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Thursday, October 24, 2013

US-EU free trade deal could be collateral damage of latest NSA allegations

So we wondered what the big story of the European Council would be. Now we have the answer: Merkel’s cell phone. Der Spiegel today alleged that Merkel's phone may have been targeted by US security services. Merkel called President Obama to make clear that she "unequivocally condemns such practices” and was told that the US is not monitoring and will not monitor her communications (which as German media commentators have identified leaves open the possibility that this could have taken place in the past). The US Ambassador in Berlin was also summoned for a dressing down which follows similar action taken in France over allegations the US also spied on French diplomats.

Because this issue has been hyped-up by the media, this has the potential to be more damaging to Anglo-Saxon-Continental relations than arguably any other episode since the Iraq war - and there are lots of things going on here.

Civil liberties vs. security: As ever, this encapsulates the very sensitive trade-off between the obligation of the state to ensure the security of its citizens and the right of the citizens not to have the state arbitrarily snooping in their business. The Germans – given the painful memory of Stasi and Nazi surveillance – are particularly sensitive to this (and that the German Chancellor herself is the alleged victim adds fuel to the fire). Forget everything else on the agenda of the EU summit today, this is what really is creating the headlines in Germany.

Data protection - EU vs national: Some EU leaders and politicians - including Justice Commissioner Vivianne Reding (for whom this issue is like ideological steroids) are keen to use the long planned overhaul of EU data protection rules to enforce greater EU-level safeguards, though the link to the tapping of Merkel's phone isn't entirely clear. France and Poland are reportedly keen on fast-tracking this issue through the EU legislative process while others including the UK and Scandinavian countries countries are less keen. Germany has not committed itself either way (although German Interior Minister Freidrich said the current version would have to be revised).

The UK vs France: However, the same Data Protection Directive that France wants to pass also featured in the recent UK business taskforce report as an example of EU rules which hurt innovation and growth, and argument echoed by Rohan Silva in today’s Times. Medical research charities have also warned that the new rules - specifically a series of amendments tabled by the Green MEP Jan Philip Albrecht - could starve them of the data they need to work on new treatments. So this issue might also indirectly pit the UK versus France.

Germany vs. the Anglo-Saxon world: This is a critical one - any souring of relations between the US and Germany is bad news, and the UK could well be implicated by association (remember Tempora). The thing to watch out for will be the impact on the EU-US free trade deal currently under negotiation (TTIP) as Germany could now well insist on various complicated privacy safeguards and guarantees which Obama will have hard time delivering (not least since getting a deal past Congress perceived as undermining national security could prove very tricky). If TTIP were to fail, it would embolden those claiming that the UK needs to leave the EU to maximise global trading opportunities,

This is also putting Cameron in a very awkward position as he doesn't want to offend either the Germans or the US - but he'll most certainly be pressed on taking a position.

Secondly, the European Parliament – which also needs to approve the final deal – may see an opportunity here to hijack TTIP to exert its own power. The EP has form on privacy and civil liberty issues, as seen by its attempt to take SWIFT hostage. In fact, SWIFT itself could be complicated by the accusations against the US (we’re not saying that the EP doesn't have any valid arguments in this area).

So this is an episode that most certainly will reverberate for quite some time.


Rik said...

Of course this will put a lot of pressure on the relation. So on the negotiation as well. Europe's politicians have been completely naive in that respect (My parent lied to me: Father Christmas was your uncle John stuff).
And it is ok when the US spies on our monhkeys but it is differnt when they do it on me.

Anyway the US is simply completey overplaying its cards in this respect and will most likely face a lot of fall out. This simply doesnot do any relation any good. The trust element of that will take a huge hit. Also seen the moronic way Obozo manages the fall out.
The negotiations will however be picked up somewhat later.

What has done the structural damage is that US business already starts to take a big hit from this. Some companies (the ones that were the first to be expected to get under fire) are losing almost 20% of their mainly Chines turnover. No way that the suspicious Chinese and a lot of others will accept that. They smile friendly and move asap to other alternatives.
Undoubtedly this will heavily erode the position of one of the main sectors the USs economy is built upon. Directly via lost revenue but also indirectly as the foreign competition get stronger.

UK should be careful as well as they are in the plot. Less for the economic faoll out, but for the relation aspect mainly which works nmore indirectly.

To speak with the words of one of the main thinkers of our time Mr Johan Cruyff: 'every disadvantage has its advantages'.
It is clear from that the EU are a bunch of burocrats with no sense for business. This is the ideal opportunity to get a European industry in min stream software, internet services, social media from the ground. Just spread the news in a proper commercial way and the largest part of the sector of the population where the money is made will be open for change.
And the first replacement Google or Facebook is likely the next big worldplayer. This sucks simply in every country.
Looks like another opportunity waisted. Next time blogs by Baidu.

Rik said...

Chinese especially donot like any government interference in their business. Not by their own (the reason why they all are setting up a plan B in Vancouver and surroundings.
Just an example I have seen half of the Chinese in my appartmentbuilding move (10s of them) to other places just because the visa requirements changed (more paperwork and they could be more easily tracked). And the same by more thorough ckheck was happening all over the place.

The main direct problems will be with things where the US has a central role. The UN seat can probably not that easily be removed. But a replacement for SWIFT for instance is not that difficult to set up. (And US business with virtual monopolies now will likely take a huge hit). In fact people were already working on that and efforts have been speeded up.
This will speed up the erosion of the USD as the worlds currency. Nearly all major international debtors feel uneasy with it anyway (with helicopter Ben) and this only makes it worse.

Structures have to change as a lot of the world as you know it, simply is not sustainable. Something will have to move. However with big changes in systems there are always large groups that benefit and large groups that take a hit. With as added problem (but a big one) that the ones that benifit treat it as a windfall. While the ones that take the hit get into trouble (and require heavy cuts). Usually causes a huge reset of things.
And as this crisis clearly shows the West is in no way equipped to deal with that. Theya re more likely to generate more mess in that process.

Freedom Lover said...

"If TTIP were to fail, it would embolden those claiming that the UK needs to leave the EU to maximise global trading opportunities..."
Firstly, that sounds excellent to me! And secondly, isn't leaving the ghastly EU also Open Europe's aims too? Or has OE suddenly become europhile? Let's sincerely that's hope not so!

Anonymous said...

Germany Versus the Anglo Saxon World, Hmmm didn't the Angles and Saxons originate in Germania?

Denis Cooper said...

I wouldn't worry too much, because the potential economic benefits of this EU/US trade deal have been greatly exaggerated.

Cameron is representing it as major progress and implying that on no account must we miss out on this cornucopia by leaving the EU, but on the basis of the published numbers it would at best be a one-off increase of just 0.7% of GDP, equivalent to just a few months of natural growth at the trend rate.

Indeed according to the figures published today we've just had 0.8% growth over the last quarter, more than we would ever get from the trade deal.

Rik said...

I seriously doubt that the benefits would only be a one time 0.7%.
Basically the EU is a relatively protected market. A 'clever' one in the way that most of that protection is done not via tariffs but via making imports much more complicated (and therefor expensive).
The US has several groups of goods which are considerably cheaper than similar goods in the EU. Which would indicate imho that several sectors will get tough competition. And simply should step up.
The US imports a lot of stuff now from the EU that get a sort of luxury product as well. Price differences can in no way be explained by transport and distribution. There seems to be a large new market there.

In a nutshell hard to see how this only can give a one time 0.7% percentage.

Fully agree that the advantages are very hard if not impossible to estimate. But 0.7% one time seems way too low.

jon livesey said...

There is one thing that European seemingly will never understand about the US, which is that no US President can commit the country to any agreement. He has to get Congress to approve.

You would think Europeans would have learned that lesson from Wilson, who was a driving force behind the formation of the League of Nations, only for Congress to refuse to ratify the deal.

And there isn't the slightest chance that Congress would ratify any agreement that tied the hands of the NSA in any way to please Europeans.

Congress may well decide to impose additional oversight on the NSA, but that would be to suit American interests. If Europeans push this, it would actually be counter-productive.

Denis Cooper said...

Rik -

"I seriously doubt that the benefits would only be a one time 0.7%."

Well, for a start the benefits would certainly be one-off, but probably spread out over quite a few years, as opposed to natural economic growth occurring (almost) continually into the future, year after year, decade after decade.

As for the magnitude of those one-off benefits, I was actually struck by their obvious economic insignificance on the basis of the numbers reported in the media.

Big numbers weree bandied about in an effort to extol its benefits, but put into context the numbers are not so impressive.

For example:


"Such a deal could add over £100bn to Europe's GDP, with Mr Cameron claiming it could "turbo-charge the transatlantic economy"."

But even if that one-off increase in GDP did eventually materialise it would only be about €120 billion on the collective EU GDP of about €13000 billion, or less than 1%.



"The Prime Minister said it would be worth £11 billion to Britain, the equivalent of £384 for every household, bringing two million new jobs and “lower prices in the shops”. "

As UK GDP is about 15% of the collective EU GDP, £11 billion would be less than the pro rata share of £15 billion out of £100 billion; but leaving that aside and taking the £11 billion figure, UK GDP is about £1500 billion and so that would be a one-off increase of about 0.7%.

Now of course a 0.7% increase in GDP is not to be dismissed out of hand, but with the natural growth rate of the UK economy averaging out somewhere near 2.5% a year over the long term, the projected economic benefit of the EU-US trade deal would be a one-off increase equivalent to no more than a few months of trend growth.

Which is in fact what we have just seen in the last quarter according to the ONS, an increase in UK GDP of 0.8%.

The numbers published do not really add up - it's not easy to see why Cameron's £11 billion is lower than the £15 billion that you would expect on a pro rata calculation for the EU as a whole, and nor is it easy to see how that could possibly translate to the claimed "equivalent of £384 for every household", if that is to be taken as meaning an increase of £384 a year in the income of an average household.

However those are just minor details, the overall picture is that the projected benefits are in fact rather small, one could say marginal.

This is not entirely unexpected as far as I'm concerned, because it has been clear for a long time that trade has already been freed up to such an extent that we are into diminishing returns overall, although there are probably some specific areas where that is not yet quite so true.

I've pointed out before that the projected benefits of the EU Single Market were never more than would have resulted from a few years' natural growth at the trend rate for the UK.