MAASTRICHT MELTDOWN: TREATY D.O.A. IRRESPECTIVE OF FRENCH VOTE; LONG-TERM BENEFITS FOR U.S. FAR OUTWEIGH NEAR-TERM PROBLEMS

(Washington, D.C.): The chickens are
coming home to roost for most of the G-7
leaders and Eurocrats who together have
spent the past few years creating a
matrix of “sweetheart” deals in
EC headquarters-Brussels. Their purpose:
to construct a new, unified Europe; their
actual product: a treaty signed
at Maastricht, the Netherlands last
December that is, in fundamental
respects, out of touch with the
aspirations, economic and political
interests — not to mention the national
sentiments — of the preponderance of the
affected populations.

Far from panicking at the chaos in
European currency markets this week —
chaos accompanying the discounting of
what will be, at best, a pyrrhic victory
for Maastricht in the French referendum
and, at worst, an outright defeat of the
treaty in France — the American
government, business community and
citizenry ought to be taking a long-term
view of the realignment in Europe.
If they do so, the prospects for
America’s interests and, arguably, those
of other democratic, free market-oriented
nations will be seen as being, on
net, enhanced, not
diminished.

The Present Crisis in
Europe

A key catalyst for the present
financial crisis was the German
Bundesbank’s determination to maintain
unduly high interest rates. This
determination was, in turn, an inevitable
consequence of its unsustainable
stratagem to fund Germany’s reunification
through borrowing, rather than a
more honest — and fiscally responsible
— approach requiring significant
increases in federal taxes.

Ironically, the astronomical costs
associated with reunification in Germany
(projected by Bonn to be over $100
billion annually for the foreseeable
future) are largely a result of
successive West German governments making
massive, hidden subsidies to the former
communist GDR the centerpiece of a
tragically misguided Ostpolitik
policy. West German-subsidized social
fascism — read, communism — merely
served to destroy incentives, depress
productivity, penalize entrepreneurship,
ruin infrastructure and otherwise shred
the moral fiber of the East German
society.

Of course, Bonn’s hurtful financial
policies are hardly the sole source
of mounting public anxiety throughout
Europe and especially in France, over
Maastricht. Other contributing factors
include:

• The sickening paralysis
  born of Eurocratic inertia in
  response to Serbia’s brutal
  aggression and genocide in Bosnia,
  Croatia and Slovenia —
  a pattern of inaction likely to
  be replicated as Belgrade moves
  in the future against Kosovo
  and/or Macedonia.
• The vivid display of Europe’s inability
  to create effective multilateral
  security arrangements as
  alternatives to NATO — despite
  the intensifying conflagration in
  the former Yugoslavia;

The abject failure of the
Western European Union
(WEU), the European
Community and the
Conference on Security
and Cooperation in Europe
(CSCE) to rise to this
clear-cut challenge has
particularly demoralized
the people of Europe, who
are horrified at these
institutions’ continued
inaction in the face of
death camps, sealed
trains and Serbian
“ethnic
cleansing.”

• The rise of what is essentially a
  neo-Nazi movement in the
  former East Germany,
  featuring numerous vicious
  attacks on refugee centers and on
  those seeking promised asylum
  inside Germany’s borders ( la
  Rostock) — often in full view of
  the French public;
• The transformation of the
  Maastricht referendum into — at
  least in part — a
  nationwide French poll on the
  eleven-year-long misrule of
  Franois Mitterand and on his
  Eurocronies (like
  Socialist side-kicks Jacques
  Delors and Jacques Attali);

A particularly potent
factor in this poll is
the rising rebellion of
French farmers addicted
to the narcotic of
preposterously high
agricultural subsidies
and fearful that
Maastricht will inflict
fits of withdrawal.

• The unspoken but intuitively
  unsettling realization that economic
  and political reform in the
  former Soviet Union is,
  for the most part, in retreat as
  the forces of reaction — notably,
  the military industrial complex
  — are in ascendence;

This reversal of
fortunes, especially in
Russia, has important and
adverse implications for
the G-7. This is
evidenced by the
cancellation of Yeltsin’s
visit to Japan,
reflecting the ex-Soviet
hardliners’ victory on
the Northern Territories
issue, and Tokyo’s
consequent refusal to
pick up a substantial
portion of Moscow’s new
money needs and some $80
billion in unpayable debt
left over from the
“prop-up
Gorbachev” era.

Near-Term Problems for the
United States

The economic and political turmoil in
Europe clearly has some adverse
implications for the United States over
the short-term. These include the
following:

• Exports: At a
  time when the United States is
  inordinately reliant upon
  export-driven growth — a major
  contributor to which has been
  U.S. trade surpluses to EC
  nations — a chaos-induced
  slow-down in European growth may
  significantly affect balances of
  trade. In turn, the ripple effect
  of the crisis gripping Europe
  will probably retard world-wide
  economic activity, affecting
  American overseas markets more
  broadly.
• Financial Instability:
  Although the United States and
  Japan have been largely insulated
  to date from the currency battles
  raging in Europe, continued
  financial instability would
  probably, over time, increase the
  values of the dollar and the yen.
  As a result, American and
  Japanese products may become
  somewhat less competitive on
  world markets.
• High German Interest
  Rates: No end is in
  sight for the relentless stream
  of invoices associated with the
  integration of the former GDR. At
  the same time, the $35-50 billion
  tab associated with Bonn’s past
  reckless underwriting — at
  taxpayer expense — of unreformed
  communists in Moscow is
  beginning to come due. In short,
  in the absence of a fundamental
  shift in the German government’s
  tax policies, no one should
  expect a substantial decline in
  interest rates set by the
  Bundesbank.

Waiting for a real turnaround on
this policy by Bonn is
approximately as ludicrous as has
been the hope that German export
control practices would be made
effective. (Lest there be any
doubt that Germany remains an
assiduous violator of the
multilateral technology transfer
regime — even the vestigial one
still in place after years of FRG
efforts to dismantle more
comprehensive and effective
control arrangements — German
help to Iran’s burgeoning nuclear
weapons program should put it to
rest.)

The netting out of these (and other)
down-side risks for near-term U.S.
interests arising from the Maastricht
meltdown can best be accomplished by
examining two alternative scenarios:
Europe under Maastricht and Europe
without it.

What Might Have
Happened Had Maastricht Succeeded

Trade Dimensions:

• The United States would likely
  have faced a phalanx of
  protectionist measures from an EC
  operating under the Maastricht
  rubric. Specifically, such
  American sectors as the aerospace
  and defense industries probably
  would have confronted a withering
  array of government subsidies
  modelled after the European
  Airbus consortium. It is widely
  recognized that private American
  companies like McDonnell Douglas,
  Lockheed and Boeing simply cannot
  compete for very long against
  determined governments able to
  tap their treasuries at will.
• An agreement on the Uruguay round
  of the General Agreement on
  Tariffs and Trade would have
  remained elusive as EC nations
  chose to rely on their
  “unity” club to
  maximize trade advantages with
  the outside world.
• The option for the United States
  to create a network of favorable
  bilateral trade agreements —
  similar to that concluded with
  Canada and subsequently
  incorporated into the tripartite
  North American Free Trade
  Agreement (NAFTA) — would
  probably have been precluded.
• Europe would have constructed a
  common web of economic
  arrangements, regulations,
  procedures and mechanisms that
  likely would have impeded the
  entry of U.S. service industries
  into European markets.
• Subsidized European trade with
  the former Soviet Union would
  likely have continued largely
  unabated — even if, as seems
  increasingly in prospect,
  nationalist/authoritarian forces
  (i.e., communists operating under
  new labels like the leadership of
  the new Civic Union in Russia)
  were to come to power.

Political Dimensions:

• Eurocrats whose contempt for
  democratic principles has brought
  Maastricht to its present pass
  would almost surely have pursued
  socialist policies that served to
  foster the power of the new
  megastate at the direct expense
  of elected legislatures and
  popular will. The analogue to
  this “domestic” policy
  would be a willingness — already
  well established in Brussels and
  many European capitals — to
  align Europe’s foreign policies
  with proponents of central
  economic and political control in
  the former Soviet Union and
  elsewhere (e.g., China, Syria,
  Iran, Iraq and Libya).
• A unified Europe would almost
  certainly have seen further
  examples of the sort of
  appeasement of tyranny that
  continues to characterize the
  EC’s policy toward Belgrade.
• The erosion of NATO would
  probably have been accelerated as
  foreign policy and national
  security decision-making —
  issues properly within the
  purview of national governments
  — were ceded to multilateral
  organizations like the EC, WEU
  and CSCE with a record of
  ineffectuality in the political
  sphere.
• Despite claims to the contrary,
  Germany would probably not have
  been “anchored”
  securely to Europe in a scenario
  of overwhelming support for the
  Maastricht Treaty, nor would the
  rise of violent right-wing German
  groups be curtailed.

What Maastricht’s Meltdown
Will Likely Mean

Trade Dimensions:

• The prospects for conclusion of a
  GATT agreement reducing
  structural and other impediments
  to free world trade will likely
  be bolstered as the Uruguay round
  ceases to be expendable
  for European nations.
  Protectionist pressures will
  persist, to be sure, but they are
  much less likely to be
  systematically translated into
  common European policy than as
  they would have been under a
  Maastricht scenario.
• Multilateral subsidization
  arrangements of the Airbus
  variety will probably be less
  commonplace as the United States
  and other nations gain greater
  latitude in forging
  understandings with individual
  European nations to combat new
  subsidy spirals so debilitating
  to taxpayers.
• The United States will,
  consequently, be able to begin
  constructing its own network of
  strategic free trade agreements
  with like-minded nations in
  Europe, perhaps beginning with
  the United Kingdom.
• The European appetite for new,
  undisciplined multi-billion
  dollar credit and investment
  flows into the former USSR will
  likely be substantially reduced
  due to more careful and
  introspective national economic
  policies that will give greater
  weight to rigorous economic and
  political conditionality attached
  to such flows.

Political Dimensions:

• The rude shock of grassroots
  democratic resistance to
  superstatism will inevitably
  result in a recalibration of the
  relationship between European
  governments and their people.
  Probably this will produce
  dramatic changes in leadership in
  several — if not the majority —
  of the governments who previously
  drove the Maastricht train
  (namely, Germany, France, Italy
  and possibly Britain) and in the
  EC bureaucracy itself (notably,
  “Europe’s President“
  Delors).
• More generally, one can expect to
  see a renewed commitment to
  democracy in place of the
  out-of-touch socialist cabal that
  attempted to “wire”
  Maastricht without deigning to
  consult those who would live
  under its auspices. The wrong
  sorts in Moscow and other
  quarters will likely have fewer
  friendly European faces across
  the negotiating table. Instead,
  others less willing to ignore
  blatant retreats on reform may
  well be calling the shots with
  scarcer European resources.
• NATO could have a new lease on
  life if the dramatic lessons of
  the present crisis are learned
  and properly applied. The United
  States should seize this
  opportunity to promote a
  transatlantic renaissance and
  take the lead in promoting
  urgent, coordinated action in
  areas of conflict like Bosnia
  which will probably typify the
  security challenges of the 21st
  century.
• The chances of anchoring Germany
  securely in a free and stable
  Europe are significantly improved
  in the absence of the deadening
  and blurring effects of
  Maastricht. In short, the
  treaty’s meltdown will reduce the
  danger that unification will
  inculcate an artificial sense of
  security — effectively
  cauterizing the sensitive
  national nerve endings that form
  Europe’s “early
  warning” system against
  right-wing German resurgence.

The Bottom Line

The Center for Security Policy
believes that the “big
picture” benefits likely to flow
from Maastricht’s meltdown will vastly
outweigh the near-term distress and
predictable setbacks for American
economic interests. In
particular, the reaction and
reorientation of U.S. policies catalyzed
by the crisis of confidence now gripping
Europe can propel the United States into
the 21st century on the basis of
reinvigorated relations with its allies
in Europe and new partnerships with
nations in the Americas and the Pacific.

Specifically, transatlantic
ties can be based, for the first
time since the immediate post-war period,
on principle, discipline,
consistency, integrity and transparency
in relations among allied nations
— in sharp contrast to the expediency,
cynicism, manipulation, appeasement and
covertness characteristic of much of
contemporary international policy-making.

In addition, an expansion of
the NAFTA arrangements to
encompass the most dynamic and
forward-leaning Latin American nations
should be accelerated. In this way,
President Reagan’s vision of a North
American Accord now coming to fruition
can be transformed into “The
Americas Accord.”

Moreover, as the United States
consolidates its economic and political
relations with North and South America,
it can fully realize its
potential as an integral member of the
Pacific Basin family of nations.
In short, today’s rather vague sense of
the importance of U.S. relations with
other Pacific states in the 1990s and the
decades beyond may be replaced by
concerted economic, political and
security institution-building heretofore
viewed as unnecessary or unachievable.

Finally, the probable
political demise of the current G-7
leadership — perhaps including
the sitting U.S. president (although
possibly excluding the man long regarded
as the weakest member of “the
Club,” Japan’s Miyazawa) — will
send a powerful message to their
successors on the subject of a
“Skull and Bones” approach to
governance. The era of arrogant
subordination of popular interests and
will to the personal diplomacy and
agendas of “members of the
Club” just may be at an end.
Such an empowering of the people of
Europe — and their counterparts
elsewhere — would be the distinct
“silver lining” of the dark
clouds of Maastricht.

– 30 –