Getting Europe Right

Thomas Demand. Vault, 2012, (detail). © Thomas Demand, VG Bild-Kunst, Bonn / ARS, New York.

Octavian Report: What are the most striking differences in the U.S.-E.U. relationship between now and when you served as our E.U. ambassador?

Amb. Stuart Eizenstat: Well, we should look, first, at that period of 1993 to 1996 that I was an ambassador. It was shortly after the collapse of communism, the fall of the Berlin wall. It was a very heady time for democracy. As a consequence, the European Union was in an expansion mode. There were 12 countries when I came; there would be 15 during the three-year period that I served and more to come. Now, of course, there are 28.

Europe with its centuries and centuries of war-torn history was united, east and west, with no artificial barriers under a democratic, free-market umbrella. We should never forget that even with today's problems that that remains the case. When I was there, that was the prospect we were all hoping for.

On the other side of the Atlantic, we had a new young president, Bill Clinton. He was very much a globalist and very supportive of European integration and the whole E.U. experiment — of this unusual, supranational organization in which member states retained their sovereignty in certain crucial areas like budget policy but ceded their sovereignty in areas like trade and competition and entrusted policy to centralized institutions.

This seems light years from where we are today. Today, we have a European Union that is very much torn apart east and west. With Brexit, one state is actually pulling out of the European Union, and there is pressure from other the states in Eastern Europe, particularly Poland and Hungary. We saw that, for example, with the erection of barriers by Hungary to refugees coming in rather than having a common immigration policy with the European Commission. The central executive arm of the E.U. had proposed — and there had been agreement with this — that countries accept a certain percentage of refugees based on their population. This had totally broken down, and the inability of the European Union to protect its shores from this wave of refugees — in part because the member states didn't give it the authority to do so — led to great self-doubt.

In addition, at the time I was there, the economies of Europe and the U.S. were growing rapidly. Now, there's been a stagnation of growth in the European side — E.U. countries are now starting to grow at a two-percent rate, but that's only since a year ago. Before that, there was a much slower recovery from the Great Recession.

The optimism I spoke about was emphasized by the beginning of the creation of the euro. Since then, we've seen the euro, while it is (I think) a permanent fixture of the financial world, go through a real crisis as a result of the Great Recession. Countries like Greece should never have been allowed into the euro. They, frankly, misled their fellow member states by submitting false data to show that they had met the so-called master criteria required to enter the eurozone.

The euro has come under tremendous pressure, saved by one person — Mario Draghi, the head of the European Central Bank — and by one sentence of his: "We stand firmly behind all of the currencies and we will not let the euro fail." That was critical, but it was said in response to strain that no one foresaw.

OR: Do you see the E.U. as being sustainable in its current form?

Eizenstat: I firmly believe the European Union is here to stay. Will it have to adapt? Yes. I think that there will have to be more devolution of authority to some of the member states. I think the European Commission got ahead of itself in terms of taking some authority away from the member states, but that is something that can be adjusted and it does not threaten the basic fabric of the E.U.

Its continued existence is in our national security interest for several reasons. The first is when we deal with countries like Russia or Iran or North Korea and we want to impose economic sanctions, it's absolutely clear — and I know this because I was in charge of sanctions policy during the Clinton administration — that U.S. sanctions alone are not fully effective. We need the economic power of the E.U. acting as a cohesive unit.

Wherever one thinks about the Iranian nuclear deal (I happen to support it), you have to admit that Iran would never have come to the negotiating table had the E.U. not joined in on banking sanctions and a whole raft of other major sanctions. Including not importing any of their oil, which is a great sacrifice.

Our intelligence agencies have offices in Brussels; they cooperate with the E.U. In that respect, it's very important from a security standpoint and foreign policy standpoint. It's also important economically because the E.U. is a huge marketplace. Indeed, it's our largest trade partner and its economic performance is very important to our own.

We generally also share democratic, free-market values with Europe. When we go to look for help in dealing with countries like North Korea and Iran or Russia, we can't expect to get that kind of cooperation from China. We go to Europe because that's, in effect, the birthplace of many of our democratic ideas.

OR: If the E.U. is retreating, what does that mean for Russia?

Eizenstat: One of President Putin's clear goals is to separate the U.S. from the E.U. Another is to sow division within the European Union. This is done through propaganda, through fake news, through trying to influence elections by supporting anti-EU candidates and parties. It's sophisticated; it occurs every day of the week. Seventeen U.S. intelligence agencies indicate they have done this in European Union state elections, in France, Germany, and elsewhere. That is the goal of Russia.

Our trading relationship with Russia is really quite miniscule. But Russia is a major trading partner with the E.U. and particularly with countries like Germany. It complicates having a united policy with respect to Russia when you've got major trading relationships and energy relationships. Europe gets about 40 percent of its oil from Russia and a very substantial part of its natural gas.

So it shows how much the E.U. values its relationship and partnership with the U.S. that every six months they have continued to vote for rolling over and continuing the economic sanctions against Russia for its invasion of Crimea and its intrusions in the eastern part of Ukraine even when it is undergoing serious economic sacrifice to do so.

The same is true about its joint sanctions with Iran. We have not, of course, since the hostage crisis during the Carter administration had any trade with Iran. Some E.U. member states get natural gas from the Islamic Republic and they have had a robust trading relationship. That, again, shows how important the E.U. is to us because they have made a much greater sacrifice to forego those kinds of benefits and join us in sanctions.

OR: As Brexit lumbers along, do you see other exits from the E.U. as possible or as likely?

Eizenstat: No, I do not, and I think that the disruptions which will occur to the U.K. as a result of this decision will make it very clear that leaving the E.U. is a very bad idea and a costly one. I do not see any pressures anywhere else in the remaining 27 member states for an exit.

OR: Do you see more accessions in the medium term?

Eizenstat: I do. There are countries like Croatia which were very anxious to join, as well as Serbia and Montenegro. But remember: it's not a social club. You have to reach certain democratic criteria. The negotiations for membership are very intense. There's dozens of articles in the accession process covering a whole range of areas: an independent judiciary, setting up certain free-market economic institutions.

I think as a result of Brexit and of some of the pressures I described earlier that those accessions are going to be slowed down until the E.U. can digest what it's got and resume the growth path that now appears to be curved.

OR: Do you the idea of a trans-national Europe has lost credibility?

Eizenstat: I think it's not really the case. Now, mind you, even at its heyday, the European Union is something that was never duplicated in Asia or Latin America. There have been and there continue to be informal associations, ASEAN and so forth, but no set of countries anywhere else has been willing to integrate itself to such a degree. I don't think it's fair to say it's lost its credibility because it's sui generis. It's not the United States of Europe, but neither is it just a collection of member states in a very loose umbrella. It is really a very unusual structure. I do not see that basic structure being eroded for the foreseeable future. Do I see perhaps more authority to the member states in certain areas? Yes, but again that will be in the same construct of the European Union that we see now.

OR: What's your take on the entry into parliament of Die Alternative in Germany?

Eizenstat: I think that with the success of more right-wing, nationalist, anti-E.U. parties in Germany, in France, and in the Netherlands there's a very troublesome situation. There is a great dissatisfaction for a lot of middle- and working-class people who have not been enjoying the benefits that people on the other side of the digital divide enjoy. The people who have been left behind are angry and upset and they take it out on anyone they can. In Brexit, it was on the European Union; in Germany, it was against Merkel.

OR: Is there something troubling, particularly in Germany, about the rise of parties like this?

Eizenstat: Of course. I've spent a great deal of my public career and private life providing justice for Holocaust victims. I negotiated $80 million of recoveries for victims of the Holocaust during the Clinton administration; I've negotiated another $2 billion in recoveries. So this is a very important part of my life.

Now, having said that, obviously, the rise of right-wing parties in Germany is something to be looked at very carefully. But I have negotiated with and spent more hours negotiating with Germans over the last decade-and-a-half than any other single person in the United States, and I have supreme confidence that Germany has historically and in unique ways not only learned but absorbed its history. They've erected their major Holocaust memorial right in the heart of downtown Berlin. They have Holocaust education. I went to the museum on the SS last year, a new museum on the SS. To see the stream of young school kids coming through that and having their teachers teach them about it is very inspirational.

It's obviously something to be watched — the rise of the alt-Right in Germany. But I think that Germany is extraordinarily healthy as a democracy and they themselves know that they have to watch this.

OR: Why are restitutions important?

Eizenstat: This is the first time that a defeated country in war has paid civilians who were damaged individually. It's important, as an example, of how countries should act when they commit acts of genocide. It’s also important for the survivors, for the living victims of these atrocities.

There are still, today, 500,000 survivors left in the world. Studies have shown that over 80 percent of those are in poverty in the former Soviet Union and Eastern bloc countries. A recent study showed that 50 percent of the 60,000 survivors in New York City area are living below the poverty level, so they need these funds; they need the homecare to avoid degradation in their old age as they suffered in their youth. It's important in their last years that they live in decency, having lived in such trauma in their earlier years.

It's not just money. We've promoted Holocaust education. I worked, when I was undersecretary of State and then deputy secretary of Treasury, with the Prime Minister of Sweden for what was then a six-country international Holocaust education taskforce  — it now counts 31 countries as its members — promoting mandatory Holocaust education in the school systems. Not just to look back at the Holocaust alone but as an example of what happens when intolerance goes unchecked, when you don't have the rule of law, when you don't intervene to deal with genocidal situations.

That's a very important piece of it as well: a memorandum in 1978 when I was with President Carter led directly to the Presidential Commission on Holocaust. Their recommendations to President Carter directly led to the creation of the Holocaust Museum in Washington. That museum is the third most-visited museum in Washington. Three-quarters of the now 15 million visitors since it opened are non-Jewish; school kids come through, police force trainees come through; cadets from our military academies come through. These are lessons which are very important going forward in the kind of the troubled world we are in.

OR: You've spoken very positively just now about Germany and its relationship to its wartime past. Is there the same level of accountability in other countries?

Eizenstat: There is not. For example, the Japanese have never really accepted their responsibility for the war. There were other countries complicit in the Holocaust.

Lithuania, for example, and many parts of Poland were implicated in killing Jews. Now, one of the things we did during the Clinton administration is we created some 20 historical commissions to deal with these issues and Lithuania was one of them. They created a commission to look at both their Communist era and their Holocaust era and it was a very searching report about their own implication.

Switzerland is another example. Switzerland didn't kill people. But through the study we did — which is sometimes called the Eizenstat Report; it should be the Slaney Report because he was the historian at the State Department then — I coordinated 13 agencies and we showed dramatically the role that Switzerland played in helping fund the war and accepting looted gold from Germany and converting it into the hard currency that Germans used. That, in turn, led the Bergier Commission to looked at Switzerland’s own role. We've been able to encourage other countries in Europe to look at their roles.

OR: Do you see the euro as durable?

Eizenstat: In 1993, in my first year as E.U. ambassador, it was clear to me from my meetings with the E.U. officials and with member-state representatives there that a real desire to create this common currency existed.

There was a disbelief among some treasury officials — like Larry Summers, for example, a deputy secretary at that time — that you could put together disparate economies like Germany and Greece or Spain and France or Spain and some of the Scandinavian countries or Italy. You couldn't put them together in the straitjacket of a common currency and a common monetary policy when they didn't have a common fiscal policy.

I said to them: "You may think that, but the political desire is very strong." I told them about when I went to see the French ambassador to the E.U. at the time. His name was De Bossier. He was the third cousin, or something, of De Gaulle but he thought he was De Gaulle incarnate. I said to him, "Mr. Ambassador, are the French really prepared to give up the French franc and all the history that that entails?" He said, "Mr. Ambassador, you don't fully understand European history." I said, "Tell me." He said, "We fought three wars with Germany in 100 years: 1870, 1914, and 1939. If we lock Germany into a common currency they can never go to war with us again because you can't go to war against your own currency."

In other words, it was heavily a political decision. Now, we saw the strains during the financial crisis of putting disparate economies into a single currency: it prevented, for example, the Greeks from devaluing, which they could have done had they had their own currency. This would have made getting out of deep recession much easier. The same with Spain; the same with Portugal.

If one were to do it again, the euro should have a much lower number of countries and countries that have much more commonality to their economy, a stronger central bank, a greater fiscal authority.

Having said that, unraveling the euro would be even worse than keeping it as it is and trying to improve it. The European Central Bank is now much more powerful. Draghi has done an incredible job: he's the real hero, in my estimation, of getting the euro and the European Union and its member states out of the Great Recession.

The ECB has regulatory authority over banks; it's gone through stress-testing of European banks. What they need is the next step: they need a common banking authority, a common deposit insurance. I think it's important now to go forward with the euro, not to try and unravel it; it's not going to be unraveled. It's one of the major currencies in the world along with the dollar, the yen, or the renminbi — and it's going to remain so.