02.02.2017

Economic cold war looms

Theresa May wants to cuddle up to Trump, writes Eddie Ford, but EU leaders are horrified

As previously commented upon in this publication, the ascendency of Donald J Trump could see the overturning of the established world order and its various institutions. The certainties most of us have taken for granted are vanishing in the face of a maverick US president who wants to put “America first”, which seems to mean radically reshaping or even ripping up long-established institutions and a global strategy that has been in place for 70 years.

This is most clearly seen over the question of Europe, the European Union and Brexit - and maybe Frexit too: polls are indicating that Marine Le Pen will make it to the presidential run-off in a few months’ time; and, of course, she has promised to hold a referendum on EU membership if she wins (which is far from impossible). Previous to Trump, US policy was essentially to integrate - as best it could - capitalist states under complex institutional umbrellas, the near perfect example being the European Communities/EU. The US insisted, almost with menaces, that Britain joined the EC/EU - using it as a proxy agent to block Franco-German aspirations for greater European unification. In this way, the US administration could thwart a potential political and military rival. Also, obviously, the EC/EU acted as a counterweight to the Soviet Union - the US’s main rival in this period.

But all this fundamentally changed with the collapse of the Soviet Union in 1991 and then, perhaps more importantly still, the 2008 financial crash and the euro crisis, when Germany basically abdicated leadership and showed that it was unable to bring about further European integration - it prioritised protecting the interests of creditors (and German banks). As a consequence, Germany and European institutions are now deeply distrusted, if not loathed, in southern European and the other debtor countries. For example, Greece was told on January 30 by the International Monetary Fund that it must agree an austerity deal with its creditors within the next three weeks or risk being plunged back into another “explosive” debt crisis that could see the country crashing out of the EU.¹ We could still get Grexit before Brexit.

Anyhow, Trump is now questioning the relevance or importance of the EU (ditto Nato): what is it for and do we need it? This has immediate implications for Brexit. As argued in the Weekly Worker, under the old geopolitical order, ‘president Clinton’ or whoever would have summarily told the new British prime minister to forget this Brexit nonsense and stay within the EU in order to keep playing Britain’s vital strategic role of frustrating moves to a United States of Europe. Remember the ‘special relationship’.

Yet with Trump the very opposite is happening. He has openly welcomed Brexit as a “great thing” (because the EU is “basically a vehicle for Germany”²), cheerfully predicted that other countries would follow Britain’s example in quitting the club and had a love-in with May at last week’s press conference - ‘chivalrously’ holding hands with the prime minister whilst walking along the White House colonnade.³ You do not have to be Nigel Farage to think that Brexit and the rise of Donald Trump could mark the beginning of the end for the EU project.

Threat

Alarmed EU leaders have hit out at Trump - they certainly do not want to hold his hand. On January 31, Donald Tusk - president of the European Council and former Polish prime minister - warned about the “dangerous” challenges facing the bloc, such as the “worrying” statements emanating from Washington, which seem to “put into question the last 70 years of American foreign policy”.⁴ He also cited other “threats” to the EU, like an increasingly “assertive” China, Russia’s “aggressive policy towards Ukraine and its neighbours”, radical Islam, a rise in “anti-EU nationalism” and the “state of mind of the pro-European elites”.

Elsewhere in his strongly worded letter to EU leaders ahead of a summit in Malta on February 3, Tusk urged the EU to take “spectacular steps” to stay together and take “advantage” of Trump’s isolationism to boost trade with other countries - which would involve “intensifying our talks with interested partners, while defending our interests at the same time”. The EU, he argued, should not abandon its role as a “trade superpower, which is open to others”, whilst “protecting its own citizens and businesses, and remembering that free trade means fair trade”. He went on to say that Europe should also “firmly defend the international order based on the rule of law”, as “we cannot surrender to those who want to weaken or invalidate the Transatlantic bond”, without which “global order and peace cannot survive”. Rather, concluded Tusk rather optimistically, EU leaders must “change the collective emotions and revive the aspiration to raise European integration to the next level” - including increased cooperation on defence and security.

Even more bluntly, if anything, Guy Verhofstadt, ex-prime minister of Belgium and now the EU parliament’s Brexit negotiator - an unenviable job - dramatically declared at the Chatham House think-tank on January 30 that Trump represents a “third threat” to the EU, along with Vladimir Putin and Islamic extremism.⁵ According to Verhofstadt, Putin is trying to “undermine the EU from inside” with cyber-attacks and “financing far-right” political forces like Geert Wilders in the Netherlands and Le Pen in France. And now Donald Trump has “joined” these parties from across the Atlantic - he has talked “favourably” of other countries wanting to break away from the EU and is “hoping” for European disintegration. He also singled out the “enormous influence” of Steve Bannon, the Breitbart News founder who is now chief strategist to the president and was recently promoted to enhanced positions in the US national security council. He and other advisors are “determined” to break up the EU, and are apparently “working” to stage exit referendums in Germany and France. Verhofstadt added that the US president’s call to organise Europe around national identity was playing with fire in a continent where “30 million people have died because of pogroms and ethnic cleansing”.

Like Tusk though, the former Belgium premier succumbed to a rush of optimism - he remarked that Brexit, while a “disaster”, was also a “golden opportunity” for the EU to remake itself and negotiate not only a “new partnership” between the EU and Britain, but also, more importantly, to “get our act together” inside the EU. For him, Brexit should act as a spur for even closer union between the European states - he compared Europe’s tardy response to the financial crisis with the US’s massive programme of bank clean-ups, infrastructure spending and quantitative easing. He also urged Europe to start thinking about Nato “not as an alliance of a number of member-states, but an alliance of ‘pillars’ - and that is the only way for Europe to make a more effective contribution”.

On a similar theme, Jean-Claude Juncker, president of the European Commission, called on Europe to turn its back on “isolationism, inequality and national egotism” - yes, you, Trump - and emphasised how “we cannot entrust our own security to others”: ie, the United States. Therefore the Commission, he commented, has proposed an agenda for a “common security and defence policy”, which should help member-states work together “more effectively” in procurement and other matters - he pointed out that in the EU there are 154 different types of weapons systems, but only 27 in the US. Also concerned by the Trump phenomenon, François Hollande urged Europe to stand up to Donald Trump at last week’s ‘club med’ summit of southern European leaders in Lisbon.⁶ When Trump promotes the break-up of the EU, adopts protectionist trade measures or refuses to admit refugees, then Europe “must respond” in a vigorous manner to such “extremism” - the outgoing French president wanting the continent to remain a “space for liberty and democracy”. When it comes to trade, Hollande believed that protectionism was not part of “the European genome” - it is an American virus.

At the actual summit, the leaders called for “greater economic convergence” within the EU to promote growth and employment - according to the statement they issued, “weakening Europe is not an option”. Instead, “we need to develop a robust trade policy based on fair exchange, the promotion of our standards and the safeguarding of our way of life”. It was a matter of urgency that the EU responded to new challenges in regard to defence and security - a goal that required reforming economic and monetary union, so that the euro zone could “fulfil its original role”. Time to reboot the project.

Not mincing his words either, Italy’s deputy foreign minister, Mario Giro, has warned that the UK - by drifting further into the orbit of the US - and the EU are heading into an “economic cold war” over Brexit that could wreak havoc on the continent: the coming “battle of interests” over economic matters could have terrible consequences for the western world as a whole. If so, declared Giro, it would be a “disgrace” to enter into a “new era of hard competition on big money questions involving companies” - Europe does not need “these kinds of tensions at this time of a geopolitical Jurassic Park”. However, Giro declined to name specific concerns or what kind of economic interests he was referring to exactly, merely remarking that the “financial world is repositioning itself”. Sounding even gloomier, the French presidential hopeful, Emmanuel Macron - standing under the banner of his very own En Marche! organisation - observed that Britain had always “lived in equilibrium with Europe”, but now risked “becoming a vassal state” of the US. Britain’s divorce from the EU could be very messy and painful indeed.

Grossly

Showing no sign of accommodation or compromise, the new US administration has gone on the offensive against its critics - especially Germany. Peter Navarro, head of Trump’s new National Trade Council, told the Financial Times that the euro was like an “implicit Deutsche Mark”, whose “grossly” low valuation gave Germany an unfair advantage over its main trading partners, enabling it to ‘exploit’ the US and its EU partners (January 31). So poor old US imperialism is a victim of unscrupulous currency manipulation - something repeated by Trump at a meeting with pharmaceutical bosses on January 31, when he accused Japan and China of using monetary policy to pursue “devaluation” in the past to gain a steal over the US. In the words of Trump, “they play the money market, they play the devaluation market, while we sit here like a bunch of dummies”.

Navarro’s comments are likely to trigger alarm in Europe’s largest economy, demonstrating a growing willingness by the Trump administration to antagonise EU leaders and especially the German chancellor. In another radical departure from previous US policy, Navarro also called Germany one of the main hurdles to a US trade deal with the EU and reiterated that talks with the bloc over the Transatlantic Trade and Investment Partnership were well and truly dead. Just get used to it. The German structural imbalance in trade with the rest of the EU and the US, he said, “underscores the economic heterogeneity” within the EU - ergo, TTIP is a “multilateral deal in bilateral dress”. Anyway, Navarro continued, “Brexit killed TTIP on both sides of the Atlantic even before the election of Donald Trump”, given that Britain had been one of the pact’s leading advocates.

As we all know, Trump vastly prefers - or says he does - bilateral trade deals rather than the broad, multilateral accords pursued by Barack Obama. As evidence, the new president last week withdrew from the Trans-Pacific Partnership. Interestingly, Navarro also announced that one of the administration’s trade priorities was unwinding and repatriating the international supply chains on which many US multinational companies rely, taking aim at one of the key planks of the modern global economy. Explaining, Navarro maintained that it does the American economy “no long-term good to only keep the big box factories, where we are now assembling ‘American’ products that are composed primarily of foreign components” - when what the US needs to be doing is “manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

Responding to Navarro’s comments at a joint press conference in Stockholm with Stefan Löfven, Sweden’s prime minister, Angela Merkel said - not entirely convincingly - that she could not influence the euro, as Germany has always “supported an independent European central bank”.

Clearly, the election of Trump has fundamentally changed the rules of the game. Donald Trump might decide that it is not in the national interests of the US to keep stationing its troops in faraway Europe or financially prop up an “obsolete” Nato - or might conclude that the EU has ceased to serve any useful purpose. Just let Europe hang out to dry and do whatever deals necessary with the Kremlin to counter the combined threats from China and jihadism. America first, America first ….

eddie.ford@weeklyworker.co.uk

Notes

1. www.independent.co.uk/news/business/news/greece-has-three-weeks-to-make-austerity-deal-or-faces-explosive-debts-a7552881.html.

2. www.theguardian.com/us-news/2017/jan/15/trumps-first-uk-post-election-interview-brexit-a-great-thing.

3. www.independent.co.uk/news/uk/politics/donald-trump-theresa-may-holding-hands-chivalrous-gesture-downing-street-a7551021.html.

4. www.consilium.europa.eu/press-releases-pdf/2017/1/47244654122_en.pdf.

5. www.telegraph.co.uk/news/2017/01/30/donald-trump-steve-bannon-pose-existential-threat-eu-says-chief.

6. www.ft.com/content/bbed82d6-e589-11e6-967b-c88452263daf.