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Why Europe is Fiscally Conservative

Numerous US politicians, pundits and bloggers complain that Europe (especially Germany) is once again free riding on the United States. This time we are accused of refusing to carry our share of the global economic burden by failing to increase the stimulus to a gazillion euro. We are supposed to throw in the kitchen sink as the Fed did and follow yet another one of Washington's "shock and awe" strategies since the one in Iraq was so successful.

Europe responds with yet another metaphor: Czech Prime Minister Topolanek, who currently heads the EU presidency, called President Barack Obama's stimulus plan "a road to hell." Yep, he attended an AC/DC concert the week before.

It's time to cool down and read James Surowiecki's excellent explanation in the New Yorker (HT: Ben Perry), why the United States needs economic growth more than Europe does. And therefore "it is not surprising that we [=the United States] are going to be the ones who end up paying for it."

I am tempted to call this post "Americans are from Venus, Europeans are from Mars" because the transatlantic buddies seem to have swapped their preferred positions. As Surowiecki explains:

In American politics, "Europe" is usually a code word for "big government." So in the midst of a global recession, with the U.S. and China shelling out trillions in fiscal stimulus, you might expect that European governments would be spending furiously, too. Far from it. While the U.S. is devoting almost six per cent of its G.D.P. to fiscal stimulus, France and Germany are spending a barely noticeable twenty-six billion euros and fifty billion euros, respectively. Whereas the U.S. hopes that the upcoming G20 summit will lead to a global stimulus package, European policymakers have been warning against the dangers of "crass Keynesianism." The U.S. Federal Reserve has been flooding our economy with money, but the European Central Bank has cut interest rates slowly and reluctantly. Far from wild-eyed leftists, Europeans are looking downright conservative.

Yep, Europe is now sooo conservative that even the Wall Street Journal agrees with us now: Old Europe Is Right on Stimulus. Surprise, surprise.

What do you think? Do we have to swap the stereotypes of Europe and the United States? Is Europe once again piggybacking on the US? Or is US policy just making everything worse for the long run?

Screwing the Taxpayers on the Other Side of the Atlantic?

Welcome to the strange new world of the global financial crisis! Are US taxpayers now bailing out German companies like Deutsche Bank for their bad investments, while German taxpayers will have to pay the price for US companies hollowing out their German subsidiaries?

David Vickrey, who used to be a banker in Frankfurt and New York, writes about The Real Outrage: AIG Bailout Funds went to Deutsche Bank and quotes TV talk show host Jay Leno:

Now it turns out they gave $35 billion -- not million -- $35 billion of our money to bail out European banks. See, this is how a global economy works. Our hard earned tax dollars are used to bail out German banks for making bad investments.

David also wrote about the outrage on this side of the Atlantic. Germany has been discussing a bailout of car maker Opel for weeks, amid big concerns that the money would end up at Opel's parent company General Motors in the US. David translates in his blog post How GM Destroyed Opel a

pretty damning indictment in today's Die Welt by an 'anonymous insider' about how parent company General Motors hollowed out it's successful German subsidiary. According to this account, GM confiscated Opel's valuable patents and designs and then forced the German company to pay outrageous 'licensing fees' back to Detroit.

It now seems that some of those patents belong to the US government these days. Chancellor Merkel intends to talk to President Obama about General Motors and Opel during the NATO summit on April 3-4, 2009. That will be an interesting grand bargain with Afghanistan in the middle of it...

Pakistan Requires "Geopolitical Therapy"

If Afghanistan resembles a Vietnam-like quagmire, then more policy makers and analysts will seek an exit. This raises fears in Pakistan.

Special Envoy Richard Holbrooke has to provide "geopolitical therapy for Pakistani generals who hedge their bets with the Taliban out of fear the Vietnam syndrome may return and collapse the U.S. commitment."

This is the main policy recommendation from Marin Strmecki of the Smith Richardson Foundation, writes Arnaud de Borchgrave in an excellent article for UPI. He also stresses that "geopolitical psychiatry is not America's diplomatic strong suit." Could Europe provide therapy?

Northern Ireland at a Crossroads?

The Atlantic Review is pleased to present this guest article by Professor Stefan Wolff from the Centre for International Crisis Management and Conflict Resolution, University of Nottingham, UK.

For more than a decade, Northern Ireland had been spared from fatal attacks on security forces. Then, within two days, two soldiers and a policeman had been killed by terrorists. Why did it happen, and what does it mean for the future of Northern Ireland?

The first question is relatively easy to answer. The 1998 Belfast or Good Friday Agreement, while endorsed by an overwhelming majority of Republicans, was never without its opponents in this community. Nor was the very strategy of achieving a united Ireland by peaceful means. As early as 1986, some of those opposed to Sinn Féin's engagement in the political process split from the Provisional IRA and formed the so-called Continuity IRA-the group that killed Constable Stephen Carroll of the Police Service of Northern Ireland on March 9, 2009. The killing of two soldiers just 48 hours earlier had been committed by a group calling itself the Real IRA who had split from the Provisional IRA in 1997 in opposition to Sinn Fein's entering of the negotiations process that would eventually produce the 1998 Agreement.

Continue reading "Northern Ireland at a Crossroads?"

We Need to Focus on Russia

While Western Europe welcomed VP Biden and Secretary Clinton's announcement for a new and more open engagement of Russia, Ariel Cohen of the Heritage Foundation thinks that America should not push the reset button yet.

Dr. Cohen is concerned about Russia's Revisionist Foreign Policy. He argues that Obama administration "must raise the profile of Russian, Eurasian, and Caspian affairs on the U.S. foreign policy agenda," because "Russia is and will remain one of the most significant foreign policy challenges."

Russia strives to dominate Europe, particularly Eastern and Central Europe, including Germany, through its quasi-monopolistic gas supply and its significant share of the oil market and of other strategic resources. (...) Russian energy giant Gazprom has been on a shopping spree, acquiring European energy assets. Europe is projected to be dependent on Russia for over 60 percent of its gas consumption by 2030, with some countries already 100 percent dependent on Gazprom. Russia has shown a willingness to use this dependency and its energy influence as a tool of foreign policy, shutting down or threatening to shut down the flow of gas to countries perceived to be acting against Moscow's interest, as in the cases of Ukraine, Georgia, and Azerbaijan.

German policy makers are considerably less concerned about dependence on Russia gas and argue that Russia needs trade with us at least as much. Perhaps they are naive. Or the Heritage expert still has a Cold War mindset. Or it is a mix of both.

I mistrust the Russian government and I am concerned about Russia's foreign policy, but believe that a new engagement (pushing the reset button) will serve us better than Cold War rhetoric. We need to work with Russia on common challenges (nuclear disarmament, sanctions on Iran, proliferation in general, Afghanistan, transport routes to Afghanistan etc) and should avoid for now unnecessary confrontations over missile defense and further NATO enlargement for Georgia and Ukraine, which are not ready yet anyway and who would not contribute to our collective defense.

In my humble opinion, Obama is on the right track. Europeans, however, still have to do their homework: We need to reduce our energy dependence on Russia and we need to a joint EU position on Russia, i.e. need to find consensus among Western and Eastern EU members. Russia will only respect a strong and united EU.

Boston Globe: Economic Crisis is an "Existential Threat" for the EU

The Boston Globe gets dramatic:

In America, the recession has been primarily an economic phenomenon, with conventional political effects. But in Europe, the economic tsunami is threatening to dissolve the continent's greatest political achievement: the peaceful democratic edifice of the European Union.

The fault lines have become evident in recent weeks. One division pits some nations of Central and Eastern Europe against older EU members of Western Europe. Another divides states leaning toward protectionist measures, such as France, against stout upholders of free trade, such as Britain and Germany.

Trans-Atlantic Disagreements Over Stimulus Grow

Financial Times:

Disagreements between the European Union and the US over how to combat the global recession widened on Tuesday as EU governments made clear they had little appetite for piling up more debt to fight the collapse in output and jobs. Finance ministers from the 27-nation bloc insisted in Brussels that it was doing enough to support world demand and did not need at present to adopt another fiscal stimulus plan, as Washington is urging.
The US-European differences are casting a shadow over next month’s summit in London of leaders from the G20 group of advanced and emerging economies, an event to be attended by Barack Obama on his first visit to Europe as US president.

Telegraph: "Obama just plain rude to Britain"

Iain Martin writes in his blog for the Telegraph (HT: Marie-Claude):

The morning papers and TV last night featured plenty of comment focused on the White House's very odd and, frankly, exceptionally rude treatment of a British PM. (...) Well, the next time you need something doing, something which impinges on your national security, then try calling the French, or the Japanese, or best of all the Germans.

This post has received 453 comments so far. Will President Obama soon be as unpopular as President Bush? Probably not, but he is heading to Clinton's approval ratings, which were not as good during his presidency as they are now in his retirement and philanthropist activities.