Spats between Europe and the US tend to be tempestuous, short-lived affairs – thankfully. In the Suez Crisis, Britain and France stormed towards Egypt only to be reined in by a raise of the American eyebrow. Dominique de Villepin’s speech against the invasion of Iraq was a glorious affair (please read the bande dessinée ‘Quai D’Orsay’ or watch the film of the same name with Thierry Lhermitte and Julie Gayet), but the tanks still rolled in. Then there was ‘The Donald’, lecturing the Germans on their energy and security policies, to guffaws of laughter and much derision, though he was quite right in the end.
Now, there is another, largely avoidable, though consequential tangle coming between the US and Europe. America’s increasingly concerted efforts to nobble the Chinese economy, and Europe’s slow awakening that it finds itself in strategic competition with China and to an extent the US and must boost its ‘strategic autonomy’, are two geopolitical threads that risk crossing each other in a disorderly way.
The complications of this intersection of interests were on display last week as Olaf Scholz visited China- a man standing nervously on cracking geopolitical ice flottes – he managed to disappoint everybody. His coalition partners were vexed, France’s proposal for a joint EU visit was spurned and America wondered whose side Scholz is on (that of German industry is the answer).
This tender diplomatic environment is just one outcome of a world where globalization as we know it has crumbled and we are now in the interregnum phase before the contours of a new world order are established. The problem being that two or maybe three parties want to establish the rules, standards and institutions of that world order.
There are several problems. America wants to have its diplomatic cake and eat it – it expects Europe and other nations to disengage from China – recall the diplomatic error over the creation of AUKUS. Further its domestic fiscal policy is reinforcing the negative side-effects of its foreign policy. For instance, European car manufacturers will suffer the consequences of the Inflation Reduction Act (David Skilling elaborates on these points in his recent ‘Peak West’ note).
Europe by comparison wants to bake its own cake but doesn’t quite know how. The idea of strategic autonomy has yet to fully take flight – and to be cruel this has yet to evolve beyond ‘strategic yogurt policy’ (in 2005 the French government shielded Danone from a takeover bid by Pepsi).
In a world where the three large regions are fast developing distinct expressions of their values, Europe and America have a common cultural and historical thread and share an interest in promoting democracy. On both sides of the Atlantic, democracy is under threat – from within by populists, and from without by anti-democratic countries like Russia and China.
In that respect, we ask what can be done to ensure that Europe and the US do not trip over each other as they keep an eye on the bigger picture.
The first is that American companies and policy makers need to take into account that the narrative in Brussels and major European capitals has changed towards ‘strategic autonomy’ across a range of fields (defence, telecoms etc) and anyone wanting to do business across Europe needs to fit their pitch into this framing.
The second, related element is that Europe needs to do at least two things – give itself a chance to establish strategic autonomy by putting in place the capital markets, tax frameworks and incentives that will allow innovation to thrive. We are far from this point and there are too few pan-European consumer and fintech platforms – Sumup is one, Doctolib becoming another. The second is to help partners like the US to understand the mapping of ‘strategic autonomy’ and where they can be involved commercially.
The US and Europe ideally need to work more closely on stemming external interference in their electoral processes in particular, and economies in general. For instance, this time last year Europe announced its democracy package – aimed at safeguarding interference on political funding, media and voting rights – but it is effectively porous given the ability of foreign actors to penetrate individual countries without proper surveillance and sanction.
Then, there is talk that the G7 could become the organising body for the democratic Western world – though in effect this boils down to the US-EU axis. There was a time when the UK acted as a bridge for the US into Europe, but Brexit and the degradation of the UK’s soft and institutional power by Boris Johnson have broken this bridge – it may now be up to smaller states like Ireland to better interpret and marshal an open, diplomatic exchange between the US and Europe.
Such a move might help the US-EU axis but then the bigger question remains as to what the EU and US do together- would they try to destabilise public life in China or adopt permanent sanctions and restrictions on Russia. This might well be a false avenue – the best they can do together is convince the likes of Indonesia, Bangladesh and India to move closer to them and thus tilt the balance away from autocracy.
Have a great week ahead