Mergers and Acquisitions

June 1, 2005 Tags: Islamism

Mergers and Acquisitions

In adding new nations to the list, the European Union has negotiated more than customs unions or trade pacts. New members have to accept the acquis communautaire and the supranational obligations it imposes. Countries then must conform their domestic laws to European court decisions, pay into the Union budget and accept Council and Commission findings that they might have wished to avoid. Candidates for membership not only must be democratic states to join the "euroland area", they are supposed to limit government deficits, reduce inflation and keep their currencies stable. They must accept anti-trust decisions by the ubiquitous competition commissioner, who tells European and American corporations which industrial combinations are permissible. New members understand that as the European Union increases in size, qualified majority voting perforce will be employed, and it will be used on more important questions. Even large countries may find themselves in a minority on significant issues. Germany forewarned of this eventuality but has had to adjust to it.

Europe, perhaps without realizing it, has acquired a "manifest destiny" to expand its membership. Robert Mundell, the "father of the euro", once hypothesized that fifty countries might ultimately join the European Union. When courting outsiders, Europe seduces, rather than ravishing, new members. Nor is there a limit on the geographic definition of Europe. De Gaulle denominated the Urals as the eastern extremity of the European continent, but should one definitely exclude the Caucasus countries from membership? If Turkey joins, does that rule out all other countries in the Mediterranean, North Africa or the Middle East? American manifest destiny ended at the convenient boundary of the Pacific. For Europe, however, there is no obvious geographic limit beyond Asia Minor. And if Europe draws a final boundary, its influence will wither. So no line will be drawn at least for now. Romano Prodi occasionally opined that the Vistula was the practical limit, but it has already been exceeded with Ukraine beckoning as a prospective member.

Europe's success in enlargement does not create a unitary superstate. There is no single decision-making center or minister of foreign affairs. Secretary of State Condoleezza Rice still cannot pick up the phone or send an e-mail to contact her European counterpart. Foreign policy decisions absorb a great deal of time in the Council of Ministers and sometimes do not emerge at all. The need for real-time decision-making has not yet made a dent in the European consciousness.

This does not mean that Europe maunders aimlessly while the world turns. When the new constitution is adopted, there will be one European foreign policy representative. A consensus is emerging on European attitudes toward the outside world, including China, and Europe will have to take a stand on issues that matter. In support of greater involvement, the EU has already taken on the American role in Bosnia and Macedonia. Here as elsewhere the rapid reaction force is assuming a concrete form.

Imperial Interventions

The real difference between American and European policy is portrayed in the Balkans. When Russia retrenched and Yugoslavia collapsed, failed states began to emerge from the chaos. The United States intervened in Bosnia and then again in Kosovo, taking the military lead. Initially, the EU failed to recognize that UN peacekeepers could not possibly do the job. But when the dust settled, it was the possibility, if not the certain prospect, of EU membership that concentrated the east European mind. Slovenia's success in joining the EU will pave the way for Croatia and ultimately Serbia, working a transformation of internal politics in those two countries that U.S. military force could not accomplish.

Perhaps force--an imperial strategy--is a useful precursor to political change domestically. But force alone--leaving the task of state building to others--does not fit the bill. Outside interventions assisted by the United States did not reform African nations. In Haiti and Somalia, events returned to chaotic normalcy after the troops withdrew. With Rwanda in 1994, the United States would not even assist UN forces to find a solution. Exclusive reliance on force is like an on-off switch--it can be wrong either way.

In contrast, the process of European enlargement--involving peaceful mergers among previously independent states--has moved from success to success. This process has combined enlargement with deeper integration among previous members. For those who wish to join, enlargement of the EU has transformed the nations nearby, persuading them to become more open and democratic, and to develop more transparent economies. Poland's reforms were not fully consolidated until EU membership blessed them. Slovakia had to settle its dispute with Hungary even to qualify for EU consideration. Viktor Yushchenko was readying Ukraine for admission when he staged his Orange Revolution in Kiev. Even countries like Moldova that do not join are decisively influenced by EU membership criteria. And who's to say that Moldova could never become a member?

America has been dimly aware of the success of Europe's new strategy. The North American Free Trade Agreement (NAFTA), the Free Trade Area of the Americas (FTAA) and the Central American Free Trade Agreement (CAFTA) were the core of the U.S. response. NAFTA would tie Mexico to democracy and open it up internally. FTAA was designed to embrace Latin America as a whole, but Brazil and Argentina preferred to focus at least initially on MERCOSUR, their own trade bloc. But the conflicts within MERCOSUR--which consists of countries with similar economies--have been far greater than they would be with the United States. MERCOSUR was an association of sellers without an avid buyer. FTAA would include the buying power of the American market, and it cannot be ruled out for the future. CAFTA accords Costa Rica, Guatemala, Honduras, El Salvador and Nicaragua concessions within the U.S. market that will help those Central American economies.

But even a successful FTAA embracing the hemisphere does not represent a true merger of countries. In such pacts, foreign policy is not affected, and there is no common external tariff or welfare policy. To judge by Canadian as well as American complaints about their bilateral trade problems, there is nothing approaching free trade among the current members of NAFTA. Nor is there a Schengen-style agreement that facilitates a free flow of labor to mitigate the deficient flow of capital. There are few common political institutions that govern the development of an attempt at regional union.

Some believe that these difficulties are inherent in the American approach to world affairs, with the U.S. Constitution placing a bar on legal relationships with other nations. But as Supreme Court Justice Ruth Bader Ginsburg points out, international treaties are part of the "law of the land" and have themselves a constitutional status. The Constitution did not prevent the United States from joining the World Trade Organization (WTO), in which America has frequently been a loser in the dispute settlement mechanism. Through its constitutional processes, the United States can ratify any international treaty it wishes and subject itself to its strictures.

Will it do so? Not until the difficulties of America's current plight are further underscored. The invasion and occupation of Iraq underlined the uses and limits of military force. Victory was achieved in a few days, but establishing an internal democracy was a tall order--one that troops could not accomplish. There is no regional Arab institution that a fledgling Iraq could join to strengthen its democratic structure, because all Arab institutions--such as the Arab League--are composed of undemocratic nations. The possibility of merger with an enlightened regional federation does not exist.

But the United States now dimly understands that force, followed by imperial occupation, is not a long-term remedy for the ills of a miscreant world. America desperately needs to deepen and regularize its relationships with like-minded countries to gear itself up for 21st-century challenges.

The Problem of China

The greatest long-term foreign policy problem facing both the United States and the European Union is what to do with China two decades from now. During that time, China's economic growth will likely outstrip that of both powers, though India will also emerge as a major industrial competitor. It is too early to do anything at the moment. China is still an authoritarian nation though its economy is moving in a liberal direction and it may yet undergo political change. Democratic or not, Beijing's economic growth will likely foreshadow a hegemonic shift in the leadership of the international system just as did the emergence of imperial Germany in 1871-1914.

The question is whether China will follow Bismarckian policies and forego expansionist aims. Bismarck tied Germany up into a series of pacts, limiting its future options and foregoing all but the tidbits of empire. He did not question French or British imperial primacy overseas. Nor did he build a German navy to offset British naval primacy, although by the end of the 19th century, Germany's growth surpassed that of Britain. Had Bismarck's successors continued these self-limiting policies, there would have been no challenge to England, no rebuff to France, and World War I might have been avoided. As late as 1907, Sir Eyre Crowe of the British Foreign Office was willing to accept German growth that did not involve territorial expansion in the center of Europe. The rise of the United States is another example of growth that did not overturn the status quo or threaten established powers. Even though Washington emerged from the First World War with the world's second-largest navy, Great Britain did not long view the United States as a primary opponent. As a democratic country distant from Britain, the United States did not threaten British purposes in Europe or initially in the empire. China, of course, is not democratic, but neither was Germany when it laid down its self-limiting regime. Then or now, no country has declared war on another simply because of the latter's growth rate. Thus, the key to the future is not Chinese growth but what Beijing does with it. The upshot is that power transitions have taken place without war in the past, and they can do so again.

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