May 09, 2019
The EU's impossible dilemma
We think of the image of the perfect storm is a tired cliché but on some level it captures the situation after Iran's threat to end compliance with several critical aspects of the nuclear deal.
The announcement by Hassan Rouhani, Iran's president, was followed last night by Donald Trump's decision to extend the sanctions from oil to steel and other metals, Iran's second-largest source of export earnings. The same third-party sanctions will apply in this case. There were exemptions to the previous third-party sanctions regime, but those all ran out at the beginning of this month. The US will confiscate US accounts of Iranians and third-country nationals if they contravene the sanctions. Trump threatened that there may be more to come, unless Iran relents.
Rouhani has given the EU 60 days to resume energy trade, or else Iran will take a number of progressive steps out of the most important aspects of the deal. As of yesterday, Iran already said it would build up stockpiles of enriched uranium and heavy water, which can be used in the construction of nuclear weapons. If the Europeans fail to compensate Iran for the unilateral US sanctions within 60 days, Iran will resume construction of the Arak nuclear reactor. Its dismantling was one of the main components of the nuclear deal.
We note that this is a well thought-through and calibrated diplomatic manoeuvre by Iran, timed to coincide with the anniversary of Trump's decision to pull out of the nuclear deal. But it nevertheless puts the EU in an impossible position.
As Klaus-Dieter Frankenberger writes in a comment in the FAZ, the nuclear deal will be effectively dead if and when Iran carries out the threatened measures. And it confronts Germany, France and the UK with an impossible dilemma. If they defy US sanctions, the implications for the transatlantic alliance and relations with Israel would be catastrophic. And, if they don't, they would help bring about instability to the Middle East.
The latter prospect was underlined by the earlier US decision to send an aircraft carrier to the Persian Gulf. It also did not go unnoticed in Berlin that Mike Pompeo cancelled a long-scheduled meeting with Heiko Maas, German foreign minister, in favour of an impromptu meeting in Iraq. There is now a clear and present danger of a military confrontation in the Middle East. John Bolton, Trump's national security adviser, is also engaging in characteristic verbal sabre-rattling.
China and Russia united yesterday by blaming Washington for the situation. As FAZ reports, the Iranians have been warning European diplomats for some time that they would pull out of the deal. The announcement also did not come as a surprise in Washington. It is also a big problem for Iraq, which finds itself in a similar dilemma to the Europeans. Bagdad can also not afford a sudden cut in relations with its neighbour, which have been improving over the years.
We also noted a comment from Torsten Teichmann, a German TV journalist in Washington, who said last night that Trump's diplomatic gamble is paying off. He finally managed to get the Europeans where he wanted them - weak, divided, and miles away from supporting Iran. The Guardian journalist Jonathan Freedland noted the EU's failure to set up an effective anti-sanctions response. We, too, have noted on several occasions that the special-purpose vehicle has remained an empty shell. Friedland raises the hope that the EU might now approach the task with more urgency - but we see little chance of that happening.
Wolfgang Munchau writes: It is no use blaming Donald Trump. The EU's dilemma is to a large extent self-inflicted. Trump has clearly accelerated the US's gradual disengagement from and distance to Europe. But that process started during the reign of George W. Bush. It would be unrealistic to expect the EU to build an independent security infrastructure.
The EU should have made better use of the tools it has, like the euro and trade policy, to pursue global strategic interests. We have been writing about the potential use of the euro as a foreign policy instrument for over a decade. Trump, more than any US president before, is using the exorbitant privilege of the dollar as his main diplomatic tool. The gunboat diplomacy in the Persian Gulf, mercifully, is only a decorative add-on, so far at least. The heavy lifting comes through the imposition of secondary sanctions. For as long as EU refuses to construct a large unified capital market backed by a eurobond, there is no way it can create effective compensation mechanisms for European companies threatened by US sanctions.
Because of this, and because of a crisis-induced over-reliance on current account surpluses, the EU is also not in a position to counter Trump's secondary sanctions with secondary sanctions of its own. What is not understood in European capitals is the importance of the large US current account deficit for the country's geopolitical strength. Running surpluses makes you very dependent on the kindness of strangers. Good luck when the strangers are Trump, Putin and Xi.
The EU's solemn declarations in favour of further unity ring hollow unless the EU starts to strengthen the instruments it has available right now. It should not focus on an independent security infrastructure. This may be a long-term project, but the priority should be to use the economic power tools that lie dormant.
None of this solves the EU's acute dilemma. There is no way out of it other than to kowtow to Trump's demands. But that should encourage European nations to form a coalition of the willing to start solving the problem.