After elections, as before, EU remains an economic giant and diplomatic minnow

The European Union has no effective policy instruments to defend itself against US sanctions − it has no deep capital market, no pan-Europe Treasury bond and Treasury bill.
Sunday 02/06/2019
Little to offer. EU foreign policy chief Federica Mogherini presents the European Commission’s Enlargement Package for 2019 in Brussels, May 29. (Reuters)
Little to offer. EU foreign policy chief Federica Mogherini presents the European Commission’s Enlargement Package for 2019 in Brussels, May 29. (Reuters)

European elections — as in so many elections in recent years — did not produce results predicted by forecasters. Far-right and nationalist parties did make significant gains but it was not the surge many of their supporters had dreamed of and their opponents had feared.

The centre ground of politics, which is pro-European, held except that the Liberals and Greens muscled their way into a parliament dominated for 40 years by Social Democrat and Christian democratic blocs.

The elections have created a more fragmented legislature but the European parliament has, since its inception, worked through shifting coalitions. The question is whether pro-Europe parties can organise themselves and work together in a disciplined fashion.

Their capacity to do so will be tested early on as they seek to agree on a candidate to be European Commission president. The German government is pressing for one of its own, Manfred Weber, but the French beg to differ in view of the loss of votes by the conservative bloc. Whether France will press the case of Michel Barnier, who has handled negotiations on Brexit, or opt for another candidate is not clear.

The continent’s nationalists and far-right-wing forces will find it harder to unite than their parliamentary foes. They failed to increase their overall vote — they have 23% of the seats in parliament — but there were some notable breakthroughs, such as in Italy where Matteo Salvini’s hard-right League leapt into first place with 30% of the vote. However, the scandal that brought down Austria’s far-right leader the day after the elections highlighted deep divisions among nationalist forces regarding links with Russia.

Marine Le Pen won her rematch with French President Emmanuel Macron but it was hardly a catastrophe for the president and is unlikely to push him off course.

The hard right is divided over fiscal policy, free market economics and what EU policy should be on immigration. A major electoral surge would have allowed it to paper over the cracks but it did not materialise. This is notable because a greater percentage of the electorate turned out to vote than in any European poll in 20 years. Pro-Europe voters were happy to switch parties to make their voice heard.

What conclusions can be drawn from this poll for Europe’s policy in the Mediterranean and the Middle East?

The first is that nothing changes. Europe is an economic giant but a geopolitical minnow. Diplomatically it has little sway over events in North Africa and the Middle East. Its voice hardly counts in the Israeli-Palestinian conflict and in Syria and Yemen. While individual countries may choose to sell weapons to parties to the civil war, the European Union has little to offer diplomatically.

In Libya, various EU countries have pursued different agendas. Leading EU members will fine-tune their policies to suit their economic interests. Whoever wins, the European Union plays a walk-on role at best.

Europe cannot meet its security interests in the form of blunt nation-state devices such as a single European army. France killed that idea in 1954 when it refused to ratify a proposal for a European Defence Community.

It could have leveraged the instruments it has and turned them into geopolitical tools — the common currency could have been endowed with an infrastructure to share a portion of the US dollar’s privilege. That, however, has never been a priority. The current generation of European leaders has a much more superficial understanding of the link between the international role of a currency and geopolitical power than Charles de Gaulle who, 60 years ago, memorably remarked that the dollar’s leading global position gave the United States an “exorbitant privilege.”

The diplomacy behind the collapse of the Iran nuclear deal offers a good example of how financial instruments can be used. US President Donald Trump pulled out of the deal last year and imposed sanctions on Iran and any companies from other countries that do business there. The power to cut off foreign companies’ access to US capital markets and from dollar transactions, including most of those that take place outside the United States, was his to use.

The vacuous French, British and German reaction was a fitting example of EU foreign policy. It may sound impressive to the financially illiterate but, in real life, international European companies cannot afford to cut themselves off from dollar markets, even when they were promised compensation for their loss of business with Iran. The banks that lend to them cannot do so either.

The European Union has no effective policy instruments to defend itself against US sanctions — it has no deep capital market, no pan-Europe Treasury bond and Treasury bill.

In the 1990s, the European Union could have chosen to endow the common currency with an infrastructure to share at least a portion of the dollar’s privilege, thus offering global investors a way to diversify their dollar holdings and making them less dependent on the United States.

European leaders love to blame Trump but their sin of omission where the international reserve role of the euro is concerned explains why the European Union remains a diplomatic minnow with a foreign policy worthy of a carpet trader.

In such a context, why should anyone be surprised that southern Mediterranean and Middle East countries pay little attention to the European Union’s Mediterranean policy, let alone its overall foreign policy.

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