In Europe, a growing push to escape the shadow of the U.S.
The German foreign minister's bold demand to create independent financial and defence mechanisms will lend greater political weight to France's earlier call to reclaim Europe's sovereignty from the United States.
On Aug. 21, German Foreign Minister Heiko Maas took to German daily Handelsblatt to pen a candid op-ed that boldly called on Europe to re-evaluate the trans-Atlantic partnership and bolster its own autonomy in response to U.S. unilateralism. Maas, a member of the Social Democratic Party (the junior partner in Germany's ruling coalition) dismissed policy prescriptions that simply advise Europe to wait out the Donald Trump presidency. Instead, he argued that the forces that have led to the chasm in the trans-Atlantic relationship have been long in the making and that a more strategic approach to rebalance the relationship is required. Specifically, Maas called for a separate payment system to SWIFT (a Brussels-based company that facilitates global financial transactions) that would be insulated from U.S. secondary sanctions. He also proposed a European Monetary Fund (EMF) that would act independently of the International Monetary Fund (IMF), as well as a European Security and Defence Union – since European members of NATO "cannot rely on Washington" as much as they used to.
The Big Picture
Stratfor's third-quarter forecast stated that U.S. tariffs and unilateral sanctions would spur Europe to reclaim its economic sovereignty from the United States. This is a slow-moving trend, but the Trump administration's actions are serving to widen the trans-Atlantic divide – something that will have serious long-term consequences for everything from NATO’s evolution to the future of the global financial system.
Maas' proposals prompted a more cautious and nuanced response from his boss, Angela
Merkel. The German chancellor stressed the necessity of maintaining good security cooperation with the United States and the great importance of SWIFT, even as she acknowledged the problems the European Union is facing with the United States as Brussels seeks to continue conducting financial transactions with Iran. Merkel's caution understandably stems from her tense relationship with the White House and pending trade negotiations with Washington, during which she will aim to neutralize a U.S. threat to impose auto tariffs on the European Union – a development that would particularly hurt Germany. Nonetheless, the chancellor endorsed Maas' overarching message, describing it as "an important contribution as it expresses in other words what I have said, that the trans-Atlantic relationship is changing, we need to take more responsibility, Europe has to take its fate into its own hands."
A European push for greater autonomy was bound to result from an intensifying wave of U.S. unilateralism on tariff policy and secondary sanctions, as well as U.S. quarrels with European partners over defence and energy matters. In May, French Economy Minister Bruno Le Maire argued that Europe needs to reclaim its "economic sovereignty" after Washington withdrew from the Iran nuclear agreement. Germany's voice adds considerable firepower to this broader appeal.
The Path to Parting Ways
In practice, greater European autonomy can assume several forms. On defence matters, France is already leading the way in its attempts to strengthen the Continent's strategic autonomy through defence cooperation pacts. Such initiatives include the Permanent Structured Cooperation agreement (PESCO) for the development of joint defence capabilities, as well as the European Intervention Initiative, which is designed to increase Europe's ability to project force abroad side-by-side with nonmember countries, as well as non-NATO members. While these initiatives predate the Trump presidency and address longstanding challenges of how to pool EU resources and increase efficiency across the bloc's militaries, France's proposals have gained momentum thanks to Trump's open quarrels with the NATO alliance.
On economic matters, the Greek financial crisis spurred the European Union to lessen its dependence on the IMF, in which the United States carries significant influence. Instead, Europe seeks to develop its own bailout mechanism through the European Stability Mechanism. Paris wishes to take matters a step further by creating a new entity that would give the bloc greater financial firepower and more discretion in designing assistance programs for countries in distress. But the proposal for an EMF has triggered unease in more fiscally stringent countries such as Germany – a country that is wary of creating a "transfer union" in which large fiscal transfers would flow from north to south. In contrast, Berlin wishes to ensure that any such fund has strong technocratic enforcement mechanisms. The GermanFrench debate over governing the EMF is a reminder of the internal divisions with which the union must still contend, even as it feels more emboldened to band together in defiance of the United States.
Attempting to preserve its economic ties to Iran in the face of U.S. secondary sanctions, the union imposed a blocking statute on Aug. 7 to ban EU companies from complying with U.S. demands to sever ties with Iran. Le Maire also called for a European agency that would mirror the functions of the United States' Office of Foreign Assets Control to independently track whether European companies are complying with sanctions. The blocking statute, however, is largely symbolic, because any U.S. fines imposed on EU companies for trading with Iran would likely exceed the penalties stipulated by the statute. Most private companies will thus limit their business with Iran and rely on loopholes within the EU legal text to insulate themselves from both U.S. and EU punitive measures.
The Blockchain Alternative
Perhaps more significant is Maas' call for an independent payment system to insulate Europe from U.S. secondary sanctions. Washington has threatened to sideline Iran from SWIFT as part of its maximum-pressure tactics to isolate Tehran from the global financial system. SWIFT, however, is a Belgium-based private company subject to EU laws, and Europe's present leaders largely oppose any new actions against the Islamic republic's banks, unlike their decision to participate in sanctions against Tehran six years ago. The United States could still try to sanction individual board members of SWIFT to punish the company for noncompliance, but this could harm a critical artery of the global financial system – not to mention ignite a serious diplomatic crisis with the European Union.
But a mere U.S. threat to that effect could spur the bloc to expand the scope of existing European-centric payment and settlement systems like TARGET2 to preserve its financial ties with countries like Iran. Far more consequential in the long term would be a European move to team up with other major powers, such as China and Russia, on global financial reform proposals that include the adoption of a global blockchain-based financial payment system. Private banks the world over are already experimenting with the technology as a way to improve efficiency, enhance security and reduce the cost of cross-border transaction fees. Among the many implications of such a system is the diminished ability of any one player, such as the United States, to financially insulate a country through secondary sanctions. The pre-eminence of the dollar as a reserve currency could also slowly erode over time in such a system, which would greatly facilitate the trading of other currencies.
To be clear, it would take years for such a global financial payments system to reach scalable viability, and even then, a thorny regulatory maze awaits. Nonetheless, the shorter-term geopolitical catalysts that are driving a major global pillar like Europe toward reclaiming economic sovereignty could play an important role in slowly carving out a new – and far more disruptive – reality for the international system.
“In Europe, a Growing Push To Escape the Shadow of the U.S.” is republished under content confederation between Financial Nigeria and Stratfor.
Attempting to preserve its economic ties to Iran in the face of U.S. secondary sanctions, the union imposed a blocking statute on Aug. 7 to ban EU companies from complying with
U.S. demands to sever ties with Iran.
Center of Picture: German Chancellor Angela Merkel and French President Emmanuel Macron