Decline of The West
by George Szamuely

November 3, 2000

Washington's Nightmare: The Rise of Europe

Globalization is not going to happen. Borders are not about to come down; states are not about to disappear; US corporations are not about to take over the world. The moment of global US supremacy has come and gone. The world is dividing into geopolitical power blocs. The United States today confronts a superpower rival stretching across much of the Eurasian landmass – the European Union allied with Russia. The European Union, once merely a trading bloc, then a single internal market has evolved into a political federation, aspiring to its own foreign and defense policy. Now it is threatening to make Russia’s vast energy and mineral resources its own. This is the stuff of Washington nightmares.

Since the Second World War, successive US Administrations have championed the cause of European unity. They never took the idea terribly seriously, of course. The Europeans had been fighting one another for centuries. They were hardly likely to become peace-loving nations now. By European unity Americans meant little more than the creation of institutions to facilitate compliance with Washington’s commands. Rather than having a dozen capitals to call, the President of the United States could convey his wishes with a single phone call to Brussels. The European Economic Community – as it was once known – was seen as a mechanism to ensure that the Europeans paid their share of NATO’s costs and did not wander off the reservation pursuing their own separate foreign policies.

Throughout the Cold War, any assertion of European independence was met by US threats to withdraw from NATO. It was all a bluff, of course, and the Europeans knew it. The Americans were not stationing hundreds of thousands of troops on the European continent out of the kindness of their hearts. Washington had always regarded NATO as a mechanism to ensure US supremacy over potential economic and political rivals. Nonetheless, the Europeans went to some trouble to avoid antagonizing the United States by overt displays of independence. The Soviet Union was still around, and no one in Europe wanted to shell out large sums of money on defense. This suited Uncle Sam just fine, and thus was relationship of mutual dependence born. Europeans lived comfortably and America got to be "leader of the free world."

The end of the Cold War inevitably brought all this to an end. There was now nothing to stop the Europeans from asserting their independence. While the US subsidy was still nice, there was no real need for it any longer. Europeans could make do with a much smaller defense budget, one that even they could afford. The economic rivalries that had been suppressed for the sake of Allied unity during the Cold War broke out into the open. As individual nation states the Europeans could not possibly challenge the Americans. They were too small and vulnerable for that. But as member states of the European Union they comprised a Great Power. I wrote last week about the multiplying trade disputes between the two continents. The World Trade Organization has served to increase the ferocity of these fights, since everyone ignores its rulings. Indeed, it can only be a matter of time now before either the United States or the European Union pulls out of the WTO altogether. The US claims that the EU gives preferential treatment to bananas imported from its former Caribbean colonies. The WTO ruled against the EU. The Europeans ignored the ruling; the US unilaterally imposed sanctions. The United States claims the EU unfairly restricts imports of hormone-treated beef. The WTO ruled against the EU; the EU ignored the ruling; the US imposed sanctions. The EU claims the US subsidizes the exports of its multinationals, through the creation of so-called "foreign sales corporations" – paper companies that US exporters have been allowed to set up abroad for the purpose of claiming breaks their US tax bills. The WTO ruled in favor of the EU; the US ignored the ruling; the EU imposed sanctions. Now the US is claiming that the EU subsidizes Airbus Industrie, Boeing’s chief European rival. Recently, the United States proposed to the World Trade Organization that governments change the way they subsidize farmers. Under the plan, the current domestic subsidies system would be revised to eliminate those agricultural subsidies not directly linked to price and volume of output. There also would be a ceiling on the level of domestic subsidies based on a percentage of the country’s total agricultural production. The Europeans strongly object to this proposal. The EU pays farmers not to farm. On the other hand, the Europeans claim that the US also subsidizes its farmers through the annual disbursement of "emergency aid."

Alongside these economic rivalries are the political disputes. The United States is supporting Kosovo’s right to secede from Serbia. The Europeans oppose it. There is little enthusiasm for a Greater Albania – a state that would do for global criminal enterprise what Khomeini’s revolution did for the revival of Islam. Yet the Americans continue to push for it. The Europeans suspect that the US objective is to create problems for them down the road. According to The Guardian "independence [is] fast becoming a reality on the ground because almost half the Kosovan Serbs had left the province and the Kosovo Albanians were setting up their own judicial and political system." The paper quotes a senior US official explaining: "Kosovo will not be pushed back into Serbia." The same official goes on to argue that while UN Security Council Resolution 1244 "explicitly recognizes the territorial integrity of Yugoslavia… it does not mean Kosovo cannot be independent." The level of dishonesty on the part of the United States is breathtaking. The secession of Kosovo is being justified on Realpolitik grounds: the Albanians want no part of Serbia, so it is pointless to insist that they stay. Yet this tough-minded realism does not apply to the Bosnian Serbs who want no part of the bogus state of Bosnia, preferring to belong to Yugoslavia. Nor does it apply to the Kosovo Serbs in the northern part of the province. They also would prefer to belong to Yugoslavia.

Most outrageous of all, the Security Council Resolution states unambiguously that Kosovo is part of Yugoslavia. But to US officials a decision that every country in the world has given its assent to is merely a scrap of paper, to be ignored whenever convenient by a piece of lawyerly legerdemain. This is the kind of dishonesty that drives Europeans – and just about everyone else – up the wall. It is of a piece with Vice President Al Gore’s claim that building a national missile defense system would not violate the 1972 ABM Treaty. The idea is absurd. On both Kosovo and on the ABM Treaty, the Europeans are in agreement with the Russians and in strong opposition to the United States.

Actually, the Europeans and the Russians agree on many other issues as well. They are both opposed to any further expansion of NATO. They are both much more sympathetic to the Palestinian cause than the United States. The Russians and the Europeans (with the exception of Britain) have for years urged that the sanctions on Iraq be eased. The Russians recently ended the embargo on air flights to Baghdad. The Europeans are likely to follow suit before long. The Russians announced recently that they did not consider the UN air embargo to be justified under the UN resolutions. Soon after, a Russian plane, carrying humanitarian supplies and a delegation of oil officials and politicians, landed in Baghdad. The Russians are almost certainly correct in their interpretation of the Security Council Resolutions. They did not bar commercial airline flights. The ban was merely something the United States insisted on. As a result, Iraq has been without regular airline service for a decade. The Russian airline Aeroflot is also planning to reopen offices in Baghdad in anticipation of resuming flights. The French also made a flight to Iraq recently. Aboard were about 60 French doctors, artists and sports personalities. The United States demands that these flights to Iraq cease. But its influence over the Europeans diminishes daily. During the Cold War, there was the standard threat to pull out of NATO and let the Europeans face the Russians on their own – "agonizing reappraisal" in John Foster Dulles’s famous words. But what can Washington threaten now? To pull out of the Balkans? That would be a dream come true for most Europeans.

Incidentally, Iraq handsomely repaid European generosity the other day. Saddam Hussein threatened to withdraw his oil exports from the world markets unless Iraq’s customers paid him in euros instead of dollars. He called the dollar "enemy currency." The dollar is, of course, the traditional currency of the oil trade. Iraq then asked the United Nations to create a euro-denominated account to handle the deposits. He is sticking with the euro even though interest rates on euro-denominated accounts are lower than those on dollar accounts. The UN oil-for-food deal lets Iraq sell oil over a six-month period on a renewal basis to buy food, medicine and other humanitarian goods. Iraq did back down slightly a few days later by promising to continue to accept payment in dollars for the time being. But this is likely to be a temporary respite. For the Europeans Saddam Hussein’s gesture was a timely boost for the euro.

The Europeans and the Russians recently signed a number of important agreements. They comprise what is coming to be called a "strategic partnership." Russia will supply Europe with oil, gas and electricity. In return Europe will invest in Russia’s fuel production and transport industries. The European Union would oversee the construction of pipelines to transport oil and gas to the West. The project is dues for completion in 2020. Currently Europe imports 75 percent of its oil from OPEC. The Europeans are anxious to reduce this. They want no repetition of the recent massive protests against soaring oil prices. Russia has abundant energy resources. Geologists estimate that the oil reserves of Komi, a Russian republic in the Arctic less than 700 miles from Moscow, could supply the entire planet for 12 years. The Komi reserves are thought to be about 126 billion barrels. At today’s prices of roughly $32 a barrel, the oil is worth around $4.032 trillion. This week, Russian gas giant Gazprom announced it was forming a new consortium with leading gas companies from Germany, France and Italy to build a $2 billion pipeline for gas exports that will bring an extra 60 billion cubic meters of natural gas supplies to the European Union every year.

The other day, former Treasury Secretary Robert Rubin delivering the same speech he and his colleagues have been delivering for the better part of the last decade: "The key for the euro is for Europe to undertake the structural, regulatory, open-market reforms that will make Europe more attractive for investment and attract capital inflows rather than experiencing capital outflows." "Eurosclerosis," the "European basket case" – we have been hearing these complacent assertions backed with very little serious evidence for years. Leave aside the issue of how a power that runs a record trade deficit presumes to lecture a power that runs a trade surplus. The important question is this: What will happen – as it inevitably must – when the US stock market takes a tumble? With no capital flowing into Wall Street, the trade deficit will be unsustainable. Therefore, either the dollar collapses. This will lead to inflation. Or the Fed raises interest rates in a big way. This will lead to a recession, more likely a depression. The European economy, not as dependent as that of the US on the stock market, will be in not bad shape to deal with such a crisis. We will see then just how far the Europeans and the American will be prepared to take their rivalry.

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