Doug Bandow on Britain &
Europe on National Review Online February 3, 2003, 9:30
LONDON, ENGLAND The U.S. has no stronger ally
than Great Britain, and with a Labor government, no
less. But future trans-Atlantic cooperation might hinge
on whether or not Britain joins the euro.
European attitudes towards America have turned chilly
of late. France, a member of the U.N. Security Council,
continues to spar with the U.S. over Iraq. Germany's
Chancellor Gerhard Schroeder won reelection by vowing
not to cooperate with Washington. He's maintained his
criticism of U.S. policy while working with Paris to
generate a common European strategy.
Through it all Prime Minister Tony Blair has stood
with the Bush administration. But nothing is permanent.
The Blair-led letter of European support last week was
an obvious diplomatic coup for the U.S. But most of
its signers will offer little practical help during
either the military campaign or resulting occupation.
Indeed, when the Czech defense minister visited Kuwait,
he offered a ride home to any of the 250 Czech chemical-weapons
specialists who wanted to leave; seven jumped on board
his jet and another score later joined them. Imagine
Donald Rumsfeld doing the same for U.S. soldiers. Italy
and Spain are more serious players, but could easily
align with France and Germany after a change in government
Moreover, opposition to Washington's Iraq policy is
rising even in Britain. Blair dominates the political
landscape, but Margaret Thatcher's fate demonstrates
just how fragile parliamentary control can be. At the
same time, shadow boxing over acceptance of the euro
is in full swing. Blair recently declared: "The
euro is not just about our economy, but our destiny."
The coming battle over joining euroland will pit large
versus small business, divide both parties, and perhaps
even affect Labor's succession, since Chancellor of
the Exchequer Gordon Brown so far opposes Britain's
For most Americans the euro is an administrative convenience,
nothing more. Yet, observes George Bridges of Quiller
Consultants, "an American businessman goes from
Frankfurt to Madrid and appreciates the ease of using
a common currency without realizing that he is going
from economic basket case to another." Ironically,
an expanded euro may end up encouraging economic protectionism
directed against America and promoting a politically
Continental Europe has never been a bastion of economic
freedom. France was a great mercantilist state; Bismarck's
Germany created the social-insurance state. The European
Union and subsequently the euro helped open some of
the most socialized, least competitive economies.
But the EU and euro also impose a regulatory overlay
enforced by an unelected bureaucracy in Brussels. Unfortunately,
writes British historian Paul Johnson, "European
societies have become a paradise for bureaucrats, trade
unionists, centrist politicians and those businessmen
who prefer to work under government protection."
No surprise at the supreme frustration in Brussels when
they occasionally have to go to the voters of different
nations for approval.
Moreover, the euro, which binds together 12 very different
economies, is becoming unhinged at a time of slow growth.
Last year Portugal violated the three-percent deficit
ceiling. France has announced that it will not cut its
deficit to meet euro rules. Explained French Finance
Minister Francis Mer: "We decided that there are
other priorities in France." Germany, the continent's
biggest economy, acknowledges that it has violated the
limit; the economic news from Berlin seems to worsen
Italy's Premier Silvio Berlusconi is pushing tax cuts
and spending hikes that will likely push his nation
out of compliance. Other states have relied on accounting
tricks to maintain formal adherence.
Public dissatisfaction also is rising. Many Greeks
blame the euro for sharply rising prices. Two-thirds
of Germans favor abandoning the common currency. The
EU's president, former Italian Prime Minister Romano
Prodi, spoke for many when he stated: "the stability
pact is stupid, like all decisions that are rigid."
Thus, there's good reason for London to hesitate before
signing on. After all, over the last decade Britain's
economy has grown half again as fast as has the Eurozone,
and is now zipping along twice as fast. Britain has
lower unemployment and inflation and higher per capita
GDP than does Euroland.
Great Britain also continues to receive more inward
investment than France or Germany, and last year moved
from fourth to second, after America, in total foreign-investment
received. Moreover, the convenience of a common continental
currency is overstated. Britain's trade with Euroland
continues to increase as a percentage of GDP; in fact,
in the euro's first three years Britain's exports to
the Eurozone jumped more than the average rise in intra-zone
Existing EU rules are costly enough. Observes Tory
MP Liam Fox, the shadow minister for health who has
formed a new think tank, the Atlantic Bridge, to promote
trans-Atlantic ties: "Bureaucracy will be the end
of us. That is the special relationship with Europe."
American Enterprise Institute scholar Kevin Hassett
calls it a "Red-tape Curtain," combining sclerotic
regulation and bloated social-welfare programs.
Joining the Eurozone means even tighter economic controls.
Last year, argued German Chancellor Schroeder, "What
we need is to Europeanize everything to do with economic
and financial policy. In this area we need much more
let's call it co-ordination and co-operation
to soothe British feelings than we had before."
After denouncing the rigidity of Euroland rules, Romano
Prodi called for "a single economic government
for all countries who share the same money." Similarly,
claimed the European Commissioner for Economic and Monetary
Affairs, Pedro Solbes: "It is essential that joining
the euro is not seen as an end in itself. The ultimate
objective is full and successful economic integration."
The result would be to encourage European governments
to circle the continental wagons. Complains Fox: "regional
trading blocs were supposed to promote free trade, but
in Europe they are becoming a way to limit free trade."
France's death-defying defense of the Common Agricultural
Policy, which accounts for nearly half of the EU's $95
billion annual budget, is but one example. Worries John
Hulsman of the Heritage Foundation: "The very institutional
structure of the EU illustrates that the more integrated
Europe is, the more protectionist its leanings become."
American business has a stake in the relative openness
of the British market. The U.S. accounts for about half
of all foreign direct investment in Britain; Americans
invest almost as much in the U.K. as in the rest of
Although British goods exports are oriented to the
Eurozone, not so services and investments. All told,
Britons trade as much with America as with France and
Germany combined. Britain is the largest single investor
in the U.S., while America returns the favor, putting
more money into Britain than Euroland combined. Argues
Liam Fox, "the British economy is more like that
of the U.S. than of Europe." Indeed, "it's
the only European country with more trade outside of
Europe than within it."
Moreover, economic integration has obvious political
overtones. Notes Fox: "Economic centralization
is a precursor to political centralization." Which
is the explicit goal of many Europeans.
For instance, French Foreign Minister Pierre Moscovici
observed: "We don't agree with the Americanization
of the world ... we are saying that together we can
build a new superpower ... and its name will be Europe."
European Commissioner for Regional Policy, Michael Barnier,
pushed the same theme last year: "The choice is
between an independent Europe and a Europe under American
Even in Britain some critics of Washington want to
move closer to Europe. Former Labor defense minister
Peter Kilfoyle complains that "Britain ends up
as America's handrag." Says Stuart Reid, deputy
editor of The Spectator: "I believe that we Britons
have for too long cleaved to the United States of America
and ought now, with good grace, cleave instead to the
United States of Europe."
Some, like Chancellor Schroeder, exhibit bad grace.
Indeed, the late President Francois Mitterand reportedly
said: "we are at war with America." It was,
he admitted, "a war without death," but nevertheless
was "a permanent war, a vital war."
Former French President Valery Giscard d'Estaing currently
heads a quasi-convention charged with developing a new
EU constitution. There is even talk of a name change,
to United Europe or the United States of Europe.
The implications for Washington are ominous. Author
A. S. Byatt has written: "Despite the creation
of the European Union, Europeans do not speak with one
voice except when opposing U.S. foreign policy."
In contrast, Britain is far closer to America. For instance,
on his recent trip to the U.S., Foreign Secretary Jack
Straw observed: "However effective Europe becomes
as a regional or global actor, we cannot expect to make
a real difference without regular, close and systematic
cooperation with the U.S. in NATO, higher and more focused
defense spending and greater efficiency in Europe's
But the tighter Britain's connection to Europe, and
the more stringent continental controls over British
policy, the less able Britain will be to make its own
decisions. Worries Bridges, an aide to former Prime
Minister John Major, "the centrifugal force of
Europe would be hard to resist." For instance,
he worries, "If Great Britain decided it had to
fight a war with the U.S. and wanted to bust its budget
caps to increase military spending, one can imagine
the reaction in Europe." Alex Hickman, with the
no campaign, goes further: "If Great Britain joins
the euro, its ability to act independently will diminish
and maybe ultimately even disappear."
Still, it's not enough for the U.S. to urge London
to just say no. "We should use the special relationship
[with America] to build new institutions," argues
One possibility, suggested by John Hulsman, would be
to encourage Britain to join an expanded North American
Free Trade Association. London could first try to renegotiate
the Treaty of Rome, allowing it to join NAFTA. Failing
that, Britain could shift from the EU to the European
Free Trade Area and European Economic Area (which include
Iceland, Liechtenstein, and Norway), and then sign up
with NAFTA. This, Hulsman argues, provides "the
last real chance for Britain to choose an alternative
future path, one that recognizes that its natural economic
and political partner remains the United States and
not the European Union." Creating a broader free
trade association also would offer other nations an
alternative to more statist regional blocs, such as
Or, to avoid the political complications of challenging
Britain's place within the EU, the U.S. could unilaterally
lower trade barriers against Britain. That would benefit
Americans, even if the U.K. could not reciprocate, and
free London from having to choose in or out of the EU
when deciding on the euro.
Although Washington is the world's strongest power,
it will not be able to forever avoid serious challenge
from other nations and international blocs. A united
Europe, though seemingly a distant prospect in light
of the continent's current division over Iraq, could
become a particularly potent adversary. Thus, the U.S.
should discourage development of a centralized, monolithic
Europe arrayed against America. That includes encouraging
Great Britain to remain outside of the Eurozone.
Doug Bandow is a senior fellow at the Cato Institute
http://www.cato.organd a former special assistant to President Ronald Reagan.