At the “BAKER TILLY – World Conference” in Munich, 13 October 2003

"Political and economic aspects of transatlantic relations"

Ladies and Gentleman,

Welcome to Old Europe. Welcome to Germany, the heart of Old Europe. 

Yes, it is true: Europe is the Old World; the United States of America are the New World.

But 14 years after the fall of the Berlin Wall, 14 years after the end of the Cold War, the old Europe is also a new Europe: 

- a united Europe, 

- a Europe without the iron curtain, 

- a Europe in which war among its members or groups of members has become inconceivable. 

This new Europe is a Europe of 25. And a part of this new Europe is the Euro-Zone, the heart of the EU with the common currency.

This new Europe has very little in common with its old version, the Europe before the historical turning point of 1989. 

This Europe’s freedom is not dependent on the military protection of NATO. This new Europe does not rely on the presence of US troops, does not rely on the determination of the US to use its military might and, should it be necessary, sacrifice the lives of its soldiers on European soil in order to defend Europe’s freedom. 

There was a time, now 14 years ago, when Soviet tanks were only hours away from Hamburg, Berlin or Munich. 

There was a time, now 14 years ago, when so many nuclear bombs were pointed towards European cities that they would have been able to completely destroy Germany and many of its neighbors.

All that is history: The Cold War is over and the West has won – memorably and conclusively. It was an impressive victory for Western values and for the Western understanding of individual freedoms, of democracy. And - last but not least – for the market economy.

But the victors are not as close together as before, now that the great victory is theirs. Small cracks have started to appear in the former tightly constructed Western block. Without pressure from the outside, the united Europe and the United States are developing apart. 

This was already becoming obvious in the early nineties. But we all only became fully aware of this development before and during the war with Iraq. And personally I’d like to add: painfully aware.

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Thinking about transatlantic relations today, in the age of a new world order, I would like to emphasize 5 points: 

1)There is only one „Superpower“ left – the United States. 

2)This new American dominance has substantially altered the transatlantic relationship.

3)In spite of all the tensions and all the pent-up anger: The West, as defined by the sharing of values between America and Europe, still exists.

4)Especially the economies of Europe and the USA are entwined tighter than many would like to admit. 

5)Political mistakes, no matter how stupid, will hardly change these economic realities. 

Ladies and Gentlemen,

From the start I would like to admit that I am “America-biased.” I worked and lived with my family for five years in the New York area. And this was a great time. I still have many connections to the United States of America and many close American friends. 

I don’t admire everything that defines the “American way of life”. But I do admire American optimism, America’s “entrepreneurial society,” and American idealism.

To out yourself as “America-biased,” means making a mistake, at least here in Germany. Because the European and especially the German critics of the USA are naturally convinced that their own arguments are based solely on reason, and not on emotions. In their view, this rational standpoint means that they have reached a higher intellectual level, thus giving their arguments extra weight.

However, be that as it may: I am pleased that there is only one superpower left after the Cold War and that this is the USA, a freedom-loving, democratic country.

But since there is only one superpower left, the political situation in Europe has relaxed dramatically. And this relaxation has substantially changed the relationship between Europe and the USA.

Europe and especially Germany have much for which they are grateful to the USA: the help for the reconstruction after 1945 and above all the military protection during the Cold War.

However, the American involvement after World War II was not simply selfless aid. The American Secretary of State, Dean Acheson, put it this way: “For the United States to take steps to strengthen countries threatened with Soviet aggression or Communist subversion . . . was to protect the security of the United States – it was to protect freedom itself.”

And one can add: The support of Western Europe also had economic motives. Still, the fact remains that during the Cold War, the USA always spent a higher percentage on defense than the Europeans, who were in much more danger.

It was a partnership between unequals, but it was a partnership. And the USA was set on treating the smaller and economically and militarily weaker partners as equals.

The transatlantic relations were multilateral relations, not unilateral ones. “Going it alone” was not an option for the United States, since this would have meant “going it alone” against the Soviet Union and its massive troop presence in Europe.

Of course there were also tensions between Washington and the European partners during the Cold War. America was skeptical about France’s continued emphasis of its own independence, some aspects of the British Commonwealth politics, and also the German “Ostpolitik.” During the Reagan years, there were heated discussions about arms policies and disarmament agreements.

All these conflicts were solved – because they had to be. Only a united West could be strong and only a strong West would be able to face the “evil empire.”

And today?

Today there isn’t an “evil empire” anymore, at least not one that rules one half of Europe and threatens the other.

Today there is only one superpower, which is superior economically and militarily to all other states – this is the United States of America.

It is important to remember that the Americans were willing to act in accordance with the new world order at the beginning of the nineties – to concentrate on their own country. 

Bill Clinton was elected president in 1992 because, among other things, he said that the national economy was the most important issue. (“It’s the economy, stupid!”). 

The concept of a joint Western policy took a backseat to other interests. This view wasn’t very different in Europe. Europe was free of the latent, but permanent threat from the USSR. And this Europe stopped thinking in “Western” categories and began concentrating on “European” ones.

The members of the EU grew closer together. The Treaty of Maastricht in 1992 built the foundations for the Economic and Monetary Union and thus for the Euro. Western Europe saw itself as one pole in a new, multi-polar world – and as a kind of counterweight to the US.

But mainly Europe has come together economically. The introduction of the Euro advanced the economic integration irreversibly. 

But economic strength does not automatically lead to strategic strength. For the latter kind of strength, one needs to want to play a role strategically and geo-politically. This desire exists in Great Britain and France – albeit in different ways. 

But Germany lacks this desire completely. This is another reason why Europe is not a unit when it comes to foreign policy and military – and not even theoretically a counterweight to the USA. 

“Who is Europe”, Henry Kissinger asked in the nineties, ridiculing Europe’s efforts. What is Europe’s telephone number? Well, Europe still lacks a phone number today. 

And the question as to who Europe is has become harder to answer since the German chancellor Helmut Kohl lost the 1998 election. While he could not speak for all Europeans, he had more influence both within Europe and on the United States than any of Europe’s current leaders. Kohl was also given more trust than any other head of government. 

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Today’s Europe is of course rational enough to know that only the US can act as a world-wide police force. This was never more visible than in the Balkans, the European backyard. 

Compared to other conflicts, the Balkan wars were relatively simple and focused on a small region. But the Europeans were only capable of solving this conflict, their conflict, after the USA finally decided to intervene in the late nineties. 

The American intervention showed who can wage war and who can not: The USA flew the most attacks in Kosovo. Almost all the precision-guided munitions dropped in Serbia and Kosovo were made in the USA. Added to that were the indispensable American technical intelligence-gathering capabilities.

The nineties and the disputes in the Balkans made it obvious that Europe is politically unwilling and militarily unable to solve armed conflicts in crisis regions, in Europe and above all outside Europe. 

The fact that Europe, however, is present around the globe with peace-keeping troops underlines a new division of power and of labor between the United States and Europe: The United States makes the dinner and the Europeans do the dishes. Or to quote another, not very European-friendly saying: “The United States fights, the United Nations feed, and the Europeans fund.” 

There is a large and visible power gap between the two continents. But this gap does not lead to the Western Europeans – apart from Great Britain – seeing themselves as partners in an unequal relationship, yet nonetheless as partners. 

This military power gap, this feeling of inferiority, has led to a completely different sentiment rising in France and Germany: The sentiment of moral superiority.

This European argument, which the Iraq war showed clearly, goes something like this: At the bottom of their hearts, these Americans are weapon-loving cowboys and uncivilized bullies, who want to force their will upon the rest of the world. 

The European, having such a distorted image of the US, then point out their own values, the European values:

- values such as international law;

- that we are more trusting in the possibilities of diplomacy, particularly of the United Nations;

- that we try harder than the Americans to put ourselves into the situation of the other side;

- that we prefer multilateralism to unilateralism. 

This reminds me of the attempt of dwarfs to tie down a giant – in this case with moral ropes. The dwarfs are aware that the United Nations can plan as many military interventions as it likes. However, they also know that these often complicated military missions are impossible without the USA.

In a way, this is a very comfortable position to be in: After the collapse of the Soviet Union, Europe saved money by cutting its defense budgets, thus gaining a “freedom dividend” and enjoying a “free ride.”

The Americans can shoulder the financial burden of being a military superpower. Europe leaves the USA this burden and relies on this superpower to go to war, should it become necessary. But at the same time, Europe longs to have a voice in the decision when, where and under what conditions using military force is justified. 

This shows the underlying problem in an unequal partnership: The partnership will not work if the stronger one subordinates the weaker. But the other side of this problem is also important: The partnership will suffer if the weaker partner feels and acts as if he has a moral veto power.

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There are many good historical reasons for the aversion of Europeans and in particular of Germans towards military solutions. 
It is not because that the Germans are pacifists as President Bush recently put it – in good intentions but with uncorrect judgement.

If we were pacifists the German army, the “Bundeswehr”, would not be in Afghanistan, in the former Jugoslawia and other parts of the world. No, the European and German aversions towards military solutions result from our historical experience:

- Nowhere else have as many people died in two gruesome wars as in the heart of Europe. 

- Nowhere else have civilians suffered from these wars as much as in Europe.

- Nowhere else in the world have people had to “live with the bomb” the way the Germans did on both sides of the Iron Curtain. 

- And nowhere else did the ideology of “Never Again War” find as many supporters as in Germany, traumatized by its Nazi history.

But apart from these emotions, there surely is an agreement between Europe and America that war may never be seen as a normal tool in political disputes. War is simply not the “continuation of politics with other means,” as the great strategist Carl von Clausewitz stated in the early 19th century.

Knowing the events of the first half of the 20th century, and in some cases having experienced them, we have a right to expect that our politicians will do everything within their power to stop the outbreak of a war. 

But just as military power cannot be a natural continuation of politics, there may not be an absolute ban on or even a questioning of the use of military power against dictators.

There were and there are probably good reasons to criticize the American stance before the Iraq war. But to rule out the use of military force against Saddam Hussein, a priori, was just as wrong and reckless. However, this was exactly what the German and French governments did.

What the wish to avoid war at all costs can lead to can be seen in European history. We have experienced the politics of appeasement. But the use of this policy by the British and French towards Hitler was a disaster. 

It is very interesting to see how Joseph Goebbels, Hitler’s minister of propaganda, described this appeasement policy in 1940. Goebbels wrote: „In 1933 a French premier ought to have said: The new Reich Chancellor is the man who wrote ‚Mein Kampf’, which says this and that. This man cannot be tolerated in our vicinity. Either he disappears or we march.”

And Gobbels added: “But they didn’t do it. They left us alone and let us slip through the risky zone, and we were able to sail around all dangerous reefs. And when we were done, and well armed, better than they, then they started the war.”

Goebbel’s words are full of cynicism and scorn. Sadly, however, as we know, his analysis of the appeasement policy was right. But we also know that Saddam Hussein will never be able to judge the West in a similar manner.

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Let us return to the present. The conflict between the USA and Europe concerning Iraq is due to different ways of strategic thinking, but also to different approaches to using military force. 
Here I would like to dwell a little bit longer on Germany’s role within Europe. 

In his brilliant analysis titled “Paradise and Power,” concerning the new world order, Robert Kagan – an American strategic analyst - asks: “What is Europe without Germany?” And it is obvious that he means this to be a rhetorical question.

Germany is still the largest economy in Europe, despite its low growth rates, which permit the other economies to catch up. Germany is also the one country that has been able to straddle two different and sometimes contradictory goals in its foreign policy for decades: To promote the unity of Europe together with France, but also to be America’s staunchest ally on the continent. 

But today’s Germany isn’t the Germany of 1990 or even the Germany of 1980. The reunited Germany has lost economic power for two reasons: 

- Its economic, financial and social policies have still not fully adapted to the requirements of a global economy.

- And in addition, it has been carrying the weight of the “Aufbau Ost,” the restructuring of the economy in the former German Democratic Republic. 

No matter how justified the criticisms of German economic and social policies are, I would ask you not to overlook one very important fact: Since 1991, year after year, West-Germany, the old Federal Republic, has been transferring about 4 % of its GNP to the East, the “Neue Länder (New Federal States),” as we tend to call the former GDR. 

Where would other countries be today if they had been exporting, so to speak, their complete growth rates and more for the last 13 years?

Please do not misunderstand me: I am not complaining about the costs of reunification. And I am not blaming reunification for all current German problems. But I do think that this exceptional burden needs to be considered when we discuss what happened to Germany, the once promised land of the “Wirtschaftswunder.”

However, cause for even more concern is the foreign policy reorientation that has taken place within the reunited Germany. 
Germany has come to realize that it cannot continually point to its love for peace, without actually participating in peace-keeping missions. The Bundeswehr is successfully involved in various peace-keeping missions around the world, the largest currently being Afghanistan.

But the current German government is betting its foreign policy options more or less on the French und the Russians, which in the end means that it is moving away from the United States of America.

As I have said before: Of course there were and there are many good reasons to question the American policy towards Iraq. But what I am accusing the German government of is that it chose a stance which harms the German-American relationship, solely for national reasons. 

Before and during the war with Iraq, there was an atmosphere in Germany which ignored almost all the negative things in Iraq and gave a negative interpretation to almost everything America did.
This was not the result of a planned new orientation of German foreign policy. Rather, the government followed the people’s sentiments in the election campaign, a very German sentiment. 

This sentiment was against the war with Iraq,

- since war is never politically correct, 

- since Germany does not feel threatened either by Iraq or by international terrorism,

- since all the anti-Americanism that had built up in Germany could be vented in the new, peaceful European reality. 

And Chancellor Schröder and his government used this anti-Americanism, which comes from two sources:

- First from the anti-American sentiment left over from the student revolts in the sixties. And these former student rebells are today leading politicans, journalists and teachers. 

- And second: The hatred of America which was preached in the GDR (East Germany) for 40 years up to 1989.

Both of these reasons - the legacy of the student revolts and the propaganda in the GDR - have influenced the current stance of Germans towards America.

I do not want to overemphasize the influence of Germany on the opinion of “Old Europe” in the war on Iraq. But Germany’s deliberately harsh NO to the American plans not only harmed the transatlantic partnership, but added fuel to the fire in Europe by furthering the rift among the Europeans.

France would never have given Washington a blind go-ahead, no matter what Germany said. But the German position allowed France to articulate its criticism of the US in an extremely biting manner and to condemn Europeans remaining faithful to America.

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We Europeans should not deceive ourselves: The Americans will continue to work with us. But they will not forget that we left them alone to face a threat that they considered to be of very high importance. And that we praised ourselves for this. 

But we should also not overlook that the peoples on both sides of the Atlantic Ocean are connected through historical roots, and especially through shared values. 

Even if the visible common enemy, the Evil Empire, has ceased to exist, there is a common interest in defending human rights, democracy, the rule of law, and – last but not least – international terrorism.

There is even the agreement that a functioning and effective – a functioning and effective - monopoly on force held by the United Nations is important and that international law is more than a “quantité négligée.” But in the end, both sides, Europe and the US, gave strategic decisions precedence over international law. 

Critics believe that the USA has violated international law in going to war with Iraq. But the Europeans can not justifiably make this accusation. France alone has intervened in Africa many times over the past decade without a UN mandate. And the Europeans waged the war against Serbia without a UN mandate as well – and were thankful that the United States was willing to help. 

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The old “West” not only lives on in shared ideals and principles. There are also tangible common interests in the economic realm. But here, too, there are conflicts and we are, of course, competitors.

However, there is a large common denominator: The interest both sides have in increasing their wealth. Were the United States of 
America and Europe to actively work against each other rather than cooperate, the global economy and both national economies would suffer greatly.

Let me prove my point with some figures:

- The USA and Europe share about 40 % of the world’s GDP.

- North America and the EU have a daily revenue for transatlantic trade of about 1.25 billion Euro.

- The trade volume between the two sides is equal to more than one third of the global trade volume.

- Both are not only the largest trade partners for each other, but also the largest investors. 

- More than 60 % of the foreign investment in the USA comes from the EU; around 45 % of the US investment abroad enters the EU.

Often, when discussing economic ties, the trade volume is emphasized. But, in truth, foreign direct investment is much more important. American firms mainly sell products and services in Europe through European affiliates. These transactions are about three times as high as direct exports from the US to Europe. 

To look at another figure: American firms employ 800,000 people in Germany, German firms employ in the US 1 million.

All this goes to show that the economic integration is much higher than we are aware of. These figures emphasize that for two countries with such closely linked economies, trade wars or the boycotting of imports is extremely hard. 

Whom would the Americans have hurt, if they had stopped buying German automobiles after the Gulf War? Among others, they had hurt DaimerChrysler’s American plants, they had hurt those employed there and they had hurt the American funds investing in German stocks.

All the boycott appeals in the USA after the understandable anger about the German and French actions before and during the Iraq war did not manage to seriously harm or even damage the trade relations. This collateral damage was luckily small.

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Looking forward – always better than looking back – I think it is very likely that the US will consider Europe even less than before the Iraq war when it comes to strategic decisions. The United States is already used to excluding European help in its strategic plans for the Middle East or Asia. But this will not influence the transatlantic economic relationship. Transatlantic trade is much too important for both sides.

Of course there are always problems and irritations in the economic relationship. But these are due to things like the European agricultural subsidies or the American efforts to protect the national steel industry. Conflicts like these have always existed, without developing into fully-fledged trade wars. 

Both sides are extremely interested in establishing global free trade. Any bilateral trade problems will thus be solved, because they need to be solved. Especially since the US and Europe will want to push for further trade liberalizations at the Doha trade round. 

This shared commitment to free trade is very important. Opening up global markets to poor countries is a precondition for raising the standard of living in developing countries and also a precondition for creating a more peaceful world. 

At the same time, the US and Europe are interested in setting common legal standards across the globe.

The poorer and weaker nations are hoping that the stronger ones will be able to push for the necessary changes. In spite of all our problems, we should never forget how privileged we are compared to less developed countries, in which hunger and poverty reign.

And we should not forget that trade is not just the exchange of imports and exports. Trade is about the exchange of ideas, the freedom to choose, to explore and to grow. Trade is about Dollars and Euros. But trade also is about democracy, liberty and freedom – the fundamental principles and conditions that found and sustain peace.

American President Herbert Hoover once said: “Free speech does not live many hours after free industry and free commerce die.” And the opposite is also true: Free trade is followed by free speech, and free speech puts pressure on governments to protect the freedoms we enjoy.

We should keep these points in mind during the present trade talks, how difficult they may be.

Concerning agriculture, we should admit that both sides of the Atlantic have the same idea of fair competition. However, the politicians are afraid of telling their farmers, for example, that fair competition and free trade would not make their lives easier. 

These are not great political differences; these are not foreign policy questions. These questions concern the problem how a politician can tear down protective walls without his farmers hurting him at the ballot box. 

Another important factor hindering the development of the transatlantic trade relations is biotechnology. The benefits of biotechnology can be seen around the world. More and more countries, especially developing countries, appreciate the great potential of this vital new technology. There is still undreamt of potential in gene technology.

But the Europeans are not as enthusiastic about the new developments as the Americans. This is surely due to the fact that the Americans are far ahead of their global competition. 

I have to admit that I have problems understanding some of the European and especially the German arguments against biotechnology. That the fear of genetically modified foods in Germany is greater than that of genetically modified embryos especially worries me.

I may be naive, but I cannot imagine that the grain that the Americans themselves eat on a daily basis can cause much trouble in other nations’ stomachs. However, why should anyone be forced to eat something they have reservations against? This includes gene modified foods, but also hormone beef. Is there not a way to let the consumer choose what to buy, by labeling the items?

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In spite of all these differences over trade questions, we should not overlook the fact that more than 90% of the trade volume is not connected to these questions. This means that transatlantic economic relations are functioning, are working well and will continue to do so.

All involved know that limiting these relations would lead to a loss of wealth on both sides. And that expanding and intensifying them is not a zero sum game, but a game in which all stand to gain.

However, there is one development in the economic relations that needs to worry the Europeans – that is the growing gap between the US and Europe when it comes to growth. The EU’s goal to turn Europe into the most dynamic economic region in the world by 2010 is very ambitious, but highly unrealistic.

There is not only a military power gap between the US and Europe, but also a growth gap. This gap will move the responsibility for driving the world economy towards the US, a development which cannot be good. It cannot be good for Europe, if its economies continue to grow at 2 or 3%, while the US pushes the global economy with growth rates of 3 or 4 %. 

This was not always the case. Let us remember the world economic summit in Venice in 1980. There, the German Chancellor Helmut Schmidt told the American President Jimmy Carter that he was tired of explaining the world economy to him year after year, only to have Carter go home and refuse to implement any of the policies for the recovery of the world economy they all had decided on. 

These times are long gone. Germany has lost its position as driving economy in Europe, not to mention the world. (That we still like to teach others how the world works is a different topic altogether.) 

But this look into the past has a positive message as well: Just as the US economy managed to return to a leading position, Germany and Europe can catch up as well – if they want to.

That this depends mainly on Germany as Europe’s strongest economy is obvious. Once Germany succeeds in ridding itself of its bureaucracy, opening its labor market, and restructuring its social welfare systems, the German economy will be able to return to growth rates comparable to those in the US. 

Then Germany would also be in a position to push the global economy and not have to wait for the Americans to push.

An economically stronger and more dynamic Europe would not only influence the world economy positively. An economically stronger and more dynamic Europe would also be able to build up its own system of protection against threats of all kind. 

Such a Europe would also be in a position to take on a more important role in NATO by sharing the work with the USA. That would also be in the interest of the USA as the recent developments in Irak and the American steps towards greater involvement of the United Nations prove.

I am convinced that even the only remaining superpower is not immune to “imperial overstretch”, as Paul Kennedy defined the possible overarching by upholding a military presence across the world. And there is an enormous political risk for any American administration that tries the “go it alone”-approach, too. President Kennedy’s philosophy “pay any price, bear any burden” to defend freedom and liberty was valid during this hot periode of the Cold war in the early sixties.

But I doubt it that the American taxpayers are ready and willing to pay any price and bear any burden if they get the impression that the price could be lower and the burden lighter if their own government were more willing to cooperate with other democratic nations. And the same holds true for the American soldiers and their families. 

Last but not least, an economically and militarily strong Europe is in the interest of the old continent itself. Quite apart from countries such as Iraq or North Korea, we are all targets for international terrorism. And this danger can only be answered by the western democracies in the form of a security partnership – or it cannot be answered at all. 

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The political and economic aspects of the transatlantic relationship are two sides of the same coin. 

To be capable of acting in the political realm, a government needs a strong economy. At the same time, the economy will prosper the most in a stable political environment – in one’s own country and internationally.

Europe and the United States are the two powers that can export the basics of our success together – democracy and the market economy. 

I do not want to belittle the irritation, anger, and disappointment that have occurred in the transatlantic relationship over the past months. But I think that our common roots, our common history and our values are strong enough to overcome them, so that the successful transatlantic alliance will continue. 

It should not be viewed as negative that the economic ties are currently stronger than the political ones. John D. Rockefeller, who should know, once said that a friendship based on business was better than a business based on friendship. 

Let us hope that Rockefeller’s words are also valid for future transatlantic relations.

Müller-Vogg am Mikrofon


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