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The US and Europe: renewing the Transatlantic Partnership

A Note by the Director                                                                                                      Ditchley 16/07

The US and Europe: renewing the Transatlantic partnership
16-18 September 2016

In May 1963 the legendary American correspondent Ed Murrow opened a conference at Ditchley on "the Atlantic Future", stressing the shared values across the Atlantic.  He described these values as "at bottom, a longing to live in the same kind of world".  It was eight months after the Cuban missile crisis and immediately following General de Gaulle's veto of the UK's entry to the common market.  Before the account of the conference was published, President Kennedy had been assassinated.  And we think we live in turbulent times. 

Just over fifty years later on 16 September 2016, a group of contemporary leaders, luminaries and commentators, with Dr Henry Kissinger and Dr Larry Summers at the fore, gathered on Long Island to address the Transatlantic partnership.  We asked first if renewal was what was needed or had the Atlantic partnership had its day and new alliances now required 

We benefitted from American, British, French, German, Russian, Turkish and other European perspectives but missed a view from Asia.  We will remedy this in follow up meetings and dialogue.  Dr Kissinger and Dr Summers have agreed to be referenced as follows but otherwise this note follows the "Ditchley rule" (like Chatham House but fiercer) and preserves confidentiality on who said what.  The note captures the director's impressions of the debate and is intended to stimulate further discussion and most of all action.  It does not aim at a lowest common denominator consensus.  For those in office, we are all mindful that it is easier to advise than act.  Forgive us.

Geopolitical And Economic Diagnosis

Henry Kissinger led, with his unparalleled experience and insight, discussion of an alarming geopolitical context.

The international order established after the Second World War was disintegrating and in his long life he could not recall a time with more diverse threats to peace and stability.  We had faced multiple crises in the past of course but they had had linked underlying causes, for example the ideological power struggles of the Cold War.  Now, not only were the crises multiple and simultaneous, their causes were various and complex and demanded tailored treatments.  They could not be addressed by a single policy and this made coordinating an international response more complicated than ever.  Every solution was the admission ticket to another set of problems: the rise of China, Russian ambiguous warfare, the collapse of Syria, the mutation of the terrorist threat, a risk of perpetual low growth, a retreat into localism and populism, and a lack of international leadership.  This left Europe introspective and America frustrated with a globalisation that often seemed to bring more constraint than opportunity.

For the World War II generation, the need for an Atlantic partnership was obvious and natural.  Harry Truman had described the greatest achievement of the US as the total defeat of its enemies in World War II and then their rehabilitation into the family of nations.  Helping Europe regain stability and economic strength was seen as essential to US interests.  Current generations remained internationalist in outlook, indeed perhaps more than ever.  But Europe was one place among many in a globalised world; more associated with museums and cathedrals, or for the young with punk and pubs, than with historic victories over evil. 

Meanwhile in Europe, America's leadership and approach to capitalism was viewed with scepticism rather than admiration.  Equal standing for China was anticipated as inevitable.  Although the heat had gone out of the western dispute on the handling of Iraq, many still saw the continuing turmoil in the Middle East and the flow of refugees as a mess that the United States had elected to make and then left unresolved on Europe's doorstep.  American Internet companies were culturally and commercially dominant because of a failure of Europe to innovate sufficiently but they were also viewed as illegitimate and immoral on tax.  Taking on Apple was the first popular thing the EU had done in years, despite widespread admiration for the company.

Beyond the metropolitan elites, most people on both sides of the Atlantic continued to struggle economically with the effects of globalisation.  This had opened the door to populist politics as evidenced by Brexit and the appeal of Donald Trump, with promises that strong leaders unconstrained by the old customs of power would burst through walls (or build new ones).  The focus everywhere was homewards.

This was concerning because it seemed clear that a rebalancing of attention towards Europe by the US was overdue and should be a focus of attention for an incoming American President.  Renewing the Transatlantic alliance would demand joint leadership but would be a hard challenge.  Not only did Europe still not have a telephone number, the prospect of Brexit meant that there might not be anyone on the line to answer anyway.  There was a double risk that the UK lost all influence in Europe and that Germany was not yet ready to lead in its absence.  This could compound and prolong the absence of Europe as an effective player on the international stage.  There was plenty of European action, aid and involvement overseas but there was no evidence of a strategic plan or indeed strategic thinking.  Dr Kissinger warned of the risk of assuming that successive crises could be contained by tactical responses.  This had been the assumption in 1914. 

Larry Summers kickstarted an often contentious economic debate.

Europe might be economically in an existential crisis with a risk of prolonged minimal growth but talk of a US pivot back to Europe was wrong headed.  Growth had to be global.  A Transatlantic trade agreement risked being seen by the rest of the world as a white, high wage, exclusive club.  The economic benefits for some did not justify spending political capital in the US or with other partners.

Others challenged that the benefits of TTIP should not be dismissed so easily, arguing that they carried significant political symbolism and could unleash growth worth having. 

If the value of a grand Atlantic bargain on trade was contested, then there was consensus that a new President should consider engaging with Europe on international tax issues and the handling of the refugee crisis.  It was not sustainable that major and celebrated businesses should pursue highly aggressive tax avoidance strategies.  It might be legal but this was more an indictment of the weakness of current international tax laws than a justification.  At a time of low growth the refugee crisis risked overwhelming European economies and this could not be in US interests.  It was not clear which forum would be best for these discussions but strengthening the G7 was an option.

The global economic outlook was mixed.  In the US the "misery index" of inflation rate plus unemployment rate was historically low at 6 percent compared to more than 17 percent in the 1980s.  US corporations were doing exceptionally well.  On the other side of the ledger the ageing population and stubborn unemployment meant that growth was down to 1.8 percent as opposed to the 3.5 percent seen in previous periods of expansion.  Exclusion and inequality and consequent demands for a fairer economy were growing.  US unemployment rates for men 25 to 44 matched those of Italy.  The gap in life expectancy between rich and poor was shockingly large and getting bigger. 

Europe was similar but worse on many measures.  The labour force was shrinking, productivity was low and there was no evidence of the dynamic innovation in the US, as seen for example in Silicon Valley.  The Deutsche Bank balance sheet was 1.7 trillion dollars.  Its market value was 16 billion which meant the market saw it as fundamentally insolvent.  Technology could mean further major job losses in Europe and the US.  Europe was better than the US on inclusion and fairness but not sufficiently so.  Populist movements appealed to people who felt left behind by the knowledge economy, which was capital intensive, and offered better prospects to educated big city elites than to the provincial middle and working classes.  Talk of initiatives like basic minimum income did not survive contact with basic mathematics.

The global economic impact of Brexit appeared so far to have been overstated in the heat of referendum campaigning but in the long term would probably weaken the UK economically and cost the City of London its lead over New York as a global financial centre.  Standing outside the Euro, the UK had already been unable to play a bridging role on macro-economics and this trend would increase.  European voices added that they saw no prospect of the UK being able to enjoy the benefits of the single market without paying its costs.  This would be akin to resigning from a club and then expecting to use the facilities on account of noble birth.

For Europe to recover, Germany would need to adjust its economic approach: people who run large trade surpluses cannot, mathematically, be a universal model.  This tendency was a significant force draining demand from the global economy.

It was questioned whether populism and localism were more cultural than economic phenomena.  Whilst it was accepted that rejection of people "not like us" was an ingredient in every populist's cocktail, people were more tolerant of difference in good times than when finances were tight and "others" were seen as taking jobs and investment.  Populism and free trade were uneasy bedfellows as a result.

More strategic economic policy and coordination should be on the agenda, for example on raising low interest rates which were a ticking bomb at the heart of the global economy.  Instead governments were pursuing mercantilist policies to try to generate local growth.  From the US perspective this also undercut strategic national security policy on persuading China to act within the constraints of the international order.

China

The US saw itself as having to bear alone the military burden and economic costs of containing Chinese ambitions in the South China Sea, whilst Europeans competed with each other over contracts.  China's approach to its neighbours was compared to its approach to its people: keep quiet, don't challenge authority and we will all get rich together.  European trade policy focused on China and largely ignored the ASEAN countries.

Russia

This situation was reversed for Russia.  The US looked at the economic and demographic weakness of Russia, now only a sixteenth of the GDP of the US, and could not understand why Europeans could not handle their land, sea and air defence, relying on the US only for nuclear deterrence.  With the partial exception of the UK and France, Europe could not transport its military forces in good time.  When they did arrive they could not see what was going on.  And they quickly ran out of precision ammunitions. 

To be a true partner, Europe had to invest more in capability.  Europeans pointed to rising defence budgets but acknowledged this would take time to have effect.

How to handle Russia was the issue of sharpest debate.  For some, we had failed to bring Russia back into the family of nations and we had inadvertently pushed Ukraine to the top of the agenda, through clumsy interventions, when it needn't have been.  For others, Putin had been given every chance and spurned them all.  Russia was seen as acting out of weakness rather than strength.  This was mischief not master plan.  Nonetheless we risked a new division of Eastern Europe into Russian and Western European zones of influence.  Russian foreign policy certainly extended into cyber-attacks but not all saw the risk of Russian interference in US elections as a genuine danger.

The joint impact of globalisation and technology echoed through every conversation like a drumbeat.  Globalisation was making all medium powers feel like small powers and even the US was chafing against its constraints rather than feeling able to transform its power into international influence.  Globalisation had opened a floodgate between our lake of liberal democracy and a sea of instability and uncertainty.  Now the current was flowing back our way.  Technology had created new wealth but also taken away lower skilled manual jobs.  Now lower level knowledge economy and service jobs were threatened by the rise of machine learning and artificial intelligence.  Some believed new opportunities would emerge for employment as throughout history.  Most were less sanguine.

Prescriptions

Establishment America and Europe will need a plan B in the event that Donald Trump wins the Presidency, engaging with a Trump Administration to find common ground.

It is necessary to rebuild and reinforce the post war consensus in the US and Europe that security and prosperity at home demand positive engagement and sometimes action overseas.  Not every big problem can be reduced to Home Affairs or the remit of a mayor.  Politicians on both sides of the Atlantic need to show that they can be both internationalist and rooted in domestic realities.  Foreign policy debate is too important to be confined to Ditchley conferences and other elite settings.  We need to embed better understanding of the importance of events and action overseas in the education system. 

The US and Europe need a more strategic and shared approach to China, balancing geopolitical risks against economic opportunity.  Russia demands both continued containment and engagement and better coordinated transatlantic policy.

Europe needs to take a more strategic and less tactical approach to geopolitical crises.  Brexit could be an opportunity to build a more unified transatlantic approach to geopolitics, with foreign and security policy fora expanded or created to include the UK and the EU.  The US can and should play a positive role in helping the UK and the EU find the right compromises to forge a new relationship.

The US needs to understand better the scale of the refugee crisis flowing from the Middle East and Africa and to be more of a partner in handling it.  The crisis risks undermining European stability at a fundamental level which cannot be in US interests.

Greater European investment in military and intelligence capability is essential for Europe to be even a junior partner to the US.  Europe must shoulder a greater burden in containing Russian forces and asymmetric action.  The “quid pro quo” should be more consultation and less assumption from the US.

On the economic side:

Central banks should worry much more about low interest rates and coordinate on how to raise them gradually without killing fragile growth.

A consensus has to be rebuilt and reinforced for free trade.  Populists have to be challenged from the classroom up on the flaky economics of protectionism.  Surveys show that most Americans still support free trade agreements but this should not be taken for granted.  Even if we cannot make a grand vision of TTIP happen soon we should not give up on trade agreements.  The symbolism is as important as the economics. 

Regulation is necessary but can be as real a barrier to effective trade as tariffs.  US business does not really understand how to negotiate European regulations and oversight and European firms do not really understand how the US's overlapping agencies work either.  This should not just be a problem for governments to solve.  Business to business dialogue could help too, for example through making something real of the transatlantic business dialogue.

We need to do more on closing international tax loopholes in order to maintain the legitimacy of international capitalism and of the Internet giants in particular.  We should make more of the G7 in this respect.  Europe needs to be a stronger player on technology and this would have the side benefit of making the dialogue on tax, privacy and data more balanced.  Europe also needs to do more to encourage innovation more generally through the right kind of capital markets and regulation.  The challenge for the UK in particular is to innovate enough to outweigh and exceed any potential loss of influence of the City.

Germany has to be less German on economics and more British and French on foreign and security policy.  German interests as well as everyone else's demand that this happens much more quickly than Germany will find comfortable. 

Infrastructure investment in the regions is essential to resist a continued drift towards exclusion and inequality in both the US and Europe.  We need to do much more thinking on the future of work, viewing this through a political as well as economic lens.

We should not take the Transatlantic Alliance for granted.  It's still the best thing we've got and there is no obvious alternative, even if we often struggle to turn shared values into shared interests and action.  Distracted by problems at home, we are in danger of sleep walking away from each other.  Reinvigorating the alliance is not going to be easy given domestic politics in all the western countries but we must try.
 
From new Presidents, Prime Ministers and other European leaders, we need genuine international leadership and a strategic plan, otherwise we risk being outflanked and unbalanced by the steady mounting pressure of China's majesty, the tactical jabs of Russian mischief in retreat, and a fast mutating terrorist threat that will overwhelm a goal line defence. 

Our horizons, problems and opportunities have become bigger but most governments and politicians are thinking smaller.  We need the pendulum to swing back.  Silicon Valley billionaires should not have a monopoly on grand ideas and plans. 

Follow up actions

Ditchley's conference on Brexit on 6-8 October, chaired by Radek Sikorski, former foreign minister of Poland, who was also present at this conference, will give us an opportunity to dig deeper on the future role of the UK in sustaining a transatlantic alliance.  Helping the UK to find its new place in the world will be a major priority for Ditchley in the years ahead and further meetings and engagements will follow, including on a new European and Transatlantic foreign and security policy framework.

Ditchley's conference on ASEAN in mid-October, chaired by Lord Williams, is a rare opportunity in the UK to redress the balance of attention in Europe between China and her neighbours.

Ditchley's conference on the risks of balkanisation of the Internet in November will look at one key modern dimension of the fracturing of the international order. 

In December, Ditchley will look at the future of manufacturing including the implications flowing from new technologies for skilled and unskilled labour.

Ditchley invites its network to follow up on several proposals and questions emerging from the conference:

The debate on China and its positioning vis-à-vis the west was a discussion about China rather than a conversation with it.  We need more discussions with Chinese and Asian participation that look for common ground.  We should start with issues where we have shared interests. 

Similarly there is an urgent need for more work on policy towards Russia.

Ditchley's friends in business could lead on generating a better transatlantic business to business exchange, enabling each side better to navigate regulatory systems.

This Note reflects the Director’s personal impressions of the conference. No participant is in any way committed to its content or expression.

Co-Chair: Professor Nicholas Burn
Roy and Barbara Goodman Family Professor of the Practice of Diplomacy and International Relations and Faculty Director, The Future of Diplomacy Project, Harvard Kennedy School of Government. Member, Secretary of State John Kerry's Foreign Affairs Policy Board, U.S. Department of State. Formerly: Under-Secretary of State for Political Affairs, U.S. Department of State (2005-08); U.S. Ambassador to NATO (2001-05). Vice Chair, The American Ditchley Foundation.

Co-Chair: Ms Jami Miscik 
President and Vice-Chairman, Kissinger Associates Inc. (2009-); Member, President's Intelligence Board (2009-)., Vice Chair, The American Ditchley Foundation.

CANADA

Mr Petros Kusmu
Senior Consultant, Monitor Deloitte (2016-).

Mr Colin Robertson 
Vice President and Fellow, Canadian Global Affairs Institute. Formerly: Canadian Diplomatic Service.

FRANCE

Mr Laurent Cohen-Tanugi 
Managing Partner, Law Offices of Laurent Cohen-Tanugi; Vice President, Jacques Delors Institute - Notre Europe, Paris.

Dr Alexandra de Hoop Scheffer 
Senior Transatlantic Fellow and Director, Paris Office, The German Marshall Fund of the United States.

Mrs Elvire Fabry 
Senior Research Fellow, Notre Europe Jacques Delors Institute, Paris (2009-)

GERMANY

Dr Thomas Bagger 
Head of Policy Planning, German Federal Foreign Office, Berlin (2011-).

Dr Norbert Röttgen MdB
Member (CDU) of the German Bundestag (1994-); Chair, Committee on Foreign Affairs (2014-). Formerly: Federal Minister for Environment, Nature Conservation and Nuclear Safety (2009-12).

Dr Constanze Stelzenmüller 
Robert Bosch Senior Fellow, Brookings Institution, Washington, DC (2014-). Formerly: Senior Transatlantic Fellow (2009-14), Director, Berlin Office (2005-09), German Marshall Fund of the United States. A Governor, The Ditchley Foundation.

GERMANY/USA

Ms Anja Manuel 
Co-Founder and Principal, RiceHadleyGates LLC (2009-). Formerly: Special Assistant for South Asia to Under-Secretary of State, U.S. Department of State (2005-07). A member of the Board of Directors of The American Ditchley Foundation.

NATO/NETHERLANDS

Mr Timo S. Koster 
Director, Defence Policy and Capabilities Directorate, NATO, Brussels (2012-).

NATO/ROMANIA

Ambassador Sorin Ducaru 
Assistant Secretary General, Emerging Security Challenges Division, NATO (2013-). Formerly: Permanent Representative of Romania to the North Atlantic Council (2006-13); Dean of the North Atlantic Council; Ambassador to the United States of America (2001-06).

NORWAY

Mr Ulf Sverdrup 
Director, Norwegian Institute of International Affairs.

POLAND

Mr Radoslaw Sikorski 
Senior Fellow, Center for European Studies, Harvard University. Formerly: Speaker of Poland's Parliament (2014-15), Minister of Foreign Affairs of Poland (2007-14) and Minister of National Defence of Poland (2005-07).

Mr Pawel Swieboda 
Deputy Head, European Political Strategy Centre, The European Commission (2015-). Formerly: Founder and President, demosEuropa, Centre for European Strategy (2006-15).

REPUBLIC OF KOSOVO   


His Excellency Enver Hoxhaj
Minister of Foreign Affairs of the Republic of Kosovo (2016-, and 2011-14); Vice President, Democratic Party of Kosovo.

RUSSIAN FEDERATION

Professor Alexey Gromyko 
Director, Institute of Europe, Russian Academy of Sciences. Formerly: National Representative, Science for Peace and Security Committee, NATO-Russia Council (2009-14).

UK

Mr Paul Adamson OBE 
Partner and Chairman, Forum Europe; Founder and Editor, E!Sharp; member, Council of Advisors, RAND Europe.

The Lord Aldington 
Chairman, Intramuros Ltd; Chairman, 2019 Committee, New College, Oxford. Formerly: Chairman, Deutsche Bank London (2002-09). A Governor and Member of the Council of Management and Business Committee and Chairman of the Finance and General Purposes Committee of The Ditchley Foundation.

The Rt Hon. Douglas Alexander
Senior Fellow, John F. Kennedy School of Government, Harvard University; Council Member, European Council of Foreign Relations. Formerly: Shadow Secretary of State for Foreign and Commonwealth Affairs (2011-15).

Mr Crispin Blunt MP 
Member of Parliament (Con) for Reigate (1997-); Chair, Foreign Affairs Committee. Formerly: Parliamentary Under-Secretary (Ministry of Justice) (Prisons and Probation) (2010-12); Shadow Minister (Home Affairs) (2009-10).

Mr Peter Hill 
Director for Strategy, Foreign and Commonwealth Office. A Member of the Programme Committee, The Ditchley Foundation.

Mr Mark Leonard 
Co-Founder and Director, The European Council on Foreign Relations, London (2007-).

Ms Karina Robinson 
CEO, Robinson Hambro Ltd, London; Court of Governors and Member of Finance Committee, London School of Economics.

Ms Antonia Romeo 
Her Majesty's Consul General, New York; Director-General Economic and Commercial Affairs USA; UK Government's Special Envoy to the US Tech Companies (2015-). Formerly: Director-General Economic and Domestic Affairs Secretariat, Cabinet Office (2015).

Sir Nigel Sheinwald GCMG
Visiting Professor and Council member, King's College London; Chairman, UK-US Fulbright education Commission. Formerly: Ambassador to the United States of America (2007-12); Foreign Policy and Defence Adviser to the Prime Minister (2003-07); Ambassador to the European Union (2000-03). A Governor and a member of the Council of Management, The Ditchley Foundation.

Mr Philip Stephens 
Associate Editor and Chief Political Commentator, Financial Times. A Governor and Vice-Chair of the Council of Management, The Ditchley Foundation.

Dr Catherine Wills 
Art Historian. A Governor and Member of the Council of Management and Programme Committee, The Ditchley Foundation; A Member of the Board of Directors, The American Ditchley Foundation.

The Hon Robert Wills 
CEO, Coefficient Capital International, San Francisco (2016-).

UK/USA

Lady Judge CBE 
Chairman, Institute of Directors (2015-). A Governor and a Member of the Programme Committee and Business Committee, The Ditchley Foundation.

Professor Sir Robert Worcester KBE DL
Founder, Market & Opinion Research International (MORI); former President, World Association for Public Opinion Research. A Governor of The Ditchley Foundation.

USA

Mr Peter Bass 
Managing Director, Promontory Financial Group, LLC, Washington, DC. Formerly: Executive Assistant to the National Security Adviser, The White House; Deputy Assistant Secretary of State for Energy, Sanctions and Commodities; Treasurer and Director, The American Ditchley Foundation.

Ms Jessica Brandt 
Associate Fellow and Special Assistant to the President, Executive Office, Brookings Institution.

Dr Soner Cagaptay 
Beyer Family Fellow and Director, Turkish Research Programme, The Washington Institute for Near East Policy, Washington, DC.

Dr Martin Feldstein 
George F. Baker Professor of Economics, Harvard University; Member, President's Economic Recovery Advisory Board (2009-); President Emeritus, National Bureau of Economic Research (NBER).

Mr James F. Hoge Jr 
Senior Advisor, Teneo Intelligence (2012-). Formerly: Chairman, Human Rights Watch (2010-13). A Director and Chairman of the Advisory Council, The American Ditchley Foundation.

Mr David Ignatius 
Associate Editor and Columnist, The Washington Post, Washington, DC.

Dr Bruce Jones

Vice President and Director, Foreign Policy program, Brookings Institution.
 
Dr Henry A. Kissinger 
Chairman, Kissinger Associates, Inc. Formerly: President's Foreign Intelligence Advisory Board (1984-90); Secretary of State (1973-77); Assistant to the President for National Security Affairs (1969-75).

Mr Cary A. Koplin 
Managing Director, Investment Management Division, Neuberger Berman, LLC (2000-). President, The American Ditchley Foundation.

Ambassador Douglas E. Lute 
United States Permanent Representative to NATO (2013-).

Mr George M. Newcombe 
Member, Board of Visitors, Columbia University School of Law. Formerly: Senior Partner, Simpson Thacher & Bartlett LLP (1983-2012). A member of the Board of Directors of The American Ditchley Foundation.

Professor Joseph Nye
Distinguished Service Professor, former Dean (1995-2004), John F. Kennedy School of Government, Harvard University (2004-). Formerly: Assistant Secretary of Defense for International Security Affairs (1994-95); Chairman, National Intelligence Council (1993-94). A member of the Board of Directors, The American Ditchley Foundation.

Mr David E. Sanger 
National Security Correspondent, The New York Times (2014-).

Ambassador Susan Schwab
Professor, University of Maryland; Strategic Advisor, Mayer Brown LLP, Washington, DC. Formerly: United States Trade Representative (2005-09); Dean, University of Maryland School of Public Policy.
 
Dr Lawrence H. Summers 
President Emeritus and Charles W. Eliot University Professor, Harvard University. Formerly: Vice President of development economics and Chief Economist, World Bank; Undersecretary of the Treasury for International Affairs; Director, National Economic Council (2009-11); Secretary of the Treasury (1999-2001).

The Hon. Strobe Talbott 
President, The Brookings Institution, Washington, DC (2002-). Formerly: Deputy Secretary of State, U.S. Department of State (1994-2001); Ambassador-at-Large and Special Adviser to the Secretary of State on the New Independent States (1993-94). Chairman, The American Ditchley Foundation.

The Hon Neal S. Wolin 
Member, President's Intelligence Advisory Board; Chairperson, Intelligence Oversight Board (2015-). Formerly: United States Deputy Secretary of the Treasury (2009-13).

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