The Foreign Service Journal, February 2012

20 F O R E I G N S E R V I C E J O U R N A L / F E B R U A R Y 2 0 1 2 were necessary to stimulate the econ- omy. The Maastricht criteria did not bite. The lack of an effective Euro- pean mechanism to enforce budget discipline among members of the euro zone continues to be the main reason Germans and Northern Euro- peans resist calls for the issuance of euro bonds or a stronger European Central Bank role in buying national bonds to backstop national budgets. The fragility of the euro zone was compounded by ex- pansion beyond its original membership. European lead- ers decided to include Greece, even though it was common knowledge that Athens did not meet the Maas- tricht criteria and its official deficit numbers were a sham. Meanwhile, Europe had other, more deep-seated prob- lems that had been even longer in the making. For more than two decades, growth, productivity and job creation had stagnated. After all of the traumas of the 20th cen- tury, European citizens had a preference for personal sta- bility and generous social welfare programs, even if that meant that the European economy as a whole was less dy- namic, grew more slowly, created fewer jobs and was less resilient to shocks. In forging a response to the global financial crisis, how- ever, it was natural that the United States and Europe, es- pecially the United Kingdom, would take the lead. Leadership, Followed by Paralysis For more than half a century before the current crisis, the United States and Europe shared leadership in the construction of the post–WorldWar II world as partners in multilateral diplomacy. From my own vantage point, trans-Atlantic cooperation was critical in responding to the turmoil that began in 2008. The George W. Bush and Barack Obama administrations both deserve great credit for transforming the Group of 20 from a finance ministry forum into a structure that heads of government could use to harmonize policy approaches. The G-20 enjoyed initial success in rallying govern- ments around a policy framework of short-term economic stimulus and commitments to avoid protectionist, beggar- thy-neighbor policies. Without this success, the response could have repeated the mistakes of the 1930s, making the crisis much worse. Europe and the United States have done a less effective job, however, in leading the way to- ward an effective framework for eco- nomic recovery over the longer term. Europe was less strongly committed to budgetary stimulus than were the Americans. The European Central Bank had neither the authority nor the desire to engage in creative forms of monetary stimulus, such as those initiated by Federal Reserve Chair- man Ben Bernanke. In certain re- spects, Europe favored stronger regulation of the financial sector than did the U.S. Treasury and the Fed. The United States, on the other hand, was more strongly supportive of regulatory steps to force banks to raise additional capital to buffer against shock, measures that the Europeans were reluctant to take. In addition, the G-20 framework suffers from an overly narrow focus on immediate financial issues. Financial of- ficials driving the G-20 have paid inadequate attention to, and mobilized less consensus on, the broader economic policy issues, political concerns and institutional problems that must be tackled to stabilize the euro and launch a stronger and durable recovery. By contrast, these broader economic, political and institutional issues are natural strengths for the State Department and the Foreign Serv- ice. Further, the early diplomatic successes of the G-20 — for which the United States and Europe both deserve great credit —have been partially undone by the fact that the European and American economies have been much slower to rebound than other G-20 economies. Europe continued to suffer from tepid economic growth and may slide into recession in 2012. The U.S. economy was over- indebted, and Washington was slow to deal with the hous- ing crisis and to chart a path toward medium-term budget discipline. The intensifying European debt crisis and the slow recovery of the U.S. economy are not only global problems, but have become central challenges for Amer- ican diplomacy. European Politics One can neither understand nor overcome the current crisis without coming to grips with problems of European politics and governance. The domestic politics of individ- ual nations that make up the euro zone are complex, but the politics among the zone’s member-countries and insti- F OCUS Many American officials have seen the building of a United States of Europe as an implicit goal of U.S. foreign policy.