Underlying past failures to agree on transatlantic trade liberalization are strong vested interests in the U.S. and in the EU—issues that have not vanished over the years. For negotiations on the recently proposed Transatlantic Trade and Investment Partnership (TTIP) to become successful, greater engagement with such interests is needed to achieve more than yet another failure. Furthermore, instead of convincing those peers that are already aware of the value of greater transatlantic economic convergence and hailing the TTIP on the basis of more or less diffuse expectations about the benefits of a still-to-be-known negotiation package, supporters of a TTIP should refocus their initiative on issues that are known but that remain unresolved.

It is true that stimulating economic growth at significantly lower material and political costs than those needed to agree on stimulus packages and/or the loosening of austerity measures is attractive on both sides of the Atlantic. However, with both U.S. and EU negotiators still in the phase of securing their respective negotiating mandates, it is not a bad thing to also stress the many obstacles towards actually agreeing on a comprehensive package. Indeed, drawing on lessons learned from past initiatives, there are not many promising signs: political gridlock in the World Trade Organization (WTO) and subsequent lack of progress in multilateral negotiations; failed past attempts of the U.S. and the EU to move ahead alone; major trade disputes between the two on important issues; and lack of political engagement among leaders on both sides of the Atlantic to move ahead.

In a report that triggered the joint initiative of U.S. and EU leaders to launch negotiations, the U.S.-EU High Level Working Group on Jobs and Growth promises that they will work, among other things, towards an “ambitious ‘SPS-plus’ chapter”. As with any other part of the negotiation package, the exact contents are still unknown; the report only provides an overall framework for future negotiations. However, Max Baucus, chairman of the powerful Senate Finance Committee, has already raised the bar rather high for Congressional approval to any negotiation results. Alluding to the preconditions for Congressional support to the envisioned “ambitious, comprehensive, and high-standard TTIP”, Baucus, in his capacity “as a senator from a large agricultural state,” wrote in an article for the Financial Times: “Congress will not settle for an agreement that fails to address the areas likely to yield some of the most significant economic gains—in particular, the elimination of barriers to agricultural trade and ensuring that regulatory processes are streamlined and based on sound science.”

What Draghi got on Thursday, April 25^th was more than just tacit support. He received an explicit green light for a new ambitious program that the ECB is on the verge of launching, perhaps as early as next week but no later than June.

Merkel gave her consent while speaking in front of an audience of representatives from the German savings banks association. For the many observers that are exclusively focused on interest rate cuts as the primary tool capable of injecting life into a faltering European economy, what they heard was alarming. Merkel dismissed the idea that the ECB should lower interest rates. If anything, she believed that rates should even go up for Germany. It sounded like a warning shot across the ECB’s bow.

Nothing could be further from the truth. Pouring cold water on the idea of lowering interest rates was not Merkel’s main argument. More importantly, she stressed that what is currently needed is a way to get cheap credit to those SME’s in the periphery of Europe that are having a hard time accessing funds.

For weeks, Draghi and fellow members of the ECB’s executive board have argued along the exact same lines. They have repeatedly stressed that as long as low interest rates are not successfully transmitted to all of the euro zone’s banks (and this is presently the case), it does not make much sense to be tinkering with them. What is needed, they have argued, is a set of new instruments designed to get credit flowing again.

Based on public and private remarks made by representatives of the European Commission, the European Investment Bank and the ECB in Washington during the recent spring meetings of the International Monetary Fund (IMF) and World Bank, I have concluded that this time the ECB is working on a plan that would involve all three European institutions. Needless to say, no details were offered. And of course, it is difficult, if not impossible, to imagine how the ECB could lend directly to SME’s. Hence, this time it is the EIB, under its head Werner Hoyer, that could play a central role.

The main aim of the new program would be to encourage the securitization of loans made to small and medium sized companies. The central part of the concerted action undertaken by the ECB, the EIB and the EU Commission should be to provide a guarantee for those securities and reduce the risk to banks.

Whatever shape the program might take, the ECB will continue to remind politicians that they are not off the hook and that most of the homework still rests with them. They need to address the underlying structural reform backlog that is hampering a recovery. However, once again Mario Draghi seems prepared to act in a moment of need. We now know that Merkel will give her placet to the new experiment.

This essay originally appeared in Weltzeit, the magazine of Deustche Welle, as part of their 60th anniversary series examining key issues for Germany.

“Der wichtigste Partner”: German Version; “German, not Japan, as Essential Partner of the United States”: English Version

Spaltpilz im Bündnis: Neue Mitglieder für die NATO?, von Dr. Patrick Keller, Konrad-Adenauer Stiftung

Further analysis by Dr. Patrick Keller:

Enhancing European Security, by Almut Möller, Johannes Varwick, Patrick Keller, Svenja Sinjen, published March 15, 2012.

Berlin is Well Placed to Lead Syria, by Ulrich Speck, Financial Times, March 19, 2013 (Paid content)

On Monday, the German administration felt forced to reassure its citizens that their savings are safe. For months, Germany had made it quite clear that some form of bail in, i.e. private participation of Cypriot depositors in raising the necessary funds, was necessary as part of a deal to rescue Cyprus. Merkel and other creditor countries needed to address their own bailout fatigue. The fact that Cyprus has the reputation of allowing Russian oligarchs to launder their money through Cypriot banks has made things much more complicated. Going after bond-holders did not make much sense. Corporate bonds of Cypriot banks are small in size, with the bonded debt amounting to a mere 1,7 billion euros against some 70 billion euros in deposits. Cyprus needed a country specific solution, one that included bank depositors. More importantly, the deal needed to be credibly sold as such.

But instead of doing just that, the euro zone and the International Monetary Fund (IMF) managed to jeopardize the fragile European stability of the past few months. By forcing Cyprus to raid small bank deposits (those worth 100,000 euros or less), they have triggered renewed turbulence in the financial markets. In fact, this deal has been sold so badly that, on Monday, even the U.S. Treasury felt it had to publicly urge Europeans to find a fair solution. Cyprus is now scrambling to tweak the deal and will first try (and probably fail) to extract better conditions from Europeans. In the meantime, banks in Cyprus remain closed.

There is much blame to go around. However, the main mistake was for Europeans to allow Cyprus to decide on its own how to raise the 5,8 billion euros needed from deposit holders. Contrary to initial reports, Germany and others did not insist on raiding small depositors. How to raise the money was largely left to Cyprus itself. According to many media reports, it was the government of Cyprus that resisted putting a much heavier levy on accounts exceeding 100,000 euros. It did not want to excessively squeeze big depositors (including Russians), for fear of losing them. Europeans made the mistake of not protecting small depositors.

Some have criticized Europe of being too hard with Cyprus, others of not going far enough. But there are also those who think that overall Europeans did the right thing. Everybody seems to agree on the fact, however, that asking small depositors to pay a high price for Cyprus’ rescue was a mistake. Just how bad is not clear yet.

For opposing views and further analysis on the developing situation in Cyprus:

The Cyprus bank Deal: What it Means, by Jakob Funk Kirkegaard. Originally published by the Peterson Institute for International Economics

Germany Must Decide the Power it Wields, by Ulrich Speck, Financial Times (February 19, 2013)

Draghi barely mentioned the currency in his prepared remarks in the press conference after the regular meeting of the governing council, merely pointing out that the central bank is monitoring the situation on foreign exchange markets. “We want to see if the appreciation is sustained, and if it alters our assessment of the risk to price stability,” he said. Those words proved to be sufficient to send the euro two cents down versus the dollar. Within minutes of the end of his press conference, the common currency started declining versus all but two of its major counterparts. Draghi had achieved what many politicians in the periphery of Europe would like him to do: weaken the euro.

However, as has been the case with the launch of his bond buying program known as OMT (Outright Monetary Transactions), Draghi had done so without firing one single shot. How did he  do it? And what exactly happened today?

Draghi still has a credibility surplus that allows him to move markets without actually doing anything. On Thursday Feb. 7^th, he once again successfully managed expectations. Markets still very much believe that he is prepared to do whatever it takes to save the euro. They are reluctant to test whether he can actually trigger the huge weapons he has brought on deck.

He walked a very fine line between France (whose President Francois Hollande thinks that the euro should be weakened by intervening on currency markets) and Germany (whose leadership believes nothing should be done, not yet at least). He continues to be a master in monetary diplomacy.

He did not specifically talk about countermeasures he would take should the impression arise that a G20 country had started to manipulate its currency in order to gain a competitive advantage. However, by mentioning the ECB’s inflation target (2%), he hinted at further easing should the euro zone slip into deflationary territory. Draghi did not say however, whether the governing council would merely lower interest rates or even consider following others (FED, Bank of Japan or Bank of England) on their path of quantitative easing.

My guess is that he would like to do none of the above, hoping that words can mitigate the effects of measures undertaken by others (in particular Japan) that are weakening, and will probably continue to weaken, their currencies. So far the euro is still moving within its historic band of fluctuation. But for how long? Draghi today merely acknowledged that the so-called currency war has appeared on his radar screen. But what he intends to do about it if things really heat up is far from clear.

Mali, the Bundeswehr and Germany Passing Passion for “Talk”, Gunther Hellmann, originally published by the Transatlantic Academy

Schleichende Zunahme des Antiamerikanismus, Thomas Petersen, Frankfurter Allgemeine Zeitung

Bruce Stokes is the director of global economic attitudes at the Pew Research Center:

German Anti-Americanism: Yes and No

Rising German anti-Americanism is a question of both relativity and specificity. Germans have lost faith in the United States and U.S. President Barack Obama. Moreover Germans are deeply disappointed in Obama’s failure to live up to what may have been their unrealistic expectations. But Germans’ approval for America and their president is still much higher than it was five years ago, ratings that other countries and politicians would die for!

Just 52% of Germans had a favorable view of the United States in 2012, much lower than that in Italy (74%), France (69%) or Poland (69%). German approval was down 12 percentage points from 2009, the greatest drop off in any country in Europe. And 62% of Germans now think that China, not the United States, is the world’s leading economic power. Nevertheless, German sentiment was still much more pro-American than in it was in 2008, when only 31% of Germans saw Uncle Sam in a favorable light.

The proportion of Germans who say they have “a lot of confidence” in Obama has also fallen, from 56% in 2009 to 40% in 2012. And 87% of Germans still have “a lot or some confidence” in Obama, which in the 2012 Pew Research survey was higher than similar support in Germany for Chancellor Angela Merkel.

Germans, like people all over the world, are disappointed that Obama has not lived up to their expectations for him. In 2009 69% hoped he would consult with other nations in the conduct of international affairs. Just 45% think he has. A whopping 84% expected him to be fair in dealing with Israelis and Palestinians. Only 61% say he has (yet this is the highest grade any Europeans give him on this issue). Most damning, 76% believed he would take steps to deal with climate change, but a mere 23% think he has. And in an issue that has been in the news lately, 59% of Germans disapprove of Obama’s use of drone strikes.