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Europe’s Euro Problem—and Ours Europe’s Euro Problem—and Ours

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NJ Daily / BALANCE OF PAYMENTS

Europe’s Euro Problem—and Ours

It’s more than economic. It’s a national security crisis, too.

FILE -- In this Dec. 20, 2001, file photo prior to the start of the new currency launch, the Euro monument is illuminated in front of the European Central Bank (ECB) in downtown Frankfurt, Germany. How low can the euro go? Economists think the 16-country currency is headed significantly lower because of the Europe's government debt crisis. Some are even predicting that the euro could sink next year to what's called parity _ euro1 equals $1, a long drop yet from the current $1.23, and a level the euro last traded at in July 2002. (AP Photo/Bernd Kammerer)  (AP Photo/Bernd Kammerer)

photo of Bruce Stokes
November 30, 2011

At his summit this week with European Union leaders, President Obama acknowledged the economic stake the United States has in Europe’s unfolding sovereign-debt crisis. “If Europe is having difficulties, then it’s much more difficult for us to create good jobs here at home,” he said.

But the euro crisis is not simply an economic crisis. It is a foreign- and security-policy crisis. And it poses a grave challenge to the strategic interests of the United States.

Why? The looming default on sovereign debt by one or more eurozone countries could well lead to a Japanese-style “lost decade” in Europe marked by stagnant economic growth.

 

A weakened, distracted Europe would prove an unreliable ally for the U.S. It would mean a Europe even less able to defend itself, one that cuts back on foreign aid, that is less able to stand up to Russian energy blackmail, that is hesitant to impose trade sanctions to curb Iran’s nuclear ambitions, and is reluctant to work with Washington in dealing with China.

The strategic fallout from the euro crisis will affect U.S. geopolitical interests for years to come, undermining the transatlantic alliance that has been the cornerstone of U.S. security policy for two generations, accelerating America’s drift toward an Asian-centric foreign posture.

“A Europe that is not united,” warned Simon Serfaty, a scholar at the Center for Strategic and International Studies in Washington, “is, by definition, less strong. And a Europe that is less strong will become increasingly less vital to the United States in the 2010s, when American power will need to rely on allies that are not only willing, but capable.”

An economically hobbled Europe will be unable to help pay for its own defense, just at the very moment when the U.S. is going to have to get even more serious about defense cuts and deficit reduction.

In 2010, the United States devoted 4.8 percent of its gross domestic product to defense. The United Kingdom spent 2.7 percent, and Germany 1.3 percent. So a burden-sharing gap already exists.

In the wake of the euro crisis, with budgetary austerity the watchword in all European capitals, “no state will be able to protect its defense sector from savings measures,” noted Christian Mölling in a recent paper for the Berlin think tank SWP.

Since 2008, European nations already have cut military spending by an amount equivalent to the entire annual defense budget of Germany. This translates into real reductions in defense capacity. The United Kingdom is phasing out its troop deployment in Germany, mothballing one planned aircraft carrier and leaving the other with no planes to land on it for several years.

The German government will reduce personnel in the armed forces from 250,000 to 185,000. The Luftwaffe will curtail its planned acquisition of Eurofighters. And its fleet of military transport aircraft will be reduced, giving Germany less expeditionary capability.

Over time, predicts Mölling, defense belt tightening will result in 27 bonsai armies in Europe, miniature versions of an armed force less and less able to accomplish strategic missions. The cost of shortchanging defense was already evident in the Libyan conflict, where Britain and France would not have been able to carry out their successful mission without U.S. munitions. Imagine a similar crisis in a decade with shrunken European defense forces and a smaller U.S. military.

More broadly, the euro crisis will undermine Europe’s pivotal role as a democratic, free-market model for its immediate neighbors.

“The idea of the EU and the euro was that affluence would be created and shared,” said Charles Kupchan, a senior fellow at the U.S. Council on Foreign Relations. “Now that is fading. Instead of delivering affluence, the EU now delivers austerity and pain.”

Nowhere is this more evident than in Greece. Athens had a military dictatorship from 1967 to 1974. And one of the reasons Greece was admitted to the European Union in 1981 was to cement democratic governance there.

“For the Greeks,” said Serfaty, “getting into the EU was a way to end political instability and an undemocratic threat that defined Greece in the past. Being forced out of Europe would resurrect those things. Moreover, it would define an easy way out for other states with potential populist leadership.”

Finally, European weakness could dash all U.S. hopes for transatlantic cooperation in dealing with China. European governments hoping to sell Beijing sovereign debt have already come under pressure to back off antidumping cases aimed at Chinese companies. As Francois Godement pointed out in a new paper for the European Council on Foreign Relations: “Although the U.S. has borrowed extensively from China for a decade without making major concessions, European disunity on debt management will make it a struggle for the EU to avoid such concessions to Beijing.”

“The downside risk,” said Kupchan, “is that the U.S. will find itself navigating a new East Asia map very much on its own.”

America navigating the world without Europe? Who would have imagined that the euro, meant to cement European unity, would become so damaged that the transatlantic alliance itself would be harmed?

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