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Europe - US Hegemony And China's G-3 Solution

Politics / Global Economy Jul 20, 2012 - 10:13 AM GMT

By: Andrew_McKillop


Best Financial Markets Analysis ArticleWriting in the July issue of the Global Europe newsletter (a Czech Republic-based think tank part funded by the EU), PRC Ministry of Commerce analyst  Zhang Xiaotong said: "…as world opinion turns pessimistic about the prospects of the Euro debt crisis, a fault line is emerging within China regarding the status of the EU as a great power and its role in shaping world politics and economics"

He went on to say: "China’s perception of the future world order largely depends on a fundamental judgment on how American hegemony evolves", and therefore, for its own geostrategy, China's premier Wen Jiabao had rejected siren calls, coming from inside the US and underlining Europe's probable or possible terminal weakness ".....that the world should preferably be governed by G-2 the United States and China".

There was a moment in the late 1990s, when President Bill Clinton found himself at a meeting with European leaders facing two men from Luxembourg. One was on the point of taking his turn at the European Union rotating presidency, causing Clinton to wryly remark he was president of a nuclear armed superpower with a population over 275 million (at the time), but his opposite number of equal diplomatic status came from a country of 400 000 people with a tiny symbolic part-time army. For the Chinese, things also look this way when they face the USA: whether it concerns the Chinese trade surplus with the US, its foreign exchange reserves, the size of its army or its total population, the US is a dwarf country compared with the PRC.

Traditionally, emotionally, even culturally the US-Europe linkage is strong, helping explain the USA's constant prodding for Europe to "get its act together" and federalize, what in European terms is called the "project to integrate and build Europe". The seemingly permanent or agonizingly slow motion crisis which afflicts Europe today is presented, by some, as a make-or-break method to force a federal Europe into existence - by pooling its member state debts, then inventing federal ways to finance them.  Today, the federal ambition seems jeopardized every week by mounting public debts, political backbiting and finger-pointing, and Europe's "liberal economic" addiction to free market forces resulting in a bond market stranglehold on European national finances. Known collectively as the euro crisis it is easy to forget the distance traveled together by Europeans since the 1990s -  and the ways in which the EU's once tentative relations with Washington have evolved.

A lot has changed since Bill Clinton wryly remarked that the EU was a collection of 15 nations and just about as many currencies.  Today, the EU has 27 members, including many former Communist countries, creating the world’s largest bloc of trading nations, with the largest aggregate GDP and a population 40% bigger than the US, of almost exactly 500 million. Its single currency is used by 17 countries and because of, or in spite of the dire problems caused by the debt-and-deficit crisis, member states are vesting more power than ever at EU level. This power is however mostly symbolic: although the EU no longer rotates its presidency among national governments (at least for big policy decisions), and the European Council has a permanent president, Herman Van Rompuy, and a foreign policy chief, Catherine Ashton, the makeshift constantly changing system of European policy making, and how it applies in the real world, causes a lot more than only wry remarks in Beijing and Washington, today.

China's meteoric rise from an aid recipient of Europe (and the US), provoking much bitter jealousy that occasionally seeps out in the real world of today - for example reaction to China's veto with Putin's Russia on the latest Security Council attempt by the US and Europe to get the green light for war against Bashr el Assad - should in theory unify the US and Europe. This immediately maps out the initial geostrategy response of China: based on a "traditional trilateral bargaining model", China stands to gain most when the US and the EU are in rivalry, while China keeps a harmonious relationship with both of them. China suffers when the US and the EU unite and China is in rivalry with both of them.  This model in fact offers several permutations and combinations, but global economic and geostrategic change will likely tip the balance.

 The US mission to the EU has grown in size every year since 2006. Today it has 108 diplomats.  Eleven US government departments are represented, covering areas like law enforcement, plant and animal inspection, oceans and atmosphere, energy, immigration, customs and trade. The European response includes the new HQ building for the European Council, with its womb-like architectural plan, the 300-million-euro building has been nicknamed the “E-uterus”, while close by at the Schuman roundabout, the EU’s new diplomatic HQ is being built, at a cost of more than 400 million euros, to create the EU’s equivalent of the State Department.

 The official US view, stated by US ambassador Kennard, is that the recent and ongoing economic crises on both sides of the Atlantic have been good for trans-Atlantic ties, forcing the recognition of their interdependence.  In his words (quoted by the New York Times): “Ironically the financial crisis has brought us closer together,” adding that currently limited resources makes the logic of closer cooperation stronger. Much closer focused by trade analysts, the USA's small trade deficit with Europe, unlike its massive deficit with China, makes European recovery "economically vital for the US"

 However, the often unstated other factor pushing the two sides together is the rise of China. Current US-European talks on how to "ring fence China" and limit trade dependence on China include a new trans-Atlantic free trade agreement. Even expressed in diplomatic talk, the US argument is clear - while it was previously "not appropriate" for the U.S. and the E.U. to align their trade policies to the specific exclusion of China, that is not the case now.  Washington’s more positive stance towards Europe is now motivated by knowledge the debt crisis has sapped Europe - and its commitment to increased defense spending - while eroding public opinion support for European integration.

Writing in a recent issue of the US Council on Foreign Relations news review, senior fellow Charles Kupchan said that “....Washington has finally come to the realization that it is in America’s interests to have as strong a Europe as possible — and the partner that the U.S. now hopes for is not the partner it has.” In other words Euro Paralysis is now strongly irritating, even alarming the US - and China.

In his Global Europe article, Zhang Xiaotong also said : "Although China is considering more involvement (to help Europe) through the European Financial Stability Fund (EFSF), the European Stability Mechanism (ESM) and other channels, China’s domestic difficulties are not that much less than the Americans". For China these are domestic political as well as "purely financial": Chinese public opinion is outright hostile to PRC handouts and bailouts to Europe, and the size of Europe's "debt hole" is so massive, needing at least $1 trillion in first place and rapidly, that Chinese deciders have refused to consider more than "moderate" support to Europe's would-be bailout funds, the EFSF and ESM.

Xiatong added that given the reality of Europe's constantly worsening debt-and-deficit crisis, and the fact that the EU, the US and China, combined, account for over 50% of world GDP, 61% of world exports, 55% of world imports, 60% of FDI (capital flows) and 66% of world defence spending, the current situation is impossible to accept. The global context, in China's opinion, does not allow any solution but G-3, where the three power blocs cooperate more than compete. The Chinese answer is "strategical mutual trust" and respect, with a large number of non-economic demands - basically derived from and relating to China's non Western culture and former semi-colonial relation with the US and European powers.

Chinese voting with Russia against all US-European attempts inside the Security Council to bring down the Bashr el Assad regime - presented by western media to domestic audiences as "another quick Gaddafi ouster" - recognizes the real dangers of western miliary regime change in Syria. China's alignment with Russia is nothing more than strategic, however, due to Beijing's views that western Middle East stability obsession is the biggest danger - when the real danger is the failing economy and runaway growth of sovereign debt. 

Periodically for at least 40 years, and since 63 years ago in the case of Israel's founding, US and European tinkering in the Middle East has never produced stability. Oil has always complicated the strategies and policies which were put in place, then discarded. The Chinese stance is therefore to get what it calls "strategic mutual trust", immediately, while further internationalizing the Middle East, ensuring global oil supplies, and hopefully reduce tension.

China is still suspicions that the EU and US collude against it and deliberately disadvantage China in a systematic way, which they would also do in a G-3 system, causing China to either quit the G-3 or seek outside help among the G-20 to counterbalance EU-US collusion. Also asked inside Chinese policy circles, could the G-3 truly assume global leadership?

At pesent the answer is almost certainly no, mainly because the EU first needs to save its economy, and then needs to speak with one voice, while China needs to assume leadership within the developing world. This leadership role for China’s runs right against it traditional foreign policy practice for at least the past two decades. As Deng Xiaoping, China’s former leader, warned repeatedly: “We shall never seek hegemony (over the third world) or serve as their leader.”

For China, becoming a "Third World campion" in the Middle East is a prospect it wants to avoid at almost any cost; conversely it does not accept the old G-2 US-European hegemony in the region, exactly like Putin's Russia.  The net result is that China will certainly be working, in its own way towards a pragmatic, ad hoc, issues-based G-3 relation, starting with the Middle East and Europe's debt-and-deficit crisis.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2012 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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