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The EU after the Iraq War
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Does the J-Curve Apply?
by Adrian Taylor : Director, Think Tool AG Zürich
30/06/2003
The precedents of "improvement through failure" exist

Jacques Poos, then Foreign Affairs Minister of Luxembourg, famously announced at the outbreak of hostilities in the then Yugoslavia that "this is the hour of Europe". Expectations were high of an EU approach to solve the problem. The result was a debacle, with public opinion horrified at the ever worsening massacres, and European countries visibly divided in

their allegiances. After the dust settled, nevertheless, the EU's Foreign Ministries agreed that such a thing should never be allowed to happen again. Steps were taken to overhaul the CFSP Treaty base, and to improve daily co-operation.
The same happened again with Kosovo. Despite reluctance on the part of some Member States, it was agreed to intervene, even in the absence of a UN mandate. Expectations were high of the EU playing a leading role. The reality was otherwise: the US dominated the campaign and the peace, and this simply because our bombers were not equipped with accurate enough weapons systems. Even though the political resolve had been found, the military means were lacking. In the depths of this trough, Member States resolved never to be caught out again: hence the commitment to build military capabilities, and even a 60,000 strong military Rapid Reaction Force.

The warning from economics

The equivalent in economic theory is the, the J-Curve effect. This explains how the devaluation of a country's currency (something that should boost its exports by making its products cheaper to buy abroad) may initially make the balance of

payments worse off, before ultimately turning around (hence the "J" shape of the curve"). The short term negative effect is caused by the increase in prices being immediate, but the change of volumes being much slower. Only long-term does the initial positive stimulus therefore actually bring the desired effect of improved international competitiveness and growth of exports or reduction of imports.
For the EU, the hope must therefore be that the short term crisis caused by Iraq, which has led to both devalued credibility and no positive return on the "balance of integration" can now be turned around to something more positive.
The warnings for the EU after Iraq are, however, similar to the warnings applicable with economic theory. To start with, currency devaluation is of itself no remedy to lack of competitiveness. If there are fundamental reasons why the domestic economy was uncompetitive (low productivity, high wage claims, lack of innovation, etc.) a devaluation will only give a temporary breathing space before these problems return.

In the case of the EU's Common Foreign and Security Policy, the analogy is direct. The EU's repeated inability to respond to crises can be viewed as successive "devaluations" of it its Foreign Policy credibility. Just as with a country's currency, the more often it is devalued, the more often others in the world expect it to be devalued again. Given that a hefty part of diplomatic weight depends on credibility, this repeated devaluation is extremely damaging abroad and at home. Even if each time baby steps to "improving efficiency" have been taken, these are not enough to guarantee that future crises will not again cause splits.

Grappling with the real issues

As with the European economy, our Foreign policy needs fundamental structural reform. The problem is clear: with 15 (or 17 if you count the Commission and Council Secretariat) different Foreign Offices, one inevitably has 15+ different foreign policies. Given that they are not about to be abolished, the best that can be achieved is to:
          i)     establish exactly what are the EU's common vital interests that all Member States should together promote;
          ii)    network the Foreign and Security establishments so as each is so thoroughly penetrated by staff of all other
                Member States that there can be no secrets left from each other;
          iii)   harmonize major Standard Operating Procedures and specialise the defence establishments to such a degree
                that no single EU army could operate without the back-up of its fellow Member States.

The creation of a super foreign minister envisaged by the Convention is a nice extra, but frankly will not address the fundamental issues if Member States cannot be brought to understand the perspectives of their fellows elsewhere. This, more than anything else, requires the human exchanges of understanding brought by the three points raised above, and especially a process that is not the diplomatic tradition of reading long speeches to each other, but rather a genuine and candid dialogue building common understanding.


Conclusion

The EU can use the Iraq crisis to build for the future. The pressure brought by its failure can be used productively. However, the time is nearing where the devaluation of its policy is so great that all credibility is lost. Action is urgent, but not in the Treaties where the experts are again looking, but rather on the practical level of mutual understanding between officials. We are in the nadir of the J curve. It is all up-hill from here...

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