The United States and Europe: Moving Toward 2008
By John Starrels

With the U.S. presidential campaign beginning a year early, Brussels, Washington, and various other EU capitals - particularly Berlin - will need to focus, if anything, in greater detail on how this dynamic plays out and potentially affects their relations between now and 2008. This is an especially important consideration on the economic front - with two caveats.

Caveat one is that we will not have another blow-up of the magnitude of the spring 2003 face-off when the Bush White House pushed its French and German partners to the wall over Iraq. If this happens, say this time over Iran, then economic issues will, again, take a back seat to diplomatic and political ones. My second caveat is that EU leaders will continue to manage their internal and external, "other" European, relations effectively. I am thinking about the EU's and individual European country ties with Russia in particular. If both assumptions hold, then economic issues will likely remain dominant points of engagement in U.S.-EU relations.

There are typically two obvious ways of looking at U.S.-European economic ties; for simplicity's sake let us call them the half-full and half-empty glass metaphors. On the latter, there is any number of reasons to worry about the state of economics (broadly defined to include commercial, monetary, and financial links) between these two continental groups. Trade continues to grow between the two blocs, but few would argue that it could not be larger. German Chancellor Angela Merkel said as much at this past January's Davos, Switzerland, meeting when she called for a substantial reduction in structural barriers to trade between the two partners. The other - half full - side is equally, if not more, compelling. As Bank of America's Joseph Quinlan has persuasively argued over the years, investment flows between the U.S. and the EU are deep and robust - and should remain so.

But as recent turmoil in global equity markets vividly suggests, these are not ordinary times for the global economy. Abrupt sell-offs, such as those which occurred in China a few days ago, can destabilize U.S. and European markets as much as if they had occurred closer to home. With an additional year added to the U.S. presidential campaign cycle, one needs to worry about how this extra time might be employed by anti-globalization, protectionist forces in the United States to press some of their more extreme planks on aspiring candidates. Sounds farfetched? Recall, for a moment, how much of a role Republican demagoguery on 'illegal' immigration played in last year's mid-term Congressional elections. I do not seriously envision a significant outbreak of anti-EU protectionist sentiment during the run-up to the 2008 presidential election. I would, however, have an easier time envisioning a cascading series of politically-motivated "pin prick" annoyances during the upcoming election cycle that could, over time, undermine the foundation of U.S.-EU relations.

What could this look like? For example, the emergence of a pro-industrial policy lobby in the United States that works time and a half convincing aspiring U.S. politicians that EU countries are unfairly assisting domestic industries at the expense of ours. Another possibility, and notwithstanding Chancellor Merkel's hopes, could be a stalling of EU initiatives to dismantle internal bafflers to its own product markets.  If this were to occur, calls for retaliatory action by various U.S. presidential contenders on either side of the aisle could be expected to grow. The issue is not whether these problems will arise, but what can be done at this juncture to ameliorate their impact?

Several related steps come to mind. One, on the political side, newly-enfranchised Democratic majorities in the House and Senate have, after six years in the minority, legitimate reason to sneer at belated calls for bipartisanship issuing forth from this White House. One of the reasons why Democrats - including aspiring presidential contenders - might nevertheless be inclined to cooperate with an embattled White House involves areas where displays of bipartisanship garner them necessary points with key domestic constituencies, such as the financial and corporate sectors, which have increasingly become important sources of financial support for Democrats. Two, for those presidential contenders, Democratic or Republican, who have a serious chance of gaining their parties' nominations, cooperation with the present administration on, say trade liberalization measures - think completion of the Doha Trade Round - might help them clear the agenda of controversial ("no win") items prior to their taking over the White House. And finally, as recent global stock market turbulence attests, if destructive, inward-looking, partisanship trumps responsible cooperation with America's partners, heaven help all of us - except, perhaps, Ralph Nader.

John Starrels is a non-resident Senior Fellow at AICGS.

This article originally appeared in the March 2, 2007, AICGS Advisor.