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Issues Influencing the Transatlantic Relationship During the COVID-19 Pandemic with John B. Emerson and Sigmar Gabriel

On April 9, the American Council on Germany and Atlantik-Brücke partnered to host the first in what will be a series of webinars. The Chairmen of the two organizations – Ambassador John B. Emerson and former Foreign Minister and Vice Chancellor Sigmar Gabriel – discussed a range of issues influencing the transatlantic relationship during the COVID-19 pandemic. The discussion was moderated by journalist Juliane Schäuble, the U.S. Correspondent for the daily, Der Tagesspiegel.

The speakers could not address all of the questions posed during the event. They have responded to some of the questions in writing:

Do you think that the German approach to dealing with the crisis can or will be seen as a best practice / leadership role?

John B. Emerson: So far, yes, especially in terms of their ability – and willingness – to do comprehensive testing. The proof will be in how well the gradual re-opening of the economy goes. But there’s no question that providing fact-based, science-based, and non-politicized information to the public coupled with the formulation of clear and coherent public policy is a good model.

Sigmar Gabriel: If we look only at how Germany is handling the crisis internally, things seem to be going in the right direction. We need to keep in mind, however, that we have been lucky enough to have some more time to prepare ourselves for the outbreak of the virus than other European countries. If we look at how Germany is dealing with the pandemic as a European leader, things look much worse. Germany has been much too slow and hesitant to come to the help of its allies and neighbors.

Specific to Germany, since it seems to be weathering this situation comparatively well and was historically helped by the Marshall Plan, should it not take a leadership role in helping other countries in the EU like Spain and Italy? Specifically financial reconstruction, for example “Eurobonds” or “Corona-bonds.”

JBE: There is talk about a new Marshall Plan – but the focus should really be on the future of the European project, as Emmanuel Macron so starkly put it in his FT interview this past week. Sigmar Gabriel made note of this in our discussion. After marathon negotiations, European Finance Ministers signed off on massive aid packages to help cover the cost of healthcare during the corona crisis.

“Corona-bonds” are not easy. There are serious concerns in Germany about German taxpayers being “on the hook” for Italian, Spanish, or Greek debt is politically toxic.  But perhaps a more creative approach can be developed.

SG: On the one hand, it is a very basic humanitarian gesture to help those in need during a crisis. Germany’s success is built to no small part on the European Union, and now is the time to give back. We need to help because we can. However, we should also note that it is in our own best interest to make sure that Europe recovers – as a whole. If we leave countries behind, these countries will lose faith in the European idea. And if Europe falls apart, Germany, too, will suffer. Politicians need to communicate this very clearly – because citizens are understandably worried at a time like this.

We also need to make sure that the discussion about bonds does not turn into a very general discussion of mutualized debt. We need to discuss our help in this very specific context. This is an unprecedented situation, in which we do not want to burden the countries in need with high interest rates when they need to take out loans to pay for the damage caused by the pandemic.

What are your opinions on the short-term future of the European project after seeing how EU member states have reacted to the COVID-19 pandemic?

JBE: See my answer to the previous question. Beyond that (and the idea of corona bonds), the EU member states will be judged in part by their actions taken to help struggling members deal with the public health crisis – and this includes providing personal protection equipment (PPE) for healthcare workers as well as medical equipment, and even hospital beds (i.e., taking patients from overwhelmed regions). But, it is not limited to the public health response. Direct financial aid to meet the challenge of the corona crisis AND support to drive economic recovery as the pandemic subsides will both be critical.

SG: The outlook for Europe’s future is bleak if we are narrow minded now and everyone thinks only of their own country. We need to take comprehensive action to help and make sure no country in Europe is left behind. Only then can we call ourselves a union.

Regardless of one’s political vantage point (Right, Left, or otherwise), this crisis has highlighted the need for bureaucratic reform and efficiency in much of the West. What effects – positive or negative – will the response in the Euro zone be? And, what will be the response and impact to what is happening in Hungary?

JBE: The determinative factor will be whether at the end of the day people feel that government action served them well. This will obviously differ country by country, and region by region. If people end up angry at government incompetence or inaction, we might see a resurgence of populism and anti-Euro, anti-immigrant movements. On the other hand, it is not clear that authoritarian societies have handled this better than our messy democracies. Look at China—as the truth comes out, it becomes clearer that the lack of transparency and attempts to suppress the truth created a more dangerous situation for the populace – theirs and ours. On the other hand democracies like New Zealand, South Korea, Taiwan, and even Germany are getting good marks so far.

Regarding Hungary and Orban’s attempt to use these dual crises to consolidate his power, this will undoubtedly be a challenge for the EU.

SG: I don’t think that a clunky and inefficient bureaucracy is the biggest weakness this crisis has revealed, in Europe or in the West as a whole. What the pandemic has shown is a lack of political will to work together. We are suffering from a “my nation first”-virus. Hopefully, as mentioned above, the European Union can come around and commit to shouldering this crisis together.

In managing the crisis, it is essential that democratic governments make sure people feel that they can trust the authorities – that they are well taken care of, that the necessary steps are being taken, and that all measures are communicated in a transparent fashion. If there is a sense of security and trust, and an understanding that we will all be better off if we work together, populists and authoritarian figures will have a hard time finding supporters.

As far as Hungary is concerned, Orban is clearly seizing the opportunity to establish himself as an authoritarian leader even more than before under the guise of managing the virus. The EU must react, but it also has to make sure not to make the Hungarian people pay for a political conflict during this crisis.

How can/should the EU deal with power plays such as in Hungary?

JBE: I would defer to Sigmar on this and the prior question. Briefly, however, my sense is that right now there isn’t a lot it can be done other than raising concerns and focusing the EUs efforts on the dual public health and economic crises facing Europe – and the world. Once we’ve moved beyond the immediate crisis, and see whether the disturbing policies imposed by the Orban government continue and whether they are in compliance with the EU’s governing principles, this will be a matter for debate and action. Hard to be more specific than that at this point.

SG: Viktor Orban has shown before that he has no qualms about walking all over democratic procedures and institutions. His latest coup has been in line with his previous actions. The EU needs to ultimately send a clear signal to Orban. Ultimately, he will not react to diplomatic scolding. So the response has to be firm, but also measured. In the corona-crisis more than ever, Orban is holding his own people hostage.

European nations, including Germany and the U.K., have been highly opportunistic in their approach to China vs US, with the Europeans weighing the size of the Chinese market more heavily than our historic shared principles. This was already the case when Obama was President. Trump’s policies aggravate this problem. How do we coordinate our China policies so as to move the CCP to shift its search for global dominance to global cooperation. The CCP is likely incapable of shifting its outlook without focused action by the West. What should Germany do to initiate a more unified front in the West to deal with China and the continuing threat of epidemics emerging from China?

JBE: Unquestionably the West would be better off coordinating its efforts to ensure that China plays by the rules when it comes to trade, commercial transactions, and the global economy in general. I think the pandemic and the initial lack of transparency coming from China will cause European nations to re-think this process. However, I see the U.S. continuing to go on its own regarding China until there is a change in administrations, either in 2020 or 2024. Look for expressions of increasing U.S. hostility toward China as we move toward the Fall presidential election.

SG: China is currently seizing the opportunity to consolidate its influence in the world at large by providing help and medical equipment to countries in need. In doing so, China is aiming to establish itself as a reliable and responsible power. This is precisely where the West has left a big gaping hole: taking responsibility globally. Europe needs to take on some of this global responsibility – ideally side by side with America. As long as the current administration is defining American interest very narrowly, though, it does not seem that we will stand a chance at acting together. The same goes for uniting our efforts vis-á-vis China in other respects. We would indeed be better off facing China together, as partners. This is only possible if we can respect each other’s outlook towards China while agreeing to consolidate our efforts.

Last but not least, epidemics can originate everywhere. It is not very helpful to play the blame game. We live in a globalized world, and we cannot turn back the clock – nor should we want to.

Thanks for your thoughts on China. How do you see Russia responding to the crisis?

JBE: With a lack of transparency and by looking for opportunities to create more discord within Western democracies. Clearly the oil fight with the Saudi’s remains unresolved as well.

SG: Just like China, Russia is using the crisis to try and establish its role as a globally responsible power by sending help to countries in need. This, of course, is not selfless. The European Union should see this as yet another wake-up call. Russia is following all signs of discord within the EU very closely, and is always happy to lend a helping hand where it senses weakness.

Listening to the virologists and immunologists we could be in for a long road towards normality. What would Mr. Emerson and Herr Gabriel see as a long-term strategy for economic and financial recovery, in particular with the aspect of an increasing and enormous debt burden?

JBE: I see a fitful re-opening of economies on a regional a basis. The speed of this recovery will depend on the size and effectiveness of the various stabilization packages that are being implemented by national governments, the EU, and the central banks – as well as thorough testing and tracking. It will ebb and flow depending on future waves of the disease and progress on treatment for those who are infected as well as the ultimate development of a vaccine. Until then, social distancing will be largely a fact of life, as will wearing masks when engaging with others, and testing at the business, customer and local level, with no return of large events (think concerts, sporting events, hotel ballroom dinners and celebrations, etc.) until the development and wide distribution of a vaccine.

In terms of debt, we will see a real world test of whether Modern Monetary Theory, which essentially holds that deficit spending doesn’t matter in an economy that controls its own currency, is accurate or not!

SG: Taking the European perspective, the long-term strategy starts with immediate emergency measures to help businesses of all sizes. This step is necessary to keep the unemployment rate under control. The statistics already show that almost ten million French people are working reduced hours as a result of the corona crisis, this equals every second employee in the private sector. The German federal government also expects several million employees on short-time work. So far, 725.000 applications have been filed. And data from Spain’s social security show that since mid-March 2020 about 900.000 people have lost their jobs due to the pandemic. In this highly challenging situation, it is crucial for the countries of the EU and the Euro zone to give their citizens a prospect of economic stability.

Right now we see heavy frictions when it comes really receiving money from funds, to get loans or to use guarantees to keep specific businesses running. So far, Germany has set up a package with the volume of 1.2 trillion euro in order to absorb the deepest economic shocks. The European Central Bank is also trying to prevent a tremendous recession from unfolding. With high probability, the EU and its member states will experience a setback regarding the debt burden. In this acute emergency, we have to accept increasing debt to some degree.

Regarding Germany specifically, we should not hesitate to use up to ten percent of our Corona-related debt burden to support Italy’s and Spain’s economies. These two EU member states have been hit the hardest by the pandemic.

Can you comment on the dangers of increased social discrepancies and distortion this crisis might create? The wealthy might end up even wealthier by timely investing; the digitally educated will become even more digital with the majority of non-haves falling further behind. How to mitigate this?

JBE: Unquestionably the discussion of the disparities in society between the haves and the have nots will increase. If you don’t have access to broadband, how can you work from home; many jobs aren’t work at home capable in any event; if you don’t have shelter, how can you shelter in place? On and on. This will become an increasingly important discussion not only within specific countries but also between the developed and the developing world.

SG: One lesson the Corona crisis drives home: Our education systems, our businesses, and our daily lives will become increasingly digital. We need to equip everyone with the necessary know-how and tools to participate in this highly complex and interconnected world – regardless of their economic background. The responsibility to educate lies with our governments and education systems, but also with employers and civil society.

What can ACG and AB do jointly to address the issue of recovery after COVID-19?

JBE: We discussed this during the session. The German-American relationship is indispensable – and in times like this we must recognize that we face common global challenges (that know no international boundaries). In order to fully recover, we need to work together. ACG and Atlantik-Brücke can continue to serve as an important forum for dialogue and engagement across the Atlantic. This event with Sigmar Gabriel is the first in a series of conversations we will have in the coming weeks about the impact of COVID-19 on economics, politics, and society. We should also consider forming a working group to think about what the transatlantic partnership will look like after the pandemic.

SG: The American Council on Germany and Atlantik-Brücke share a long history of strong cooperation. My impression so far is that both organizations offer their members and networks a lot of food for thought in this crisis. We analyze the Covid-19 pandemic from different perspectives that resonate with our transatlantic and Western mission. This video call between John Emerson and myself is a good example of how ACG and AB cooperate. We will continue to speak with American and German as well as other European experts to increase the exchange of knowledge and to discuss solutions to manage recovery from the pandemic. And of course, our institutions need your input and ideas for concrete action – maybe more than ever.

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