I spy the demise of the ‘Old West’ alliance

Published in Business Spectator (Melbourne), 31 October 2013

When it became known that the US secret service successfully tapped the mobile phone of German chancellor Angela Merkel, this made international headlines last week. Rightly so – but not just because this is the latest revelation in the wake of Edward Snowden’s whistleblowing on the activities of the National Security Agency.

What this incident really tells us is something more profound: the “West” and the post WW2 trans-Atlantic alliance are history.

Somewhat surprisingly, it was a veteran US diplomat who made this abundantly clear. John Kornblum, the US ambassador first to Bonn and later to Berlin between 1997 and 2001, declared on German primetime TV that the two nations were not friends, just partners. It was a far cry from the days when John F. Kennedy went to Berlin to declare “Ich bin ein Berliner!”

Tapping Merkel, Kornblum explained, was stupid. However, the way he said this made it sound as if the stupid thing about it was that the Americans were caught spying on their alleged European ally.

There can be no doubt about it: America and Europe have fallen out of love with each other, not that it had ever been an uncomplicated romance in the first place. The NSA’s systematic surveillance of European internet traffic and phone calls are just the latest signs in a long period of estrangement. The question is what this will mean for the world economy, global trade and international monetary policy.

To understand America’s and Europe’s joint predicament, another look at the world may be helpful. A few months ago, a blogger posted this astonishing map. It shows how more than half of humanity lives within a circle (roughly) comprising India, China, Mongolia, Japan and Indonesia. Though this may have been the case for some time, what is new is the rapid development of the economies within this circle.

America and Europe (“the Old West”) are faced with the challenge of not just being out-populated by a growing Asia-Pacific region. They are also realising that their individual and combined share of global GDP is going to shrink in the future. This does not have to be bad news, since it is a shrinking of relative size, not of absolute wealth. But it is concerning enough for both continents that in the 21st century, they will no longer be the dominant forces.

In the first years of the century, both continents had to learn it the hard way how vulnerable they are. For the Americans, it was 9/11 that cruelly demonstrated that US values are not globally shared. The bursting of the sub-prime property bubble and the collapse of Lehman Brothers then sent deep shockwaves through the US economy.

For Europe, there was no shortage of moments revealing its political and economic weaknesses, either. The sovereign debt crisis engulfing the continent and the frictions within it monetary union are obvious. The sidelining of the European Union on the international stage is also visible, whether it is in the WTO talks or in climate change negotiations. The Europeans feel how their influence is fading.

Against this backdrop of threats to their global significance, both Europe and the US have started talks on establishing the world’s largest free trade zone. A deal between the US and the EU on trade would undoubtedly help both sides in securing their status and protecting their turf – not least at the expense of others, as I previously argued in this column (Tools to lock away global trade, June 28).

It appears that the chances of such an agreement are deteriorating, and one of the main reasons for this is the US spying network that was once meant to fight global terrorism. Europe is shocked and astonished that it was the target of the American spying and anti-terrorism activities.

The US decision to spy on anyone and everyone after 9/11 has had the ironic result that America is in the process of losing one its oldest friends: Europe.

For decades, the ties between Washington and European capitals had been strong, even if they had never been simple. And they had to be strong. After all, the whole global architecture of economic cooperation was built on them. That is why the World Bank has always been headed by a US citizen and the International Monetary Fund by a European. That is why the OECD is still dominated by the US and Europe. That is why the US and Europe are fantasising to run the world through the pointless G7 (and later G8) summits.

Today, with a G8 that includes Italy but excludes China, the absurdity of this trans-Atlantic hegemonic pretence is self-evident. On both sides of the Atlantic, it should be clear that the Old West can only retain some of its global significance if it is united or at least not fighting itself. After the latest NSA news, this looks far from certain.

Not that it had been much better in recent years. Throughout the GFC, the Great Recession and the euro crisis, the US and Europe have not argued the same case. Typically, the US have called for looser monetary policies and more stimulus whereas the European (read: German) response was usually a plea for more austerity and monetary orthodoxy. The US and the EU have not been singing from the same hymn sheets, and even when they occasionally did it sounded remarkably out of tune.

In a global economic environment that needs the Old West less, Europeans and Americans are no longer cooperating. Instead, they are doing their best to undermine the little bit of trust they still had left in each other. Spying on the German chancellor, allegedly from the premises of the US embassy in Berlin, is the icing on the cake.

For the world economic order, this is bad news. We are in a period of transition towards a century dominated by Asia and the Pacific. But this transition will not get any smoother by the collapse in the relationships between the nations in the Old West framework.

In the coming months and years, President Obama and his administration will have a lot of work to do if they want to restore trust with their European partners. And they will have to show even more commitment to make them believe they could be friends.

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