Ideas for Europe’s New Leadership: A Transatlantic Perspective

8/11/2019 Ideas for Europes New Leadership: A Transatlantic Perspective

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OCTOBER 2014

IDEAS FOR EUROPES NEW LEADERSHIP

A TRANSATLANTIC PERSPECTIVE


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Ideas for Europes New Leadership 1

1 Introduction

Corinna Hrst

The second generation

of EU leaders that are

taking over after the

Lisbon Treaty...have

to take on internal

issues, policies, and

disfunctionalities and

at the same time face

unparalleled external

challenges.

The new EU leadership is taking office in a difficult period for the European Union. The

sovereign debt and financial crises have calmed superficially, mainly due to the action

of the European Central Bank. However, low growth rates, unemployment, and social

tensions remain, and political risks for the governments in power are growing in a number

of member states. At the same time, mounting external challenges such as the stand-off with

Russia over Ukraine, turmoil in Syria, Northern Iraq, Israel, and Palestine, as well as increasing

refugee streams, are raising deep security concerns. European citizens and Europes interna-

tional partners are looking to the European Union for a strong response. However, the EUs

new leadership will have to contribute to the solution of its most pressing problems even

though the EU does not have all the necessary means to tackle these challenges, while national

governments have little appetite for sharing additional powers and so are seeking solutions

beyond the EU framework.

The change of EU leadership following the 2014 European Parliament elections is an occasion

to take a fresh look at the policy challenges and how to address them. The second generation

of EU leaders that are taking over after the Lisbon Treaty the president of the European

Commission, the president of the European Council, the high representative for foreign and

security affairs as well as the vice presidents and other members of the European Commission,

and the president of the European Parliament have to take on internal issues, policies, and

disfunctionalities and at the same time face unparalleled external challenges.

The United States is a stakeholder in this process, and policymakers on the other side of the

Atlantic are keen to understand the future of EU strategies in key areas. In fact, The German

Marshall Fund of the United States (GMF) public opinion poll, Transatlantic Trends 2014,showed that U.S. public support for strong leadership from the EU is at 70 percent. Despite

the perceived pivot to Asia, new partnership opportunities with emerging powers like China

and Brazil, as well as a magnitude of domestic policy challenges, the United States continues

to look to the EU and its member states as its closest allies. How Europe handles the repercus-

sions of the financial and economic crisis matters to the United States, in particular whether

Europe manages to remain a key economic player in the world economy. Russias annexation

of Crimea and its deliberate destabilization in the east of Ukraine are fundamental challenges

to the post-Cold War policy in Europe and taken very seriously by the United States. Europes

security has once again become a central issue in the transatlantic discourse.

The change in Europes leadership in Brussels offers an opportunity to assess the challenges

the EU is facing and to formulate ideas for new strategies and policies in the coming five years.The transatlantic perspectives of this volume written by GMF experts focus on core policy

challenges for Europe that matter most from a transatlantic perspective such as the euro area,

trade, security and defense, and policies dealing with energy security, migration, and regions

such as Europes neighborhoods and Asia. The issues at stake and how the EU addresses

them either affect the United States as a stakeholder, require transatlantic coordination, or

offer opportunities for an exchange on lessons learned and good practices among the transat-

lantic partners.


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The German Marshall Fund of the United States2

In the first chapter, Daniela Schwarzer argues that while Europe has achieved progress in

strengthening the governance structures and policy instruments of the euro area, more needs

to be done to improve the conditions for private-sector led growth in the short term. In the

medium term, the governance structures of the euro area need to be reviewed not only to

improve its resilience in the advent of future crises. The euro area and its member states face

the broad challenge to define a new social contract as social inequality within member states

and divergence between member states threatens the hopes and welfare promises on which

both post-war nation states and the European integration project were built.

The chapter on the Transatlantic Trade and Investment Partnership (TTIP) highlights the

need for the new EU leadership and the new trade commissioner to remain ambitious and

maintain momentum in the talks, but to clearly explain the timing and the issues to themember states and the European citizens. According to GMF non-resident fellow Peter Chase,

TTIP could bring the two largest economic areas together in part by building bridges between

our regulatory regimes, where the levels of protection are similar. It could also create rules

and disciplines in new areas. The issues of how the protection of personal data and financial

services regulations will be handled in this context are of great importance to the U.S. and

European business communities.

Alexandra de Hoop Scheffer and Martin Michelot make a case for the continued reinforce-

ment of political willingness to develop a more pronounced European security strategy with

deeper cooperation on operational and strategic levels with NATO. According to them, Europe

needs to be able to operate independently from the United States.

As Europe engages in international affairs whether responding to instability in its neighbor-hoods or exploring new partnerships and markets further abroad its actions frequently call

for the transatlantic partners to coordinate. In two pieces on Europes neighboring regions in

the East and South, Michael Leigh and Ian O. Lesser argue for a new approach to the European

Neighborhood Policy that means decoupling the two regions and including more tailor-

made approaches that focuses on security, energy, and trade aspects and in the case of the

Mediterranean region, as Lesser argues, there is a need to take rapidly changing migration

dynamics into consideration. A more strategic approach should also include dialogues with

interested third countries and particularly the United States whose interests are complimen-

tary.

On the other hand, when it comes to Asia, Daniel Twining argues that the EU should adopta whole-of-Asia approach that takes advantage of member states relations in the region but

provides more economic weight. It would allow Europe to articulate more its interests in

matters such as a peaceful resolution of territorial disputes, freedom of the sea lanes, and

democratic development. A more strategic approach would magnify the EUs influence by

aligning Brussels with like-minded democracies across the Indo-Pacific, including the United

States.

The specialized policy area of energy security in Europe is an important issue for cooperation

with the United States. Kristine Berzina argues for improved energy efficiency, strengthened


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regional cooperation, and interconnectivity between EU member states as well as increased

domestic energy production. In addition, she recommends more coordinated energy security

strategies across the Atlantic and suggests that EU policies and infrastructures allow additional

natural gas suppliers such as the United States to help diversify the EUs energy mix.

Finally, Tanja Wunderlich, Astrid Ziebarth, and Susan Martin draw on comparisons with the

United States and link migration to foreign and security policies as well as the development

policies with migrant-sending regions or countries. Rather than developing new EU legisla-

tion, though, they argue for better implementation of adopted European legislation. This

means applying an integrated approach, combining restrictive border security measures with

the opening of legal access channels, more convergence of national asylum practices, and

increasing cooperation with countries of origin.I would like to thank all the authors for their contributions as well as the peer reviewers for

their feedback and scrutiny. A special thank you goes to Christine Chumbler, GMF publica-

tions manager, who was instrumental in improving format and quality of this volume.

Corinna Hrst is the deputy director of The German Marshall Fund of the United States Transat-lantic Center in Brussels.


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sary for their day-to-day activities and for future investment. This situation is all the moreproblematic as it is small and medium-sized businesses that provide a large share of the jobs

in some of the catch-up countries. A certain dispersion of interest rates is indeed normal in

the European Monetary Union, as it reflects differences in banking systems and national risk

levels as well as different demand levels and available savings. But the degree of dispersion of

private borrowing rates has become a severe obstacle to economic recovery.

Political Challenges

While there have been no lasting eruptions of social tensions in any member state, the political

repercussions of years of crisis can be felt in many places, especially in those countries which

had to undergo severe adjustment processes. Right-wing extremists and other Euroskeptics

now occupy an unparalleled high number of seats in the European legislature. It is, however,not in the EU institutions, that the presence of Euroskeptics will most be felt. These anti-

establishment movements, which frequently combine Euroskepticism with anti-globalization

and xenophobic positions, will most probably have their strongest influence on policymaking

at the national level. Using their new presence in the European Parliament, they will weigh

on national governments willingness and ability to lead constructively on EU affairs. Under

the pressure of rising Euroskeptic movements, a number of governments have, for instance,

questioned labor mobility in the single market. The EUs core a cross-border single market

with the free circulation of goods, services, people, and capital risks becoming the crystal-

Figure 1: GDP growth of selected euro-area countries, 2002-2015

Source: OECD, 2014


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lization point of anti-liberal and anti-globalization sentiments that have been building up for

a while. Also projects like the Transatlantic Trade and Investment Partnership (TTIP) (see

chapter by Peter Chase The New Commission and the Transatlantic Trade and Investment

Partnership, page 12), which are of strategic importance to both Europe and the United States

may encounter serious political obstacles as it appears today that at least in some countries,

anti-U.S. opinions are combined with Euroskeptical and outright anti-European sentiments.

Finally, domestic structural reforms and budgetary consolidation measures will become

even harder to implement the more dire the social and economic situation is and if they are

depicted as imposed by the EU.

Political leaders need to improve the domestic conditions for sounder economic develop-

ment throughout the EU and work together with the EU institutions to provide better marketconditions and accompanying initiatives for the private sector to thrive. Meanwhile, they will

have to measure the long-term consequences for those societies in which half of the young

labor force will not find a job in the foreseeable future. It is a key responsibility for the new EU

leadership to contribute to formulating a more decided European response to this social and

economic challenge.

The set-up of the new European Commission with four vice presidents1responsible for topics

directly relevant to the future of economic growth, employment, cohesion, and the stability of

the euro area takes into account the complex challenges that the EU and the euro area have to

handle. The approach to ensure cooperation across Directorate Generals by setting up project

structures that involve both vice presidents and commissioners likewise reflects the growing

perception that the previous fragmentation of the Commission did not encourage sufficientcooperation across policy areas. The new Commission will still have to struggle with overlap-

ping competencies and diverging policy preferences among commissioners and vice presi-

dents when facing the challenge of strengthening the euro area, the single market, and hence

Europes prospects for growth, jobs, and social and political stability.

Policy Recommendations

1. Improve Growth Perspectives in View of Adapting to Future Challenges

There is by now a relatively broad consensus that stronger private sector-led growth in

the euro area requires a combination of higher price competitiveness, more flexible labor

markets, increased labor mobility, better financing conditions, and greater private and public

investment in research, innovation, education, and infrastructure, as well as a stable macro-economic environment.

Increasing private-sector competitiveness should remain an objective of both national

economic policy and EU policymaking. Companies success depends, crucially, on their ability

to innovate, reach markets, and keep costs low. Some member states, in particular under the

pressure of the recent crisis or because they have received a rescue package and had to fulfill

conditionality, have implemented considerable reforms. But accompanying measures at the EU

1 These are the vice president for jobs, growth, investment and competitiveness, the vice president for the euro and social dialogue,

the vice president for the digital single market, and the vice president for the energy union.

Political leaders

need to improve the

domestic conditions

for sounder economic

development

throughout the EU.


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level can effectively increase the positive effects of measures taken at the national level if they

improve the conditions under which the companies operate, e.g. by stepping up infrastructure,

research and development activities, and education and mobility.

The EUs efforts to achieve a Union of jobs, growth and competitiveness, as the European

Council Conclusion of 26/27 June 2014 put it, should be designed in such a way that they can

provide a forward-looking response to wider challenges associated with the changes of the

global economic system, the demographic challenges faced by aging societies, and the techno-

logical evolution that has caused doubts about our economic models, societal structures, and

political systems.

ECB measures to strengthen financial markets and to end the credit crunch in the hardest

hit countries need to be closely monitored as it is still far too expensive for companies insome regions or member states to raise credit. It should be a priority to prevent investment in

innovation, research, and new equipment from declining further as it will hamper companies

competitiveness in time.

Public investment needs vary across member states, but it would be wrong to assume that

only the private sector in those countries suffering from low growth and low competitiveness

would further thrive with increased public investment. Germany is a particularly interesting

case. The largest and most competitive euro-area economy is regularly reminded that it should

step up public investment, which would not only ensure German growth perspectives, but

would also stimulate growth in other member states by increasing Germanys imports, thereby

contributing to the necessary rebalancing of the euro area.

2. Pursue the Debate on a Fiscal Capacity for the Euro Area

Some member states may temporarily need stronger financial support from the EU than is so

far admitted. One reason is that some member states currently cannot provide adequate levels

of public investment. Another is to support the implementation of reforms that allow reducing

the structural gaps in the European Union. Finally, there are strong macro-economic argu-

ments for the establishment of a cyclical stabilization mechanism that would help reduce the

output gap and alleviate cyclical divergence across the euro area.

Policymakers face the challenge of developing policy tools that make financial transfers effec-

tive and acceptable to actual and self-perceived net payers. A first pragmatic step would be

to make better use of existing EU funds, e.g. by giving national entities even more support to

actually access these resources, which so far remain underused in many cases. Other instru-ments that do not directly weigh on national or European budgets can be further used. For

instance, the volume of so-called euro project bonds could be stepped up and the activities

of the European Investment Bank further increased to provide funding sources for stronger,

future-oriented investment.

There are strong arguments to develop fiscal instruments that are designed to extend struc-

tural change. They should employ two principles in their design. Firstly, financial support

could be linked to reform commitments taken by the recipient governments and backed

by prior agreements with domestic stakeholders in order to reduce the moral hazard fears

It would be wrong to

assume that only the

private sector in those

countries suffering

from low growth and

low competitiveness

would further thrive

with increased public

investment.


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widely present in the net-payer countries. Secondly, financial support mechanisms should be

designed in such a way that they will have long-term, overarching benefits that in the future

extend beyond the current crisis countries. This requires the introduction of future projections

of the EU in a changing world economy as a whole into the European debate.

The dominant perception today is that non-crisis countries help crisis countries, or in other

words, the North transfers to the South, and that this is going to remain so. In this context,

the costs of not bringing the crisis countries back to stronger economic performance, as well

as the long-term growth and demographic perspectives of Europes North, need to be made

more explicit. Moreover, the perception that the euro areas problems are mainly structural

needs to be reviewed. Cyclical divergence has been a problem in the currency union well

before the crisis hit and it continues to be so and this not only for the Southern countries.A cyclical stabilization mechanism would help reduce regional divergence and support a more

stable macro-economic set up for all other measures on the national and European levels. The

new Commission should pick up the debate on how to better equip the euro area to deal with

asymmetric shocks and help establish a more broadly shared understanding of whether there

are indeed cyclical components to the euro areas past and possible future crises. In a second

step, mechanisms to allow stabilization across member states, and in time, should be assessed.

This discussion should look at various options, including a European Unemployment scheme.

3. Enable Some Fiscal Flexibility in the Short Term

Sustainable public finances defined as member state governments ability to access global

capital markets on reasonable borrowing terms should remain the prime objective of

budgetary policy coordination in the euro area. There are still a considerable number ofmember states including large and systemically relevant ones such as Italy and France

whose public finances are not yet in order. Those with rapidly aging populations, like

Germany, may be in a comfortable situation now, but face high risks at a later point in time.

Higher growth levels in the EU are a prerequisite to bringing down the high debt levels. Some

member states still need to adjust their budgets, but this needs to be achieved in a way that

does not further hamper political and social stability and weigh too heavily on investment in

education, infrastructure, and research and development policies.

The rules to coordinate budgetary policies of the member states have been adjusted in such a

way that they take domestic specificities and cyclical components into account more strongly,

as governing by rules is not a purely technocratic process, but requires some scope for political

judgment. However, this judgment cannot mean that some member states abide by the rules,

while others do not do so entirely, solely because they are larger than others. Such rule-

bending undermines the legitimacy of the coordination framework. The European commis-

sioner for economic and financial affairs, taxation and customs in a still to be defined coopera-

tion with the vice president for the euro and social dialogue will be the main implementer of

budgetary surveillance and will need to gain a considerable degree of political independence

to accomplish his tasks. Otherwise, he will not be able to implement the rules effectively and at

the same time start engaging the euro area governments in debates that fully take into account

the fact that the creation of the monetary union has actually created both interdependencies

The perception that

the euro areas

problems are mainly

structural needs to be

reviewed.


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and public goods in the European economy. It would be an important achievement of the next

commissioner if policy coordination were reformed in such a way that the aggregate fiscal

policy stance of the euro area is taken into account more rigorously.

An intergovernmental alternative to the current set-up, with the European Commission

at its core, would be to further develop the European Stability Mechanisms (ESM) and its

surveillance function. It is possible that this initiative is driven by a number of member states

governments, in particular, in case other governance reforms fail that require secondary law

revisions or even Treaty change. The ESM is currently conceived of as a financing tool of

the euro area member states with no role of their own in surveillance of domestic policy, but

there are strong reasons to explore how it can be developed into an entity that more strongly

resembles a European Treasury with more scope to raise money on the markets and play astronger role in governing fiscal policies in the euro area.

Meanwhile, the current technocratic approach to policy coordination hits limits in terms of

legitimacy as soon as the European Commission actually pressures national governments to

change policies and policymakers blame reforms and restrictive budgetary policies solely on

Brussels. The new EU leadership should engage national and European policymakers and

European citizens in a discussion on how democratic legitimacy can be enhanced. Strength-

ening the European and national Parliaments, for example in the process of goal setting and

surveillance implementation, is an important step. If stronger democratic legitimacy is not

achieved in the medium term, strengthening policy coordination in the euro area may, in fact,

turn out to be a tool that weakens integration rather than strengthens it. Meanwhile, the issue

of enhancing the democratic base of economic and budgetary policymaking in the euro areain such a way that citizens actually perceive that a vote matters is a much broader and impor-

tant task to tackle.

4. Deal with Unsustainable Debt Levels in the Medium Term

The sustainability of debt levels depends on future budgetary policy decisions and most

importantly on growth performance. In the euro area, single member states cannot inflate debt

away as they once did when they still had national currencies. There are essentially three ways

to cope with high debt levels: outgrow the debt, run a budgetary surplus over a long time, or

declare a default and cut public debt. This latter option may be necessary for some member

states but it is not an easy option to implement as it can ruin a governments access to credit

markets for years if not done properly. So it has to be one-time, and accompanied by measures

to rebuild investors trust, e.g. by launching a strong pro-growth program that is likely to

yield the expected success. If executed unsuccessfully, market participants could lose trust in

other member states, too, even states that do not face solvency problems. This could result

in another round of self-fulfilling crises as in 2010. So if there are reasons to reconsider debt

restructuring in the EU for non-program countries over the medium term, the governance

framework should be reviewed.

Firstly, the existing mechanisms built to deal with liquidity needs for the government in ques-

tion may need to be strengthened to bridge future financing gaps. Secondly, the EU should

If stronger democratic

legitimacy is not

achieved in the

medium term,

strengthening policy

coordination in the

euro area may, in

fact, turn out to be

a tool that weakens

integration rather than

strengthens it.


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create a debt restructuring mechanism, a legal framework that includes procedures outlining

how to handle a default in an orderly way. In fact, the mere perspective of a possible default

(which today is still not a realistic option due to the expected contagion effects) would be good

for the euro area. Member states would very clearly have to bear the costs for their behavior

which is a probably much more effective disciplinary device than rules- and sanction-based

budgetary policy coordination.

5. Rethink the European Social Contract

The crises in the euro area, together with the broader economic, demographic, and techno-

logical transformations, are challenging the social contracts on the national and European

levels upon which post-war integration was based. On the national level, an intergenerational

contract gave younger generations the hope and expectation to be better off than their parentsgeneration. In addition to this, on a horizontal level, welfare mechanisms within member

states were in place that ensured a certain degree of social cohesion and solidarity. Meanwhile,

between member states, following the end of World War II, an unparalleled phase of coopera-

tion and integration started. It was based on the assumption that European integration would

bring peace, stability, and prosperity to the European continent, which would outweigh the

sharing of sovereignty in some areas.

The crises of the last few years have further challenged these assumptions, which in any case

had been put under stress by broader economic and societal trends. Today, in most member

states, the intergenerational contract no longer holds; the younger generations can no longer

assume they will be as well or better off than their parents, given the costs of longevity, record

levels of youth unemployment, and an apparent incapacity or unwillingness of Westerngovernments to adapt education systems to tomorrows needs. Secondly, governments can no

longer maintain previously unchallenged levels of welfare provision. With a shrinking redis-

tributive capacity and rising costs, for instance in health systems and unemployment schemes,

the social contract across social classes or groups is challenged and has put the intra-societal

notion of solidarity to a serious test in a number of member states. In particular, citizens in

member states that are going through severe adaptation processes have little reason to believe

in mutual insurance mechanisms, which in the past were at the heart of social systems and

enabled and maintained social peace and political stability in post-War Western Europe.

To complicate matters further, the social contract between member states that has made the

continuous deepening of the European Union possible in more than five decades after the

end of World War II is also challenged on the European level. Today, many policymakers and

observers both from crisis and non-crisis countries no longer perceive European integra-

tion as a win-win-situation. The sovereign debt crisis in particular has created the perception

of a negative sum or, at best, a zero sum game in which eventually some member states

will have to absorb losses. In such a situation (and in light of the challenges governments are

facing on the national levels), anti-EU sentiments and statements will continue to be strong.

Given the moderate growth perspectives of the European economy and the shrinking scope

for redistribution both within and across societies, very high amounts of political energy will

Governments

can no longer

maintain previously

unchallenged levels of

welfare provision.


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need to be invested into the phrasing of a new narrative for the European Union, if not for

the Western liberal order. There is obviously no easy solution for the developments described

above. The challenge for both national and European policymakers will be to give Europe a

constructive place in this debate and disassociate it from the scapegoat position into which the

rising Euroskeptic voices have pushed it. A first point to realize is perhaps that the EU has in

fact proven its promise trade and growth have enormously benefitted by market integration

since the 1950s, and political stability and peace have reigned in the EU for almost 70 years. As

important as this perspective is, it is insufficient to create strong support for further integra-

tion unless there is a realistic scenario how the EU can deliver better on jobs, growth, and

fairness.

6. Relaunch the Single Market

In order to overcome the ongoing fragmentation in many economic sectors of the EU and

to improve competitiveness, the decade-old debate on further market integration should be

relaunched with the ambition to implement a set of measures that will make the EU more

unified, competitive, legitimate, and hence better prepared for future challenges.

An immediate challenge to European competitiveness is insecure energy provision and high

energy costs, in particular given the pressure exerted by Russia. A number of countries,

including the United States, will have a competitive advantage due to lower energy costs unless

the EU manages to move forward with a joint and more innovative energy policy. Decidedly

improving energy efficiency and developing new energy sources, in particular in the field

of renewables, can in fact become a growth industry for Europe and a crucial asset for its

competitiveness in the medium term (see chapter by Kristina Berzina Improving EuropesEnergy Security, page 46). Just as for energy, there are other fields in which the European

Union as a whole would greatly benefit from further market integration, both in terms of effi-

ciency and security. For instance, the digital market, services, and financial markets still show

strong degrees of fragmentation. The crisis has shown how directly the functioning of cross-

border financial markets are linked to the well-being of the real economy. In the next phase

of the EUs development, it will become more and more apparent to which degree goods and

services intertwine and how crucial and overarching the strategy for the digital economy is.

Combining market integration and an accompanying industrial policy that enhances innova-

tive capability and research policies will help create new investment opportunities. Intercon-

necting infrastructure would also help relieve the market for goods and services if logistical

channels are improved.

Meanwhile, Europes capacity to innovate in the digital economy and to complement the more

or less integrated goods market with a digital component is an important priority for the new

Commission and clearly reflected in its structure. Already, today Europes economy is less

digitalized that other major economies and citizens make comparatively little use of digital

technologies. Questions of copyright, standards, and patents should be tackled jointly on the

EU level as soon as possible. This would reduce legal uncertainty and transaction costs and

develop Europes digital economy in a market as closely integrated as possible.

A number of countries,

including the United

States, will have a

competitive advantage

due to lower energy

costs unless the EUmanages to move

forward with a joint

and more innovative

energy policy.


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7. Strengthen the Euro Area Internationally

Europes economic challenges are obviously related to the increasing competitiveness of other

players. This challenge will not disappear while threats from Europes immediate neighbor-

hood are strongly on the rise. These threats are not just of a security or energy-related nature.

For example, an economic crash in Russia and neighboring countries would spill into the EU

and the European financial sector. Meanwhile, emerging countries, in particular China, exploit

the stand-off with Russia economically while the EU countries have to bear the economic

costs and question the existing global governance mechanisms more and more openly. This is

all the more a troubling perspective, since, as a result of the financial crisis, Europes weight in

the changing world economy has already seriously declined not only in relative economic

terms vis--vis the increasingly assertive emerging countries but also politically.Also, the EUs political image has suffered as its member states, which used to be on the

lending side of financial crisis management, turned into the largest net-recipient of financial

aid in the world in 2010. For a while, the EUs weight along with that of the United States

as expressed in voting rights in the international financial institutions of the World Bank and

the International Monetary Fund has been questioned as it no longer reflects relative global

GDP shares. A recent sign of an end of Western-capitalist dominance in the governance of the

international economic, financial, and monetary system was the creation of the BRICS (Brazil,

Russia, India, China, and South Africa) Development Bank and Reserve Fund at a meeting

in Brazil mid-July 2014. While this institution will probably not challenge the IMF, the World

Bank, or the ERBD as such, it constitutes a further example of competitive regional coopera-

tion arrangements that challenge the global ambitions and rules-setting abilities of the BrettonWoods institutions.

The relative decline of the EUs economic and financial weight and political clout should give

the incoming EU leadership reasons enough to review the international representation of the

euro area in particular. Of course, the EU already is an international actor in global economic

matters; and in international trade, financial regulation, or competition matters, it is the EU

that negotiates. But what the EU now needs in the medium term is a unified representation

of its monetary union to chime into the international discussion of monetary, financial, and

macro-economic matters with a strong, unified European voice. With the creation of the euro,

the EU has given itself the means to have a global monetary presence and impact along

with the U.S. dollar and the renminbi which will continue to rise in its international role in

the next decade. Providing the euro area with a stronger and institutionally unified interna-tional representation would usefully accompany the necessary internal institutional consolida-

tion. Together with the European Monetary Fund, which might emerge as the institution of

the euro area governance taking on roles of a Treasury, there should be an outside representa-

tion that gives the EU a stronger international voice and makes it a more coherent and potent

interlocutor for international partners such as the United States and China.

Daniela Schwarzer is the senior director for research and director of the Europe program for theGerman Marshall Fund of the United States.

An economic crash

in Russia and

neighboring countries

would spill into the

EU and the European

financial sector.


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3The New Commission and the Transatlantic

Trade and Investment PartnershipPeter H. Chase

Introduction

One of the biggest projects the new EU trade commissioner will inherit from out-going

Commissioner Karel De Gucht is the on-going negotiations toward a Transatlantic

Trade and Investment Partnership (TTIP) agreement with the United States. Heralded

by U.S. President Barack Obama as one of the top priorities for his second term in his February

2013 State of the Union address, and launched by Presidents Obama, Jos Barroso, and

Herman Van Rompuy at the June 17-18 G8 Summit, the negotiations have run into unex-

pected headwinds, both in the talks themselves and from increased public criticism in the EU.

This has been especially and ironically the case in generally pro-trade U.K. and Germany,

where the revelations about U.S. National Security Agency (NSA) spying activities have

Background

The European Union and United States have an immense and in many ways unique economic rela-

tionship; the Transatlantic Trade and Investment Partnership (TTIP) agreement would build on these

strengths. According to EU statistics, the United States is by far the largest market for European

products, buying nearly 17 percent of the EUs goods exports. (Switzerland, in second place, takes

nearly 10 percent, while China has an 8.5 percent share.) Total trade in goods and services was

790 billion in 2013, with the EU running a surplus in both; EU goods exports were 288 billion,

while services exports were 158.8 billion.

But while the United States and the EU are each others largest trading partners, it is their invest-

ment relationship that is unique. Again according to EU statistics, EU investment in the United

States stood at 1.65 trillion at the end of 2012, while U.S. f irms have invested 1.5 trillion in

the EUs 28 member states. These investments generate turnovers of about 4 trillion each year,

and directly provide over 8 million jobs (15 million, counting immediate indirect employment). The

companies of all sizes that have made these investments are transatlantic firms, with highly

integrated operations. Nearly half of the EUs goods exports to the United States are intra-firm, and

European firms like BMW are leading U.S. exporters. So as TTIP facilitates transatlantic trade, it

boosts the ability of these firms to sell everywhere in the world.

Knowing even an exceptionally strong relationship can be improved, the November 2011 U.S.-EU

Summit established a High Level Working Group on Jobs and Growth, led by Trade Commissioner

Karel De Gucht and then-U.S. Trade Representative Ron Kirk, to identify policies and measures to

increase EU-U.S. trade and investment to support mutually beneficial job creation, economic growth

and international competitiveness. The Working Group was asked to conduct extensive public

consultations to develop possible options, to weigh the economic impact and political feasibility of

these (as well as their consistency with international trade obligations), and to report back by theend of 2012.

The report, recommending the launch of negotiations toward a comprehensive and ambitious

Transatlantic Trade and Investment Partnership, was released February 11, 2013 and blessed

by Presidents Obama, Barroso, and Van Rompuy on February 13. After extensive consultation

with Congress, the European Parliament, and the member states (which gave the Commission a

mandate for the negotiations on June 11), the three presidents jointly announced on June 17 that

the first round of talks would be held in Washington in July 2013. Subsequent rounds were held in

November and December 2013 and March, May, and July 2014. The seventh round takes place the

week of September 29 in the United States.


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U.S. and EU leaders

launched TTIP

precisely to provide a

badly needed boost for

both their economies.

shaken many Europeans trust in the United States. The new European Commission, and

the new trade commissioner in particular, will need to expect and to respond to a barrage of

complaints about the TTIPs alleged lack of transparency, lower consumer and environment

protections, and attack on democracy. These concerns can be answered, as this chapter will

suggest, and indeed must be if the EU and the transatlantic partnership are to reap the broader

geo-strategic and economic benefits of TTIP.

Jobs and the Geo-Strategic Imperatives

The European Union is slowly exiting six years of recession, with the 0.1 percent GDP change

in 2013 expected to increase to 1.6 percent this year and perhaps even 2 percent next. Unfor-

tunately, these still anemic growth rates will not help much on unemployment, which reached

a historic peak of 12 percent (some 26 million people) in 2013. The Commission still expectsunemployment of 10.1 percent for the EU as a whole and 11.4 percent for the euro area by the

end of 2015. Europes young people are by far the hardest hit, with youth unemployment in

Spain, Greece, Italy, and elsewhere at completely unacceptable rates of over 35 percent.

European Commission President-designate Jean-Claude Juncker and every other European

politician have declared that the EUs top priority must be to generate the economic growth

to address this immense social problem. But the very real constraints on government finance

have badly crimped the traditional tools to do so, even with a shift away from the austerity

debates of the past few years.

The new trade commissioner has one of the key portfolios to help. Trade including both

the exporting and importing of goods and services is an immense generator of growth;indeed, EU gains in trade cut the severity of the 2012 recession in the EU by a factor of four,

as the increase in net exports compensated for declines in investment and domestic demand.1

Even though the EU itself has the worlds largest economy, 90 percent of the consumers and of

global growth over the next decade will come from outside it. This is why some 30 million jobs

in the EU now depend directly on trade, up 10 million in the last decade. And Commission

economists estimate that each additional 1 billion in exports generates 15,000 jobs across the

EU.2

U.S. and EU leaders launched TTIP precisely to provide a badly needed boost for both their

economies. As immense as the transatlantic economic relationship is, even better access to the

other largest economy in the world would boost exports and produce growth and jobs in each.

The Commissions detailed assessment of TTIPs potential economic impact shows that anambitious agreement would have permanently increased EU GDP by the time an agreement

is fully implemented in ten years, with much of that growth coming from a 28 percent (187

billion) addition of new exports of goods and services to the United States.3

1 See Contribution of the Commission to the February 2013 European Council Debate on Trade, Growth and Jobs, February 2013,

http://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151052.pdf.

2 Ibid.

3 That is, by 2027, with TTIP, EU GDP will be 0.5 percent larger than it otherwise would have been for that year; the total cumulative

gains over the ten-year period could be on the order of 800 billion.
http://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151052.pdfhttp://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151052.pdf


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Precisely how this translates into net new jobs is difficult to project, which is why some have

raised doubts about TTIPs economic benefits. But, as the new trade commissioner will have

to repeatedly explain, everyeconomic analysis of TTIP shows net gain to the EU, even if

they differ on magnitude. This stands to reason: any trade agreement will lower the cost of

selling European products and services in the United States, making those goods and services

relatively cheaper for U.S. consumers who will buy more of them. That is what trade agree-

ments do, by eliminating tariffs (and while the average U.S. tariff is low at about 3 percent,

many individual tariff lines remain above 10 percent, on everything from trucks to foods

to consumer goods), reducing the cost of customs clearance, and opening new markets by

finding ways around regulatory differences.

Moreover, because the U.S.-EU investment relationship is so huge, with U.S. firms havinginvested $2.2 trillion in the EU while EU companies have some $1.65 trillion in their busi-

nesses in the United States, reducing costs of operating between the two will significantly

improve their competitiveness vis--vis the rest of the world. So whether the new jobs TTIP

will generate is in the millions or the hundreds of thousands, the numbers are significant and

will be proportionately higher in countries like Italy, Portugal, and Spain, which face substan-

tial tariff and regulatory barriers to their exports of agricultural and lighter industrial prod-

ucts.

But while TTIP is an economic agreement, it is also more than that. It will be the first

Congressionally ratified agreement between the EU and the United States, giving a new

foundation to the transatlantic relationship just as some of ties that have bound us together

including NATO are arguably growing weaker.

Running into Headwinds

With TTIPs benefits so obvious, many hoped it could be concluded quickly, not least so the

promised growth and jobs could come as soon as possible. One year and six rounds of nego-

tiations later, missteps in the talks and growing public criticism have drained the momentum

from TTIP. The new trade commissioner will have to address this if TTIP is going to be done

by the end of 2015, as the European Council directed EU Commission President-designate

Juncker in June, or even before President Obama leaves office in January 2017.

Getting the Timing Right

Part of the problem is perception: timelines and expectations are confused by vague

phrases about TTIP being done. Negotiators must first reach a political agreement on the

outlines of the deal, as the EU did with Canada last October. They must then finalize and

reach initial agreement on the text in a sense, the negotiations are done then. This text

will need a legal and technical scrub and translation (as well as verification of the translations)

before the Commission asks Council for authority to sign; that too will take time. When it is

signed, it again will be done, but of course it will still require ratification by Congress and the

European Parliament before it can go provisionally into effect, and ratification by the parlia-

ments of all 28 member states before it goes fully into force. The new commissioner can help

manage expectations, and momentum, by being precise about these timelines.

Everyeconomic

analysis of TTIP shows

net gain to the EU,

even if they differ on

magnitude.


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The negotiations face

three key problems,

in market access

(tariffs, services,

and procurement),

regulatory issues, and

investment.

Putting the Talks on Track

In the meantime, the negotiators are doing their job by putting together the underlying TTIP

text. Even if TTIP were a normal free trade agreement (FTA), this would be a daunting and

time-consuming task. TTIP is, after all, a legal contract governing the way the EU and the

United States will do business with each other in every sector of the economy. Moreover, while

both have signed many FTAs, they have consciously and rightly decided not to use those

as templates for TTIP. This is the first time either has negotiated an agreement with a partner

of equal size, and both knew the other would not just accept the others template. So they have

started from the ground up, identifying the principles and provisions needed in each chapter

and only then drafting text, which is why the first five combined texts were not on the table

until the fifth round in May. Further, TTIP is meant to be more than a normal FTA. It exploreshow domestic law and regulation affect bilateral trade, and creates rules and disciplines in new

areas, such as ensuring fair competition with state-owned enterprises and protecting trade

secrets. These new parts, too, are being built from the ground up.

Even so, the lead negotiators believe that the technical work of putting together the text can

certainly be done by mid-2015 if all goes smoothly in the talks. But unfortunately, right

now, it is not. The new trade commissioner will need to work with De Gucht in the hand-over

phase and with his counterpart U.S. Trade Representative Michael Froman even now to get

things back on track by the next round, scheduled for late September.

The negotiations face three key problems, in market access (tariffs, services, and procure-

ment), regulatory issues, and investment. On market access, Commission negotiators had

wanted the TTIP process to be different, and pressed internally to provide an ambitious firstoffer, calling in February for immediate elimination of tariffs on almost 90 percent of prod-

ucts. The United States took a more traditional approach and had an initial offer of about

70 percent. The Commission was criticized by the member states for being nave, and has

consciously decided not to be forthcoming in the other market access areas until the United

States makes better offers, especially in public procurement (one of the few TTIP issues that

is sensitive to the upcoming U.S. mid-term elections given union support for Buy America

provisions, which in general require the U.S. federal and state and local governments to spend

U.S. taxpayer dollars on U.S.-produced steel and other key products). Accordingly, the EU has

placed a unambitious services offer on the table, and is sitting tight on procurement.

This stalemate was meant to break in September, when the United States was expected to

provide a new tariff offer and something more ambitious on procurement. And here is where

the new trade commissioner, as a new player, could make a difference. Someone has to quietly

encourage both De Gucht and Froman to communicate, and to agree to stop playing the

negotiators game. Instead, they should agree that the floor for the market access negotiations

should immediately become the best that we have already agreed with any partner. For why

should the European Union and the United States end with something less ambitious between

them than they had with someone else?


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The miscue on market access derives in part from another misunderstanding, on the regula-

tory chapter of TTIP. Both sides basically agree this should include five sections:

on principles and best practices in domestic regulation (what the U.S. government calls

regulatory coherence);

plussed-up provisions on the traditional WTO areas of sanitary- and phyto-sanitary (SPS)

measures;

technical barriers to trade (TBT, largely standards and conformity assessment);

horizontal disciplines on regulatory cooperation; and

sectoral annexes reflecting what U.S. and EU counterpart regulators agree on.

But for months, the two sides have spoken past each other in terms of their emphasis on

these. The United States has focused on coherence to bring transparency, participation and

accountability to EU regulation, while the EU has stressed the need for concrete steps by regu-

lators in such sectors as autos, chemicals, and pharmaceuticals.

This apparent impasse is unnecessary. For its part, most U.S. sectoral regulators (putting aside

financial regulators and perhaps the Environmental Protection Agency) have been engaging

actively with their EU counterparts in the context of TTIP, while the Commission for its own

reasons is constantly considering ways to improve its regulatory processes, including in such

key areas as impact assessments and enhanced stakeholder participation. The two sides should

be able to move beyond it by the next round in September, when they are scheduled to provide

draft texts on the principles/practices and horizontal sections. TBT and SPS are being handledseparately, as are the sectoral discussions.

But here, as discussed below, the new trade commissioner will need a thorough understanding

of the structure as well as the content of these discussions, as this regulatory part of TTIP has

aroused the greatest concern among many Europeans, and members of the European Parlia-

ment, who do not want to see Europes standards reduced.

The investment issue is less a technical difficulty in the negotiations than it is a political issue

that has a technical fall-out. The public criticism about the use of investor-state dispute

settlement (ISDS) became so heated the Commission felt compelled to initiate a formal

public consultation on the I in TTIP, making it impossible to negotiate in this area at all.

That consultation has closed, with 149,500 comments received by mid-July. The Directorate

General for Trade (DG Trade) will need to spend months reading, analyzing and respondingto these before it can engage again fully in the TTIP investment discussions, a process it

expects to complete in November, just after the new trade commissioner takes office.

Calming Public Concerns

As the investment debate demonstrates most clearly, for the new trade commissioner to

succeed in promoting growth and jobs through TTIP by the 2015 deadline demanded by the

European Council (presumably this means it should be initialed and sent to them for authority

to sign), one of the main tasks will be to explain why the treaty is in the EUs interests and to

For months, the two

sides have spoken

past each other.


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Many wonder whether,

in fact, the United

States and the EU

hare the same values,

and if the United

States can be trusted.

answer the concerns many Europeans have about it, specifically about transparency, regulatory

standards and food safety, data protection, and ISDS.

The extent of these concerns perhaps should have been anticipated; it was not. Most Euro-

peans know the benefits of trade, and have not questioned the many trade agreements the EU

has concluded in the past. But TTIP is with the United States; that alone makes it different.

Even more significantly, just weeks after the talks were launched, the first revelations about

NSA activities in Europe came out, shocking many, especially in Germany. Additional infor-

mation has come out in the months since, making many wonder whether, in fact, the United

States and the EU share the same values, and if the United States can be trusted. In this atmo-

sphere, doubts about TTIP have a totally different political resonance, heightened further by

the May elections for the European Parliament.Commissioner De Gucht and his team have undertaken unprecedented efforts to address

these concerns, speaking at literally hundreds of meetings, big and small, across the EU. His

successor will need to build on these efforts. But the Commission faces certain structural

difficulties that must be addressed. Chief among these is that the real audience is not in Brus-

sels, but in the member states. Yet the member state governments all of whom are on record

as supporting TTIP are not as engaged in the public debate about TTIP as they might be

because it is the Commission, not they, doing the negotiating. A key priority must be to enlist

their more active and public support, but to do this they will need to understand the content

of the agreement better. This may require the new Commissioner convincing the Americans to

be more forthcoming in the information DG Trade can provide to capitals.

In fairness, however, the Commission and the U.S. government have gone to exceptionallengths to address the concerns about transparency, posting numerous documents on the

internet detailing exactly what they are looking for and answering almost any question that

has come up. Even the U.S. proposed text for one of the most sensitive parts of the nego-

tiations, on investment, is easily available on the U.S. Trade Representatives website. This

unprecedented amount of openness has to be distinguished from transparency about the

negotiating texts themselves. As Barroso has said, neither the Commission, European Council,

or the Parliament would be able to accomplish anything if all negotiations were conducted in

public as that leads to posturing, rather than the necessary compromises.

Most people understand this. But with the emotions whirling around TTIP, there may be

instances where both sides should consider going farther than they ever have. In the area of

regulatory cooperation, for instance, which is new and fundamentally a collaborative effort,

the two sides might consider publishing and seeking public comment on the language on the

principles and horizontal disciplines once they agree on it. By enhancing stakeholder engage-

ment, they would be practicing what they preach, and diminish public concerns on this key,

but sensitive, subject.

Regulatory cooperation in TTIP is not and cannot be about reducing protections for

consumers, workers, the environment, or our financial system. Rather it is about building

bridges between two different systems, which can only be done where the levels of protec-


22/65


tion are essentially the same. Obamas statement that he did not spend his entire career raising

consumer and environmental standards to sign an agreement that would reduce them under-

scores an important truth: the levels of regulatory protection in the United States and Europe

are similar in far more ways than they differ.

But more to the point: in both the United States and the EU, regulators are closely overseen

by the politicians. They have a mandate to protect their citizens, and when a problem arises,

they get into serious political trouble. They are not about to allow trade concerns as such make

them change their standards. Indeed, under U.S. law, any proposed change to a regulation

must be backed by hard data and evidence, and subject to extensive public scrutiny through

the notice and comment process or the regulator will be sued in administrative court. Regu-

lators may enter into arrangements with counterparts they know and trust that could facilitatetrade, but only where they see clearly that the standards are similar and that such arrange-

ments can make them more efficient, and thus more effective, in carrying out their missions.

The new trade commissioner has to understand this, and use both the process of the negotia-

tion and the structure of the agreement to underscore to the public and to members of the

European Parliament and member states parliaments the independence of the regulators

from the trade negotiations themselves. While the negotiating teams can develop horizontal

disciplines that encourage U.S. and EU regulators to seek more compatibility between their

approaches, and give them some tools to do this, the sectoral annexes should clearly reflect

that the regulators are in control of the substance of the arrangements in their sector. One

way to demonstrate this would be to have the annexes specify the relevant regulatory agencies

for each sector, and then insert hyperlinks to arrangements between them (which of coursewould go through their relevant domestic approval process). This structure makes it easy to

reflect numerous agreements that already exist among dozens of U.S. and EU regulatory agen-

cies, easily incorporates arrangements agreed during the TTIP talks, and can be kept open to

include additional arrangements even after the TTIP negotiations are done, ensuring a living

agreement but one clearly subject to democratic control. Some trade negotiators might

question this loss of control over the talks; the new trade commissioner should embrace it.

This approach also helps answer other thorny questions about TTIP, including, for instance,

the hugely sensitive issue of protection of personal data and the U.S. governments refusal to

include financial services regulation in the agreement. The principles and practices related to

good regulatory process, including transparency, participation, accountability, and evidence-

based decision-making should obviously apply in these sectors as well. And so, too, shouldhorizontal regulatory cooperation tools that encourage the officials to consult with their

counterparts when considering legal measures that could affect trade in goods and services

between the United States and Europe. This ensures that the officials at the very least consider

the potential costs and benefits of taking an approach that is more compatible with that of

their transatlantic counterpart, even though they retain the right to do what they believe

necessary to meet their public goals. But it also guarantees that only those responsible for data

protection and for financial services are deciding on the levels and nature of cooperation.

So while these two sectors would be in TTIP, as the horizontal disciplines would apply to

Regulators are closely

overseen by the

politicians. They have

a mandate to protect

their citizens, and

when a problem arises,

they get into serious

political trouble.


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The approach helps

clarify the mangled

issues of GMOs,

hormone beef, and

chlorinated chicken.

them and as there would be sectoral annexes for them, they would also be out of it in that

the substance of the arrangements hyperlinked in those annexes would be agreed between the

relevant regulators.

Similarly, the approach helps clarify the mangled issues of GMOs, hormone beef, and chlori-

nated chicken, as those issues remain essentially with the regulators. On the first, the EU has

adopted a robust scientific assessment process to evaluate the safety of plant varieties derived

using modern genetic breeding techniques, and indeed has authorized over 50 such varieties

to be sold in the EU (they are used primarily in animal feed and are subject to the EUs strict

traceability and labeling laws4). The United States is not seeking to change the law, although it

echoes the European Court of Justices September 2013 ruling that the evaluation process can

and should move more swiftly.5

On beef, the EU has made it abundantly clear that it will notlift its ban on the use of growth hormones anytime soon; it may expand the quota for non-

hormone beef, but accepts it will pay for this stance with less market access from the United

States elsewhere. And on chicken, it is interesting to see a growing number of European food

safety authorities suggest that the EU may need to consider using anti-microbial treatments on

poultry precisely to reduce the EUs high incidence of food poisoning caused by the bacteria

load on the meat.6But the point here is that these issues can be resolved, and are not as

contentious, when they are addressed by the food regulators themselves.

Finally, on the emotive issue of ISDS, the Commission will have spent much of the summer

reading and evaluating the substance of the comments they received during the consultation

procedure. Many of those comments undoubtedly reflect concerns that somehow an U.S.

investor could use ISDS to reduce EU standards, or cause regulatory chill, underminingEuropean democracy. To respond to these concerns, the new trade commissioner will need to

stress in appearances before the EP and in discussions with the public that in many ways the

opposite is true. The 1,300 investment agreements the EU member states have including

many with the United States, whether as Treaties of Friendship, Commerce and Navigation

(FCNs) or as Bilateral Investment Treaties (BITs) promote the rule of law by obliging both

signatories to treat investors and investments of the other party according to four fundamental

precepts of their own laws:

not to discriminate based on nationality;

to provide fair and equitable treatment and full protection and security;

to expropriate only for a public purpose, under due process and with prompt, adequate,and effective compensation; and

to allow transfers of funds related to the investment.

4 See http://ec.europa.eu/food/food/biotechnology/gmfood/labelling_en.htm.

5 See ECJ Judgement T-164/10, Pioneer Hi-Breed International v. European Commission, of September 26, 2013, http://curia.

europa.eu/juris/document/document.jsf?doclang=EN&text=&pageIndex=1&part=1&mode=req&docid=142241&occ=first&dir=

&cid=905564.

6 See, for instance, the report of the German delegation to the Commission Working group on Revision of Poultry Meat Inspection,

February 25, 2013, available here; the memo itself is in German, but a number of the linked studies are also in English.
http://ec.europa.eu/food/food/biotechnology/gmfood/labelling_en.htmhttp://curia.europa.eu/juris/document/document.jsf?doclang=EN&text=&pageIndex=1&part=1&mode=req&docid=142241&occ=first&dir=&cid=905564http://curia.europa.eu/juris/document/document.jsf?doclang=EN&text=&pageIndex=1&part=1&mode=req&docid=142241&occ=first&dir=&cid=905564http://curia.europa.eu/juris/document/document.jsf?doclang=EN&text=&pageIndex=1&part=1&mode=req&docid=142241&occ=first&dir=&cid=905564http://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCkQFjAA&url=http%3A%2F%2Fwww.amtstierarzt.de%2Ffachthemen%2Fdownloads%2Fverbraucherschutz%2Fdoc_download%2F194-20130220-ergebnisvermerk-sitzung-gefluegelfleischhygiene-kom-ag-verbaende&ei=ZBSPU5--K6jg4QSG6IGABQ&usg=AFQjCNGq_Azuc0xZnW9rUDC5tSyhX59K4w&bvm=bv.68235269,d.bGEhttp://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCkQFjAA&url=http%3A%2F%2Fwww.amtstierarzt.de%2Ffachthemen%2Fdownloads%2Fverbraucherschutz%2Fdoc_download%2F194-20130220-ergebnisvermerk-sitzung-gefluegelfleischhygiene-kom-ag-verbaende&ei=ZBSPU5--K6jg4QSG6IGABQ&usg=AFQjCNGq_Azuc0xZnW9rUDC5tSyhX59K4w&bvm=bv.68235269,d.bGEhttp://curia.europa.eu/juris/document/document.jsf?doclang=EN&text=&pageIndex=1&part=1&mode=req&docid=142241&occ=first&dir=&cid=905564http://curia.europa.eu/juris/document/document.jsf?doclang=EN&text=&pageIndex=1&part=1&mode=req&docid=142241&occ=first&dir=&cid=905564http://curia.europa.eu/juris/document/document.jsf?doclang=EN&text=&pageIndex=1&part=1&mode=req&docid=142241&occ=first&dir=&cid=905564http://ec.europa.eu/food/food/biotechnology/gmfood/labelling_en.htm


24/65


That is all.

And recognizing that investment is fundamentally different from trade because an investor

puts capital into another country, is subject to all the laws of the land, and can be individually

affected by a government measure, these treaties generally allow those investors to seek redress

from a neutral arbitral panel if and onlyif a host government measure violates one of

the four basic obligations noted above. This investor-state dispute settlement process, gener-

ally done under UN or World Bank rules, is needed because in many countries, the domestic

law that is the cause of the problem is superior to international obligations, and local courts

quite literally cannot enforce the treaty protections for the investor. Some argue that recourse

to an international tribunal is somehow unfair as it gives foreign investors a venue outside

domestic courts. But this is both necessary to preserve the treaty obligations as a matter ofinternational law and is a reciprocal right given by each party to the investors of the other. In

the end, the key is for governments to ensure that they do not discriminate, expropriate, or

otherwise violate the basic tenants of the treaty something that the United States and the

EU member states have already pledged not to do in numerous similar agreements.

Among other things, this ISDS process also has the distinct advantage of ensuring that not

every investment dispute becomes a diplomatic incident taken up by the home government

of the investor something governments generally seek to avoid. This is probably the main

reason the Obama administration, after an extensive three-year public consultation and review

of the U.S. model investment treaty, decided to keep ISDS in it. It did not want to be in the

position of espousing every companys claim against another government. That said, the U.S.

model treaty has added pages of clarifications of the obligations and refinements of the ISDSprocedures (transparency of proceedings, amicus brief filings by interested parties, and the

like) that do not exist in most European investment agreements, and it is possible the Euro-

pean Commissions consultation will result in incorporating some of these (and perhaps other)

ideas into TTIP in a way that addresses some of the concerns that have been expressed.

For it would be odd indeed, and send all the wrong signals to the world, if the United States

and the EU the worlds two largest sources of and hosts to foreign direct investment

could not agree between themselves what the member states have agreed bilaterally with the

United States and with hundreds of other countries around the world.

Keeping Sight of the Prize

The new trade commissioner will have a much bigger agenda than just the U.S.-EU tradeagreement: negotiating trade deals with Japan and Vietnam, investment agreements with

China and Myanmar, and ensuring Russia and others observe their WTO commitments. But

TTIP will be the biggest reward and the biggest, most political, challenge. Some critics

will never be convinced that the agreement is good, but businesses, workers and unions, and

consumers who stand to gain can be if the agreement is clearly explained. Especially in the

early days, the new commissioner will certainly need to handle the criticism, but must also try

to keep all eyes focused on the prize. The economy, the broader transatlantic relationship, and

all European and U.S. citizens will need that statesmanship.

The key is for

governments to

ensure that they do

not discriminate,

expropriate, or

otherwise violate the

basic tenants of the

treaty something

that the United States

and the EU member

states have already

pledged not to do in

numerous similar

agreements.


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Peter Chase is a non-resident GMF fellow, a former U.S. diplomat, and currently vice president,

Europe, at the U.S. Chamber of Commerce. The views expressed in this article are entirely hisown and may not reflect those of either the GMF or the U.S. Chamber.


26/65


4Common Security and Defense Policy:

Charting Next StepsAlexandra de Hoop Scheffer and Martin Michelot

Introduction

Afew recent significant geopolitical trends have contributed to moving the cursor of

geostrategic focus on Europe and its near abroad: most notably, a relative U.S. stra-

tegic disengagement from certain world affairs especially in Europe coupled

with a stronger role played by European actors in Africa, but also Russian assertiveness in its

historical zones of influence. This directly conflicts with European influence in regions where

the Eastern Partnership agenda has been carried out, a trend that in itself remains rife with

uncertainty about the stability of the European direct neighborhood.

Combined, these trends have put a higher premium on European security capabilities and the

necessary political willingness that is attached to their use. What security risks will Europe

face in the future? And to what extent must the EU be able to operate independently of theUnited States if necessary in crisis situations? For the time being, the EU is not capable of

undertaking large-scale military operations without a U.S. contribution.

Going into 2014 and beyond, the role that Europe plays in responding to the worlds most

pressing challenges will only be reinforced. The crisis in Ukraine and the strong desire for

a European reaction, and subsequent disappointment at the lack of a decisive action has

shown this. Europe has multiple tools at its disposal, and should be able to identify mecha-

nisms by which they can respond to future crises. It should also think in detail how it can

further develop instruments of power, whether on the hard or soft power side.

Background

The European Common Security and Defense Policy has always held a special place in the Brussels

institutions. Perceived as toothless and limited to small-scale policing operations, this mechanism,

designed to unite Europe around a strong foreign policy, had a lot of trouble finding its marks since

its inception. However, the 2007 Lisbon Treaty, giving way to the creation of a position of high

representative, put a more concrete face on the development of European foreign policy, and at the

same time created a whole new set of expectations toward Europes new role on the global stage,

given its economic prowess and the collective capabilities of its member states.

The choice of Baroness Catherine Ashton for the first position of high representative consolidated

the status of European foreign policy as being an area of policy in its own right; many observers

questioned Ashtons credentials and saw her nomination as a symbol of Brussels lack of ambi-

tions. However, Ashton took it upon herself to carve out a true foreign and security defense policy

agenda for the EU, although not without dif ficulties and strong exchange of views with memberstates not accustomed to Brussels role in foreign policy. Over the course of the seven years that

spanned her mandate, Ashton was able to strongly position Brussels on certain issues of vital

importance to the transatlantic relationship, such as the negotiations with Iran over nuclear

weapons (and the accompanying sanctions) or the energy security of its member states, the impor-

tance of which has been reinforced in the context of the crisis in Ukraine.

While recent years certainly do not certainly make Brussels an actor equivalent to Berlin, London,

or Paris in terms of influence on the international scene, they represent visible progress in terms of

visibility of Europe, as they have allowed Brussels to carve out a place for itself that is complemen-

tary to the policies carried out by its member states.


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The EU needs to learn

the lessons from

these operations

and take a hard

look at the decision-

making process,

and to facilitate

the communication

between member

states such as France

and the relevant

stakeholders in

Brussels.

European Strategic Disunity: What Lessons can be Learned from Recent Operations?

The European Union, under the framework of the Common Security and Defense Policy

(CSDP), has undertaken small and medium scale military operations in various areas of the

world, with varied degrees of success and visibility. The missions fall under a broad category

of policing ensuring the safety of a specific geographic area or civilian and military

training, undertaken by either military or civilian personnel, of local personnel. At the

moment, the EU is carrying out 16 missions spread out between Europe, the Middle East,

Asia, and Africa. Looking at the lessons learned from these missions is very useful in under-

standing the progress that has been made and what still needs to be made.

The operation in Libya in 2012 revealed crucial shortfalls in European military capabilities,

persistent overreliance on U.S. military assets, and increasing divisions among EUs majorpowers. Divisions between France and the United Kingdom on one hand and Germany on the

other meant that the EU remained largely sidelined in the first stages of the conflict. EUFOR

Libya the EUs mooted military-humanitarian mission was never launched because it

was made dependent on a request from the UN Office for the Co-ordination of Humanitarian

Affairs (OCHA) that never came. And because EU capitals could not reach agreement on a

full-scale CSDP operation, EUFOR Libya was limited to supporting humanitarian assistance.

This was a mistake. As a CSDP operation, it should have both military and civilian compo-

nents (namely police for supporting security sector reform and disarmament, demobilization,

and re-integration operations). Once again, NATO served as an excuse for EU inaction in the

security field. The EU missed a key opportunity to act in a coordinated manner within the

CSDP framework and to develop new mechanisms for cooperation with NATO.In Mali, France made the deliberate choice of intervening unilaterally in 2013 and was then

faced with difficulties in rallying the operational support of its European partners. The Euro-

pean Union Training Mission (EUTM) in Mali, which was set up to provide training to the

new Malian army, was plagued from the beginning with a very slow decision-making process

that pushed back its eventual deployment, more than a year after the French operation began.

The missions delayed deployment, given the challenges in the country, represented a low point

of the EUs ability to act.

This trend was continued in the Central African Republic in 2014. The coalition supporting

Frances operation was even slimmer, since the EU had been very slow at approving even

the symbolic deployment of a very limited military assistance mission. Considering its very

limited format, it is unlikely that the mission will make a major difference on the ground.

The EU needs to learn the lessons from these operations and take a hard look at the decision-

making process, and to facilitate the communication between member states such as France

and the relevant stakeholders in Brussels. It seems that Europe was almost taken by surprise

when France intervened in these countries, so the EU was not able to react quickly and

adequately to support French efforts.


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Despite these setbacks, the EU still maintains strong ambitions and enough of a history (with

the 16 missions it carried out) to asses how the situations should have been handled differ-

ently.

There have been also some successes, which are not often highlighted in the press, that have

allowed member states to save a significant amount of money, such as the European Air Trans-

port Command (EATC). The EATC, created in 2003 and operational since 2010, is a regional

grouping of Netherlands, Belgium, Luxembourg, France, and Germany, to share the use of

150 air transport and air-to-air refueling planes without conditions. It played an important

role in Libya and Mali where military operations would have been much more complicated to

conduct without its efficient framework.

The lessons learned after the Libya crisis resulted in new joint capability programs beingdeveloped within the European Defense Agency (EDA), an agency which that coordinates

cooperative projects and programs. For example, new projects have been launched including

smart munitions, intelligence/surveillance/reconnaissance (ISR) capabilities offered by

radars or drones and air to air refueling capabilities. These domains are vital to Europes

strategic autonomy, as they will allow European armies to carry out operations that they could

not previously have carried out without the support of the United States, as was the case in

Libya. These are developments that should be followed closely, as they symbolize the impor-

tance of the role that the EDA can play in helping member states and the defense industry

coordinate more efficiently. For the EDA, which has been underused since its creation in

2004, being able to carry such central projects will be of crucial importance to its continued

relevance.Finally, the EUs action in the Horn of Africa is a perfect example of a successfully imple-

mented EU global approach through three simultaneous missions: EUTM Somalia, providing

crucial training to the Somali military; EUCAP Nestor, reinforcing the maritime capacities

of five countries; and EUNAVFOR, the first EU military maritime mission to deter pirates

and protect ships from acts of piracy. These combined operations have demonstrated the

EUs capacity to deploy and combine civilian, training, and military capabilities around a

crisis zone, and also show that the EU is particularly successful at conducting limited, highly

specialized missions. The question that the EU needs to ask itself is where its ambitions lie.

Should ambitions grow in order to encompass broader operations within a broader geograph-

ical scope (including Asia, for example), or will it only carry out only missions that are limited

in their scope, in a well-defined geographical area?

Developing Multilateral and Bilateral Defense Cooperation Formats

Beyond the missions, it is important to also point out the EUs adaptability since it is a struc-

ture that allows member states to discuss common issues and cooperate more closely. For

example, in theory, there are European battlegroups, which are composed of brigades volun-

tarily dispat

Ideas for Europe’s New Leadership: A Transatlantic Perspective

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