance in the global and the FSB will actually to accept Anna economy and deserve more materialise. Diamantopoulou’s thesis influence over how it is that, in an increasingly managed. This is all the more complex and interdependent so since many emerging *OUFSOBM
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Spring 2010 Europe’s World | 181 If the EU reneges on Balkan enlargement, it’s at its own peril by Otto Schily

From EDUARD KUKAN, various ethnic and national to accept all western Balkan former Minister of Foreign conflicts. It represents one countries which meet the Affairs of Slovakia and of the major issues which membership criteria in full. Chairman of the European all countries in the region But will hostile public opinion Parliament's Delegation can agree upon; it mobilises be changed by yet another for relations with Albania, internal reforms and, more EU statement of intent? I Bosnia and Herzegovina, importantly, ultimately it gets doubt it. In my opinion, the Serbia, Montenegro and the people’s support. problem lies elsewhere. For EU Kosovo. leaders, I think it is a matter of Whether we like it or not, promoting the whole process Sir, however, there are no short- more actively in front of their Otto Schily says the European cuts on the path to EU sceptical electorates. For the Union is “stumbling” on the membership. It is right that the western Balkans, it is a matter road to enlargement in the western Balkans, like any other of delivering sound results. western Balkans. I think the region, should fulfil all the term “wobbling” is more EU’s conditions, starting with 5IFSF
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182 | Europe’s World Spring 2010 LETTERS Getting the regions’ Brussels role right is the key to EU credibility by Anna Terrón and Javier Sánchez

From HARM EVERT available to local governments. directives. These additions WAALKENS, Chair of the The quality of the opinions often make implementation House of Representatives' expressed and resolutions more complex for local European Affairs passed by the Committee of authorities. If regions were Committee, the the Regions has improved, with more involved in national Netherlands. the local dimension taken into decisionmaking, they could account more and more in simplify things. Sir, its impact assessments of EU As a parliamentarian with legislation. There is also room for strong political roots in the improvement within cross- Dutch province of Groningen, These measures are welcome, border cooperative ventures I heartily support the case but not sufficient. A shift in which involve regions from made by Anna Terrón and thinking is also necessary more than one member state. Javier Sánchez to give local to recognise that regional These so-called ‘Euregios’ governments a greater say in governments play a key role in often run into practical EU policymaking. I know from shaping public opinion about problems due to different my own observations that the European Union. When the national laws, which they European legislation is most regions are taken seriously in seldom manage to resolve often implemented by regional the decisionmaking process, through harmonising the and municipal authorities; their local people and politicians relevant legislation. experience is indispensable are less inclined to blame the when identifying bottlenecks EU for imposing unwelcome A higher profile for local and in the system. I believe a great rules, thereby feeding so-called regional authorities in the EU deal more can be done to euro-pessimism, which, as does not mean they should improve regional participation Terrón and Sánchez note, have a formal role in making in EU law-making, both at the is increasingly pervasive the final decision. This must be European and the national in most parts of Europe, left to the Council and the level. the Netherlands included. European Parliament in order European institutions must, to maintain proper Some positive developments therefore, embrace regional accountability and are already underway, governments as genuine transparency. However, the including a stronger role for partners. Council and Parliament – the Committee of the Regions reinforced by national under the treaty of Lisbon. This National parliaments can legislatures – do have a Committee must be consulted do a lot more too. In the responsibility to make sure in all matters affecting regional Netherlands, for example, that the regions and or local interests. It must the House of Representatives municipalities are involved to make sure, for instance, that keeps a close eye on ‘gold an optimal degree. We are on the administrative burden of plating’ – the tendency of the right track. implementing new legislation governments to slip in extra is in line with the resources measures when adopting EU )8BBMLFOT!UXFFEFLBNFSOM

Spring 2010 Europe’s World | 183 Aid for education is our best weapon against militant Islam by Paul Salem

From MICHAL RUTKOWSKI, Arab countries (with or without modernising religious schools The World Bank's Director significant oil revenues) have to encourage critical thinking, for Human Development made significant progress in certainly would help to mak- of the South Asia Region. human development in terms e education more relevant to of the level of participation in the evolving needs of the labor Sir, education, gender parity and market. Recent evidence from I support Paul Salem’s view related social benefits such South Asia suggested that when that investing in education is as life expectancy and infant religious madrasas changed extremely important to reduce mortality. their curriculum to include poverty and foster economic modern subjects, like those development, but I challenge Salem’s assertions that taught at non-religious schools, his argument that governments educational poverty “creates students achieved similar test should use educational aid an environment where radical results to their counterparts in as a weapon to fight militant and violent movements secular education. Islam. Some of Salem’s data, can find traction" and and his reasoning, must be that education is the best re-examined. protection against militant 5IF
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184 | Europe’s World Spring 2010 How quickly can we ”decarbonise” the global economy? Are Europe’s military capabilities cut out for today’s unconventional wars?

Read what Europe’s leading minds have to say on the matter and join the debate on Europe’s World’s new website europesworld.org Europe’sWorld THE ONLY EUROPE-WIDE POLICY JOURNAL

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