The US should quickly restore good and confident relations with Europe

FAN Editor

The NATO summit in Brussels on July 11 and 12 is an opportunity for President Donald Trump to get the trans-Atlantic relations back on a constructive path — the place they should have never left.

It is absurd to think and say, as some do, that the European Union was created as an opponent to the United States. The EU remains a peace project where economic integration is a means of strengthening that epochal mission. The founding fathers sought to guarantee Europe’s peace by keeping France and Germany, the centuries-old sworn enemies, off each other’s throats. To do that, they put, in the early 1950s, these countries’ instruments of war — coal and steel — in a jointly managed organization called the European Coal and Steel Community. Successive stages of integration led to the European Common Market, the European Economic Community and the European Union.

The U.S. was fully involved in the initial stages of that peace project with large funds, and some of its best and brightest diplomats working alongside their European colleagues. Since then, the EU has been an important part of American foreign policies, in spite of occasional lapses of focus and attention as Washington had to attend to more pressing problems around the world.

It, therefore, seems very likely that America’s apparent distraction from trans-Atlantic affairs might have led to issues of unbalanced trade and improper burden sharing of allied security obligations.

Trump has justifiably put Germany at the heart of both problems. Accounting for a quarter of the EU economy, that country sets the pace to the market taking $283.5 billion of American goods exports — nearly one-fifth of the total, and more than double of all U.S. sales to China. Germany also hosts America’s largest military installations in Europe.

Taken in that perspective, Germany’s $64 billion trade surplus with the U.S. is small beer. Trump can easily find ways with Berlin to stop and reverse that trade imbalance because Germans are ready and eager for a constructive dialogue.

Washington and Berlin have to look much beyond the narrow-minded trade skirmishes. With their two economies representing half of the industrialized world’s demand and output, they have to work closely to strengthen the trans-Atlantic security architecture so that the Western world order can deal with powerful new players.

Several recent examples of what happens when the U.S. and Germany don’t work together come to mind.

Think of the ravages caused in the early years of this decade when Germany imposed fiscal austerity on European countries already sinking into deep recessions. The soaring unemployment and poverty that followed paved the way for populist movements that have currently taken power — or are seriously threatening the established political forces — in a number of EU member states.

Washington did nothing to prevent those absurd policies that devastated the market for its huge export sales, and an area critical to its national security.

Greece and the EU’s current migration debacle are two more examples where the U.S. chose to stand aside while Germany wreaked havoc with the destiny of an entire country, compromised the stability of the NATO alliance and endangered peace and prosperity on a continent that lit up the world twice in the last century.

With an apparently clueless Washington, utterly frightened by Berlin’s plans, in the summer of 2012, to throw Greece out of the euro area, France had to step in to put a stop to German mischief.

Anybody interested in seeing what a destruction of the Greek economy would have meant to the U.S. national security can consult NATO’s website. Greece is hosting American-operated military facilities controlling the Eastern Mediterranean, part of West Balkans, North Africa and the Middle East.

The Greek tragedy is a case where Germany bears direct responsibility. Serving as a de facto boss of the Eurogroup — a forum of the euro area finance ministers monitoring the group’s economic management — Germany could have corrected Greece’s allegedly wrong policies and stopped a widely suspected tempering with public finance accounts.

Berlin did nothing, and then made things worse by dragging its feet, meting out cruel “restructuring” punishments and saddling Athens with an unbearable 325 billion euro of public debt.

Washington looked the other way, but it now realizes the importance of having a deeply wounded Greece on board, while other regional alliances look increasingly questionable.

Europe’s ongoing migration crisis is another tragedy caused by Germany. Dressed up as a humanitarian gesture, migrants and refugees were allegedly invited to relieve the country’s growing labor market shortages — an initiative derided by a French philosopher as “violins and adding machines.”

Humanitarian considerations aside, it is odd that Germany would call on migrants to fill its employment vacancies instead of giving jobs to millions of EU workers facing jobless rates ranging, in 2014-2015, from 11 percent in France to 13 percent in Italy, 14 percent in Portugal, 23 percent in Spain and 26 percent in Greece.

And then, when Berlin realized it could not handle the migrants’ influx, it further divided Europe by seeking to impose mandatory immigrant quotas on countries that had not even been consulted beforehand about Germany’s unilateral decisions.

Those huge policy blunders have now put German democracy in danger. The established center-right and center-left governing coalition parties are losing ground, while the nationalist and xenophobic hard-right Alternative for Germany has gone from zero votes in 2013 to 15 percent, and counting, in the latest opinion polls.

As a principal stakeholder in the Western world order, Washington cannot watch all that with a distracted eye, and keep harping on divisive and relatively small trade and financing issues. No, the true task is to keep the EU, with Germany at its core, firmly anchored in a strong and closely-knit trans-Atlantic community.

Trump has a stage, a chance, and a historic duty to rise to the occasion as a pacifier, unifier and a builder of a frightened and fragmented trans-Atlantic community when he meets with his NATO allies in Brussels next week.

That’s what financial markets are expecting for a new impetus to asset prices. Trade chaos and a disintegrating West are depressing the markets at a time when no further support can be expected from the monetary and fiscal policies.

The Europeans are hoping for the best, but are ready for the worst. The president of the European Council (a forum of heads of state and government) has warned that Trump is a divisive and unpredictable figure.

As historian Arnold Toynbee would say, “history is again on the move.” America is challenged to show the way.

Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.

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