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July 04, 2018

Trump to confront Merkel head-on over Nato

Next week's Nato summit promises to be the high-noon showdown of the transatlantic community - possibly the beginning of the end of Nato. We are hearing more details of what Donald Trump wrote in his letters to various Nato leaders. The letter to Erna Solberg, Norway's prime minister, has been quoted in full. It is full of threats, even reminding Norway of its proximity to Russia. 

But Norway is not the main issue here. It is Germany. This became clear in the letter he sent to Angela Merkel, extracts of which were published in the New York Times. It says:

"Continued German underspending on defence undermines the security of the alliance and provides validation for other allies that also do not plan to meet their military spending commitments, because others see you as a role model."

The German government is reacting the way it always reacted to these accusations. With a shrug, accompanied with an outright lie. 

FAZ has the precise details of Germany's defence spending plan. The defence budget will end up falling from a proportion of  1.24% of GDP by the end of the coalition's four-year planning horizon. Yet, Olaf Scholz' budget proposal to the cabinet makes the following statement (our translation):

"In view of the Nato agreements, another decisive step will have been taken in the direct of the Nato target range." 

This statement is a lie on so many levels. For starters, the commitment is not a range, but a number. Just like the ECB's inflation target is not a range either. And of course, there can be no question that Germany is on its way to meeting the target of 2% when the trend is going in the other direction. It is the policy of the German political parties, the SPD especially, that this target is not met. And Merkel is not fighting for this, but letting her finance and defence minister fight this out between them. It is the quintessential quality of her leadership not to solve problems. 

We would add that Germany not meeting an agreed defence spending target is not only becoming an existential problem for Nato but also for the future development of a European defence and security pillar.

On a separate note, we see that Trump's threats on the commercial side are already having an effect. The FT reports this morning that the EU is considering a multilateral alliance with South Korea and Japan to agree lower car tariffs in order to forestall US car tariffs. We are not sure that such a deal can be transacted ahead of the Congressional elections as Trump clearly wants to those in place. Or whether they are politically feasible, since this is mainly a German problem, not a general EU-wide issue. We will monitor developments closely, but our working assumption for now remains that those car tariffs, 20 or 25%, will happen. 

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July 04, 2018

European choices in response to Trump

François Heisbourg warns that the European Union faces its third major crisis in a decade: After the euro crisis, which was contained but not resolved; and the immigration crisis, which is neither contained nor resolved; there comes the geopolitical crisis, where EU member states are divided over how to react to the moves of the US, Russia or China. 

Donald Trump may go down in history as the US president who changed the multilateral world order and the transatlantic alliance. He is deliberately linking his trade war against the EU to Europe's dependence on the US defence guarantee. He believes in transactional foreign policies. The EU thus enters unchartered territory, which is nothing compared to disagreements of the past over Suez, Vietnam or Iraq. It transforms the transatlantic alliance into a world with precarious and revocable allegiances. This will undermine what Europe has helped to build over seven decades. 

In many respects, the situation of the EU is reminiscent of that of China in the nineteenth century, unable to unite and resist against dynamic and brutal foreign powers, so Heisbourg. Europeans have now basically three options: deny, fall apart or reject. Denying is pretending that nothing has happened, waiting for the US to return to the model of the post-war years, for Russia to be overtaken by economic weakness and for China to direct its energies elsewhere. Don't count on it. Europe is currently experiencing its own disintegration, with Brexit being only one example, as Poland and Hungary seek their own fate in this geopolitical setup too. To reject would mean a refusal similar to Martin Luther when he stood up for a different Christianity. The main problem for Europe is political: the unity of the European political and strategic decision-making can not be decreed, and a European efficient military spending can only be built up over time. 

Martin Wolf's column in the FT also rings the alarm bells. He warns that Trump's transactional approach and his war on Europe and China is about to define a turn in history. Europe may come together or fall apart. Don't count on a return to the good old times. Trump has high chances to get re-elected, backed by a large and resentful part of the US body politic, whose states are unlikely to get better any time soon. And there is a growing number of Americans who consider China as a cheat and Europeans as carping freeloaders. Trump may pass but Trumpism may not. 

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July 04, 2018

On the paradox of disembarkation centres

The idea of regional disembarkation centres, which is being seriously considered by the European Council at least since their informal meeting two weekends ago, faces considerable legal and practical hurdles. These are summarised in a short feasibility assessment prepared by the Commission after the informal summit and presented to the formal one a week later. The document considers three scenarios, not mutually exclusive, for centres to process migrants. The most interesting case is the third one, for irregular arrivals to the EU to be sent to a non-EU country from where they can make an EU asylum application. The Commission notes that 

"To allow individuals to apply for asylum outside the EU would require the extraterritorial application of EU law which is currently neither possible nor desirable. The only way this could function would be by establishing an EU asylum system and EU courts to process claims accompanied by an EU-level appeal structure. There would then still have to be a system for distributing asylum seekers among member states."

Herein lies the paradox of this proposal because the whole point of it is to sidestep the need for member states to come together and solve the issue of massive arrivals at a small number of border states. In particular, proposals for refugee resettlement have been roundly rejected by a large number of governments, not only by nationalists and eurosceptics. And yet the legal implications of this proposal would be to give the EU extraterritorial powers, and to set up an EU asylum system which would of necessity imply refugee resettlement.

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