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As efforts continue to sort out the economic mess in Greece, and within the euro zone in general, the search for options has been increasing almost hourly. What was to be a rather grand plan agenda for the G20 meeting in Cannes this week turned out to be another hectic fire drill for Chancellor Merkel and host President Sarkozy. And it is by no means clear whether the fire is out, or if the fire engines even have enough water.

A Spectator Sport
Amidst the European leaders strolling along the beachfront in Cannes was an American President who found himself in a somewhat unique situation at a G20 meeting – more in the audience than on the stage. Obama’s role was a reduced one, lessened to more of a cheer leader this time. Some of that is due to the miserable economic situation he faces at home, as well as the specter of political defeat a year from now. Some of it has to do with the objective inability of the US to offer any substantial assistance to the Europeans – perhaps with the exception of working harder to stabilize an American economy in as much trouble as the Europeans face. The President could not come bearing any gifts, other than encouragement and perhaps some shared lessons, for better and for worse, drawn from the past three years of his own travails. During his press conference in Cannes, the President referred to having gotten a crash course in the European Union’s complicated decision-making process. But the whole unfolding cacophony in Cannes might still have reminded him of having to forge a consensus back home.

It is this peculiar position, in which the President finds himself in Cannes, which underscores the changing role of American power in the world.

American Decline?
The metrics of power are complicated in a globalized world, but by most measures the US remains the dominant force on the globe. With the largest military capabilities and the largest economy, talk of American decline is exactly that − talk. But as the old saying goes, perception is reality, and the perception of American troubles often translate into pictures of a country losing traction.

However, there are real measurements which indicate where the US is facing severe challenges down the road. Its fiscal situation is bad and getting worse, as was reflected in the recent downgrade it received from Standard & Poors. It is seeing serious infrastructural weakness around the country, along with state and local governments short on cash and long on deficits.

There are also growing strains within American society as we argue about what do to about these challenges. The decline in trust in both leaders and institutions is alarming, just as the increase in political vitriol which infects our political dialogue has created echo chambers throughout the country, rewarding demagoguery and, therefore, political stalemate.

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However, Angela Merkel is fundamentally right that markets should not expect miracles during the EU summits in the coming week ahead of the self-imposed deadline at the Cannes G-20 on November 3rd. The reason is simple. The euro area suffers from not just one but several acute crises: a “competitiveness crisis” across the southern periphery, a “banking crisis” increasingly visible well beyond Ireland, a “fiscal crisis” centered on Greece but with clear manifestations in several member states, and finally a “design crisis,” for it has become evident that the euro area, as it was designed in late 1990s, was under-institutionalized and not built to last. Despite market clamor for “decisive action,” the fact that the correct euro area diagnosis consists of multiple ailments immediately makes it clear that a single silver bullet solution does not exists for Europe.

So what should we reasonably expect EU and euro area leaders to accomplish this weekend? Among the four euro area emergencies, it is immediately clear that no short-term (inside the euro area at least) solution exists to the “competitiveness crisis”, as only several more years of far reaching structural reforms will restore the export capacity of the southern periphery. On this issue therefore, EU leaders must mostly stay the course and focus on implementing existing pro-competitiveness reform commitments.

It is equally clear that no short-term fixes exist for the euro area “design crisis,” as any credible solution will require potentially large changes to the EU Treaty and, consequently, a new multi-year treaty ratification process. At most, therefore, we can hope that EU leaders will announce the formation of a new “Delors Commission/Inter Governmental Conference” to begin the work of drafting the required changes to the euro area institutional architecture.

On the other hand, EU leaders must achieve substantial progress in solving the “fiscal crisis,” specifically with Greece. In light of recent deteriorating global and Greek economic data, the up to 21 percent haircut on privately-held Greek government debt agreed on July 21st is insufficient. What is instead needed is a larger haircut, probably in the 40-50 percent range. Ultimately, what is needed is a private sector participation that makes it politically credible in the euro area donor countries to stand behind Greece going forward. In other words, it must be made clear to the markets that this is the “one and final Greek debt restructuring” that will ever take place.

In den letzten Jahren hatte es so ausgesehen, als wären die Tage der Gruppe der acht (G-8) gezählt. 1975 im französischen Schloss Rambouillet von Valery Giscard d’Estaing als informeller Zusammenschluss der führenden Industrieländer zur Beratung von Wirtschaftsfragen ins Leben gerufen, galt die Gruppe der acht zunehmend als Ausdruck einer geopolitischen Ordnung, die anachronistisch geworden war. Zwar war neben den USA, Deutschland, Frankreich, Grossbritannien, Italien und Kanada mit Japan auch ein asiatisches Land dabei, und von 1998 an lud man Russland dazu. Doch seit 2008 die G-20 als Treffen der Staats- und Regierungschefs etabliert wurde – im Wesentlichen eine um «Schwellenländer» wie China, Indien, Südkorea, Südafrika, Brasilien oder Mexiko erweiterte G-8 -, erschien die Konstellation der Gruppe der acht als Relikt einer Zeit, in der der Westen die Welt dominierte. Der G-8 fehlte es an Legitimität und an Effizienz, da sie wesentliche Akteure ausschloss. Mit der G-20 schien man dann ein Format gefunden zu haben, das besser dazu geeignet war, globale Probleme gemeinsam anzugehen. Keine Weltregierung zwar, aber doch ein halbwegs akzeptabler Ersatz.

Seit dem diesjährigen G-8-Treffen im französischen Deauville hat sich der Wind allerdings wieder gedreht. Die alte transatlantische Allianz – der «Westen» – ist sich offenbar bewusst geworden, dass man gemeinsame Interessen hat, die nicht von allen geteilt werden, insbesondere nicht von Autokraten. In Deauville hat die G-8 ein beachtliches Hilfspaket für die arabischen Reformer geschnürt. Weil man sich in der Stossrichtung einig war – Unterstützung demokratischer Reform insbesondere in Ägypten und Tunesien -, konnten sich die Gespräche auf die Frage der Umsetzung konzentrieren. Abgesehen vom russischen Präsidenten Medwedew waren in Deauville eben nur «lupenreine Demokraten» versammelt, anders als bei der G-20, wo China ebenso vertreten ist wie Saudiarabien.

Die europäischen und nordamerikanischen Mächte, die den Kern der G-8 bilden, sind eben nicht nur durch Geschichte und Kultur miteinander verbunden. Bei allem Knirschen im transatlantischen Gebälk gibt es doch ein gemeinsames Grundverständnis: dass internationale Politik kein Nullsummenspiel sein muss, bei dem sich einzelne Staaten auf Kosten anderer kurzfristig bereichern; dass nur breit angelegte Kooperation globale Probleme langfristig lösen kann und damit allen nützt. Und dass ein gutes Leben auf Dauer nur zu erreichen ist, wenn Menschen die Freiheit dazu haben, ihr ökonomisches und politisches Potenzial zu realisieren: «Demokratie ist der beste Weg zu Frieden, Stabilität, Prosperität, Wachstum und Entwicklung», heisst es im Abschlussdokument von Deauville. Deswegen erneuert die G-8 ihr «Bekenntnis, demokratische Reform überall auf der Welt zu unterstützen». Damit aber tut sich ein Graben auf, der mitten durch die G-20 verläuft: Demokratische Reform ist genau das, was die Herrscher von Saudiarabien und China fürchten wie der sprichwörtliche Teufel das Weihwasser.