June 11, 2018
The end of the G7 - good riddance
We cannot recall ever so much huffing and puffing from our usual sources after Donald Trump's decision to pull the plug on the G7 communique. We think the decision is consistent with what we know about Trump. It tells us that the international order based on inter-governmental coordination is coming to end. It was the perfect system for the likes of Angela Merkel. It allowed her to leverage a maximum amount of power. But what the eurozone debacle has taught us over the years is that technically incomplete governance systems based on co-ordination are unsustainable. That means they end. The G7 lasted for a long time, but the reality is that it has long outlived its usefulness. It started as a way for governments to co-ordinate macroeconomic policy in the post-Bretton Woods era. Its biggest successes were the Plaza and Louvre accords of the 1980s. It later became a platform to co-ordinate the ground rules of globalisation. But it subjected states, especially non-member states, to the diktat of a self-appointed elite group. All it took to end the unsustainable was a single election in the US.
Angela Merkel's message from the summit - from the publication of the now famous picture to her subsequent statements - is that the EU now needs to stand on its own feet. We agree with that message, but we don't see Merkel's actions as consistent with her words.
She has made no efforts whatsoever to bring down Germany's large current account surplus, which is one of several deep causes behind the collapse of the rules-based global trading system and the persistence of the troubles in the eurozone. The lack of robustness of the eurozone is due in large part to a German refusal to strengthen the eurozone governance system. The eurozone was created as a fair-weather construction and remains as vulnerable to an election shock as the G7.
Her proposals on security cooperation go further - but how can the EU have a credible security force if the Bundestag retains a veto on troop deployment, and if Germany does not spend its fair share on defence? Germany's problem with Trump over the Nato spending commitment would merely carry over into any EU-based security apparatus.
When Merkel talks about strengthening the EU, she does not mean a stronger European Commission, or a stronger European Parliament, but a stronger European Council, in other words a stronger role for herself. We fail to see what problems that would solve.
Among the many commentators this morning, we like to pick out Niall Ferguson in the Sunday Times who tells us what we don't want to hear: that Trump is succeeding. It was not the popular article among those whose comments on the EU and the world we usually monitor because it didn't pander to the sense of outrage a lot of people felt over the weekend.
"The key to the Trump presidency is that it is probably the last opportunity America has to stop or at least slow China’s ascendancy. And while it may not be intellectually very satisfying, Trump’s approach to the problem, which is to assert US power in unpredictable and disruptive ways, may in fact be the only viable option left."
We agree with Zaki Laidi that the correct European response is to project our own power more effectively. He notes Germany's humiliation at the hand of Trump, and concludes that it would be in Germany's best interest to pool its power. But in his discussion on defence, we thought it was telling that he referred to the UK as the indispensable partner, even after Brexit.
The success of the EU, as it is currently constructed, depended in the past on the goodwill of the US its ultimate security guarantor and global financial anchor, and a law-based international economic order. All of these are now shifting.