June 14, 2004
by Irwin Stelzer
Start with the international scene. George W. Bush, Jacques Chirac and Gerhard Schroeder took their act from Normandy to Sea Island Georgia, where they were joined by other members of the G-8 and assorted interested parties. There, Chirac proved once again that a chasm exists between his words and his deeds. “France will never forget what it owes America,” the French president told some 6,000 D-Day veterans and assorted guests in his talk last Sunday in the Norman coastal town of Arromanches. A few days later he opposed America’s requests for deeper involvement of NATO in the pacification of Iraq, saying such a move would not be “opportune”; fought to water down Bush’s program to foster the growth of democratic institutions in the Middle East, stating that he opposed such “missionary” work; and responded with a vigorous “non” to Bush’s plea that Iraq’s creditors join America in forgiving “the vast majority” of the debts incurred by Iraq during Saddam Hussein’s regime. (Within the G-8 nations, Japan is owed $4.1 billion, Russia $3.5 billion, France $3 billion, Germany $2.4 billion and the U.S. $2.2 billion.) And just to make certain that none of the anti-American voters at home gets any idea that he has moved too close to the Americans, Chirac decided to pass up President Reagan’s funeral to keep an unspecified “previous commitment” in Europe.
Gerhard Schroeder is in a more difficult position than the French friend with whom he has formed an alliance forged in steel. He is riding a tiger: he has whipped up anti-American sentiment, and ridden the wave of anti-Americanism to electoral triumph. But he now wants to open markets and investment opportunities in the countries that have recently joined the EU, and to cozy up to the delegates they will be sending to the various EU institutions. Unfortunately for him, eight of these countries remember that it was American steadfastness in the Cold War, and Ronald Reagan’s decision to replace containment with victory as his policy goal, that got them out from under the Russian boot. So these countries, and the German business community, are telling Schroeder to tone down his anti-American rhetoric -- which he can’t do without antagonizing the voters he has persuaded to hate America in general and George W. Bush in particular.
To add to the Franco-German discomfort, the UN Security Council unanimously approved the new Iraqi government, led by Ghazi al-Yawar, who was educated in America. And when the heads-of-state show moves on to Istanbul later this month for the NATO summit meeting, after a two-day stop in New Market-on-Fergus in Ireland for an EU-US summit meeting, Chirac is likely to find that his resistance to NATO involvement in Iraq’s reconstruction will be ignored by an organization desperate to prove that it is relevant to the 21st century. All in all, it seems that in a single week the reputations of George W. Bush and Tony Blair have moved from the valley of despair to the bright uplands reserved for those who get it right in the tough world of geopolitics.
All of this geopolitical toing-and-froing overshadowed some important developments on the economic front. With Japan now firmly on the path to growth, Europe is the world’s principal laggard. U.S. Treasury Secretary John Snow called upon the EU to rely less on export-led growth, which adds to America’s trade deficit, and to take steps to accelerate domestic demand. But the Europeans are engaged in a blame game. Schroeder and Chirac blame the European Central Bank for keeping interest too high, while the ECB blames France and Germany for violating the fiscal rules of the Growth and Stability Pact, and for refusing to reform their labor and product markets. The funny thing is that both the ECB and its critics are probably right -- the one-size-fits-all interest rate set by the ECB is too high to maximize growth in France and Germany, and the French and Germans’ refusal to institute economic reforms is holding back their economies. The most optimistic forecast is that the European economy will grow at an annual rate of about 1.5% this year, about one-third that of the United States.
Not all the news from these meetings is gloomy. The heads of state did manage to pronounce themselves in favor of a resumption of trade-opening talks, and to promise to reduce trade-distorting agricultural subsidies and barriers to access.
Whether those pledges can survive the pressures of the American presidential campaign is not certain. Bush shows commendable courage by defending free trade as a creator rather than a destroyer of jobs, and ridiculing calls to end outsourcing. He also has had the Commerce Department cut anti-dumping duties on Chinese television sets to levels that will have minimal impact on China’s television-set manufacturers.
All of this is a misfortune for John Kerry. His campaign rests on a three-legged stool. The first leg is that Bush is a job-destroyer; but the economy has created almost one million jobs in the past three months, and is probably adding better than 10,000 every day. The second leg is that Bush has antagonized America’s allies and is isolated; the 15-0 Security Council vote to recognize the Bush-backed Iraqi government saws that leg off. The final leg is that the Bush tax cuts have been a disaster. Ronald Reagan’s death has brought renewed attention to the fact that the late president’s tax cuts helped to end the recession he inherited from Jimmy Carter, just as Bush’s cuts kept the Clinton recession short and mild.Not a good week for the president’s foes, here and abroad.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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