BF-FieldManual-FEB13 -3.pdf - Bertelsmann Foundation

Field Manual to EuropeIntroduction ........................................................... 42013 Major Events ................................................. 8Trans-Atlantic Economy ........................................... 10Eurozone Crisis ....................................................... 17Post-Afghanistan NATO ........................................... 26Arab Uprising ......................................................... 32Counterterrorism & Homeland Security ..................... 38Cyber Security ........................................................ 44Energy & Climate Change ........................................ 51Turkey .................................................................... 56Russia .................................................................... 64China ..................................................................... 70Acknowledgements ................................................. 77Citations ................................................................ 78Ten Memos for the New US Administration 3

1. The US is engaging in the mostprofound diplomatic rebalancing in ageneration. The Obama administrationrecast two foreign-policy elements inits first term, both of which will havea lasting impact on the trans-Atlanticrelationship. The first, in recognition ofthe interaction between diplomacy andeconomics, was a greater emphasis oneconomic statecraft. The second was theso-called “pivot to Asia”, a wide-scalereprioritization towards the world’s mostdynamic region. The pivot is anchoredby the Transpacific Partnership (TPP)and a recalibrated defense posture inthe Pacific. These two acts of strategicrebalancing will alter US cooperationwith Europe in 2013 and beyond. TheUS is and will remain a European power.But the US must expand the conceptof US-European relations to includeits economic dimension and widergeostrategic vision in a Pacific century.Approval Rating %9080706050403020100European Approval of the US and US Leadership2008 2009 2010 2011 2012US president personalapproval rating (Pew)US favorability rating (Pew)Source: Pew Global Attitudes Project; GMF Transatlantic TrendsUS president personalapproval rating (GMF)US favorability rating (GMF)2. The prism of crisis will color relationsbetween the US and Europe. Theeurozone crisis has revealed thetenuousness of Europe’s integrationand put at risk the most importantgeopolitical achievement of the past60 years: a politically stable andeconomically prosperous Europe. Asthe veneer of unity cracks, Europe—inparticular, core Europe—is returningto history. The geostrategic end stateaimed at through accession to NATO andthe EU revealed itself to be illusory. If thepast three years have taught us anything,it is that Europe’s political future will notbe linear. It will be dotted with externalshocks, internal unrest at variouslevels, and veto points. The debt crisishas seeped into the policy calculus onissues ranging from traditional foreignand security policy to newer topics suchas climate change, immigration andrelations with Turkey.The lens of crisis is not limited to Europe.The 2008-09 US financial downturn leftWashington with an oscillating fiscalpolicy that started with stimulus butsince 2010 has been dominated bydiscussions of fiscal consolidation.Since then, Washington has been lockedin debates over a potential governmentshutdown (April 2011), the debt ceiling(summer 2011), deficit reduction(December 2011) and the effect ofsequestration and expiration of theBush-era tax cuts (early 2013).In the US and Europe, there is thesense that the economic crises are asymptom of or an interacting variablewith suboptimal political arrangements,rather than their cause. Laboreddecision-making in Congress and theEU summits reflect an intractabilityendemic to both political systems.US policymakers in 2013 must think ofrelations with Europe in terms of theseconstraints while leveraging the US’ssubstantial influence to encourage amore resolute EU.3. On foreign policy, the state is facing anidentity crisis in the US and Europe. Thetraditional silos of foreign policy havebroken open. International negotiationswere once more clear-cut. Today,topics such as cyber security, climatechange, homeland security, and bankingregulation are eroding traditionalboundaries between ministries andagencies. In addition, new actors—multinational corporations, NGOs,international organizations, organizedcrime or loose networks as diverse asmoney markets and Wikipedia—nowcompete with states for the reins ofgovernance. Nowhere is this complexpolicy ecosystem felt more than in theUS and Europe. At the same time, theinterdependency between the US andEurope raises the stakes for coordinationin many of these areas. Governmentsmust bring these new actors into theprocess of developing foreign policy. Thisought to begin with involving legislatorsfrom committees traditionally thoughtto deal with domestic issues.4. The US has successfully rehabilitatedits reputation in Europe. Perhaps themost evident transformation of the US-European relationship has been thereputational rebound of the US in theeyes of European elites and publics.George W. Bush left office with anapproval rating in Europe of around 13percent. In 2009, Obama’s rating jumpedto 86 percent, and today it stands at 79percent. 1The Obama administration amasseda great deal of political capital amongEuropeans during its first term. Thisis largely due to a new tone set in itsengagement with foreign governmentsand an earnest effort to work withinIntroduction5

multilateral channels. Europeanshave welcomed the more conciliatoryapproach and the commitment to findingpolicy solutions that are cognizant of theinterests and values of the internationalcommunity.This manual presents a series of issues that are thebuilding blocks of a long-term rethink of theUS relationship with Europe in the face of dynamicEuropean and global transformations.US prestige in Europe will give theObama second administration a freerhand in its second term to articulateUS and global interests to Europeanleaders and the public. This change hasalready played a key, often-unrecognizedrole in improving the trans-Atlanticrelationship. For example, it contributedto the successful negotiation of severalinformation-sharing agreements andto ambitious coordination on Iransanctions. Even on issues on whichEurope and the US differ, such as theextrajudicial detention facilities or theUS’s use of drone aircraft in militarystrikes, Europeans have shown a greaterunderstanding of the domestic politicalconstraints affecting US policy, anempathy seen at both the popular andelite levels. This political capital can betapped into more deeply, particularly incontinental Europe.Field Manual to EuropeThe US-European relationship warrantsa rebalancing of its own. For most of thepost-World War II era, the relationshiphas been largely defense-based, witheconomic strategy playing an importantbut supporting role. Today, this hasshifted. The interactive relationshipbetween economic and securitypolicy continues, but the economicrole of Europe—whose faltering hasdramatic geopolitical implications—has superseded its role as a US defensepartner. At the same time, securityconcerns continue to be key, expandingto issues ranging from Middle East andNorth African stability to cybersecurityto climate change. Finally, the US’sEuropean policy must account for shiftsin the geopolitical center of gravity.This document contends that a steadyhand policy toward Europe will allow theUS to preserve its influential role therewhile recalibrating attention toward thePacific. A steady hand policy requiresstrategic thinking that: 1) continues torecognize the US as an active Europeaneconomic and political power; and 2)imbues the relationship with a sense ofpurpose that has been lacking in recentyears, despite occasional half-heartedcontentions to the contrary.This manual presents a series of issuesthat are the building blocks of a longtermrethink of the US relationship withEurope in the face of dynamic Europeanand global transformations. It aims toreimagine the relationship based on thetop strategic issues that will define apositive agenda for the next decade. Theauthors recognize that foreign-policychallenges that arise during that periodwill not necessarily fall neatly into thecategories laid out here. The memosthat make up this manual present broadstrategic strokes and complement themwith assessments of European politicalattitudes, operational recommendationsfor the new US administration, potential“red lines”, and events that should beon the radar of US policymakers. Theyidentify 10 crucial areas of cooperationfor US relations with Europe and, indoing so, aim to outline a forwardlookingUS strategy that fits into thecontext of the wider rebalance. 2 Thisdocument is intended to serve as amirror for Europe’s strategic thinkingas well.The first two memos deal with policyareas that are primarily, but not solely,economic: the joint US-Europeandomestic struggle to reignite economicgrowth and establish a sound basis forfuture stability and the eurozone crisis.The first memo provides an ambitiousyet realistic economic agenda thattakes into account domestic politicalconstraints on both sides of the ocean.A trans-Atlantic economic compactwould be the most concrete expressionof an updated relationship between thetwo powers. The second memo delvesinto the broader governance challengesin Brussels and in EU member statesthat are not only symptomatic of, butinexorably linked to, the eurozone’sdebt woes. As the US’s largest economicpartner, Europe represents a significantexposure given the fragile scaffoldingof its economic governance. In 2013,leaders will have to move from custodialto transformative leadership. This memooutlines a role for the US in supportingthis process.The third and fourth memos exploreareas classically defined as foreign andsecurity policy. The memo on NATOaddresses steps for the alliance post-Afghanistan. The memo on the Arabuprising outlines US leverage withEurope vis-à-vis emergent governments,particularly in North Africa.The next four memos explore areas thatsit at two policy nexuses: 1) nationalsecurity and economic policy; and 2)domestic and foreign policy. Havingrisen to prominence in the US-Europeanrelationship over the last decade, eachof these areas confounds traditionalbureaucratic silos and most likelyinvolves a heavy influence of legislativeaction. The memo on counterterrorismaddresses the major achievements inthis area since 2010 and explores risingchallenges in keeping the world’s largestcommercial artery open and protectedfrom potential terrorist threats. Thecyber security memo examines thecontours of the rising internationaldebate on critical infrastructure, with itssecurity, commercial, law enforcementand political implications. A memo onenergy and climate change addressesthe ability of the US to facilitate a moreefficient and secure European marketgiven the German nuclear phaseoutand the positive supply shock ofshale gas from the US and, eventually,Europe. It also offers prospects forconstructive initiatives to buildconfidence on climate change, Europe’s6Introduction

2013 MAJOR EVENTSJanuaryJanuary 1 – July 1January 1 – Decembert 31January 1 – December 31January 11 – January 12January 21January 22January 23 – January 27Irish EU presidency (takes over from Cyprus)UK assumes G8 presidencyRussia assumes G20 presidencyCzech presidential electionsUS presidential inauguration50th anniversary of Élysée TreatyWorld Economic Forum Annual MeetingFebruaryItalian parliamentary electionsFebruary 1 – February 3February 17Munich Security ConferenceCypriot presidential electionsMarchMarch 9Maltese parliamentary electionsAprilApril 19 – April 21World Bank and IMF Spring Meetings82013 Major Events

JuneBritish presidency of UNSCJune 17 – June 18G8 Summit in the United KingdomJulyAmerican presidency of UNSCJuly 1July 1 – December 31Croatia joins EULithuanian EU presidency (takes over from Ireland)SeptemberGerman parliamentary electionsAustrian parliamentary electionsSeptember 5 – September 6September 17G20 Leaders’ Summit in RussiaUNGA MeetingOctoberElections for five non-permanent UNSC seatsOctober 5 – October 7October 11 – October 13APEC SummitWorld Bank and IMF Annual MeetingsDecemberFrench presidency of UNSC2013 Major Events9

MEMO ONTHE TRANS-ATLANTIC ECONOMYThe State of PlayThree medium-term trends will alter theUS and EU’s positions in internationaleconomic policymaking in 2013. First,the eurozone crisis and difficulties inresolving it, which “knocked the windout of the trans-Atlantic economy”, 1have caused American and Europeancompanies alike to rebalance theirinvestment in foreign affiliates onthe opposite side of the Atlantic. Theresult has been a marked reduction intrade and investment, particularly asexport demand dried up in Europe andthe European financial sector soughtto repatriate capital from the US.This occurred despite the remarkablebuoyancy of the trans-Atlantic economicrelationship during the early phase ofthe crisis (2008-11). The eurozone’s woeshave the potential to derail the US goalof doubling exports by 2015 and couldundercut US real sector growth, anengine of the recovery, which accountedfor about one-third of US GDP growthin 2011.The second trend is the divide betweenthe slow growth of the advancedindustrial economies in the US andEurope and the expanding emergingmarkets led by China. By 2030, thetrans-Atlantic share of global GDP isprojected to shrink to 31.6 percent.While this remains a formidable volume,it would nevertheless mark a diminishedability by the US and Europe to setglobal economic norms. According toInternational Monetary Fund estimates,in 2030 the combined economic weightof China (23.8 percent of global GDP)and India (10.4 percent) would surpassthat of the US (17.3 percent) andthe EU (14.3 percent). 2 This will be agame-changing situation for globaleconomic policy.The need to enshrine the principles of the liberal economicorder has not been greater since the first half of the 20thcentury, and the continued primacy of the US and EU inthe face of these global trends will depend on the abilityof political leaders to retrofit their economies for an age inwhich their power is no longer preeminent.The third trend, occurring in tandemwith the rebalancing of global economicweight, is the challenge posed by theemergence of state capitalism andthe role of state-owned enterprises(SOEs) in countries such as China. Thismodel, which eases access to “finance,preferential procurement, marketprotection, regulatory treatment [and]technology transfer”, and offers otherdomestic and international advantages,could undermine elements of the liberaleconomic system. 3The need to enshrine the principlesof the liberal economic order has notbeen greater since the first half of the20th century, and the continued primacyof the US and EU in the face of theseglobal trends will depend on the abilityof political leaders to retrofit theireconomies for an age in which theirpower is no longer preeminent. For thisto happen, agility and tight cooperationbetween the US and Europe is essential.A comprehensive economic packagewould provide an adrenaline shot ofbilateral economic growth that couldhelp counter the negative headwindsfrom the eurozone crisis. The window oftime for action on this front, however,is extremely limited. In fact, PresidentObama’s next four years in officemight be the final opportunity for acomprehensive initiative.The events of 2012 have alreadygenerated momentum for a newtrans-Atlantic economic partnership.Recent breakthroughs include the US-EU Organic Equivalence Agreementand eased EU restrictions on US beefimports. Other successes includejoint WTO dispute-settlement caseson raw materials and rare earthsagainst China, and a memorandum ofunderstanding on secure trade. Theseserve as confidence-building measuresfor a larger strategic arrangement. Thetrans-Atlantic business community haspromoted a major economic initiativesince the establishment of the High-Level Working Group for Jobs andGrowth (HLWG) in November 2011. TheHLWG’s interim report, released on thesidelines of the Mexico G20 summitin June 2012, outlined a frameworkfor a liberalized trade and investmentagreement and listed areas ripe forcooperation. 4 But the report’s languagewas cautious about the feasibility of acomprehensive agreement.European PerspectivesThe major EU powers are aligned in theirsupport of an ambitious recasting of thetrans-Atlantic economic relationship.British and German leaders haveexplicitly called for a timetable toestablish a trans-Atlantic free tradeagreement (TAFTA), and they havepushed negotiators in the US and EU tothink broadly about potential outcomes.French leadership under PresidentNicolas Sarkozy backed movement ona major economic deal with the US,1 0The Trans-Atlantic Economy

US-EU Investment vs. Global National GDP70006000in billions of USD500040003000200010000Australia India Brazil UnitedKingdomFrance Germany TotalInvestmentUS-EUSources: WorldBank; US Census Bureau, Foreign TradeJapanChinad) Maintain a sustained, forward-lookingapproach to regulatory convergence ormutual recognition: The latent economicpotential in the trans-Atlantic regulatoryspace is so large that the US Chamberof Commerce estimates that even ahalving of non-tariff barriers could yielda 3 percent increase in GDP growth forthe US and Europe. 11 The reduction ofregulatory barriers is the no. 1 priorityfor German companies operating inthe US. 12The reduction ofregulatory barriers isthe no. 1 priority forGerman companiesoperating in the US.Regulatory convergence or mutualrecognition will not be easy andcannot be bridged in one agreement.Labor, environmental and health andsafety standards are not sufficientlycomparable. As such, many sectorsmust be negotiated individually. Thisis especially so given the deep-seatedtradition in the US for the transparencyof notice-and-comment rulemakingoverseen by the US Court of Appealsfor the DC Circuit, the second-mostpowerful court in the US and the federalcourt primarily charged with judicialreview of federal regulatory actionsand regulations.Political pressure must be sustained toaddress next-generation sectors in whichregulation will play a key developmentalrole. These sectors include e-mobility,smart-grid technology, nanotechnologyand cloud computing. Initial gainson regulatory work in the TEC havebeen promising but have also alertedpolicymakers and regulators to thearduous nature of such technicalnegotiations. But in recent months,interest in including the regulation in apotential agreement has increased fromnumerous sectors. This process hasbeen important and should continue. 13e) Explore opportunities for greatercooperation on intellectual propertyregulation: Intellectual property (IP)is an area in which the US and Europeenjoy a comparative advantage overthe rest of the world. For both, IP is thefoundation of an innovation economy,and significant gains have recently beenmade in easing IP registry. In March2013, the US will switch to a first-to-filepatent-registry system consistent withthat of the EU and much of the rest of theworld. 14 The EU took the major step atthe June 2012 European Council summitof finalizing a common European patentfilingprocess, which will lower costssignificantly for patent registry. But morecan and should be done to strengthencollaboration in creating a system thatrespects IP regulation while accountingfor development concerns, particularlyin low-income countries. Intellectualproperty provisions in the US-Korea andEU-Korea FTAs can form a starting pointfor discussions between the US and EUon the issue.f) Establish clear-cut rules for the trans-Atlantic procurement market: EU publicprocurement, an important signalingtool for economic policy, represents18 percent of the area’s GDP. The UShas long benefited from eased accessto European procurement markets,particularly in defense but also inhealthcare, infrastructure projects andpublic-service-related IT. The two sidesshould consider a bilateral procurementagreement that allows savings forgovernments in this time of public costcutting.Europe’s procurement marketremains more open than the US’s. Thatsaid, the European Commission andsome member states, notably France,have been publicly considering the ideaof restricting access to the Europeanprocurement market, including via a“Buy European Act”. Questions aboutretaliatory measures and reciprocityshould be of concern to the US.1 2The Trans-Atlantic Economy

US-EU Trade vs. Global National GDP900800700in billions of USD6005004003002001000Argentina Norway SaudiArabiaPoland Belgium TradeUS-EUSwitzerland Indonesia Turkey NetherlandsSources: WorldBank; US Census Bureau, Foreign Tradeg) Develop a multi-sector codex ofprinciples to present a trans-Atlanticunited front in negotiations with thirdcountries: Over the past five years,one of the most effective areas of US-EU economic cooperation has beendeveloping soft guidelines for jointlymanaging economic relationships withthird countries. The US and the EUhave, for example, already establishedsuccessful principles of informationand communication technology andinternational investment.These are constructive initiatives andcan serve as the basis for an additionalcodex of principles that would allowthe US and Europe to present a unitedfront to emerging markets. Developing aseries of trans-Atlantic united front (TUF)principles for third-party negotiations,whether on sectoral components oftrade, investment agreements or marketaccess requirements, could serve as agateway for third countries to becomemore economically interoperable withboth the US and EU simultaneously. Itcould also promote common rules withrelatively low transaction costs.By creating such a codex, the US andEurope can inculcate negotiatingbehavior while maintaining flexibilityin their approaches toward rising thirdcountries. A codex of TUF principlescould also serve as an impetus forbilateral and multilateral engagement,be it in the EU´s current negotiationswith Japan, India and Mercosur or theUS´s role in the Trans-Pacific partnership(TPP). The two sides can also benefitfrom provisions existing in bilateral FTAsthat both have with third countries asthe basis for their negotiations.2. Provide early politicalbacking for the conclusions ofthe High-Level Working Groupfor Jobs and Growth:The Office of the US TradeRepresentative (USTR) and its Europeancounterparts undertook in 2012 amassive assessment of six economicportfolios. They presented an interimreport of their findings at the G20meeting in Mexico in June 2012 and willpresent a final report in early 2013. TheUS administration should offer a fullthroatedendorsement of the HLWG´sconclusions and recommendations inspring 2013. This will make the processconsistent and demonstrate that UScommitment to deeper trans-Atlanticeconomic integration transcends thelimits of political parties and fouryearpresidential terms. The HLWG’sreport should be the basis for actiontowards an agreement, but the Obamaadministration should considerenhancing the recommendations byoffering additional proposals in some ofthe areas outlined in this section.The administration must strive for anambitious, strategic vision that cangraft the technical parts of the HLWG´srecommendations into one meaningfulpolitical narrative. This overarchingvision—which should be stewarded atthe highest level—must incorporate thegeo-economic goals of: 1) a sustainablerecalibration of the US-EU economicrelationship and 2) a maintenance ofaccessible economic liberalizationprocess that is consistent withmultilateral bodies such as the WTO,and that attempts to reignite globaltrade and investment liberalization inthe face of the Doha round stalemate.3. Frame the trans-Atlanticcompact as a concrete contributionto Europe’s efforts to overcomethe eurozone crisis:Folding the trans-Atlantic economiccompact into a wider growth agendawill lock in the strategic saliency ofthe initiative as both sides struggleto find new sources of growth andcompetitiveness. The situation in Europeis more acute given the eurozone crisis,and some European countries, such asSpain, recognize that trade can improveThe Trans-Atlantic Economy1 3

economic conditions in the eurozonesouth. The trans-Atlantic economiccompact would serve as a tangibledemonstration of American partnershipwith Europe’s economic hardships ina way that is politically palatable forCongress. The administration shouldencourage the European Commissionand member states to frame thisinitiative in similar terms to theirdomestic audiences.4. Consider jointlysuspending the Doha round:Many analysts and former high-levelofficials have stated that Doha now actsas an impasse to a constructive resetof trade liberalization, and are callingfor its suspension. Acknowledging thatthe Doha round is a stumbling block tofurther multilateral integration would bean important step towards returning theWTO system to its position as the focalpoint of multilateral negotiation forinternational trade liberalization. 15 TheUS and EU should also work together toestablish the broadest possible coalitionto avoid assigning blame. If possible,this coalition should include influentialstates from the global south and shouldperhaps emerge from a G20 summit.5. Reorganize the collection ofbodies responsible for the trans-Atlantic economic compact underone umbrella initiative:Since the 1995 New trans-AtlanticAgenda, there has been a markedproliferation of consultative bodiestasked with addressing policy questionsand reducing barriers to business.But this dense tangle of councils,committees and working groups stilllacks explicit and coherent coordinationthat can prevent redundancies, siloedprocesses and stymied outcomes. Twobusiness associations at the heartof the commercial relationship, theTransAtlantic Business Dialogue (TABD)and the Business Roundtable, statedthat the work thus far has been perceivedas “a largely technocratic exercise, agrab bag of issues addressed in a ratherad hoc fashion by a disparate range ofinstitutions, with little sense of urgencyor overall strategic direction”. Theyconcluded that in economic matters,“the US-EU relationship punches belowits weight.” 16 [see page 16 for the US-EUBilateral Economic Cooperation Matrix]In an attempt to address this, theTransatlantic Economic Council (TEC),launched in 2007, was meant to provide astrategic and interdisciplinary approachto regulatory, trade and investmentcooperation. But the TEC was quicklybogged down in one highly technicalregulatory issue. Its unique strength asan interdisciplinary strategic workshopfor the trans-Atlantic economicrelationship was eroded. Today the TECis effective, but still highly technical.Since Obama first took office, the TEC’swork has been complemented by theformation of the Innovation ActionPartnership (2009), the US-EU EnergyCouncil (2009) and, most recently, theHLWG (2011). This bevy of councils andworking groups should be streamlinedinto one interagency process.The new administration should appointthe TEC or a similarly structuredcouncil to serve as the one umbrellainitiative implementing the HLWG’spolicy recommendations. For all its pastchallenges, the TEC has demonstratedmodest successes in bridging regulatorydivides on issues from e-health to electricvehicles to cargo-safety certification.Given the complexity of this economicrelationship, a comprehensivegovernment approach has long beenrecognized as necessary. In particular,this would include the cooperation ofrelevant regulatory authorities includingthose associated with energy and climatechange as well as financial matters.Moreover, this umbrella initiative shouldbe chaired on the US side by a high-profileadministration official whose ownershipwould add urgency to adopting a trans-Atlantic economic compact and whoseposition would allow him or her to pivotacross departments and agencies. Thereis precedent for high-level internationalinitiatives being localized in the Officeof the Vice President. Trans-Atlanticeconomic compact negotiations chairedby the US vice president would lendsubstantial urgency in Washington tothe work of the initiative.6. Avoid the mistakes of the past;don’t allow for make-or-breakpoints to logjam negotiations:In the early phases of its 2012 negotiationswith the EU, the US used as a litmustest its desire for substantial reductionsin EU tariffs on American agriculturalproducts. This decision to tackle sucha sensitive issue was one reason for thefailure of the 2008 negotiations in theTEC and, on a global level, the Doharound. In response, concerned tradeexperts have called for the trans-Atlanticpartners to avoid pursuing a “singleundertaking” agreement that wouldhave the effect of a “big bang” but couldget hung up on one intractable issue. 17Given the geopolitical significance ofthis project, such a scenario could setback the potential for recalibrating thetrans-Atlantic economic relationship,perhaps indefinitely.The administration muststrive for an ambitious,strategic vision that cangraft the technical partsof the High-Level WorkingGroup´s recommendationsinto one meaningfulpolitical narrative.Rather, the Obama administrationshould take a cumulative approach withbold but discrete deliverables to builda reservoir of accomplishments thatfeed into the trans-Atlantic economiccompact process. The White Houseshould route all negotiations alongparallel tracks with modular time framesthat are bridged by an overarchingstrategic process.1 4The Trans-Atlantic Economy

7. Push for early and sustainedinvolvement of Congress in thetrans-Atlantic economic compact:A bipartisan cross-section of Congresshas demonstrated its preference foran ambitious HLWG final report. In2012, Sens. John Kerry (D-Mass.)and Rob Portman (R-Ohio) issueda strongly worded letter advocatingfor a comprehensive push to “quicklyformulate ambitious proposals to removeunnecessary barriers to trans-Atlanticcommerce and investment.” 18 The letter,signed by 20 senators (six Democratsand 14 Republicans), demonstrates aninterest in a comprehensive economicdeal with the EU. The bipartisan Housemembership in the TransatlanticLegislators’ Dialogue (TLD) also affirmedits interest in “the need for tangiblesteps to stimulate trade and investment”between the two sides of the Atlantic. 19The administration should takeadvantage of this to lay the groundworkfor trade-promotion authority for anagreement to signify to Congress andEurope that the US is committed toan ambitious economic agenda withEurope. Such fast-track authority fromCongress would facilitate concludinga TAFTA and other elements of acumulative agreement as the basis forthe trans-Atlantic economic compact.More broadly, any comprehensivepartnership will require greater buy-infrom legislators on both sides of theAtlantic, particularly those in Congress,than has been seen over the past decade.Deep economic cooperation betweenthe US and Europe could be enhancedby a rewiring of congressional relationson a committee-to-committee basis. 20CASE STUDY: THE EU’S BOOMERANG POSITION ONTHE ANTI-COUNTERFEIT TRADE AGREEMENT (ACTA)Between Fall 2011 and January 2012 and after years of protracted negotiations, the US trade representative, the EuropeanCommission (with 22 EU member states) and eight other, mostly advanced industrial countries signed the Anti-CounterfeitTrade Agreement (ACTA). A first-of-its-kind plurilateral agreement among first-mover nations, the treaty was aimed atarticulating a culture of copyright enforcement within signatory states. 21 Under negotiation since 2006, ACTA is essentiallya framework agreement not meant to affect current law in signatory countries. For that reason, the previous two USadministrations, which negotiated ACTA, could sign it without congressional ratification. 22 The agreement was seen as asingular success for the US, which was perceived as ACTA’s most ardent champion.In the post-Lisbon EU, however, the European Parliament can ratify or reject the EU’s international agreements with thirdcountries. And European legislators in general are asserting themselves more aggressively in EU affairs, particularly in thearea of trade. For years, corners of the EP signaled their intent to reject ACTA, citing concerns about enforcement andinsufficient coordination with the European Commission during negotiations.The Commission tried to diffuse allegations that ACTA would lead to privacy violations and extend the potential for domesticsurveillance by submitting the agreement to the European Court of Justice for review. By that point, however, the EP hadalready expressed its commitment to render a verdict on the agreement. On July 4, 2012, parliamentarians resoundingly voteddown the agreement, 478 to 39, with 165 abstentions. The vote came after the agreement had already been rejected by all fivecommittees with jurisdiction over it.The case of ACTA demonstrates that the EU’s political constituencies on trade and regulatory agreements are significantand growing. In areas from sanitary and phytosanitary standards on US agriculture products to privacy and data protectionrequirements on e-commerce, significant political differences will be difficult if not impossible to dislodge. These can,however, be identified and mitigated if timely attention is paid to Europe’s legislative bodies, in particular the EP. Europeannegotiators themselves are only now becoming accustomed to the new reality in which the EP and national legislators can begame-changers. The Parliament is a highly effective barometer for how acceptable trade accords and principles will be amongthe EU’s 27 member states. The US must remain attuned to this.The Trans-Atlantic Economy1 5

MEMO ONTHE EUROZONE CRISISThe State of PlayThe eurozone crisis will remain a foreignpolicy challenge for the duration ofPresident Obama’s second term, andit will almost certainly still be a keyissue for the administration when itleaves office on January 20, 2017. TheOrganization for Economic Cooperationand Development (OECD) dubbed theeurozone crisis the “greatest threat” tothe world economy. 1 In his valedictoryremarks at the G20 over the summer,former World Bank President RobertZoellick highlighted that the worldis facing a “Lehman moment” if theeurozone is unable to act decisively. 2Several recent incidents—including theaccelerated timetable toward a bankingunion, the European Central Bank’s(ECB) announcement of the OutrightMonetary Transactions (OMT) program,the entry into force of the EuropeanStability Mechanism (ESM) afterGermany’s constitutional court rulingpaved the way for its ratification, theDutch elections, and hints at a potentialpublic-sector writedown on Greek debtin 2016—have taken some of the acutesting out of the eurozone crisis. But it isby no means over, and the implicationsfor the US are high. It will requiresustained attention at the highest levelsthroughout Obama’s second term. Keypolitical and economic decision pointsalready dot the roadmap through 2015.The magnitude of the crisis will colorall other areas of the US’s relationshipwith Europe in 2013, as covered in thismanual.Short- to medium-term policy isfocused on three areas: immediatecrisis management (troika assistanceprograms and ECB intervention),synchronization (fiscal union andeconomic coordination), and financialThe magnitude of the crisis will color all other areas of theUS’s relationship with Europe in 2013...stability (banking union). After twoyears of ad hoc measures, institutionsand operations have largely taken formto provide immediate assistance toeurozone countries shut out of bondmarkets. The ESM’s establishmentcreates a permanent and legally soundinstitution for pooled lending to thesecountries. Financial assistance todistressed states from the IMF, thetemporary European Financial StabilityFacility (EFSF) and the EuropeanCommission has been paired withconditionality based on austerity,revenue increases through tax reformand privatization, and structural andlabor-market reforms.As a forward-looking counterpoint,European officials led by Germanyhave focused on creating instrumentsmeant to coordinate, monitor, andconstrain fiscal activity. These includethe Fiscal Compact, at whose heart isa balanced-budget amendment writteninto member state constitutions; theEuro-Plus Pact, an intergovernmentalarrangement aimed at incorporatingprovisions for monitoring andmaintaining competitiveness intonational law; the European semester, apreliminary national budgetary reviewprocess undertaken by the Commission;and the “six-pack”, a strengthenedStability and Growth Pact that includesmeasures for punishing non-compliantmember states and for monitoring andcoordinating wider macroeconomicimbalances. In addition, the Germanshave proposed the creation of a socalled“currency super commissioner”with the power to veto state budgets inaccordance with the evaluation basedon the European semester and the useof contracts between member stateparliaments and the Commission tomaintain pressure on national politicalleaders to follow through with structuralreform commitments.Each of these has promoted fiscaltightening as a means of addressing theeurozone’s internal imbalances. Whilecurrent-account imbalances within thecurrency union have decreased over thepast two years, this has been achievedlargely on the back of deficit countries’reductions in demand. The IMF andothers have called for a complementarypolicy of demand promotion in surpluscountries, largely through investment incapital-intensive infrastructure projects. 3But despite intense social unrest acrossthe eurozone and, according to the IMF,“unacceptably high” unemployment,public-sector attempts to ignite growthand curb unemployment in much ofEurope have remained minimal. 4Eurozone governments have outlined thebroad contours of a banking supervisionregime to be housed at the ECB coveringthe eurozone’s largest banks that, oncein place, would create a frameworkfor standardized recapitalization ofdistressed eurozone banks by the ESM, asagreed at the June 2012 EU summit. TheIMF and others have made unequivocalassertions that a banking union shouldinclude a single supervisory mechanismas well as a eurozone-wide resolutionauthority and joint deposit guarantees. 5The December European summit hasbegun to consider in earnest how someof the most politically sensitive issues,including cross-border resolution andThe Eurozone Crisis1 7

depositors’ insurance schemes, mightbe addressed in 2013 and beyond.Some of the financial balkanization thatgripped the European banking systemhas shown signs of abatement. Capitalflight from the periphery has begun toslow. But deep divisions remain in thebanking sector with some banks heavilydependent on the ECB and some withgreat exposure to sovereign debt.All the currency union’smembers still havemajority public support forremaining in the eurozone.Yet, of the 12 eurozonestates that have heldelections since the crisisbegan, no governmenthas survived wholly intact.Nine of these states havedismissed governingcoalitions completely infavor of the opposition.As a backdrop to the political process,the ECB has attempted to providebreathing room for a durable solution tothe crisis. ECB President Mario Draghihas been the central figure in managingthe crisis, deploying unconventionalmonetary policy that, since August2012, has eased the acuity of the crisis.The OMT framework—which will allowthe bank to purchase sovereign bondson the secondary market from banks incountries, subject to the conditionalityof the EFSF/ESM rescue programs—hasbeen announced but not activated at thetime of this writing. The third in a seriesof ECB initiatives aimed at relaxingpressure on bond markets, OMT followsthe Securities Market Programme (SMP),a low-volume ECB intervention launchedafter the dramatic upward drift of Spanishand Italian bonds during summer2011, and two long-term refinancingoperations (LTROs) in December 2011and February 2012, which pumpedapproximately €1 trillion of cheap loansinto the eurozone banking system. TheSMP and LTROs were accompanied bya respite in political negotiations. Asmarket pressure on decision-makerslet up, negotiations slowed amongEuropean heads of government and theEurogroup of finance ministers. Concernhas increased about complacencycreeping into discussions ofbanking union. 6The eurozone governments havedemonstrated remarkable resilience inthe crisis. Despite several acute pointsthat had the potential to derail theeurozone, the 17 member states havemaintained their austerity-driven policycourse—albeit at significant political,financial and social cost. The value ofthe euro on foreign exchange marketshas stabilized and strengthened slightlyin 2012. Since 2010 it has never fallenbelow $1.20 and has usually hoveredaround $1.32. It should be rememberedthat the euro’s intended naturalexchange rate to the dollar was $1.17at its inception in 1999 and that it wastrading at 85 US cents at the time ofthe launch of the physical currency in2002. All the currency union’s membersstill have majority public support forremaining in the eurozone. Yet, of the 12eurozone states that have held electionssince the crisis began, no governmenthas survived wholly intact. Nine ofthese states have dismissed governingcoalitions completely in favor ofthe opposition.Systemic uncertainty has existedsince 2010 and has given rise tonew negotiating behaviors. Crisismanagement has centered on a delicateintergovernmental balance betweenconsensus-building and horse-trading.The political result has been threefold: 1)it has led to a highly unstable decisionmakingprocess characterized by layeredpolitical timetables and potentialveto points; 2) it has contributed todecay at the center of the EU and itsinstitutions, with the notable exceptionof the ECB; and 3) it has accelerated thecentrifugal trend within Europe and itsconstituent states.Crisis management has been adhoc, largely public and personalitydriven.A paradigm shift has occurredfrom consensus-based, commissioncenteredpolicy solutions, known as thecommunity method, to national interestbasedsolutions, which have come tobe known as the intergovernmental orunion method—after German ChancellorAngela Merkel’s 2010 College of Europespeech. Without institutional clarity, thedecision-making process remains nonlinearand creates greater risk as thepotential for political defection rises. 7Member state politics, rather thaninstitutions and process, are the centralforce behind EU decision-making. Earlychallenges to crisis management in2013 will largely be political. These willinclude the eventual Spanish requestfor a troika assistance program, nationalelections in Italy and Germany, andpolitical instability in Greece. Austria,Cyprus and Malta will also hold nationalelections in 2013, and five other eurozonestates have fragile or unstable governingcoalitions (Belgium, Finland, Greece, theNetherlands and Slovenia). 8The union method has contributed tothe diminished role of EU institutions,and a lasting erosion of trust in themsince the inception of the crisis. Asparallel political debates over thecrisis have taken place in each of the17 eurozone countries, Brussels hasbecome the proxy for ideologicaldifferences between Europe’s left andright. It is a kaleidoscope spitting outrefracted images of failed policies thatseemingly confirm the domestic politicalproclivities of one side or the other.It is blamed by national politiciansfor austerity, by the left for painfulstructural reforms and unemployment,and by the right for social and labormarketoverregulation and a permissiveWithout institutional clarity, the decision-making processremains non-linear and creates greater risk as the potentialfor political defection rises.1 8The Eurozone Crisis

attitude toward moral hazard. Withweak leadership and only tepidlydefended by key national figures, theEU has experienced a downward spiralin credibility. Its rules-based order andcommunity-method-based institutionshave been especially hard hit. Thistendency can be seen in debates aroundcuts to the Multiannual FinancialFramework (MFF), the EU’s mediumtermoperating budget for 2014–2020.In this context, political leaders cantake advantage of the cleaving ofinstitutional power at the EU’s centerto plot a politically expedient course forcrisis management. But in the long run,that could foster a greater remotenessbetween Europe’s citizens and thedecision-making process.In addition to the fractured institutionalarchitecture and increased questionsabout democratic accountability, futurepolicymaking agility is in question. Manyof the tools developed since the eurozonecrisis’ onset—the fiscal compact,the six-pack, the European semester,and a more muscular ECB—have theeffect of restricting policymakers’maneuverability. While these tools areintended to create credible guaranteesabout members’ commitment to fiscaldiscipline, there is a risk that the EU is:1) establishing a fiscal Maginot Line,a set of restraints and coordinationmechanisms that would have preemptedthe last crisis but do notnecessarily address current and futurecrises; and 2) limiting the ability of theeurozone public to judge the efficacy ofcrisis-management policies.The normative decay at the centerof the EU and its institutions hasalso contributed to centrifugal forcesin Europe. The crisis’ effects havericocheted throughout the EU andprofoundly altered the way that severalimportant European states perceivethemselves within the continent. Twocases stand out as having particularlymarked implications for Washington:the UK’s increasing euro-skepticismleading to existential questions aboutits European political identity and thedemocratic backslide in some of CentralEurope’s EU member states, particularlyHungary and Romania. These forces arealso manifesting themselves in regionaltensions in the UK, Spain and Belgium.Given the role that public funding hastraditionally played in binding theseregions to their nation-states, the spiritof austerity could test the legitimacy ofcentral governments. Finally, the crisishas affected the EU’s lure for aspirationalstates on its border, such as Turkey [seepage 56].Many of the toolsdeveloped since theeurozone crisis’ onset—thefiscal compact, the six-pack,the European semester,and a more muscularECB—have the effect ofrestricting policymakers’maneuverability.It is against this backdrop that anoverhaul of the EU’s long-terminstitutional architecture is beingdiscussed—a qualitative leap towardpolitical union with democraticaccountability, pooled debt issuanceand more robust eurozone-wideautomatic stabilizers. All touch ontwo missing elements in the currenteurozone architecture: 1) the necessityof implicit or explicit transfers to balanceand stabilize the currency area; and 2)the hint of an aesthetically clean andpolitically transparent and accountablearrangement. The so-called “Europe’sfuture” debate has prompted numerousconcept documents, including Towarda Genuine Economic and Monetary Union,issued by Council President HermanVan Rompuy; Commission PresidentJose Manuel Barroso’s September 2012State of the Union address and theCommission’s communication on aBlueprint for a Deep and Genuine Economicand Monetary Union; and Merkel’s 2012speech to the European Parliament. 9The gap between immediate crisismanagement and long-term grandvision is where European credibility willbe most tested. Outlined visions havebeen characterized by a soaring rhetoricthat remains unmatched by concreteroadmaps on how to achieve politicalunion. Of these, the foreign ministers’report is by far the most ambitious, butit has been disavowed by the Germanchancellor and Finance MinisterWolfgang Schäuble, despite their foreignministry’s leadership in the effort.Perhaps the most realistic proposal interms of vision and the cross section ofpolitical ownership is the EMU proposal.The presidents of the European Council,Commission, ECB and Eurogroup wereinvolved in its drafting and will serve asa basis for decision in 2013.Thus far, the economic effects of theeurozone crisis on the US have beenmixed. Like Germany, the US hasbenefited from the inflow of capital intoits bonds, which are still perceived as asafe-harbor asset compared to Europe’s.Despite the uncertainty that hasaccompanied protracted congressionalbudget negotiations since January2011, interest rates on US treasury billscontinued to slip even after Standardand Poor’s downgraded US sovereigndebt in August 2011. Rates kept fallingat least partially because of capital flightfrom peripheral Europe. As such, theeurozone crisis had the indirect effectof alleviating potential market pressureon US policymakers embroiled in fiscalnegotiations.The gap betweenimmediate crisismanagement andlong-term grand vision iswhere European credibilitywill be most tested.That said, with its $5 trillion commercialrelationship with Europe, the USeconomy remains exposed to theeurozone crisis in three key ways. First,trade with Europe, which accounts foraround 24 percent of US goods andThe Eurozone Crisis1 9

services exports, 10 has been affectedby deteriorating European consumerdemand. Perhaps the most acute impactis on the National Export Initiative (NEI),which seeks to double US exports by 2015.Second, trans-Atlantic investment stockin the US accounts for 72 percent of totalforeign direct investment and originatesthrough US affiliates and subsidiaries ofEuropean firms and European banks. 11In an effort to bolster capital at home,European banks have already begun adeleveraging from US holdings, whichcontributed to a 28 percent year-on-yeardecline of European FDI into the US inthe first three quarters of 2011. 12 Also,weakened consumer demand in Europewill hurt the return on investment ofEurope-based US FDI. Finally, direct USbank exposure to Greece, Portugal, Italy,Spain and Ireland totals $770 billion, or7.5 percent of total overseas exposure,not including credit default swaps(CDSs) and other offsets intended tomanage that risk. Indirect US bankingsectorexposure to the eurozone crisisthrough its linkages to assets in theUK, France, Italy and Germany couldnot only affect the balance sheets of USbanks but also pose a potential creditrisk to the US real economy. The currentrecessionary pressure in Europe willcontinue to act as a drag on the US andglobal economies as well.The blowback from a eurozone collapseor even the exit of a few countries couldenvelop the US economy for the nextdecade. According to the BertelsmannStiftung, the costs of a Greek exit wouldlead to a 0.9 percent decline in US GDPbetween 2013 and 2020 when comparedwith a baseline scenario of no exit. Andthe contagion effects would increasethe likelihood of further exits of otherSouthern European member states,including Portugal, Spain and Italy. Inthe event that Portugal were also to exit,the projected decline in US GDP wouldbe 3.3 percent (a loss of $365 billion). ASpanish exit in addition to that wouldcost the US economy 11 percent of itsGDP (a loss of $1.244 trillion), and thecumulative effect including Italy wouldcause the US economy to suffer lossesof 25 percent of GDP over seven years...the US, as the underwriter of European security,has a wholly legitimate role to play in helping to guidethe future of European integration.($2.825 trillion). 13 By comparison, theCongressional Budget Office estimatesthat the cost of the US’s going over thefiscal cliff would have been a 0.5 percentcontraction in US GDP in 2013, a net 2.5percent correction under projected 2013GDP growth of 2.0 percent. 14Aside from the economic interconnectivityacross the Atlantic, theUS’s significant equities in the eurozonelends credibility to Washington’scontinued role in the region’s crisismanagement. The administrationmust shape its policies with thisinterconnectivity in mind. First, theUS, as the underwriter of Europeansecurity, has a wholly legitimate role toplay in helping to guide the future ofEuropean integration. The US military,with four combat brigades comprisingaround 80,000 troops stationed inEurope, 15 is the largest contributor toNATO financially and militarily, and itis perceived as the informal guardianof stability and territorial integrity fromEstonia to Portugal. Additionally, theUS credit line to the IMF, Washington’sonly direct participation in the troika,represents 18 percent of the IMF’s totalfirepower. 16 IMF does not disclose fromwhich members of its shareholders itdraws upon in its assistance packages.However, if it were to draw from allshareholders, the US is proportionallyresponsible for around $5 billion forboth packages for Greece, approximately$5 billion in Portugal and $4 billion inIreland of the currently allocated €403billion of troika assistance for the threecountries. This is roughly the equivalentto the cumulative contributionsof the Netherlands and Finland tothe EFSF/ESM.European PerspectivesThe crisis has drawn out politicalfault lines, many of which had beenin remission for the previous decade.These include cleavages between theeurozone’s north and south, membersand non-members, Germany andFrance, local and national governments,and, most recently, the IMF and theEurogroup. Differences among themember states are largely embeddedin fundamental differences in socialcontracts, stark policy divergences overthe past decade, and serious inequitiesin current economic performance. In theabsence of a robust common Europeanpolitical culture, discussion and debatehas retrenched in individual countries.Germany’s centrality to an eventualresolution of the crisis is widelyacknowledged. Usually quite sensitive tointernational perception of its politicalaction, Germany has been largelyunmoved by criticism from partnerstates inside and outside the eurozoneand international organizations such asthe World Bank, the OECD and the IMF.Merkel’s government has instead reliedon a formula of policy prescriptionsand political tactics: 1) the primacyof austerity as a policy prescription,followed distantly by structural reformpromotion; 2) delayed decision-makingdriven by domestic political timetables;3) a key role in lowering expectationsin the run-up to EU summits and otherpotential turning points, and occasionalpost-summit policy clawbacks; 4)undefined hints of future political union.Assets in Germany, particularlysovereign bonds, have become attractiveto investors looking for refuge from thecurrency uncertainty of the eurozonesouth. The glut of excess capital inGermany has had a marked effect onpolicy behavior. The country’s lowborrowing costs combined with arelatively agile labor market (a productof massive structural reforms under theGerhard Schröder government) and ageneral decline in the value of the euromade Germany a credible investmentdestination and competitive globalexporter in 2010 and 2011. As a result,Germany remained largely impervious tothe economic hardship that gripped the2 0The Eurozone Crisis

Greece: 2010 Bailout BreakdownGreece: 2012 Bailout Breakdown22%73% 5% European UnionContribution(Greek Loan Facility)US Contribution toIMF FundingRest of IMF Members’Contribution18%78% 4%European UnionContribution(EFSF/ESM)US Contribution toIMF FundingRest of IMF Members’ContributionSource: European Commission; IMFIreland: Bailout BreakdownSource: European Commission; IMFPortugal: Bailout Breakdown53%21%22%5%Irish Cash Reservesand Liquid AssetsEuropean UnionContribution(EFSM/EFSF/bilateral loans)US Contribution toIMF FundingRest of IMF Members’Contribution67%27%6%European UnionContribution(EFSM/EFSF)US Contribution toIMF FundingRest of IMF Members’ContributionSource: European Commission; IMFSource: European Commission; IMFrest of Europe. The country’s consumerdemand is above its 2008 level, the onlyEuropean state where that is the case,and its intra-eurozone current-accountsurplus still stands at 2.3 percent of GDP.The generally benign domestic economicclimate has left Germans largely unawareof the real effects of the eurozone crisis,although this could change marginallyif the German economy slows down in2013 as expected.Against this backdrop, Merkel’s stabilitydrivenleadership has been populardomestically. She is seen as proving themoral rectitude of German economicmanagement and as a consistent,conviction-driven and thus credibleleader. But her leadership has beenlargely reactionary. And the politicalsystem is full of legal restraints, fromDifferences among the member states are largelyembedded in fundamental differences in social contracts,stark policy divergences over the past decade, and seriousinequities in current economic performance.caps on German maneuverability placedon it by the German Constitutional Courtto the central role of the Bundestag andthe hawkish Bundesbank, an institutionof considerable political sway. Givenpast reticence to take swift action,German leaders are likely to postponemajor decision-making or destabilizingevents until after September 2013national elections.The ECB has emerged as the otherprominent actor in the eurozonecrisis, building on its credibility withfinancial markets and political leaders.Unlike successive EU summits, whosecommuniqués are greeted by marketswith diminishing marginal returns,the impact of statements by ECBPresident Mario Draghi in the EuropeanParliament in December 2011 and July2012 have been recognized as turningpoints in managing the crisis. While theECB has shown itself capable of creatingthe space for political leaders to act toresolve the crisis, it has been carefulnot to assume that role. 18 The dialoguebetween the ECB and Berlin, and thesubsequent endorsement of the OMTprogram by Merkel, lent the processThe Eurozone Crisis2 1

CASE STUDY: THE NATURE OF GERMAN LEADERSHIPUNDER ITS EU PRESIDENCY IN SPRING 2007Policy preferences of European states traditionally tend to toggle between their Atlanticist identity and European identity. Thishas been the case for states such as the UK, Poland, and the Czech Republic and, to a lesser extent, France and Italy. In contrast,Germany tends to manifest its Atlanticist and European identity simultaneously. Germany oscillates between an outward-looking,values-driven foreign policy rooted in simultaneous expressions of Atlanticism and pro-Europeanism and a more inward-looking,insular policy more narrowly defined by self-interests. The former has been seen at several inflection points in German postwarhistory, including 1955-58 (German NATO accession and the establishment of the Treaty of Rome), 1985-86 (Plaza Accords andSingle European Act) and 1989-92 (German reunification in NATO and the Treaty of Maastricht).The 2007 German EU presidency is the latest example and could provide some predictive power for the near future. Fresh off itswildly successful hosting of the 2006 World Cup, Germany hit its zenith in the spring of 2007 when the country’s European andAtlanticist strategies coalesced in a diplomatic campaign that employed all the country’s natural political strengths: 1) its zestfor technocratic management, 2) its penchant for consensus-building, and 3) use of economic institutions imbued with deepgeopolitical meaning.Germany assumed the rotating presidency of the European Union in the first half of 2007 at a time with the union had been set adriftby its failure to pass the EU Constitution Treaty. After years of introspective and painstaking negotiation, the arduous ratificationprocess went down in defeat when voters in two of the EU’s core members, France and the Netherlands, rejected the constitutionin referenda. It was Germany under Angela Merkel’s leadership that salvaged the rudderless European project, repackaging the EUConstitution into a leaner, more technical document that became the Treaty of Lisbon, signed under the subsequent Portuguesepresidency. The political investment of the Merkel government single-handedly revived the EU to the extent that at least oneobserver deemed the most lasting legacy of her first term in leadership. 17During this period, the Merkel government engaged a campaign to rebuild relations with the US after the estrangement betweenthe two countries—and the US and Europe more broadly—in the run-up to the Iraq war. The capstone of the normalization wasthe May 2007 US-EU Summit in Washington, which launched the Transatlantic Economic Council (TEC) a cross-ministerial bodyseen at the time as a means of upgrading relations between the US and the European Union to the highest level of economiccooperation. Along with the Open Skies Agreement, the TEC was designed as a somewhat technocrat body, but it was intended asa deeply symbolic political reconciliation of the US and Europe in the wake of the intense strain of the previous four years.This is not to say that Germany’s simultaneous assumption of Atlanticist and European identities always leads to durableoutcomes. After all, Merkel’s subsequent December 2009 decision to limit the imbued powers and institutions granted underLisbon Treaty, which many expected to lead to a more centralized EU role in European political and foreign-policy decisionmaking,demonstrated that she is capable of U-turns, even on signature achievements. Nevertheless, its 2007 tandem campaignstoward Europe and the US could provide insight into how German leadership might be best deployed in the current environment.Given past reticence to take swift action, Germanleaders are likely to postpone major decision-makingor destabilizing events until after September 2013national elections.much-needed political cover in Germany,despite the Bundesbank’s protests.Maintaining the primacy of democraticinstitutions has been a central implicitmessage of the ECB, even as electedpolicymakers, recognizing its abilityto take decisive action and be lesssusceptible to public opinion, intendto cede responsibility to it over bankingsupervision and potentially a rolein recapitalization, wind-downs anddeposit protection. As the US’s 2008experience with TARP and the FederalDeposit Insurance Corporation (FDIC)demonstrates, decisions around the fateof the financial sector could open up theECB to greater political scrutiny.France is a key swing state in the eurozonesystem and will face important politicaltests in 2013. Balancing between fiscaltightening and growth promotion hascreated a precarious position for thegovernment under President FrançoisHollande, which won election on a policyplatform of increased social protection,high-income-earner tax increases (to75 percent for the top marginal rate),wage increases and qualified reversalsof changes in the retirement age, andan (unrealized) promise to renegotiatethe Fiscal Compact. The French haveguaranteed cuts in 2013 to reduce2 2The Eurozone Crisis

the deficit from 4.5 percent to threepercent. Finalizing the national budgetwill be an important test for the Frenchgovernment.Moreover, France has traditionallydemonstrated a low tolerance forstructural reform as previous governmentattempts to address eroding global and,most recently, regional competitivenesshave faltered. It recently adopted a€20 billion tax-credit scheme aimed atoffsetting labor costs. Most elementsof the Gallois report, a French answerto Germany’s Hartz labor reforms, havelargely been put on ice. As the eurozonesouth engages in protracted reforms ofthe labor market and retirement benefits,France could increasingly find its relativecompetitiveness squeezed not only byGermany, but also by countries such asItaly and Spain.Regarding future eurozone integration,Paris has implicit red lines that havenot yet been challenged. As pioneersof the “Europe of states”, the Frenchpolitical classes will be one of theleast comfortable with the notion ofgreater pooled sovereignty beyond fiscalcoordination. The emphasis on solidaritybefore sovereignty has been a consistentpolicy position over the Sarkozy- andHollande-era governments.The UK, always an ambiguous EUmember, has charted an unsustainablecourse characterized by threats of vetousageaimed at a domestic audience.This threatens the future of Britishmembership in the eurozone, which maybe put up for a highly volatile referendumin 2015 following national elections.Indirectly, the interaction between theUK’s place in Europe will inform thesecession referendum in Scotland.This has potentially far-reaching andunresolved questions regarding thefuture of successor states’ membershipin international organizations, not tomention the future of Trident submarinesat the Clyde Naval Base in Scotland.Uncertainty around the UK’s future placein the EU contributed to the decision toscuttle the BAE-EADS merger.Early in the crisis, the British were aproponent of eurozone integration,including cross-border transfers. BritishChancellor George Osborne has longattributed the UK’s weak economicperformance to a confluence of factors,including eurozone areas governancecreditability and the need for crossborderdemand adjustments. Butconstraints in the Conservative Partycombined with a souring of Britishpublic opinion have led to tougher lineson spending in Europe and clashes overregulatory competence. Both issuesculminated in the high-profile threat ofa British veto of the Fiscal Compact atthe December 2011 EU summit (whichled to the Compact’s intergovernmentalpassage outside of EU law). The Germangovernment has been instrumental inattempting to bridge this divide andkeep the UK engaged in Europe, sidingwith it—over traditional continentalpartners including France—on thesize and structure of the MultiannualFinancial Framework....the US TreasuryDepartment has shownitself to be an effective,if not alwaysappreciated, brokeramong major stakeholders,including the ECB.Recommendations for 2013US engagement in resolving the debtcrisis is controversial and requiresgreat sensitivity. The first Obamaadministration’s strategy was one ofintermittent, informal engagement in EUaffairs. This proved effective in certainacute moments including consultationswith the Spanish government in May2010, 19 extended consultations at theCamp David G8 summit after the Frenchand Greek elections, and Obama’s publicstatement of support for a banking unionon the sidelines of the G20 summitin Los Cabos, Mexico, in June 2012.Moreover, the US Treasury Departmenthas shown itself to be an effective,if not always appreciated, brokeramong major stakeholders, includingthe ECB. The Fed’s liquidity swapfacility has also played an importantrole. These currency agreementshave helped guarantee liquidity ineurozone central banks and have easedforeign-exchange fluctuations of eurodenominatedassets.The US must continue to approachthe crisis with recognition that theEU comprises the world’s largestconcentration of advanced industrialdemocracies. That said, Washington cancontribute as a partner and a power tothe eurozone’s success.1. Recognize the effects of the USbudget battles on the it’s normativeleverage in the eurozone crisis:While the US’s own debt standoff is notnecessarily seen through the lens ofWashington’s credibility as a partner,a protracted fiscal impasse will haveunintended consequences beyond USborders. Slowly, global confidence inUS fiscal policymaking has been erodedas events unfolded: the short-termnegotiations in spring 2011, the debtceilingbrinksmanship the followingsummer, the inaction of the debtsupercommittee, and the destabilizingmeasures cumulatively known as thefiscal cliff (sequestration, a two-percentincrease in the federal payroll tax,and the expiration of the Bush-era taxcuts, the alternative minimum tax andautomatic stabilizers). Gridlock couldcontinue throughout 2013. The needto again extend the debt ceiling andthe use of continuing resolutions as amechanism for funding the governmentwill add to the conundrum.The US’s tenuous fiscal positionundermines its ability to act as a brokerin the eurozone crisis. The G20 financeministers’ meeting in Mexico Cityhighlighted the concern of potentialknock-on effects of sustained fiscalbrinksmanship in Congress, particularlyon the German finance ministry. Adecisive resolution in early 2013 wouldstrengthen the US’s credibility witheurozone leaders.The Eurozone Crisis2 3

2. Pursue an integratedapproach to US involvementin the eurozone:Through consultation with the ECB,proximity to financial markets, and crisismanagement through its stakeholderrole in the IMF, the Treasury Departmenthas focused primarily on short-term,technical aspects of crisis management.The US has largely remained silent onthe political aspects of the crisis, whichinclude long-term strategic discussionson topics such as institutionalarchitecture, security risks, and thepotential intra-European and globalimplications of EU action or inaction.Yet it is an inconvenient truth that theeurozone’s woes are not an addendumto foreign-policy challenges facing theUS and EU but a challenge in their ownright. As such, the State Department’srole in US engagement in the crisisshould be enhanced.The long-term legitimacyof policy prescriptionswill ultimately be basedon eurozone memberstates’ ability to returnto the growth andemployment that servestheir citizens.The administration should expand itscrisis-related diplomacy in three waysin 2013. First, it should define a unitedand resolute eurozone with effective,democratic, and accountable releasevalves for its population as in thestrategic interest of the US. Second,the State Department has vast on-thegroundinfrastructure and human capitalthat can complement the TreasuryDepartment’s financial expertise. Theadministration should increase bilateralconsultations on the eurozone crisis withgovernments in member state capitalssuch as London, Prague, Bratislava,Ljubljana and Helsinki. The oftenconsensus-based EU system allowsfor a number of potential veto points,including in political centers outsidethe eurozone. A pre-emptive, broadbasedoutreach to non-euro members,often countries with which the US wieldsgreater influence than with core Europe,could help reduce the risk of unforeseenevents. Finally, the State Departmentshould engage directly with and supportthe Future of Europe Study Group of 11foreign ministers. This group is an idealspace where the US can articulate howit envisions the EU’s best serving jointstrategic interests.3. Continue to promote lessonslearned from USbanking- system reform:The US experience in the immediatemonths after the 2008 financial crisisoffers lessons that could help EUleaders. Banks’ ability to lend to SMEsand capital-intensive infrastructureprojects will depend on whether EUmember states are able to restore trustin the banking system. This can bedone by establishing a transparent andcredible financial ecosystem, even moreimportant in the context of public-sectorausterity. The US Troubled Asset ReliefProgram’s (TARP) role of forced capitalinjections into the banking sector,the Treasury Department’s robust,depoliticized stress tests for banks,and the FDIC’s agility and discretion inwinding down failed banks offer lessonsfor eurozone leaders as they considermeasures to restore confidence in thebanking sector. 21One of the most political aspects ofbanking reform is the timing. Regulatoryslippage in the US has been a reality since2008 as new rules laid out in the Dodd-Frank reform have been postponed.The US should encourage the EU toenact banking-union regulation thatis well timed and does not promotepro-cyclical behavior that will furtherdepress an already tight lending market.The US and EU have worked intensivelyto minimize the potential for regulatoryarbitrage among financial sectors intheir jurisdictions, particularly withregard to the implementation of BaselIII into regulation. They also must worktogether to coordinate implementationtimetables for reform.4. Encourage a balanced approach,with greater emphasis ongrowth-oriented policy:Long-term legitimacy of policyprescriptions will ultimately be basedon eurozone member states’ ability toreturn to the growth and employmentthat serves their citizens. Aside fromthe certainty provided by credibleinstitutions and decision-making, andthe return of competitiveness, growthwill come from unlocking private andpublic finance. For example, the USJOBS (Jumpstart Our Business Startups)Act, which encourages SME and start-upfunding by lowering barriers to smallerloans and crowd-sourced finance,offers two lessons for member stateslooking to increase financing for youngbusinesses. 22 The US could also promotedialogue on the usage of tax incentivesfor growth and hiring, the role ofinfrastructure banks, and the potentialfor project bonds issued at the EU level.In many of these areas, the US has muchto learn from Europe as well. Finally, abroad-based trans-Atlantic Economiccompact that includes trade, investmentand regulatory liberalization is thegreatest immediate pro-growth initiativein which the US could play a direct policyrole [see page 11].5. Keep the IMF involved incrisis management:In the past, Europe has demonstratedsolidarity for major US priorities in theIMF board. For instance, partially at thebehest of the US, European countriesincreased their credit availability at thedisposal of the IMF in its efforts to supportLatin America marred in the debt crisis ofthe 1990s.IMF provides important technicalassistance though its experience withdiverse financial and debt crises.Moreover, debate between eurozone2 4The Eurozone Crisis

NATO thus faces an uncertain future.The weaknesses revealed in Libya andAfghanistan are likely to plague thealliance for many years after the endof combat missions. Defining a newcommon purpose and role will befurther complicated by a challenginginternational environment. The worldthe alliance will confront in the comingyears is likely to still be defined by avast array of threats, many of themborderless, including: terrorism, cyberattacks, piracy, energy disruptions andthe consequences of climate change. 9Regions in NATO’s backyard, especiallythe Middle East, remain extremelyvolatile and could see tensions escalateinto serious conflict.Aside from the tense internationalcontext, NATO will have to contend withtwo major developments that threatento hinder Europe’s already limitedability to act as a security provider andpeacekeeping force. The latest US defense“Strategic Guidance”, 10 published by thePentagon in January 2012, detailed aplanned US pivot toward Asia in orderto deal with China’s military rise. TheStrategic Guidance also announced thewithdrawal of a quarter of Americanforces stationed in Germany, bringingthe US permanent military presenceon the continent down to just under70,000. 11 US officials are quick to pointout that these moves are not a pivot awayfrom Europe, underlining their pledgeto contribute a US-based Army brigadeto NATO’s Response Force and the factthat the new guidance confirms the US’scontinued commitment to Article V. 12Yet despite these reassurances, the newguidance still sends an unmistakablewarning that Europe will be expected todo more for its security and rely less onthe US.Indeed, Europe cannot expect the samelevel of support from the US in thefuture, considering the latter’s decisionto pare back planned defense increasesover the next decade by a total of nearly$487 billion. The budgetary processknown as “sequestration”, could promptanother $472 billion in total reductionsover the same period. 13 On top of that,Europe’s debt crisis and resultingin percent100806040200USTurkeyDon’tKnowAttitudes Towards Defense SpendingRussiaBulgariaFranceGermanyausterity measures are having a dramaticimpact on defense spending across thecontinent. The economic downturn willlikely lead to a 30% drop in total militaryspending by EU member states between2006 and 2014. 14 If that trend were toendure over the longer term, there couldbe very significant consequences forboth Europe and NATO: Europe couldeffectively lose a great part of its capacityto act in the security sphere, even incases where it could muster the politicalwill. The alliance could be compelled toturn inward, incapable of tackling manyof the acute challenges in the currentinternational context. 15European PerspectivesThe same burden-sharing debates anddivisions that afflict NATO apply withinEurope. Currently, France, the UK andGermany represent 65 percent of alldefense expenditure in NATO Europe and88 percent of research and development(R&D) investment. 16 The economic crisishas not affected defense spending inan even manner across the continent.Military budget cuts have ranged frommore than 20 percent for the smaller EUmember states, with Lithuania cutting36 percent in 2010, to 10–15 percent, onaverage, for the majority of middle-sizedcountries (the Czech Republic reducedits defense budget by 10 percent in 2011ItalyDescreaseSpendingNetherlandsPolandSource: GMF Transatlantic TrendsPortugalRomaniaMaintainSpendingSwedenSlovakiaSpainUKIncreaseSpendingand 2010). The larger EU countries havelimited their cuts to about 8 percent tobe introduced between 2011 and 2015.States such as Finland and Denmarkhave recorded steady military spendingthrough the crisis, while Poland andSweden have actually increased theirdefense budgets. 17The UK continues to view NATO andcooperation with the US as essentialto its security and remains a strongproponent of out-of-area operations.Over the years, it has proven to be areliable and committed member of theAlliance. Second only to the US, the UKhas provided the largest internationaltroop contribution—presently 9,500—to the Afghan mission. It also took aleading role with France in the Libyacampaign. But “the operational nature ofthe ‘special relationship’ is at risk” as aresult of the austerity measures adoptedby Prime Minister David Cameron’scoalition government. 18 While the UKannounced a 7.5 percent cut in realterms to the defense budget over fouryears, in practice defense spendingwill actually drop by nearly 25 percentsince the previous Labour governmenthad overcommitted its defense budget.The current coalition has decided tobalance its budget and to fund overcommitments with existing resources.Post-Afghanistan NATO2 7

European Military Spending by Sub-Region800in billions of USD (constant, 2010)70060050040030020010001988 1990 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Central Europe Eastern Europe Western EuropeSource: SIPRIThe size of the regular army is set tofall from 104,000 troops to 90,000 by2015, and to 82,000–84,000 by 2020. Inaddition to these agreed cuts, the UKwill find itself without a carrier strikecapability until 2020. 19While the UK’s main challenge withregard to NATO revolves around theimpact of British austerity measures onthe operational capacity of its military,Germany is plagued more by questionsof leadership and purpose. 20 For mostof the history of the alliance, during theCold War and the enlargement phaseof the 1990s, Germany was a loyal andenthusiastic supporter of NATO. Butthat has given way to ambivalence in thepast decade as NATO’s strategy evolvedtoward more out-of-area operations.Fear of overstretch and an insufficientthreat perception partially explainGermany’s reluctance to get involvedin campaigns outside of Europe. 21Last year, Berlin chose to stay on thesidelines of the intervention in Libyaand withdrew its crews from NATO’sAirborne Warning and Control System(AWACS) aircraft in the Mediterranean, 22much to the dismay of its main NATOpartners. The backlash over Libya has atleast convinced some German officialsthat Berlin’s security policy has a realcredibility problem. 23 A recent initiativeby a number of European foreignministers, including Guido Westerwelle,is trying to address this by advocatingdeeper European military integration,to face the challenges of austerity andturn Europe into a stronger partner forthe US. 24It remains to be seen to what extent newFrench President François Hollande willdepart from his predecessor, NicolasSarkozy, when it comes to NATO policy.Under Sarkozy, France seeminglyfollowed a more Atlanticist path. In 2009,the country ended its 43-year exile fromNATO’s integrated military structure.In addition, Sarkozy maintained hiscountry’s presence in Afghanistanand took on a leadership role in theLibyan campaign. But Hollande and hisforeign minister, Laurent Fabius, wereopposed to France’s return to NATO’sintegrated military structure, and duringthe presidential campaign they pledgedto withdraw the troops stationed inAfghanistan by the end of 2012. 25 Sinceassuming office, however, Hollande hasacted pragmatically. During the Chicagosummit in May 2012, he accepted anumber of compromises as gestures tohis country’s allies: he agreed to delay theAfghan withdrawal and toned down hiscriticism of the alliance’s missile defensesystem. It seems unlikely that Hollandewill go back on Sarkozy’s decision toreturn France to NATO’s integratedstructures, but he is intent on injectingnew life into European defense projects.Recommendations for 2013NATO’s road ahead, as it prepares towind down its presence in Afghanistan,will unquestionably be arduous. TheAlliance will need to re-define itspurpose and maintain its ability to facea plethora of threats in a context markedby austerity and fiscal restraint. Butthis challenge – maintaining NATO’seffectiveness with fewer resources – canbecome a great opportunity for Europeand the US to push through needed andcomprehensive reforms of the Alliance.Through close cooperation, Europe andthe US can develop a NATO with a moreefficient organization and improveddefense culture, which preserves itsrelevance by tackling new threats, andwhich remains engaged with partners ona global scale.2 8Post-Afghanistan NATO

1. Consider NATO’s defensespending target formember states a useful,but not dominant, guideline:Undoubtedly, member states mustcontinue investing in hard power andcapabilities so NATO can remain aneffective organization. But the fixationon the defense spending target of twopercent of GDP has ultimately proved tobe counterproductive, and will remainso in coming years. The two-percent goalis simply not a realistic target at present.According to the latest figures, asidefrom the US, only Greece and the UKcurrently reach it—and that might provetemporary considering the UK’s planneddefense cuts and Greece’s serious debtcrisis. 26 With the rest of Europe alsofacing significant economic challenges,the NATO member states are unlikelyto meet the two-percent target anytimesoon, even if Western economies recoverdramatically.Looking ahead, and remaining mindful ofthe constraints of the current economiccontext, the US government should avoidpublicly berating its European allies overtheir failures to match spending targets.Lecturing cannot change the facts ofausterity and will only cause more illwill. A more restrained attitude would atleast improve atmospherics. Moreover,excessive focus on burden-sharingpromotes the view that Europe’s defensedifficulties are only a matter of spendinglevels. The fact is that Europe does notalways spend wisely, does not investenough in R&D and struggles to properlydeploy its existing assets. Finally, thepreoccupation with hard power alsodownplays the important contributionsand resources the Europeans dedicateto the larger field of security, includingdonor aid, civilian missions andhomeland security. 272. Pursue the comprehensivereforms that will be requiredto make smart defense aneffective tool:Smart defense—essentially specializationand pooling and sharing of assets—has become a major buzzword in recent120100806040200USTurkeyIs NATO Still Essential for Security?BulgariaFranceGermanyItalytimes as NATO aims to do “more withless” in light of austerity. There are 24multinational burden sharing projectsin motion that fall under the smartdefense banner, including programs forthe sharing of specialized munitions, thepooling of maritime patrol aircraft, andmedical support. The European DefenseAgency (EDA) has also made a numberof proposals for pooling and sharingof military capabilities. These are allimportant steps, but smart defense andpooling and sharing are tools ratherthan ends in themselves. Additionalreforms will be needed to ensure thatsmart defense is truly effective.First, the US should support the EU inmaking the European Defense EquipmentMarket more efficient. It is weakened bya procurement process in which statesmainly reward their national industries,and is highly fragmented—there aretoo many producers in comparisonto the larger US defense market,reducing the prospects of economiesof scale and scope. Encouraging marketconsolidation through industry mergers,creating EU common R&D programs,and fostering a single European marketfor nonstrategic equipment would beimportant moves in the right direction. 28Second, the US should push the EU tofully implement existing measures thataim to integrate the defense market. Twoimportant directives passed in 2008-09NetherlandsDon’t Know No Longer Essential Still EssentialPolandSource: GMF Transatlantic Trends 2012PortugalRomaniaSlovakiaSpainUKaimed to combat inefficient regulationsgoverning it: Directive 2009/81/ECstipulated that, from August 2011 onwardEU governments must allow for opencompetition in military procurement,unless there are legitimate securityconcerns; and Directive 2009/43/ECmakes it easier to export defense-relatedproducts among EU member states. Inorder to make these two directives fullyeffective, member states need to avoidan excessively cautious approach whendefining which equipment is sensitiveenough to be excluded from competition,and they should establish a commonlist of military equipment, which wouldbenefit from general licenses acrossthe EU. 29Third, from an operational standpoint,NATO member states will need to closelycoordinate and to prepare contingencyplans for these shared assets. RecentNATO operations, such as in Libya,proved divisive and, as mentioned,a number of states remained on thesidelines. “Access contracts” wouldensure that members can still accessshared equipment for operations evenwhen one of the involved parties prefersto opt out. Finally, the US should supportthe creation of a permanent EuropeanMilitary Operations Headquarters(OHQ) and encourage the UK to lift itsopposition to that project. Creatinga permanent OHQ could significantlyimprove Europe’s ability to providePost-Afghanistan NATO2 9

security, encourage its involvement inoverseas missions and facilitate poolingand sharing arrangements. 303. Improve the organization’seffectiveness with aleaner, streamlined andmore efficient NATO:NATO already took a step in the rightdirection at the 2010 Lisbon summit byagreeing to a plan to reform its agencystructure. By the end of 2014, NATO’sprevious 14 agencies will have beenconsolidated within four larger bodies:the Communications and InformationAgency, Support Agency, ProcurementOrganization and Science and TechnologyOrganization. But more can be done tomake NATO more efficient. Suggestionsinclude improving the way in whichthe North Atlantic Council conductsbusiness—for example, more focus onstrategic thinking and consultations andcirculating draft speeches ahead of timerather than reading them at meetings—and delegating more operationalauthority to the secretary general. Inparticular, after the member states haveapproved NATO’s budget, the secretarygeneral should be able to decide howto allocate resources and organize andstructure the international staff. 314. Adapt NATO’s decision-makingmodel to deal with the challengesof a multi-tiered alliance:Despite NATO’s commitment tocollective defense, in practice ithas become multi-tiered. Membersare divided by threat perceptions,strategies, resources and willingness toincur casualties. While this developmentis a challenge to cohesion, it couldbe lessened somewhat if the alliancereformed its decision-making approach.Consensus is the foundation of NATO’sdecision-making process and remainsan ideal: The alliance is meant to beone of sovereign states rather than asupranational body. Yet it need notbe an iron-clad rule. Not only has theconsensus rule proved flexible in thepast, but adding other decision toolscould allow NATO to avoid paralysisin cases when allies disagree sharply. 32Constructive abstentions could beone such way forward: While certainsensitive votes would still requireunanimity, in other cases states shouldhave the option to abstain so missionsare not delayed. Adopting constructiveabstention would it more acceptablefor states to remain on the sidelinesof an operation without reprimand (asGermany did in the Libyan campaign),while encouraging these states to refrainfrom criticizing an operation if they optout. 33 Also, in light of NATO’s growingnumber of partnerships worldwide, thealliance should consider involving closenon-member allies in relevant debatesand votes. 345. Strengthen and deepen thecooperation between NATOand the European Union:Though their headquarters are only afew miles apart in Brussels and theirrelationship has mildly improved inrecent years, cooperation remainslackluster. The current economiccontext will likely be an incentive for theorganizations to work closer together, ifonly to avoid excessive duplication andbecause they are complementary to acertain extent, but a more meaningfulpartnership will depend first on solvingthe Greek-Turkish dispute over Cyprus.In the meantime, the EU and NATOcan still take a number of measuresto deepen their ties, including:coordinating between NATO’s futurestrategic concepts and future Europeansecurity strategy documents; creatinga comprehensive strategic approachthat blends their experiences fromrecent military and civilian missions;maintaining an open and continuousdialogue between NATO’s smart defenseprogram and the European DefenceAgency’s pooling and sharing initiative;encouraging more secondments ofEU and NATO officials to the otherinstitution, including stronger linksbetween the two organizations’ SituationCenters and establishing a joint trainingprogram for deployment missions as aprelude for a joint training academy. 356. Develop a NATO-Russiapartnership that is less formalbut more substantive: 36NATO-Russia relations have undoubtedlyimproved since the low point in summer2008 when military ties were frozenas a result of the war in Georgia. Thechallenge for the coming decade willbe to build on this development, sothe US reset in relations can “graduate”toward more substantive achievements.Moving away from the overly formal,and somewhat disappointing, NATO-Russia Council will help to achieve thatgoal, as will actively seeking to enlargethe areas of cooperation between NATOand Russia.A more flexible Russia approach will havemultiple benefits for NATO. It will makeit easier for the alliance and Moscow tobuild on an ad hoc basis to the domainsin which they already work together,adding to an already impressive list thatincludes Afghanistan, counterterrorism,nonproliferation and combating piracy.It will send the message that whileNATO welcomes Russia’s cooperation,it does not need it. Moscow will haveto decide how much or how little it isprepared to work with the alliance; andNATO recognizes that Russia, oftenfor domestic reasons, will not alwaysbe receptive to closer relations. An “ala carte” attitude will allow NATO touse incentives to shape the long-termparameters of its relationship withRussia. If ties continue to improve in thecoming decade, NATO should consideroffering Russia some sort of nonmemberpartnership or observer status.Russia would not be offered Article5 guarantees, but could take part indebates and decision-making on areasof mutual interest. If successful, thesame status could be extended to othercountries, such as Georgia or Ukraine.7. Promote the alliance’sunparalleled security expertise asa vehicle for global NATO:The concept of a “global NATO” hasproved divisive among members,but since the alliance has alreadyestablished precedents through out-3 0Post-Afghanistan NATO

of-area operations and worldwidepartnerships, the idea that it couldrevert to a regional organization seemsfar-fetched. The tension over globalNATO, however, could be diminished ifthe alliance concentrated its efforts onstrengthening its position as a securityhub and provider of expertise. NATOhas an unparalleled pool of skills andexperience, training and assistancecapacities, which it can share withpartners and other regional organizationssuch as the African Union or the GulfCooperation Council. NATO can promotepreemptive crisis management to otherregions of the world. Fulfilling that aimwill mean maintaining and expandingits existing partnership programs, whichinclude: The Euro-Atlantic PartnershipCouncil and Partnership for Peace (22European states); The MediterraneanDialogue, which involves Egypt, Israel,Algeria, Jordan, Mauritania, Moroccoand Tunisia; The Istanbul CooperationInitiative, which works with Bahrain,Qatar, Kuwait, and the United ArabEmirates; The NATO Partners (Australia,Japan, South Korea, New Zealand,Pakistan, Iraq, Afghanistan, andMongolia); and the Support for AfricanUnion program, which assists the AUmission in Somalia. 378. Clarify NATO’s cyber-securitydoctrines and build ties withthe private sector: 38NATO has had to confront cyber attacksnumerous times, dating back to its 1999war in Kosovo and the later attacksagainst Estonia in 2007 (as well as theattacks on neighbors such as Georgia in2008). The alliance has taken positivesteps since 2007, including establishinga Cyber Defense Center of Excellencein Estonia to focus on strategic anddoctrinal guidance; setting up a CyberDefense Management Authority in 2008that manages operations across thealliance; creating a Computer IncidentResponse Technical Center (NCIRC)to provide constant tactical technicalresponses to nonpolitical cyber threats;awarding a substantial cyber defensecontract to a team co-led by US firmNorthrop Grumman and Italian firmFinmeccanica to equip 50 sites in 28countries to detect and respond to cyberattacks; and running the Cyber Coalition2011 exercise with six partner states torespond to a fictional attack. 39 Since thethreat of cyber attacks will likely becomemore pervasive and sophisticated inthe coming decade, NATO will need tostep up its efforts and expand on themeasures it has taken since 2007.Before it can increase the resiliency ofits member states, NATO will first needto clarify certain matters of doctrine, inparticular agreeing on shared definitionsof privacy, what exactly constitutes acyber attack, and the networks involved. 40The alliance needs to consult in order todetermine the types of attacks that maywarrant a resort to Article 5 and preparethe necessary contingency plans (for themoment, cyber attacks fall under thepurview of Article 4, which only requiresconsultations). 41 NATO should focus onimproving the overall cyber security of thealliance by helping to establish standardsfor resiliency for when attacks occurthat could apply not only to the NATOnetworks, but also to the networks of thenational militaries. 42 It can act as a centerof excellence for exercises and encourageinformation-sharing. Finally, becoming amore effective player in the cyber field willalso require that NATO build bridges witha wider number of partners, ranging fromministries of the interior and intelligenceservices to industry and private securitycompanies. 439. Make energy security anintegral part of NATO’s mission:NATO’s venture into the field of energysecurity is still a very recent phenomenon.The topic became particularly urgentin 2006 after the Russia-Ukraine gasdispute disrupted supply to parts of theEU. The 2008 Bucharest summit initiallyprovided NATO with a very limited anddefensive mandate in regard to energysecurity, before expanding that role inthe 2010 Strategic Concept. Yet moreneeds to be done to turn the allianceinto a more substantial player inthis field.NATO needs to organize regularconsultations between member stateson energy, and adopt a wider perspectivethat does not solely focus on Russiansupply, to strengthen its internalcohesion on the matter. Energy securitycannot be reduced to the divisive fieldof NATO-Russia relations. Additionally,as in the field of cyber security, NATOwill benefit from closer cooperationwith the private energy companies andtheir expertise in the field. It should alsotake advantage of its partners worldwide(since many of these states are eitherenergy producers or transit countries)to deepen energy consultations. Energytopics should also be added to thetraining courses of NATO’s educationalfacilities, to prepare diplomats andmilitary officers to confront futurechallenges. Finally, NATO will haveto pay close attention to the securitydimensions of climate change, such asthe impact of ice melting on shippingand security in the Arctic. 4410. Share US best practices aboutveteran re-integration with allNATO member states:The US has a long history of focusing onthe topic of reintegration of veterans intothe workforce. The Department of VeteranAffairs, the second largest US federaldepartment, oversees a vast numberof health care and benefit programs,including the so-called G.I. Bill 2.0 (thePost-9/11 Veterans Education AssistanceImprovement Act) passed by Congress inDecember 2010. Considering the difficulteconomic context, the sizable numberof non-US troops who have served inAfghanistan, and the limited scale ofveteran focus in Europe, the continentwould greatly benefit from the US’s bestpractices and its experience in the fieldof veteran reintegration.Post-Afghanistan NATO 3 1

MEMO ONTHE ARAB UPRISINGThe State of PlayOn Dec. 17, 2010, in Sidi Bouzid, Tunisia,street vendor Mohamed Bouazizi—fed up with constant harassment fromthe local police and the confiscationof his produce cart—set himself onfire in protest ultimately causing hisdeath. Within a few weeks, the wholeArab world was ablaze. The region’sdangerous mix of repressive andautocratic governments, pervasivecorruption, human rights abuses andstuttering economic growth made itfertile ground for revolution. By Jan. 14,2011, a mere four weeks after Bouazizi’sself-immolation, general protests inTunisia had succeeded in overthrowingZine El Abidine Ben Ali, the autocraticleader in power since 1987.Tunisia’s dramatic achievementimmediately resonated across the Arabworld. Within days of Ben Ali fleeing hiscountry, demonstrations broke out inEgypt, Oman, Jordan and Saudi Arabia;mass protests forced Egypt’s strongmanHosni Mubarak out of office on Feb.11; and unrest moved on to furthercountries, including Libya, Bahrain,Morocco and Syria. The fate of theseopposition movements varied across theregion, shaped by the differing goals ofthe protesters—from regime change inNorth Africa to reform from within in theGulf—and the spectrum of responsesfrom the various governments. Thereactions ranged from yielding toprotesters’ demands (Tunisia and Egypt)all the way to brutal crackdowns leadingto full-blown revolutions (Syria andLibya). 1The Arab uprising blindsided Europe andthe US, and tore apart the Faustian pactthat had characterized European policytowards North Africa—overlookingthe human rights abuses of autocraticThe outbreak of the Arab uprising proved a humblingexperience for Europe, which was taken by surprise bythe protests and embarrassed by its close ties with theautocratic rulers of North Africa.rulers in exchange for those rulersmaintaining security and stability inEurope’s backyard. 2 Eventually, however,the US and the leading European statesrecovered from their initial shock,acknowledged their past mistakes andtook steps to make sure they moved tothe “right side of history”. They optedto back protest movements and tocondemn governments who tried torepress these movements by force. InLibya, NATO, led by the UK, France andthe US, intervened in order to protectcivilians from Moammar Gaddafi’s forcesand decisively tipped the balance infavor of the rebels.Europe and the US also played aprominent role in establishing theDeauville partnership to aid Arabcountries in transition. The G8 summitin May 2011 led to an agreementbetween G8 members and majorinternational institutions (such as theIMF, the World Bank, the European Bankfor Reconstruction and Development,and the European Investment Bank)to pledge $40 billion in aid from 2011to 2013 for Egypt and Tunisia. A latermeeting in fall 2011 upped the pledge tonearly $80 billion and extended the aidto Jordan, Morocco and Libya. 3In the past two years, the Arab uprisinghas caused (and is still causing) seismicchanges across North Africa and theMiddle East. The regional transitionwill continue to unfold over the longterm and will be volatile. 4 The lingeringuncertainty will present significantpolicy challenges for Europe and the US.While the international community hasso far refrained from any direct militaryintervention in Syria, that country’s civilconflict rages on and risks spilling overits borders. The impact of the eurozonecrisis on Western donors threatensthe strong promises of support for theMiddle East and North Africa, with manycountries still waiting for promisedfunds. 5Furthermore, Europe and the US aregrappling with the emergence of newpolitical actors that do not view themfavorably. Islamist parties, despite theirminor role in the protests, have comeout on top in the various elections heldacross North Africa since the start of theuprising. Ennahda gained 37 percentof the votes in Tunisia in the October2011 elections; the following month, theJustice and Development Party gainedthe largest number of seats in Morocco(107 out of 395, with 27 percent of thevotes); and the Freedom and Justice Party,founded by the Muslim Brotherhood,won nearly 45 percent of the seats inthe Egyptian parliamentary election. 6 InJune 2012, Muslim Brotherhood memberMohamed Morsi won the presidency inEgypt.The violent protests outside the USEmbassy in Cairo in September—inresponse to an anti-Islam film made inthe US—also underscored the fact thatthe establishment of democracy in NorthAfrica will not necessarily translateinto pro-Western governments; the3 2The Arab Uprising

concurrent terrorist attack in Benghazi,Libya, that left the US ambassador andthree other diplomats dead, as well asthe attempted attack against the Britishambassador’s convoy in Benghazi a fewmonths earlier, were grave remindersof the continuing security risks. 7Finally, the stability of many of theregimes across the Arab region remainsprecarious, especially in North Africa:Egypt’s Morsi is facing major protestsover the drafting of a new constitution,while lawlessness poses a major concernin the Sinai region; In Libya, the GeneralNational Congress lacks authority, withmuch of the real power in the handsof the regional militias; and Algeriaand Morocco’s commitment to reformappears questionable at best. 8European PerspectivesThe outbreak of the Arab uprising proveda humbling experience for Europe,which was taken by surprise by theprotests and embarrassed by its closeties with the autocratic rulers of NorthAfrica. But the uprising also persuadedthe EU and many member states torethink their approach towards theregion, in particular North Africa, and toplace a greater emphasis on nurturingcivil society as opposed to simplycooperating with local authorities.Two major setbacks drove France toshift its policy towards North Africaand the Middle East. President NicolasSarkozy’s pet project, the Union for theMediterranean, launched in July 2008to provide new momentum to the Euro-Mediterranean Partnership, never reallydelivered on its grandiose promises.The outbreak of Arab uprisings alsocaused great embarrassment for Franceby underlining the close ties betweenFrench officials and the Ben Ali family inTunisia, a symbol of France’s complicitrelations with autocratic regimes inNorth Africa. 9 In the short term, to marka decisive break with the past, Sarkozyquickly switched to providing firmsupport for the Arab revolutions, took aleading role in the response to the Libyaconflict and pushed for G8 financialsupport. In the longer term, Sarkozy’sforeign minister, Alain Juppé, took stepsto recalibrate France’s strategic approachtowards North Africa and the MiddleEast, emphasizing the importanceof values over security, protectingfundamental freedoms, building moreties with civil society and engaging withall actors, including Islamic parties. 10Sarkozy’s successor, François Hollande,and his Foreign Minister Laurent Fabiushave, for the most part, endorsed thisnew approach towards the Arab region. 11Hollande also promises to play an activerole in the efforts to remove Bashar al-Assad in Syria, with France taking thelead as the first Western country torecognize the newly formed coalitionof Syrian opposition groups. 12 As forNorth Africa, because of its position asa leading donor—in 2010 France gave atotal of $595 million in aid, comparedwith $505 million for EU institutions—France will continue to play a vital rolein the region. 13The backlash against its hands-offapproach to the Arab uprising has alsoled Germany to readjust its diplomaticapproach. In particular, though ForeignMinister Guido Westerwelle declared hissupport for the uprising during a visit toCairo’s Tahrir Square, Germany dismayedits allies on both sides of the Atlantic bystaying on the sidelines of the Libyanintervention. That decision appearedeven more eye-opening in light of a €1.5billion deal to sell 200 Leopard tanks toSaudi Arabia while the latter was helpingauthorities in Bahrain to repress prodemocracyprotests. 14 As a consequenceof the strong criticism of its stance onLibya, Germany opted to take a moreproactive stand. To that end, Westerwellemade a timely trip to Algeria, Libya andTunisia in early 2012, promising to investmore resources to help democraticdevelopment in the region. 15 This newemphasis notwithstanding, trade andeconomic objectives will likely continueto fundamentally shape Berlin’s policiestowards the Arab world—the substantialrise in arms sales to Algeria from €20million in 2010 to €400 million in the twoyears since being yet another example. 16But Germany has also learned lessonsfrom Libya, and will make sure in thefuture to be in the middle of the pack,as opposed to an outlier, when it comesto major security challenges involvingthe Western alliance. This pragmatismis seen in its willingness to send Patriotmissiles to Turkey to help defend thelatter’s border with Syria. 17Like other European states, the Arabuprising came as a complete surpriseto the UK, whose diplomatic andintelligence resources failed to predict therevolutions—in part because agencieshad cut resources devoted to the regionin previous years. 18 Like France, though,the UK quickly switched to a resolutesupport for the uprising, includingtaking a leading role on Libya. Despitethe slow pace of change in the MiddleEast and North Africa, Prime MinisterDavid Cameron will remain firmlycommitted to the process of transition,driven by his view that it presents a greatopportunity for the region and that anybacksliding towards authoritarianismwould be detrimental to the interestsof the UK. 19 In regard to the Syrianrevolution, London has played and willcontinue to play an active role. Though ithas not endorsed military intervention,the UK has provided humanitarian aidand non-lethal equipment to the Syrianopposition, intelligence reports (alongwith Germany) on Syrian governmenttroop movements and agreed with Franceto speed up efforts for the opposition tocreate a government. 20 Cameron alsorecently floated the idea that Londonwould be willing to arrange a safe exit,and possible immunity, for Assad if thiscould help end the conflict. 21Like the individual member statesmentioned above, the first response ofthe EU institutions to the Arab uprisingcan only be described as lacklusterand hesitant. But the initial inactionof member states, combined with thetimely 2010 revision of the EuropeanNeighborhood Policy (ENP)—a bilateraltool for relations with eastern andsouthern neighbors—enabled theEU to take a leading role. The jointcommunication 22 provided in March2011 by Commission President JoseManuel Barroso and High RepresentativeCatherine Ashton outlined a newapproach towards the Arab world: Itlaid out an aim (supporting transitionsand deep democracy in the region), theThe Arab Uprising3 3

means to achieve it (the so-called “3 Ms”of providing better access to money,European markets and mobility to theregion) and a methodology (“more formore”, or a more serious attempt atenforcing conditionality when providingaid). 23 A later joint communication 24in May 2011 outlined the results of theENP review, and promised an additional€1.2 billion of funding, on top of €5.7billion already budgeted, for the 2011–2013 period. 25 Looking ahead, the EU willcontinue to rely on an expanded ENP asits main tool to support the process oftransition in the Middle East and NorthAfrica. The ENP’s budget is slated toreach €18.2 billion for the 2014–2020period, or a 40 percent rise from theamount available for 2007–2013. 26Recommendations for 2013Both Europe and the US care aboutthe Middle East and North Africa,but the US has more vital interests inthe Middle East whereas Europe hashigher stakes in the future of NorthAfrica. Both allies agree that economicand political progress are interrelatedwhen it comes to democratization inthe Arab world, but Washington putsmore stress on economic developmentas opposed to Brussels’ commitmentto political reform. 27 Europe tendsto favor government-to-governmentcooperation, while the US is morewilling to work directly with civil societyorganizations. But these divergencescan be an opportunity, rather thana challenge. By working togetherEurope and the US can offer betterlong-term policies towards the Arabtransition precisely because they havecomplementary, rather than identical,approaches. Building on existingcooperation, especially at the groundlevel, by exchanging best practices andexpertise, Europe and the US can avoidunnecessary duplication and offer awider toolkit of approaches to their Arabpartners.1. Promote regional integration,starting with North Africa:The autocratic regimes that dominatedNorth Africa helped to create closedIn Millions of USD (2009-2010)450400350300250200150100500Algeria Egypt Jordan Libya Morocco TunisiaUnited StatesFrancesocieties, with often very negativeeconomic and political consequences.The trans-Atlantic partners can helpundo that legacy by promoting widerregional integration, with the EU takingthe lead because of its existing tieswith the region. The US should activelysupport Brussels’ efforts to establishcloser cooperation between NorthAfrican states. Doing so will providemuch-needed help to revitalize andexpand intra-North African trade, andwith a clear focus on projects that wouldinvolve multinational cooperation.Official Development AssistanceTrade with the EU 27(% of total trade)Source: OECD, foreignassistance.govEU InstitutionsGermanyMoreover, the US should encourage theEU to redefine its trade relations withNorth Africa in a way that further benefitsthe latter’s development. In particular,the US can push the EU to open up itsagricultural market to North Africanproducts and increase investments inareas, such as solar energy, that couldhelp create jobs. Washington can alsosuggest that Brussels extend its widercustoms union with Turkey to countriesalong the southern Mediterranean coast,which would help to boost intra-regionaltrade in North Africa. 282010 Trade with North African StatesTrade with the US(% of total trade)Trade with the restof North Africa(% of total trade)Algeria 50% 16.5% 2.7%Egypt 31.9% 8.2% 3.9%Libya 64.9% 4.2% 5.4%Morocco 53.1% 6% 3.8%Tunisia 69.7% 2.6% 8.4%Source: European Commission Trade Statistics, 20103 4The Arab Uprising

2. Strengthen regionalpartnerships to provide a betterframework for peaceful change:US and European efforts to promotedemocratization in the Arab world, as wellas to safeguard existing achievements,are more likely to be successful ifthey fully involve regional actors andinstitutions. To that end, Europe andthe US should focus on establishingcloser cooperation with Turkey and theGulf Cooperation Council (GCC)—thepolitical and economic union betweenBahrain, Kuwait, Oman, Qatar, SaudiArabia, and the United Arab Emirates. 29Turkey and the GCC, aside from theirfinancial clout, share the European andAmerican objective of creating a morestable and peaceful framework for theprocess of internal change in the Arabworld. Turkey, in particular, would be avaluable asset because of its relativepopularity among the Arab public andits successful recent model of economicreform 30 ; having the GCC states on boardcould make it easier for the US andEurope to encourage domestic reform inthose states without alienating them.4. Develop a long-term strategytowards the Middle East and NorthAfrica, but stay away from a“one-size-fits-all” approach:Through close consultation, the US andthe EU need to rethink their overallapproach towards the Middle East andNorth Africa. Europe (with the revisedENP) and the US eventually made somemuch needed policy adjustments inresponse to the Arab uprising, but in thelong term this cannot be a substitutefor developing a broader, more lastingpolitical strategy to accompany theprocess of reform in the Arab world. 31Europe and the US should steer awayfrom models such as the ENP, whichtries to offer an overarching frameworkto address the diversity of situationsacross the Arab region. Instead, the EUand the US should aim in tandem todevelop specific responses tailored forthe sub-regions of the Arab world—onethat works for the Maghreb (Morocco,Algeria, Tunisia, Libya and Mauritania)and Egypt, and one dedicated to theMashriq (Iraq, Palestine, Jordan, Kuwait,Lebanon and Syria). 32The EU and the US shouldaim in tandem to developspecific responses tailoredfor the sub-regions of theArab world—one thatworks for the Maghreb(Morocco, Algeria, Tunisia,Libya and Mauritania) andEgypt, and one dedicatedto the Mashriq (Iraq,Palestine, Jordan, Kuwait,Lebanon and Syria).struggle for influence among autocrats,democrats and theocrats. Moreover, civilsociety organizations are weaker in theMiddle East and North Africa than theywere in socialist Europe and the Arabstates also lack the positive catalyst forchange created by the prospect of EU/NATO membership. 33 These differencesnotwithstanding, Europe and the US canstill draw important lessons from thepost-Communist transitions in Europethat could apply to the Arab world.3. Decouple the Middle East peaceprocess from the Arab uprising:The Arab-Israeli conflict remains avery significant source of tension, inparticular within the Arab world. Thefate of the Palestinians resonates deeplywith other Arabs, and it is a powerfulemotional card that governments oftenplay. Injecting renewed momentuminto the peace process is an essentialobjective for Europe and the US, but itis one that needs to be kept separatefrom the Arab uprising. Solving the longenduringArab-Israeli conflict could havemajor repercussions for the securityand stability of the Arab world, but it isunlikely to facilitate democratization inthe region or help its people find jobs.The process of reform in the Arab worldwill be hard enough on its own, andtying it to the peace process would onlybe counterproductive.5. Rely on the expertise drawnfrom Eastern and Central Europe’spost-Communist transitions:The Middle East and North Africa in 2012are certainly not in an identical situationto that of Eastern and Central Europeafter 1989. The political fault linesdiffer, with the Arab world undergoing aEurope and the US can support in-depthstructural reforms, anti-corruptioninitiatives and judicial reform. Theycan help by striving to develop theprivate sector, with a strong focuson small businesses, by encouraginglocal governments to reduce excessivebureaucracy and subsidies, and bypromoting efficient rather than rapidEuropean Neighborhood Policy (ENP) (2007–2013)ENP aid 2007–2010(per annum, in millions of €)Algeria 55 57.33Egypt 139.8 149.76Libya 2 20Morocco 163.5 193.5Tunisia 75 130ENP aid 2011–2013(per annum, in millions of €)Source: European Commission, European Neighborhood Info CentreThe Arab Uprising3 5

9. Ensure that Europe learnsfrom US partnerships withcivil society and use of socialmedia in the Arab world:The US government has worked hand inhand with the private sector—includingcompanies like Howcast, Google,Facebook and YouTube—to promotedemocracy and build ties with civilsociety movements in the Middle Eastand North Africa. It has also developedwebsites such as movements.org, whichlinks civil society groups across the Arabworld with each other and enable themto create and share documents such asCreating Grassroots Movements for Change:A Field Manual and How to Bypass InternetCensorship. The EU can learn from theAmerican expertise and best practicesby focusing on digitization, using socialmedia and technology as engagementtools, and creating partnerships withthe private sector in order to improveits outreach with civil society groupsand build up networks connecting youngleaders in the Arab world. 4410. Protect telecommunicationtools from the specter ofrepression and censorship:If the Arab uprising confirmed the rolethat communications and social mediacan play in promoting reform, it alsoshowed the wide efforts of repressivegovernments to neutralize thesesame communication tools. The EUand the US need to develop policiesto counteract autocratic regimes’censorship. That could include providingfirm and uncompromising support totelecommunications operators whenfaced with pressures to turn off theInternet and mobile phone networks(as happened in Egypt); developingcontingency technical plans in situationswhen governments do actually switch offnetworks; and enforcing strict regulationof repressive use of technology, as wellas dual-use technologies. 45 The Arab Uprising 3 7

MEMO ONCOUNTERTERRORISM ANDHOMELAND SECURITYThe State of PlayThe US and Europe have the largestand most open trade, travel and financearteries in the world. In an age whenpermeable borders can lead to securitygaps, the two Atlantic powers mustreconcile the inherent policy tensionbetween economic openness andinternal security. The US-Europeanpartnership on homeland security inthe post-Lisbon Treaty era has beenlabor-intensive but constructive. Threeareas have defined US cooperation withEurope on counterterrorism since 2009:1) the philosophy behind the policyapproach; 2) travel and cargo-screeningpolicy; and 3) intelligence-sharing. Eacharea will require sustained attention inthe next administration.While the US and Europe have convergedin their threat perceptions since 9/11,the EU and a majority of its memberstates still perceive terrorism throughthe lens of law enforcement rather thannational security. As a result, the policytools that have evolved—the commondefinition of terrorism, the introductionof the European Arrest Warrant andlegal measures to freeze terrorists’financial assets—focus primarilyon law enforcement. The Obamaadministration’s early semi-shift awayfrom the “war on terror” model has beenwelcomed in Europe. The administrationhas turned to considering more broadbasedeconomic and political conditionswhile narrowing acute militaryoperations on Al Qaeda. Criticism ofthe Guantanamo Bay detention facilityhas consequently become more muted.Criticism of the increased use of dronesis the exception—but even here, thepreemptive US effort to demonstrate thatthey are a tool rather than a fundamentalshift in approach has yieldedpositive results.In an age when permeable borders can lead to security gaps,the two Atlantic powers must reconcile the inherent policytension between economic openness and internal security.US travel and cargo shipment policyhas tightened considerably in recentyears as the administration implementsthe recommendations of the 9/11Commission Act. The law tightenedrequirements for the Visa WaiverProgram (VWP) and introduced theTransportation Security Administration(TSA)’s 100 percent cargo screening ofinbound international flights. 1 It also ledto the creation of the Electronic Systemfor Travel Authorization (ESTA) in 2009and the subsequent travel-promotionfee. And the installation of bodyscanners by the US and internationalpartners following the 2009 ChristmasDay underwear bomb attempthas accelerated.The US vetted Europe-wide cargoscreening standards with the EU’stransport authority, DG MOVE, and inJune 2012 both sides signed a mutualrecognitionagreement on cargoscreeningstandards. 2 EU officials andcitizens have raised concerns about otherpolicies, such as the implementation ofbody scanners, VWP, and ESTA. But callsfor investigating whether ESTA shouldbe labeled “visa light” and potentialretaliatory measures have subsided.I n t e l l i g e n c e - s h a r i n g - a g r e e m e n tnegotiations have been the centerpieceof US-EU counterterrorism cooperationsince 2009. This will continue in 2013.The EU has had jurisdiction over anumber of data-sharing accords. 3 Twoin particular—the Terrorist FinanceTracking Program (TFTP), also known asthe SWIFT Agreement, and the PassengerName Records (PNR) Agreement—havedrawn much attention recently amidcontention between the two blocs overbalancing security and privacy, the scopeand duration of data retention andlegal recourse. Since the Lisbon Treatygranted the European Parliament vetopower over international agreements in2009, arduous but ultimately successfulnegotiations have led to guarantees thatUS authorities analyzing and storingdata about EU citizens complied withEU law.The US-EU Data Protection Agreement,an umbrella accord under negotiationand meant to apply to all trans-Atlantic terrorism and other crime,aims to address this primary area ofdisagreement. The agreement couldexpedite negotiations on future trans-Atlantic accords governing personaldata transfers by setting a frameworkfor privacy that dislodges the issue. Itcould recast the culture of data transferand with implications for other areas,such as cybersecurity and intellectualproperty rights (IPR). A data-protectionagreement should be a top priority forthe new administration.In more operational areas related toterrorism and transnational crime,information-sharing continues at abilateral level between the US and EUmember states. Efforts to integratecooperation across member states oncounterterrorism, including via theEU Counterterrorism Coordinator andEuropol, still face challenges. Memberstates remain distrustful of these3 8Counterterrorism and Homeland Security

centralized authorities and have resistedgranting them additional powers oraccess to the most sensitive information.Such fragmented jurisdiction shouldremain a source of concern for the US.European PerspectivesWhile Europeans noticed a markedimprovement in cooperation oncounterterrorism in the Obamaadministration’s first term, cognitivedissonance still exists between the US,the EU and some member states. Thistension is at least partially due to USbehavior toward Europe; at times theUS has been perceived as either actingunilaterally (e.g., the imposition of ESTAand its associated fee) or seeking outthe path of least resistance, sometimesnegotiating with the EuropeanCommission and sometimes with themember states, ultimately causingtensions between the two. This has beenthe case with the VWP negotiations,and the Obama administrationconsidered a similar strategy for thePNR negotiations. But this piecemealapproach is deeply resented in Brussels,as the 27-member bloc struggles toachieve a unified position on justice andWhile Europeans noticeda marked improvementin cooperation oncounterterrorism in theObama administration’sfirst term, cognitivedissonance still existsbetween the US, the EUand some member states.THE STRUCTURE OF THE TRANS-ATLANTIC TRAVEL ECONOMYThe liberalized US-European travelmarket is at once an economic boonto the trans-Atlantic economy and apotential gap in US homeland securitypolicy. To understand sustained USefforts to create a travel market that isboth open and secure, it is importantto examine the scope of this economicrelationship. Total travel-related outputof the international travel industry inthe US was $1.9 trillion dollars in 2011.The US enjoys a net sectoral tradesurplus in travel of $42.8 billion, most ofwhich comes from Europe. The industryincludes 14.4 million jobs, which whileat least partly international in nature,are primarily in small and mediumsizedenterprises (SMEs). 4 Former USCommerce Secretary Gary Locke hasstated that SMEs make up “80 percentof the travel and tourism industry.”The promotion of international traveland tourism dovetails with the Obamaadministration’s focus on job creationthrough SME growth.The trans-Atlantic travel market hasstrong seasonal fluctuations. In 2011,the number of travelers to the US fromEurope ranged from about 600,000 inJanuary to about 1.3 million at its peakin July, a difference of 700,000 people. Intravel from the US to Europe, the pictureis even more pronounced.The sector is also somewhat vulnerableto exogenous shocks based on bothNumber of Passengers1,700,0001,500,0001,300,0001,100,000900,000700,000500,000300,000Travel between the US and EU (2007-2012)Jan - Dec2007Jan - Dec2008US Travelers to the EUeconomic downturn and political risk.For instance, the zenith of the financialcrisis at the collapse of Lehman Brothersin September 2008 was accompaniedby a precipitous drop in the number ofinternational travelers to the US. 5 TheOct. 3, 2010, State Department travel alertwarning of a potential terrorist attack inthe UK, France or Germany prompted 19percent of travelers to cancel their travelplans and 52 percent to reconsider travelto Europe according to one survey. 6The effect of the economic downturnwas a precipitous drop in travelersfrom major European countries in 2009,with some recovery in 2010 and 2011.Jan - Dec2009Jan - Dec2010Source: ITA, Office of Travel and Tourism IndustriesJan - Dec2011Jan - May2012European Travelers to the USHowever, recovery has not occurred inall major European markets, as seen inthe 16 percent drop in British travelersto the US since 2008. These numbersbely an even more dramatic drop in totalspending by European visitors duringtheir time in the US. Since 2008, Britishspending has declined by 27 percentand German spending by 3 percent.While French travel and spending hitrecord highs in 2011, its ranking as atop international spender has droppedafter decreasing 14 percent in 2009 and1 percent in 2010. 7 In total, travel-relatedspending from European countries hasfallen by $6.29 billion since 2008. 8Counterterrorism and Homeland Security3 9

home affairs (JHA), particularly in theEuropean Parliament and DG JUST, theDepartment of Justice’s counterpart inthe European Commission.Brussels has traditionally questionedthe blending of CIA (intelligence)and JSOC (military) activities in UScounterterrorism policy. The EUcounterterrorism coordinator, amongothers, believes the American methodcreates “de facto accountability gaps”over which congressional intelligenceand defense committees lack properoversight. For the EU, issues such asthe status of Guantanamo and increaseduse of drone strikes raise questionsabout US respect for constitutional andinternational law. Brussels wants tosee Guantanamo close, but Europeans’opinion is divided over unmanned droneattacks. In any case, neither issue willseriously affect the US-EU relationshipin the near future. The UK already hasarmed drones in Afghanistan, andItaly will have surveillance dronesthere beginning in 2013. France alsohas plans to use military drones forreconnaissance and attack missions.European political leaders, includingGerman Chancellor Angela Merkel,French President François Hollande,and EU foreign-policy chief CatherineAshton, have not publicly criticized thepractice of targeted killings.Positions on travel policies,including those concerningthe VWP and bodyscanners, remain patchyacross the EU. But Brussels’role in this area is growing.Extraordinary rendition and secretdetention of terrorist suspects areadditional areas in which significantEuropean opposition to UScounterterrorism practices has arisen.The EU outlined in February 2012how military detentions could havea negative impact on internationalcooperation. But US operational policyin this area is bilateral. Some memberstates, including Germany and the UK,have held parliamentary inquiries aboutUS government malfeasance but havefailed, from the EU’s perspective, to berigorous enough. 10 Other member stateshave not formally addressed renditionand detention. The European Parliamenthas passed a non-binding resolution toreopen member state investigations intosecret CIA renditions in several CentralEuropean countries. 11On intelligence sharing, bilateralrelationships remain critical andmember states want to maintain that.The UK is extremely comfortable with itsopen intelligence sharing relationshipwith the US. While the British have aspecial position with certain opt-outs onEU decisions in the realm of freedom,security and justice—a position thatcould be complicated by the block JHAopt-out announcement by the BritishHome Office 12 —they can opt intoagreements, as they did in March 2012with the US-EU PNR agreement. 13 In fact,the UK had its own PNR system in placeand shared information exclusively withthe US. London also led the effort tocreate the EU’s PNR directive. Germanintelligence also cooperates closely withthe CIA, the FBI, and the US military.But after an incident in which a Germanintelligence tip led to the killing ofGerman-citizen Islamists in US droneattacks in Waziristan, Pakistan has raisedthe issue domestically and compelledBerlin to establish limits on sharinginformation on German citizens.Positions on travel policies, includingthose concerning the VWP and bodyscanners, remain patchy across the EU.But Brussels’ role in this area is growing.The EU called for and approved a commonEuropean position on body scanners, 14but member states have been given theleeway to decide to use the technologyor not and some, including Spain, Italy,and France, have wavered or refrainedfrom doing so due to privacy concerns.Others, including the Netherlands andthe UK, have been among the first toimplement it: The Dutch were the first toembrace the technology since the 2009underwear bomber departed for the USfrom Amsterdam’s Schiphol airport.Finally, there is a deep sense in theEU that its privacy and data protectionsafeguards are superior to those in theUS. EU Justice Commissioner VivianeReding has stated that Washingtonshould catch up to the “gold standard”being set by Brussels. 15 The EU has itsown data-protection system, currentlyunder reform through proposals thatcame from the commission and areworking their way through parliament.Recommendations for 2013These heavy, sometimes frustratingnegotiations have placed cooperation ona sounder footing for 2013 and beyond;they have allowed the US to work withthe EU as a meaningful partner andcould serve as a model for US-Europeanrelations in other policy areas. Given thehigh stakes for the safety and rights ofcitizens on both sides of the Atlantic,the expression of trust between theUS and Europe in this area has beenimpressive. The primary responsibilityof the next administration will be toguarantee successful implementation ofrecent agreements while simultaneouslybuilding on broader initiatives like VWPreform and the comprehensive DataProtection and Privacy Agreement.1. Monitor implementationof new agreements:In its first term, the Obamaadministration initiated significantchanges in data sharing and screeningrelationship between the US andEurope. Implementation of theseagreements across member statesshould be monitored with the utmostcare. Hiccups in implementing theagreements will be followed closelyby local media, especially in areasinvolving US officials from agenciessuch as Customs and Border Protection(CBP) and TSA. These could lead tohigh-profile hearings and possiblebacklash in national parliaments and theEuropean Parliament in particular. PNRdata exchange and no-fly enforcementmust strictly adhere to the terms of theagreement for flights to and from the US.Incidents such as the recent case of aCuba-bound flight from Spain could put4 0Counterterrorism and Homeland Security

these delicately negotiated agreementsunder renewed scrutiny. 16 At the sametime, the US should also remaincognizant of patchwork implementationacross member states and be willing toraise these concerns both nationally andin Brussels.2. Understand institutionallimitations, particularly regardingindependent legislatures:Both sides need to recognize thatadministration negotiators are not theonly decision makers. Legislators havean important, often underappreciated,role. The EU has called for the US torepeal section 1021 of the NationalDefense Authorization Act (NDAA) andend indefinite detention of terroristsuspects. 17 It would also reopen thePrivacy Act to give European citizensjudicial redress regarding their personaldata. 18 But these efforts would requirecongressional revision, which isunlikely given their low priority forUS constituents and Washington’slegislative gridlock. Likewise, theEU’s institutional structure grants theEuropean Parliament an importantvoice in international agreements, andit is prepared to speak up. Concernsabout the US ignoring civil liberties orprivacy concerns, and its tendency todictate trans-Atlantic counterterrorismpolicy, resonate loudly in theEuropean Parliament.a) Pursue VWP reform early in 2013:The administration should seek areasin which progress with Congresscan be made. On VWP, the Obamaadministration should promote aretooling of the program so that it isat once more secure and practical. ThePolish remember the president’s pledgeto reform the VWP system to allow forPoland’s admission, made at his firstjoint press conference with PresidentBronisław Kamorowski in December2010 and renewed during Obama’svisit to Poland in 2011. A bipartisan,bicameral group of legislators introducedlegislation in 2011 that would facilitate apath to VWP for the remaining four EU“outs” (Poland, Bulgaria, Romania andCyprus) in the coming years. 19 Much ofthe most vociferous Senate oppositionto an expanded VWP dissolved in 2012.Implementing a more sound VWP regimefor Europe will have two constructiveconsequences: 1) it will fulfill theadministration’s commitment to Polandthat it would enter VWP during Obama’sterm in office and 2) it will hastenthe convergence of an EU-wide VWPregime that is consistent with the post-Lisbon mandate to introduce uniformvisa policies.3. Promote forward-lookingforums for discussion:Forums such as the High-LevelContact Group (HLCG) on privateand data protection are important forperpetuating talks on fundamentaldifferences between systems. Theseforums are the most effective vehicleto achieve agreement on methods thatsatisfy concerns on both sides of theocean. To strengthen US-EU ties, theDepartment of Homeland Security(DHS) and the Department of Justiceon the one hand and the JHA Council,DG HOME, and DG Just on the othercould aim for more exchanges betweenofficials. Greater interlocutor linksbetween the National CounterterrorismCenter (NCTC) and SitCen, the FBI andEuropol, the Department of Justice andEurojust, DG MOVE and the TSA are alsorecommended. 20 These working-levelrelationships help generate trust thatleads to cooperation. Mutual recognitionof certifications and standards in areassuch as cargo security, a most efficientpolicy tool for both sides, is a productof frequent operational meetings ofbilateral working-level forums. They canbe venues for talks on frontier topicssuch as civilian usage of repatriatedunmanned aerial vehicles (UAVs).Moreover, the EU is negotiating an intra-EU TFTP agreement, an intra-EU PNRagreement, Europol, and Eurojust in2013 and will reform its data-protectionregime in 2014. These could affect the USapproach to agreements with Europe.The forums would guarantee consistencyin rapidly evolving legal frameworks inthe US and the EU.4. Pursue the widest possibleagreement on data protectionand privacy with mutualrecognition at the core:The umbrella US-EU Data Protection andPrivacy Agreement under negotiationis an ambitious undertaking thatcould remove one of the most difficultbarriers to US-EU cooperation oncounterterrorism. The precedents set inthis agreement will have spillover effectson the commercial sector.Both sides should ensure that anagreement is as robust as possible. TheEU has the legal authority to negotiate[data protection and privacy] with thirdcountries, and the Commission and theEuropean Parliament have seized thismandate. European data transferredto a third country must be met by “anadequate level of protection” by thosecountries. This gives the Commissionauthority to decide whether the USappropriately handles EU citizens’personal data.The EU has the legalauthority to negotiate[data protection andprivacy] with thirdcountries, and theCommission and theEuropean Parliament haveseized this mandate.The HLCG has determined that majordifferences on redress principlesexist. 21 Some European leaders haveinsisted that all Europeans have theright to redress before an impartial andindependent tribunal regardless of theirnationality or place of residence, as theEU Data Protection Directive maintains.The US Privacy Act, however, limitsjudicial redress to US citizens and legalpermanent residents. 22 Even though theDHS privacy office offered administrativeredress to non-US persons in 2009, 23 keymembers of the European Parliamentprefer their citizens to have access tojudicial review. 24 The alternative toamending the Privacy Act is ensuringCounterterrorism and Homeland Security4 1

Status of EU Countries in the US Visa Waiver Program (VWP) and SchengenEU Member State Status of VWP Participation Member of the Schengen AreaAustria VWP participant, effective 1991 Member, effective Dec. 1, 1997Belgium VWP participant, effective 1991 Member, effective March 26, 1995Bulgaria 2005 roadmap country PendingCyprus 2005 roadmap country PendingCzech Republic VWP participant, effective Nov. 17, 2008 Member, effective Dec. 21, 2007Denmark VWP participant, effective 1991 Member, effective March 25, 2001Estonia VWP participant, effective Nov. 17, 2008 Member, effective Dec. 21, 2007Finland VWP participant, effective 1991 Member, effective March 25, 2001France VWP participant, effective Oct. 1989 Member, effective March 26, 1995Germany VWP participant, effective Oct. 1989 Member, effective March 26, 1995Greece VWP participant, effective April 5, 2010 Member, effective March 26, 2000Hungary VWP participant, effective Nov. 17, 2008 Member, effective Dec. 21, 2007Ireland VWP participant, effective April 1, 1995 Not a memberItaly VWP participant, effective Oct. 1989 Member, effective Oct. 26, 1997Latvia VWP participant, effective Nov. 17, 2008 Member, effective Dec. 21, 2007Lithuania VWP participant, effective Nov. 17, 2008 Member, effective Dec. 21, 2007Luxembourg VWP participant, effective 1991 Member, effective March 26, 1995Malta VWP participant, effective Dec. 30, 2008 Member, effective Dec. 21, 2007Netherlands VWP participant, effective Oct. 1989 Member, effective March 26, 1995Poland 2005 roadmap country Member, effective Dec. 21, 2007Portugal VWP participant, effective Aug. 9, 1999 Member, effective March 26, 1995Romania 2005 roadmap country PendingSlovakia VWP participant, effective Nov. 17, 2008 Member, effective Dec. 21, 2007Slovenia VWP participant, effective Sept. 30, 1997 Member, effective Dec. 21, 2007Spain VWP participant, effective 1991 Member, effective March 26 1995Sweden VWP participant, effective Oct. 1989 Member, effective March 25, 2001United Kingdom VWP participant, effective July 1988 Not a memberCounterterrorism and Homeland Security4 3

MEMO ONCYBER SECURITYThe State of PlayThe US and Europe have seen a dramaticincrease in cyber incidents in the pasttwo years. An analysis of such eventssince 2006 shows that of 97 known majorincidents, 44 were aimed at US-basedtargets and 28 at European targets,including the highly publicized attacksin Estonia in 2007 and Georgia in 2008. 1Even excluding unreported incidents, thedanger these subversive activities pose tothe most essential arteries of economicactivity in the US and Europe is clear. TheUS intelligence community believes cyberespionage represents a larger threat thantraditional espionage. 2 And these threatsare increasing.Two trends are changing the threatlandscape. First, with greater relianceon smartphones and other handhelddevices, networks are increasingly goingmobile. Storage and access points aregrowing via new network resources suchas cloud computing. Second, service andcontrol functions, including commercialpayments ranging from large moneytransfers to small retail purchases withswipe cards, are migrating online. Thesecommercial transactions are not solelymonetary; they are also tied to transfersof highly sensitive personal identitydata. In both cases, cultural shifts aredriving individual online connectivityand eroding barriers of state-basedjurisdiction, increasing vulnerabilities fornefarious actors to exploit.When the Internet was created, theinitial concern was openness, notsecurity. Its guiding philosophy has longbeen one of open access developed bya “self-regulated, non-governmentalcommunity”. 3 As a result of this openness,two factors color the cyber securityapproach of early-adoptive digitalsocieties such as the US and Europe:The central tension of cyber security policy is theinherent tradeoff between regulating a secure andsafe cyber space while creating an online environmentthat fosters optimal economic and political outcomesfor citizens across the globe.1) offensive capabilities dominatedefensive capabilities; and 2) the primarydeterminant of vulnerability is the degreeof technological integration. For thesereasons, a Maginot Line against cyberincidents will not work. 4Cyber security policy cuts across atangle of interlocking policy areas,from defense to homeland security,from criminal justice to commercialpolicy and civil liberties. Protection ofmilitary assets, cyber cover in combatoperations and offensive militarycapabilities are the areas to which theUS government and EU member stateshave devoted the greatest resources.Protecting areas of the private sectorthat are fully dependent on the Internet,hardening the defense and resilience ofcritical infrastructure, and combatingcyber crime and e-espionage, all directlylinked to economic security and lawenforcement, is also important. At thesame time, maintaining a free and openglobal Internet that is a conduit for civildiscourse and organization has becomea central tenet of democracy. The centraltension of cyber security policy is theinherent trade-off between regulatinga secure and safe cyber space whilecreating an online environment thatfosters optimal economic and politicaloutcomes for citizens across the globe.The Government Accountability Office(GAO) has sounded the alarm aboutUS cyber policy’s failure to keep pacewith the threats. 5 The lack of neededskills across government agencies anddepartments is magnified by the needto create a coherent international policyon cyber security. The inability of the112th Congress to pass comprehensivecyber security legislation means that theadministration will have to set policyon these issues within the limits ofcurrent law, domestic and international.Exploration of collective cyber defensewith Europe will require mergingdisparate security concepts into anoverarching cyber policy encompassingtrade, offensive capabilities, resilience,data protection and the creation ofinternational norms. 6US and European threat assessmentsare similar, and Europe represents anatural cyber security partner for theUS, bilaterally and internationally.Indeed, there is a robust trans-Atlanticlinkage for much of the financial sectoras well as for many Internet services andsocial networks that are repositories forhighly sensitive personal information.US military bases in Europe are alsoreliant on the continent’s infrastructure.But the dense net of interconnectivityfacilitated by the size and opennessof European states, the formationof their single market and their earlyadoption of Internet technology all makeEurope a uniquely challenging cybersecurity landscape.Some analysts have advocated for aclear division of labor on Europeancyber security policy between a pooled4 4Cyber Security

offensive capability centered at NATOand protection of civilian assets centeredat the EU at the continental level. Butunbundling these aspects could opengaps in policy. Given that, the US’s longtermapproach to Europe as a partneron cyber security should direct as muchcooperation as possible on civilian-basedpolicy and Internet governance to the EUlevel, limiting NATO to narrowly defineddefense-based cooperation. Pressure onthe European Commission to establishminimum standards on incidentresilience and response, including theneed for all states to have contingencyplans for cyber incidents and laws oncyber crime has slowly been increasing.The EU has an important role to play,particularly in citizen- and industrycenteredpolicies of defensive resilience,raising of awareness and public-privatepartnership development.The US’s long-termapproach to Europe as apartner on cyber securityshould direct as muchcooperation as possible oncivilian-based policy andInternet governance to theEU level, limiting NATO tonarrowly defined defensebasedcooperation.The NATO and US-EU Lisbon summitsin 2010 were the first to place cybersecurity policy at the heart of the trans-Atlantic relationship. NATO’s 2010Strategic Concept called on the allianceto create a cyber security policy and anaction plan for implementation, whichwas later adopted at the 2012 Chicagosummit. 7 Work since then has aimed toimprove centralization of NATO-assetcyber protection, hardening networks inmember states and refining policy andtraining. Meanwhile, US and EU leadersestablished a joint working group oncyber security with a mandate in fourpolicy areas: 1) incident management; 2)public-private partnerships; 3) awarenessraising; and 4) cyber crime. 8 After a rockystart, the US-EU working group hasdelivered some promising outcomes. AHigher degree of preparedness(four stars or greater)Lower degree of preparedness(fewer than four stars)November 2011 joint exercise, entitled“Cyber Atlantic”, ran scenarios dealingwith critical infrastructure compromisesand cyber theft. 9 The issue of marketaccess and source-code disclosurerequirements in third countries, an areain which the EU could prove to be apotent partner, was added to the agenda. 10And cooperation in 2012 on botnetsand smart grid protection demonstratefurther momentum.European PerspectivesAlthough there has been a markedincrease in discussion on cyber securityat the European level, Europeanpolicy for handling incidents is patchy.Differences among states range fromsome of the most sophisticated resilienceand offensive capabilities to some of theweakest in the developed world. Cybersecurity is a market-based issue, andas its single market develops, the EUhas rightfully sought to increase its rolein policymaking.Especially in states that are lagging,the EU has an important role to play insetting and standardizing cyber policy. Anuneven legal framework is complicatedby varying conceptions of privacy anddata protection. As with policy questionsrelated to homeland security and onlineintellectual property rights, cyber securityconcerns will be a political focal pointat the national and EU levels in comingyears. The US should monitor thesedevelopments closely.The EU can be a confusing cyber securitypartner for the US. The EuropeanExternal Action Service (EEAS) is stillplaying catch-up in its efforts to establishCyber Preparedness Stress TestsLarge European statesFrance, Germany,Spain, UKItaly, Poland, RomaniaSmall European statesDenmark, Estonia,Finland, Netherlands,SwedenAustriaSource: Cyber Security: The Vexed Question of Global Rules, SDA and McAfee, January 2012. EU memberstates not included in the stress test survey: Belgium, Bulgaria, Cyprus, Czech Republic, Greece,Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, Portugal, Slovakia, Sloveniaa coherent external face for Europeancyber policy. The EEAS has a role as anexternal actor, but the EU’s CommonForeign and Security Policy (CFSP) hasyet to promulgate an international profilefor EU Internet governance.Furthermore, protection of EU institutionsis still seen as underdeveloped; aEuropean Parliament report bluntlystated that EU institutions are “poorlyprotected”. 11 A CERT for EU institutionswas established in 2011 after a batteryof high-profile breaches to criticalinstitutions including the EEAS, the EPand the EU’s emissions trading system.The long-term spying on the EuropeanCouncil by a Chinese cyber syndicatelinked to the Chinese People’s LiberationArmy is the most recent high-profilerevelation that reaffirms the vulnerabilityof Brussels-based institutions.In terms of ambition and developmentof offensive capability, the UK hews mostclosely to the US. London’s 2010 nationalsecurity strategy recognized cybersecurity as one of four top threats. 12 Cybersecurity is also one of only two areas inthe UK national budget that was not cutamid recent austerity measures. Highlysophisticated exercises between thepublic and private sectors, in particularthe financial-services industry, havecreated solid national crisis-managementnetworks. London has taken a leadingrole in crafting international norms.France’s cyber security policy, meanwhile,benefits from a highly centralized, statedrivenculture. The state’s central positionin security and economic life and itsregulatory propensity foster a high degreeCyber Security4 5

of trust in its role as the guardian of cyberspace. That, combined with a desire toproject strength in cyber space, makesFrance a formidable global cyber power.ANSSI, its cyber security hub, doubled itsstaff in 2011. 13Establishing credible,internationallyrecognizable definitions forgradations of attack andpotential targets such ascritical infrastructure willfacilitate responses thatcan be coordinated withinand across governments.Germany is a different type of cybersecurity partner from the UK or Francebut is attuned to the position of manyEuropean states, particularly those inCentral Europe. Berlin does not view cybersecurity through the prism of nationalsecurity as much as the UK or France do,though it opened a Cyber Defense Centerin June 2011. 14 Germany’s historical,cohesive policymaking between industryand government makes coordination oncyber security easier for the Germans thanfor others, including the US. Germanyalso boasts a deep reserve of savvyhacker communities such as the ChaosComputer Club (CCC), which has playeda role in identifying and mitigating pastthreats. But Germany maintains strictlegal barriers on cooperation betweenintelligence-sharing and limited tolerancefor domestic surveillance on the generalpublic. Even the use of cyber weapons isviewed with great ambivalence. 15 For thisreason, cyber and information securityplays a larger role in domestic politicsin Germany than in the UK or France andwill constrain Berlin’s ability to monitornefarious online activity and coordinatepreventive action with the private sector.Beyond this, a la carte coalitions ofEuropean states can provide the US withimportant international allies and resources.Some states, such as the Netherlands andSweden, have identified Internet freedom asan international priority. 16Recommendations for 2013US and European cooperation oncyber security and e-governance morebroadly will inevitably intensify in 2013as both sides of the Atlantic look tobuild domestic legislation to governthis space. Simultaneous internationalconsultation, especially with each other,will provide the US and Europe a soundbasis for developing cyber security normsand provide both with a blueprint onhow to engage other actors bilaterallyand multilaterally.1. Coordinate with Europebilaterally and multilaterally onlanguage for cyber security policy:Terminology often poses the first problemfor lawmakers in the US and Europe. Thisis not a theoretical exercise. Establishingcredible, internationally recognizabledefinitions for gradations of attackand potential targets such as criticalinfrastructure will facilitate responsesthat can be coordinated both within andacross governments. It will also start toprovide a firmer basis for the applicationof domestic and international law as wellas treaty obligation.a) Devise commonly understoodcategorizations for cyber attack in conflictvs. cyber attack as conflict: The UN reporton cyber security in 2010 led to theestablishment of some key applicationsof international law in the case thatcyber offensives are coupled with kineticattack and states generally recognize theapplication of the Law of Armed Conflictto cyber attacks in war situations. TheUS and Europe agree that armed assaultcan be committed through cyber means.Ambiguity remains, however, regardingthe threshold at which a cyber attack,by itself, reaches a degree to which itcould be regarded as an act of militaryaggression. Although the 2010 NATOStrategic Concept hinted that ArticleIV consultations and even Article Vinvocation could apply in the event of amassive cyber attack, the US and Europemaintain a strategic ambiguity regardingthe threshold of its invocation. 17 Whilethis ambiguity has its advantages, itcan diminish the potential for credibledeterrence and prevent the developmentof rational behavior among states,addressing salient policy questions suchas state culpability and proportionalresponse with potential adversaries.b) Consult on how to commonly definecritical infrastructure and pursue anuanced approach to its regulation: TheUS’s 2003 National Security Strategy toSecure Cyberspace includes a robustdefinition of critical infrastructure. 18However, in some policy areas, the USdefinition of when such infrastructure hasbeen breached is under debate.Europe is engaging in a similar debate.The EU’s current definition of criticalinfrastructure is limited to the energy andtransport sectors. 19 Some have criticizedthis narrow definition, calling for theinclusion of telecommunication and ISPinfrastructure, financial services, health,food and water supply systems, andnuclear research and industry. 20Cyber space has become a public good,one susceptible to government regulationand protection. Although 80 to 90 percentof the critical infrastructure in the US andEurope is in private hands, governmentsstill must assess if compliance withtheir standards can remain voluntary ormandatory. This is not the same for allsectors, as incentives differ. For example,most analysts agree that the financialsector is the best prepared to protectagainst cyber incidents, as it is subject toa high volume of low-level phishing, crimeand fraud daily. Given the synchronousdevelopment of standards in this areaon both sides of the Atlantic, the USand EU should hold joint discussionswith trans-Atlantic industry on commondefinitions of critical infrastructure andinteroperable standards, with provisionsand time frames for both mandatoryand voluntary protection and disclosureof breaches.Finally, liability and insurance shouldplay a greater role in a frank assessmentof risk in the trans-Atlantic dialogue onpublic-private partnerships. The threat ofcyber attack and associated losses mustbe accurately priced. Discussions shouldconsider to what degree—in sectorslike electricity and water—the risk is4 6Cyber Security

socialized, i.e. there is a tacit expectationthat the government will cover the cost ofthe fallout from an attack.c) Inculcate a multi-stakeholdergovernance approach: The governancerole once dominated by state actorsis shared by the private sector online.A multi-stakeholder environmentmakes treaty enforcement difficult. Thedecentralized governance of the Internetmeans that governments are but oneactor at the table determining the law ofthe cyber frontier.The culture of shared governancebetween US and EU authorities on theone hand and the ecosystem of industry,NGOs and hacker communities on theother should be improved, particularlyat the multilateral level. While the USand most European member states havewell-worn consultation with the privatesector, universities and NGOs relevant tocyber security policy, NATO and the EU,in particular, remain weak in these areas.Many of the major private-sector entitiessusceptible to attack are essentiallytrans-Atlantic in nature. And while theUS and Europe will never develop thekind of quasi-paramilitary relationshipwith their hacker communities that someauthoritarian governments have, it isimportant for both to be aware of thehuman capital that could be of use in acyber attack. In particular, the US shouldencourage the EU to take stock at both thenational and European levels and reachout to these informal networks for theirown defense and resilience purposes.The setting and enforcing of high “cyberhygiene” standards is paramount. Sincedue diligence and avoiding individualhuman error play such an important rolein protecting against attack, efforts toraise threat awareness must penetrate tothe most grassroots level of businessesand local communities.The US and EU should work togetherwith the private sector across the boardto negotiate appropriate intermediaryroles for industry, focusing on disclosureand data protection. These discussionsshould be nuanced and recognizedifferences across sectors. A mix ofcompulsory and voluntary protocols andbest practices, including clearly definedbenchmarks, could lower liability risk andcreate an active two-way partnership.2. Maintain an open, inclusive anduser-responsible environment forshaping governance norms:The playing field of Internet governanceis shifting rapidly. Europe is increasinglyrecognizing that maintaining a multistakeholdermodel for Internetgovernance centered at the InternetCorporation for Assigned Names andNumbers (ICANN) will yield more open,transparent and democratic outcomesthan alternative models centered atthe UN. Since its inception, ICANN hasbeen a custodian of IP numbers, theDNA of the Web. It has continued to be arespectable steward, taking advantage ofthe relatively open and entrenched legaltradition in the US and well-establishednorms for its activity. The US andEurope should promote an active role byICANN’s Government Advisory Council(GAC) and look for ways to get vestedstate, civil society and private-sectoractors involved.The US should continue to make thecase that an outcome-centric model fordomain issuance remains best servedby ICANN’s current governance andoversight structure. That said, the USand Europe should jointly bolster theconsultative role of the GAC and theUN’s Internet Governance Forum (IGF),especially to include non-state actorsfrom underrepresented and repressivestates as well as looking to the normativeshaping role that the Council of Europe,OECD and OSCE can play.3. Recast the discussionon attribution:The US and Europe should shift awayfrom attribution at the granular level andinstead reframe informal internationaldiscussions about states’ responsibilityfor massive cyber attacks conductedby non-state actors originating fromtheir sovereign territory. The challengesof attribution make attempts atestablishing the source of an attack oflittle value when shaping policy. The EU,in particular, has been slow to accept itsrole in defending against state-based or-sponsored attacks.While attribution continues to beproblematic, especially given thecircuitous nature of botnets used todeploy attacks, monitoring of ISPs andpacket sniffing is standard in manycountries from whose territory cyberincidents. In Russia, for instance, SORMlegislation already gives the statesweeping authority to monitor onlineactivity. When an attack occurs, a state’srelation to it usually falls into one ofthree broad categories: ignorance or apermissive environment, an abettingenvironment or active participation. 21Together the US and Europe should openup discussions on norms centered aroundgradations of responsibility. States thatallow their cyber territory to be usedas a safe haven for malicious activities(cyber crime, espionage or attack) shouldbe held accountable in the same waythey are expected to prevent physicalterritory from serving as a safe haven forterrorists. 22 Given the available regulatoryand law enforcement instruments withwhich to police it, cyber space cannotbe seen as a vacuum for which states arenot responsible.At the same time, the US and Europeshould make clear that they will notaccept the pretense of action againstcyber attackers and criminals as ajustification for crackdowns on Internetfreedom. 23 As is often the case withanti-terrorism policy, regimes inChina and Russia, among others, havetried to equate criminal activity—online property theft, disruption anddestruction—with political speech andgovernment opposition.4. Encourage the EU and memberstates to develop cohesive cyberpolicy coordination and clearinternational representation:In recent years, responsibility for USpolicy in the three areas outlined here hasbecome more clearly defined. Classicalcyber offensive and military defensivecapability is centered at the Pentagon.Cyber Security 4 7

Critical infrastructure protection,government asset protection and privatesectorcooperation is centered at theDepartment of Homeland Security and theFBI. Internet freedom policy is managedprimarily by the State Department, alongwith players from the White House andCommerce Department.Europe should develop a similardivision of labor for resilience, criticalinfrastructure protection and defense.NATO’s role should be narrowly targetedto deal with military assets, and itsresponse should be limited to cyberincidents that would trigger collectivedefense. This narrow scope of actionshould be clearly defined. For otherissues, the EU and member states shouldwork on developing “one number to call”in Europe, a cyber coordinator that canreach across the Directorate General forHome Affairs, DG Connect, the EuropeanNetwork and Information Security(ENISA), EEAS and Europol portfolios aswell as coordinate with member statesand the private sector. The need for acyber coordinator with proper resourcesand reach is more urgent in Europe eventhan in the US. Overlapping jurisdictionsbetween member states in the EU’s singlemarket create an environment wroughtwith moral hazard.Despite its remote location on the Greekisland of Crete and its somewhat difficulthistory in defining its role, there is a keyrole for ENISA in cyber coordination.It has been instrumental in technicalharmonization across Europe, includingsupporting the establishment of nationalCyber Emergency Response Teams(CERTs), a sort of cyber-FEMA to protectand restore resilience to compromisedsystems, the establishment of nationaland European cyber strategies, technicalassistance for responsible agencies,and the creation of protocols for policysetting, disclosure and informationsharing. 245. Build on the work of theUS-EU Cyber Security WorkingGroup in 2013:The working group has become a solidbasis for trans-Atlantic cooperation.Changes in the policy architecture inEurope—the comprehensive Strategy forEuropean Cyber security in February 2013and launch of the European CybercrimeCenter—as well as potential USlegislation on cyber security in 2013 willmake the first year of President Obama’ssecond term a key time to expand onrecent confidence-building and tocoordinate international action.a) Add a pillar to the working groupon carrots and sticks in cyber security:The US and Europe should realize thefull advantage of the carrots and sticksthey possess, including three foreignpolicy tools that the EU can effectivelywield internationally: sanctions, tradeagreements and market access, anddevelopment assistance.In some cases, such as Egypt andSyria in 2011-12, US- and Europemadetechnology was used to surveilgovernment opponents. The US andEU should work jointly to identify dualusetechnologies that can be deployedin the service of censorship, repressionand hostile intelligence-gathering.They should include frank discussionsof the sale to autocratic countries ofIntersections in Cyber Security PolicyOffensive CyberCapability DevelopmentCorporateE-espionageOnline Fraud &Identity TheftMilitary AssetProtection in OperationsBotnet &DDoS IncidentsIPR ProtectionIntelligence Gathering& State EspionageTrade in Dual-UseOnline Monitoring &Censorship TechnologyCritical InfrastructionProtection (CIP)CERT Networking& Crisis ManagementInternetGovernanceOnline AwarenessRaising & Cyber-hygienePrivacy & DataProtection PolicyChild PornographyOffensive & DefensiveMilitary Capability(National Security)Domain NameSystem GovernanceCyber-Crime(Commercial & Economic)4 8Cyber SecurityInternet Freedom(Human Rights & Democracy)

such technology, such as deep packetinspection (DPI) technology and Internetfilterproducts, which could result in techcompanies playing a complicit role inregimes’ repression.Supply chain cooperation should alsobe accelerated. The US-EU WorkingGroup has added common-approachmarket access requirements for sourcecode in third countries to its list ofpriorities. Both market access andprocurement requirements are strongpolicy instruments that the US and EUshare. International trade agreementsand procurement contracts should reflectsecurity concerns and the integrity ofsource code. The US and Europe shouldremain vigilant as they upgrade theirtelecommunications infrastructure. Theirconcerns include foreign companies, inparticular from China, as well as trans-Atlantic companies with significantmanufacturing activity in China.Finally, the US and EU should coordinateon how to include cyber norms indevelopment dialogues with thirdcountries. Development and assistanceshould include agreements with donorcountries on proper state behavior incyberspace and accompanying provisionsgoverning criminal behavior. The USand EU should issue a joint statementcondemning states that act as safehavens for criminal cyber syndicates.b) Bolster cybercrime cooperationand combat against e-espionage as afrontline in overall cyber security: Lowgradeadvanced persistent threats—inparticular e-espionage and cyber crime—represent the most immediate threatto both the US and Europe. Purveyorsof cyber crimes such as theft and fraudaim to guarantee that their effect on afirm is just painless enough to precludepreventive or retaliatory action. Somesectors have significant disincentives toreport attacks to authorities.The OECD states that criminals arenow offering the usage of their botnet/zombie computer networks as a serviceto be weaponized for political purposes. 25Organized crime syndicates and theirsophisticated cyber capabilities not onlyoffer states and terrorist organizationsready-made infrastructure for attacks,but also give them grounds for plausibledeniability if an attack is detected. Cybercrime is a potential breeding groundfor future military operatives. Thesesyndicates act as a virtual university ofcyber warfare, one of the reasons that theUK government identified cyber crimespecifically as one of the top four threatsto national security. 26The US and Europe should work tobreak this co-dependency betweencyber crime and more ominous nationalsecurity threats. The EU will establisha European Cybercrime Center withinEuropol in 2013 aimed at coordinatingintelligence sharing and law enforcementwithin the EU. 27 As previously mentioned,member states have often been hesitantto disclose sensitive information toEuropol. The US cannot be expectedto move further in information sharingto European institutions than memberstates themselves. That said, the US canprovide helpful practices and trainingto Europol personnel to accelerate thedevelopment of a robust informationsharingculture within the EU, that buildsconfidence in the agency’s confidentialitywithout compromising US information.If stronger intra-European cooperationis achieved, the US will be able to useEuropol as its favored interlocutor oncyber crime investigations.The US and EU should also worktogether to create compatible disclosurerequirements for companies on bothside of the Atlantic. The US has beenworking on national standards for breachnotification. This conversation with trans-Atlantic industry should be broadened toa transnational discussion, involving theEuropean Commission, the EuropeanParliament and national authorities.Some legislative proposals have includedrequirements that if a breach may haverevealed personal data, companies mustdisclose to consumers and clients aswell as the Federal Trade Commission. 28Proponents of this legislationcontend that it will incentivize privateentities to boost protection of theirInternet infrastructure with the aim ofpreemptively avoiding the civil liabilitythat could result from disclosure of sucha breach. Any attempt to create a robustrole for the private sector as enforcers ofcopyright and intellectual property lawsonline will be met with decisive resistancein Europe, particularly in states suchas Germany.Finally, the US should also press individualEU states to complete the ratificationprocess of the council of Europe’s 2001Budapest Convention on Cybercrime,the only binding international accorddealing with cyber issues. The Council ofEurope’s Global Project on Cybercrimeis a great export platform for promotingexchange of experience, assistance inaccession to the Budapest conventionand assessment of potential nationalcybercrime legislation. The US shouldbecome an active participant in the GPC’sOctopus Conferences. 29c) Understand the centrality of dataprotection: Air traffic and transportation,financial services companies,communications and major Internetcompanies with large reservoirs ofpersonal information are all sectors atrisk. The US and Europe share concernsabout protection and retention of dataand the size of the net that can becast to gather information on thosesuspected of criminal acts or threatsto national security. This has been acentral policy concern in the trans-Atlantic counterterrorism relationshipsince at least 2007. 30 The same is true incybersecurity policy. President Obamathreatened to veto any bill that didnot contain “strong privacy and civilliberties protections.” 31 The US shouldconsistently demonstrate its safeguardson these issues to the Europeans. Bothsides should aim to address cybersecurity exchange in the ComprehensiveData Protection Agreement, currentlyunder negotiation. 32d) Take advantage of the full joint US-EU cyber exercise: A full-scale exercisewith private-sector involvement will bean important step to test government’sand industry’s ability to coordinate inthe event of a large-scale cyber incident.The Europeans say the joint CyberCyber Security 4 9

Atlantic exercise in November 2011 wasenormously constructive for assessingthe legal and technical gaps in crisismanagement in the EU and its memberstates. The two sides are planning a fullscalecyber exercise in 2014. Such jointexercises should continue, along withprivate-sector initiatives and outreachto “white hat” hackers who can provideexpertise in a crisis. Joint exercisesand simulations are key to developingthese networks.e) Increase the trans-Atlantic dimension ofcyber security-related R&D: Joint researchand development cooperation for onlinesecurity technology is ripe for greatertrans-Atlantic cooperation. The USshould encourage the EU to prioritize thetraining of cyber security professionalsand R&D as a priority area in its Horizon2020, a $80 billion R&D package currentlyunder negotiation in the EU. 33 Moreover,the US and EU should look at potentialopportunities to collaborate on cyberrelatedR&D, including cooperationwith American universities and researchcenters. In particular, the US and EUshould work together to guarantee thatthe legal requirements in Horizon 2020do not render cooperation on cybersecurity research impossible.Where they stand: EU member states and cybersecurity policy as of early 2012StateRatification ofBudapest Convention?Ratification ofBudapestConvention?National CERT?(year established)Membership inEuropeangovernmentCERT group?Cybersecuritystrategy?(year established)Participation in 2011Cyber Atlantic exercise?Yes (2008) Yes Yes (2012) Yes (Planner Team)National CERT? No Yes (2009) No No Yes (Planner Team)(year established) Yes (2008) No No N/AMembership in Europeangovernment CERT group?Yes (2010) No No N/ACybersecurity strategy? No Yes (2008) No Yes (2011) N/A(year established) Yes (2009) Yes No N/AParticipation in 2011Cyber Atlantic exercise?Yes Yes (2006) No Yes (2008) Yes (Planner Team)Finland Yes Yes (2002) Yes Yes (2008) Yes (Planner Team)France Yes Yes (1999) Yes Yes (2011) Yes (Planner Team)Germany Yes Yes (2001) Yes Yes (2011) N/AGreece No Yes (2008-09) No No N/AHungary Yes Yes (2005) Yes No Yes (Planner Team)Ireland No No No No N/AItaly Yes Yes (2004) No No Yes (Planner Team)Latvia Yes Yes (2006) No No N/ALithuania Yes Yes (2006) No Yes (2011) N/ALuxembourg No Yes (2008) No Yes (2011) N/AMalta Yes Yes (2002) No No N/ANetherlands Yes Yes (2002) Yes Yes (2011) Yes (Planner Team)Poland No Yes (2008) No No N/APortugal Yes Yes (2002) No No N/ARomania Yes Yes (2011) No No Yes (Planner Team)Slovakia Yes Yes (2009) No Yes (2008) N/ASlovenia Yes Yes (1994) No No N/ASpain Yes Yes (2006) Yes No Yes (Planner Team)Sweden No Yes (2003) Yes No Yes (Planner Team)United Kingdom Yes Yes (2007) Yes Yes (2011) Yes (Planner Team)5 0Sources: Council of Europe, ENISA, European Government CERTs Group

MEMO ONENERGY & CLIMATE CHANGEThe State of PlayThe US and Europe face the mutualchallenge of how to achieve sustainableenergy security that effectively addressesclimate change amid severe financialand fiscal constraints.While climate action may be seen as costly, severalEuropean countries—predominantly Germany andDenmark—have embarked on low-carbon pathwaysfor their energy infrastructure.First, the path for further trans-Atlanticclimate and energy cooperation beyond2012 will depend on how both partnersachieve economic progress in the nearterm. Both the US and Europe arestruggling to fight high unemploymentrates (particularly among youth), slowor receding economic growth andexploding national budget deficits. Asa result, addressing climate change andtransforming energy systems risk fallingto the bottom of the political agenda onboth sides of the Atlantic.While climate action may be seen ascostly, several European countries—predominantly Germany and Denmark—have embarked on low-carbon pathwaysfor their energy infrastructure. They areon track to generate 95 percent of theirelectricity from renewable sources bymid-century. The economic effects ofthese policies have been significant forboth countries. Germany’s renewableenergy development has createdalmost 400,000 new jobs, outstrippingthe number of people employed in thetraditional automobile sector. Germany’searly investment in a low-carbon energytransition and measures to stimulate itare thus being rewarded, as the countryis developing into an innovation hub forclean technology.Another aspect that will be decisivein forming trans-Atlantic relations onenergy and climate is that the US willlikely become a major net energy exporterwhile Europe remains highly dependenton energy imports from Russia and theMiddle East. 1 The next decade will seedecisive developments for global energymarkets, as the US is set to overtakeSaudi Arabia and Russia as the world’sbiggest oil producer by 2017. 2 This willhave immediate implications. A similartrend is expected with natural gas, asUS production is projected to grow bymore than a third in the coming years,from 20.2 trillion cubic feet in 2008 to27.9 trillion cubic feet by 2035. 3 Europeis seeing the opposite: Its domesticnatural gas production will fall from 10.6trillion to 8.3 trillion cubic feet in thesame period. 4The US natural gas boom is predominantlydue to the rise in shale gas production,which is set to grow fivefold, from 2.2trillion cubic feet in 2008 to 13.6 trillioncubic feet in 2035 as a majority of thegas is extracted from the Marcellus (55percent of national total), Haynesville(10 percent) and Barnett (six percent)shale formations. 5 Although Europe hasvast proven shale gas reserves as well,it lags behind the US in developmentof this resource. Shale gas explorationvaries greatly among the individualmember states, as each country’s energymix remains subject to national policy.In many European countries, drillinghas been subject to much controversyover the past few years, mainly due tolocal environmental concerns aboutthe process of hydraulic fracturing, orfracking, that extracts the gas. France,with one of the largest proven shale gasreserves in the EU, is enacting a strictmoratorium against exploration, andcountries such as Bulgaria and Romaniaare following suit. Poland, on the otherhand, where exploration is eventuallyexpected to confirm the largest shalegas reserves in Europe, views shale gasas an opportunity to significantly reduceits reliance on Russian imports, thoughthere is no commercial shale explorationyet underway in Poland. 6 So far, theEuropean Union has refrained fromtaking a clear position on the issue.Europe’s natural gas consumption isexpected to increase from 19.5 trillioncubic feet in 2008 to 23.2 trillion cubicfeet in 2035, primarily as a result ofincreasing consumption in the electricpower sector. 7 There is a Europewideconsensus that natural gas is animportant component of any clean energystrategy, as it will help to decrease thecontinent’s greenhouse gas emissionseither by replacing coal-fired electricitygeneration or as baseload capacity forthe growing use of renewable sourcessuch as wind and solar. 8 This trend willmost likely be reinforced by Germany’srecent decision, in the wake of Japan’sFukushima nuclear accident, to phaseout nuclear power by 2022.There has been a concentrated push tobuild new gas pipelines from CentralAsia and Russia. 9 This is a divisivetopic in Europe, where countries inthe east remain concerned aboutoverdependence on Russian exports.The recently inaugurated Nord Streampipeline has the capacity to transporttwo trillion cubic feet of gas from RussiaEnergy & Climate Change5 1

to Germany per year while bypassingEastern European countries suchas Poland and the Ukraine. Polandfavors the controversial Nabuccopipeline, which would transport gasfrom Azerbaijan via Turkey to CentralEurope. The other route, South Stream,would transport Russian gas to WesternEurope by bypassing the Ukraine. Yetthe two projects remain controversialand are still mostly in the planningstages, even though Russia just recentlybegun construction on South Stream tounderline its export dominance. As theUS continues to develop into a naturalgas exporter of global dimension,however, the European gas market couldpotentially become a market for USgas. Europe is preparing itself for thistrend, with new LNG terminals currentlyunder construction in Poland, France,and Spain....the US will likely becomea major net energyexporter while Europeremains highly dependenton energy imports fromRussia and the Middle East.The international climate negotiationsgot a renewed boost at the Durban talksin December 2011. The EU was commonlyperceived as having taken the leadershiprole by gathering the vast majority ofmembers of the G77—the loose coalitionof developing countries working togetherto enhance their bargaining position—to push for a new attempt at reachingan international deal, even willing to goit alone without targets for other majoremitters. The Durban Platform laid outa relatively ambitious negotiation pathleading up to an international treaty by2015 that would go into effect by 2020.All major emitters—including China,India, the US and Europe—have agreedto develop nationally appropriatemitigation commitments based on theconcept of “common but differentiatedresponsibilities”. However, mostinternational climate analysts doubtthat, in the current policy environment,targets could be ratified by all signatorystates before 2020. Should a climateNo Climate &Clean Energy PolicyUS and EU Positions on Climate Change 12treaty fail to reach consensus in 2015,then the process would find itself atthe same point it did after the stalledclimate negotiations in Copenhagen in2009. The immediate result would bethat countries would be unwilling to signup to any legally binding targets in thefuture, and focus would turn to alternatemethods of mitigating climate change,such as geo-engineering.One of the main breakthroughs at theDurban Platform was the foundation ofthe Green Climate Fund (GCF), whichwill manage a budget of $100 billionper year after 2020. However, there hasbeen insufficient discussion on howthe GCF is to reach this target, withfunding coming predominantly from USand European government and privatedonors. 10 The GCF will have an impact onthe way in which US and European aidagencies harmonize their respective lowcarbonand climate strategies towardsdeveloping countries, and, in turn, animpact on their aid effectiveness.European PerspectivesThe US can expect Europe to examinethe effectiveness of its lead-by-examplestrategy over the next few years. 11Europe will have to prove to itselfthat a low-carbon path is economical,and even more important will be theway in which successes or failures arecommunicated abroad.Science- and Knowledge-BasedUSUSEUEUDriven by Ideology & InterestsStrong Climate &Clean Energy PolicyHow does Europe view US climate andenergy policy? After the federal energyand climate package failed in Congressin 2010, European leaders becamesomewhat sensitive to the difficulty inpushing a national, nonpartisan energypolicy in the US. Congress is increasinglyregarded as a body disinclined to act onclimate change and clean energy issues.The EU sees itself as the climate leaderthat, if necessary, is still willing to go italone—as events in Durban and otherevents in 2012 have shown.Climate change is consistentlyperceived differently between the USand Europe. Yet its consequences forboth partners will be significant. Whilemany Americans still debate whetherclimate change is man-made, Europehas increasingly moved past this stage,accepting the science on the issue andmoving ahead to take comprehensiveaction. As Congress remains divided,the US has instead taken considerableexecutive action, including doublingfuel efficiency standards by 2035 andimposing greenhouse gas standards fornew electricity sources that essentiallyprohibit building new coal-fired powerplants without carbon capture andsequestration (CCS) measures. However,in the US and Europe alike, individualstates differ on how far policiesshould go.5 2Energy & Climate Change

identifying the agents most qualified totransmit those messages. A robust trans-Atlantic energy and climate dialogue willsend strong signals to third countries,such as China and India.1. Reinvigorate the US-EU EnergyCouncil and re-define topics fordiscussion in the Working Groups tocover issues of strategic importanceto both trans-Atlantic partners:The council was launched in 2009 asan official dialogue forum to “promotenew and ongoing cooperation on energysecurity and markets, energy policy,energy technology research.” 16 Yetsince its launch, it has suffered froma growing indifference among US andEuropean leaders alike. In light of thepressing issues outlined above, the USand the EU need a forum that will havehigh policy significance to both parties.The US should use a reinvigorating ofthe council to send positive signals toEurope and to reassert its relevancein international climate and cleanenergy politics. This can be done inseveral ways:a) Include shale gas in the council’senergy security working group: Onearea of discussion should focus on theenvironmental and economic impactassessment of shale gas extraction, asthis is an area of significant interestto both parties with an impact on theincreasingly globalized gas market.International energy experts arepredicting a sharp increase in naturalgas production through mid-century. Yetthe current discussion around shale gason both sides of the Atlantic remainshighly divergent.b) Use the same working group toencourage Europe to build LNG importfacilities for US gas imports: Northernand Mediterranean Europe are preparingfor the import of liquefied natural gas(LNG) from abroad, and diversifyingimport routes with new LNG terminalscurrently under construction in Poland,France and Spain. As Europe has thepotential to become a reliable importerof US LNG, it is in the US’s interestthat European import terminals aredeveloped accordingly (and US exportterminals likewise). In addition, the USshould recognize that the successfulconclusion of a free trade agreement(FTA) with the EU will have substantialstrategic implications for EU energysecurity. Currently, gas exports aresubject to a tedious interagency reviewprocess that makes export to Europeprohibitive. An FTA would expedite theLNG export permitting process at theUS Department of Energy and builda stronger energy trade relationshipacross the Atlantic.c) Use the council as an instrumentto strengthen competitiveness: Themultiplier effect of developing commonUS-EU technology standards forrenewable energy or energy efficiency iswidely recognized. Even though this wasthe initial objective of the US-EU EnergyCouncil, little progress has been made.One way to start this process would beto coordinate and develop a technologyroad map. This would have a positiveimpact on trans-Atlantic trade of energyefficientappliances and batteries, aswell as renewable energy technologies.Particularly with regard to appliances,a trans-Atlantic labeling system couldboost the competitiveness of bothEuropean and American products.Both sides should also agree that onlythe most efficient products should beeligible for public procurement.d) Add a high-level strategy task forceto the council structure: This task forcewould be able to quickly consider issueswith potential severe and immediateeffect on trans-Atlantic relations, suchas the issue of including US airlinesunder a EU-ETS or the impact of the EU’sFuel Directive on shale oil imports fromthe US. The task force should consist ofthe US secretaries of state and energyand the US trade representative, as wellas the EU commissioners of energy,environment, climate action and trade.2. Eliminate tariffs and otherbarriers on trans-Atlantic trade ofenvironmental goods and servicesto promote exports, create jobsand advance green growth andsustainable development:Most such tariffs are low already (around4 percent), and eliminating them wouldhave immediate positive consequencesfor trans-Atlantic investment flowsand market access, jobs and companyprofits. This could be done prior to theapproval of a TAFTA by establishing anEnvironmental Goods List, similar tothe one established under the Asia-Pacific Economic Cooperation (APEC)in September 2012. Such a list shouldinclude core environmental products,such as renewable and clean energies,wastewater treatment technologies,air pollution control technologies,and environmental monitoring andassessment equipment.3. Work closely with the EUon means of creating greatertransparency and accountabilityin extractive industries:In recent years, throughintergovernmental projects such asthe Extractive Industries TransparencyInitiative (EITI), both the US and EUhave been active in reforming themodels of corporate behavior of oil,gas and mining industries at home andabroad, particularly in countries withweak institutions.In the US, the Dodd-Frank overhaul ofthe financial regulatory system containsa number of transformative measuresthat will deeply affect US economicdiplomacy. One of its most innovativepolicy provisions was the Cardin-Lugaramendment (Section 1504), a provisionaimed at making payments made byextractive industries to governmentsabroad and at home more transparent.Together, the EU and US laws have the potentialto transform the way business is done in extractiveindustries and help emancipate developing countriesfrom the so-called “resource curse”.5 4Energy & Climate Change

Section 1504 could fundamentallytransform the way that US-listed oil, gasand mining companies operate in thirdcountries. The regulation stipulatesthat all such companies publicly listedon the New York Stock Exchange willbe required to annually disclose to theSecurities and Exchange Commission(SEC) all payments made to national,state and local governments on aproject-by-project basis. A modulardatabase of these disclosures willserve civil society groups who monitorthe flow of money to governments inan effort to dry up the dark financialpools that fund endemic corruptionin many resource-rich countries. Thepromulgation of rules by the SEC inAugust 2012 sets the stage for a newbusiness culture between extractiveindustries and payments made to publicinstitutions and officials. The EuropeanCommission, for its part, has introducedamendments to the Accounting Directiveand Transparency Directive that wouldreplicate the provisions of the Cardin-Lugar amendment. It is currently undernegotiation among the Commission,the European Parliament and memberstates, and the Parliament is expected tovote on it in early 2013.The US and EU should work togetherto guarantee that the implementationof Section 1504 and the revisedTransparency and AccountingDirectives creates a robust regimethat allows payment tracking and hascomplementary project definitions,payment thresholds and exemptionsso that the laws are not subject toregulatory arbitrage. They should consulton disclosure practices to make surethat they are interoperable across theAtlantic and can be swiftly implementedand enforced in the coming years.Together, the EU and US laws have thepotential to transform the way businessis done in extractive industries and helpemancipate developing countries fromthe so-called “resource curse”.4. Highlight the US’s domesticclimate/energy successes to aEuropean audience by engaging ina more active trans-Atlantic publicdiplomacy:European policymakers and citizenstend to neglect the US’s progress onenergy issues and view it as an obstacleto international climate negotiations.Often this view is fostered by one-sidedmedia coverage in Europe. There is astrong need for reshaping the narrativeby developing media engagement plans;Europe has already done this, and theUS should follow suit. An annual trans-Atlantic media dialogue could invite keyEuropean economic reporters to the USto report on some of the positive climate/energy stories happening at the stateand local levels. Potential focus areasinclude the greening of the US military,the recent EPA greenhouse gas limitsfor new power plants, or the greenhousegas emissions system in California. USembassies throughout Europe shouldfollow up regularly with journalists andnetwork with European media outlets.Embassy staff should also acquire betterknowledge of some of the progressiveenergy/climate trends now seen inthe US.5. Agree on new visa provisionsthat allow US businesses to attractand recruit graduates withadvanced degrees in science,technology, engineering andmathematics (STEM):As progress on climate and energypolicy is always subject to technologicaladvancement, there is also an increasedneed for further trans-Atlanticcooperation in climate science andenergy technology research. TheUS should actively strengthen thecooperation on these issues betweenUS and European research universities,labs and companies by making it easierfor recent European graduates from USinstitutions to gain US work permitsand visas that last longer than the oneyear allotted to F-1 visa holders. A socalled“start-up visa” should be madeavailable to foreign energy/climateentrepreneurs to allow for the necessaryplanning security. 17 5 5Energy & Climate Change

MEMO ONTURKEYThe State of PlayTurkey finds itself in a paradoxicalposition. It has been a loyal ally of theWest and has been a member of NATOsince 1952—but its population widelydistrusts the US and Europe. Despiteknocking on the EU’s door for decades,it does not recognize the Republic ofCyprus’s ethnic-Greek government andmaintains uneasy relations with Greece,France and other EU members. Despiteits ambitions to become an influentialand mediating power in the MiddleEast, Turkey appears at odds with anincreasing number of its neighbors.These difficulties, however, have notprevented Turkey from being regardedas a key partner by the US and manyEuropean countries.The paradox extends to Turkey’s domesticsituation. After the “lost decade” of the1990s and the February 2001 bankingcrisis, the government initiated, with thehelp of a large IMF program, key reformsin 2002: restructuring the commercialbanks, providing autonomy to thecentral bank and removing restrictionson foreign direct investment. Thesereforms, endorsed by the Justice andDevelopment Party (AKP) and PrimeMinister Recep Tayyip Erdogan whenthey came to power in 2003, provided adramatic boost to the Turkish economy. 1Yet the recent downturn—GDP only grewat an annual rate of 2.9 percent in thesecond quarter of this year as opposed tomore than 8 percent in the previous twoyears—has spotlighted Turkey’s longtermstructural weaknesses. 2 Thoughit decreased this year, the currentaccount deficit remains high, makingthe country vulnerable to fluctuations inforeign investment, high inflation, and astruggling education system not suitedfor an advanced economy. 3 Furthermore,future economic prospects are tiedThe stalled process of Turkish political reform has alsocaused apprehension in the US and Europe.to geopolitical developments beyondTurkey’s control.The stalled process of Turkish politicalreform has also caused apprehension inthe US and Europe. Driven by its desireto join the EU, the AKP made a promisingstart by reducing the powers of the 1991anti-terror laws, abolishing restrictionson the freedom of speech and thepress, and taking steps to end the costlyarmed struggle with Kurdish insurgents.Aside from secret negotiations with theKurdistan Workers’ Party (PKK) in 2005,Erdogan initiated conciliatory gesturessuch as relaxing the ban on Kurdishlanguage-education and launching astate-run Kurdish-language TV station. 4However, prospects for democraticreforms, human rights and a peacefulsolution to the Kurdish question havesuffered important setbacks. The conflictwith the PKK has escalated in recentmonths, and journalists, writers andKurdish political activists have beenjailed and prosecuted, undermining civilliberties. 5 Relations between the AKP andthe military are another major sourceof concern. Initially, the Turkish publicwelcomed Erdogan’s successful effortsto curtail the military’s power. It alsoinitially supported two legal proceedingsagainst senior officers accused ofplotting to overthrow the government—the Sledgehammer trials and the caseagainst the alleged ultranationalistclandestine organization Ergenekon. Yetmany ordinary Turks have now becomedisenchanted by these proceedings.In particular, the vast and continuousexpansion of the Ergenekon case toinclude many government opponentshas strengthened the impression thatthe AKP is more interested in settlingscores than achieving justice, and thedragging on of these cases has onlyadded to the climate of uncertainty. 6Turkey’s foreign policy under the AKPhas followed a very similar pattern toits domestic policy: an initial burst ofpromising changes followed by reversals.The first series of domestic reformsenacted by Erdogan’s governmenthelped to finally open membershipnegotiations with the EU in 2005, 18years after Turkey had officially appliedfor membership. But the negotiationssoon stalled, a victim of the slowdown inTurkey’s democratization process and thestubborn opposition of certain memberstates (especially Greece, Cyprus,Germany, France and Austria). The talks’current prospects are hardly cause foroptimism: in July 2012, Turkey froze itsties with the rotating EU presidencyheld by Cyprus, and only 13 of the 35negotiation chapters have been openedso far. 7 The latest annual EU report onTurkey’s candidacy had a scathing tone,highlighting “recurring infringements”of liberty, security, fair trial rights andfreedom of expression. 8Turkey has also sought to translate itsrising economic power into greaterdiplomatic influence in the Middle East,underpinned by the goal of ensuring“zero problems with its neighbors”.However, for all its good intentions,Turkey’s more assertive approach hasfailed to avoid disputes with its MiddleEastern neighbors—problems that inmany cases could directly affect theUS and Europe. Turkey’s longstandingpolicy partnership with Israel took a5 6Turkey

in percentTurkey’s Annual GNI Growth & Inflation Rate (2000-2011)6050403020100-102000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Gross National IncomeGrowth (annual)serious turn for the worse after the2008–2009 Israeli-Gaza conflict and theMay 2010 Israeli raid on an aid flotillaheaded from Turkey for the Gaza Strip.After the release of a UN report on theflotilla incident in September 2011,Turkey downgraded diplomatic tieswith Israel and suspended militarycooperation. Reconciliation would be agreat diplomatic asset for Europe andthe US, but remains blocked by Turkey’sdemands for an apology from Israel,compensation for the victims of theraid, and an end to the Israeli blockadeof Gaza.Turkey’s attempted rapprochement withIran presented another problem for theUS and Europe. Under the AKP, Ankaratook steps to patch up its historicallytense relations with Tehran, significantlyincreasing bilateral trade (from $1.25billion in 2002 to $16.05 billion in2011). 9 Even more controversial, Turkey’sattempts to mediate the ongoing Iraniannuclear crisis undermined the delicateglobal consensus that the US andEurope were trying to build on sanctions.Along with Brazil, Turkey signed a deal inMay 2010 to outsource Iran’s enricheduranium in exchange for fuel, and votedthe following month against a newround of UN sanctions against Tehran.Source: World BankInflation, ConsumerPrices (annual)This rapprochement has, however,lost momentum since 2011, draggeddown by the countries’ differences overthe Arab uprising, Turkish support forNATO’s missile defense and Syria. 10This could provide an opportunity formore meaningful collaboration betweenTurkey and the West insofar as managingthe Iranian nuclear crisis. 11...for all its goodintentions, Turkey’smore assertive approachhas failed to avoid disputeswith its Middle Easternneighbors—problemsthat in many casescould directly affect theUS and Europe.Finally, the AKP had also tried in pastyears to mend fences with Syria, whichhad long opposed Turkey’s close ties withthe West. Until 2008, Turkey attemptedto mediate the conflict between Israeland Syria and, in the early stages of theSyrian civil war, maintained relationswith Syrian President Bashar al-Assad,pleading with him to stop the violenceand begin reforms. But relations betweenDamascus and Ankara soon plummetedas the war escalated. 12 After August 2011,Turkey cut ties to Assad and began toprovide aid to the opposition. In June2012, Syria shot down a Turkish fighterjet, and both sides exchanged mortarfire along their border in October 2012,bringing them dangerously close toopen war. Such a conflict would not bewelcomed by a Turkish public opposedto intervention in Syria; it would bedisastrous for the region, and could alsodraw in Europe and the US, consideringTurkey’s NATO membership. 13European PerspectivesEurope’s relationship with Turkeyremains complex and multi-faceted.Individual EU members have over thepast seven years sought to managetheir bilateral relationships withAnkara while outlining a position onTurkey’s EU candidacy. The issue hasdeeply polarized the union, pittingfirm supporters (Spain, Sweden andthe UK among them) against stubbornopponents (particularly, as mentioned,France, Germany and Cyprus). Since theopening of negotiations in 2005, Ankarahas had to address EU concerns onTurkey’s size and potential power withinthe union, the ongoing Cyprus issue,and the social and political ramificationsof admitting the EU’s first predominantlyMuslim country. Through all this, theTurkish government has experienceddiverging relations with Europe’spower brokers.Turkey has found a British governmenteager to expand on already warmrelations. The UK has sought to deepenties as part of a broader strategy aimedat fostering closer partnerships withemerging economic powers. In 2010,Turkey was the UK’s 22nd largest exportmarket, while the UK was Turkey’s 12thlargest source of imports. 14 Bilateraltrade averages £6.5 billion per year, afigure the British government aims todouble by 2015. 15 It has also pursued anumber of bilateral initiatives aimed atimproving economic cooperation, suchas the UK-Turkey CEO Forum. 16Geopolitically, the UK views TurkeyTurkey5 7

as a rising regional and internationalpower whose influence would be goodfor Europe in general and Britain inparticular. One of David Cameron’sfirst overseas trips as prime ministerwas to Ankara, where he signed astrategic partnership agreement withErdogan outlining joint commitmentson bilateral, regional and internationalissues. 17 In 2011, Cameron and Erdoganalso established the Tatli Dil forum,bringing together individuals from thepolitical, business and academic sectorsin both countries. Cameron has criticizedthe EU for the slow pace of accessionnegotiations. While sidesteppingbroader concerns over governance andinternal cohesion, Cameron has arguedthat Turkish membership in the EUwould increase the union’s internationalinfluence and have profound economic,security and diplomatic benefits. 18Unlike the UK, France’s relations withTurkey have become frosty, if nothostile, over the last four years. Thisdeterioration resulted in large part fromthe policies of former president NicolasSarkozy, who was staunchly opposedto Turkish membership in the EU. Heblocked the opening of five criticalchapters of Turkey’s EU agenda at theEuropean Council’s 2007 accessiontalks, a blockade that remains in place.Domestically, Sarkozy angered Turkishofficials with his enthusiastic support ofa 2011 French parliamentary bill makingit a crime to deny the 1915 Armeniangenocide. In retaliation, Erdogan frozerelations, recalling its ambassadorand denying French airplanes accessto Turkish airspace, including militaryplanes bound for Afghanistan. 19The striking down of the genocide billby the French Constitutional Court andthe recent election of François Hollandeas president helped lessen the tensionbetween Ankara and Paris. Full diplomaticrelations have been restored, and theTurkish government has expressedconfidence that Hollande will lift Frenchobjections to EU membership and moveforward on the blocked chapters. ButHollande has been coy on the subject,describing himself as “non-reluctant” tosupport Turkish membership if Ankaracompleted all of the necessary accessioncriteria. 20 At the same time, though,he strongly supported the genocidebill, and his warm relations with theArmenian community in France and hissupport for an amended law in lightof the court’s decision raise doubtsover whether Paris’s position towardsTurkey will significantly improve in thecoming years.Turkey’s relationship with Germanyremains the most complex among itsbilateral ties on the European continent.The countries have maintained uniquepolitical, economic and cultural relationsfor decades, and their economies are stilldeeply interdependent. German exportsto Turkey have risen 400 percent over thelast 10 years, amounting to $20.1 billionin 2011. 21 Likewise, Germany has emergedas one of Turkey’s most importanttrading partners. The 50th anniversarycelebration of Germany’s guest workerprogram in 2011 highlighted the uniquecultural connection established by themore than 3 million Turkish immigrantsand people of Turkish descent livingin Germany.Roadblocks on Turkey’s Path to EU AccessionChapter openings blocked by the CouncilEight: Free movement of goods; freedom to provide services; financialservices; agriculture and rural development; fisheries; transport policies;customs union; external relationsChapters opened for negotiations, but closureblocked by the CouncilChapter openings blocked by FranceTwelve: Free movement of capital; company law; intellectual propertylaw; information society and media; food safety; veterinary andphytosanitary; taxation; statistics; enterprise and industrial policy, trans-European networks; environment; consumer and health protection;financial controlFive: Agriculture and rural development*; economic and monetarypolicy; regional policy; financial and budgetary provisions; institutionsChapter openings blocked by CyprusSix: Free movement of workers; energy; judiciary and fundamentalrights; justice, freedom and security; education and culture; foreign,security and defense policyNo movementSuccessfully completed chaptersFive: Public procurement, competition policy; social policy andemployment; institutions; other issuesOne: science and research*The agriculture and rural development chapter is also blocked by the EU CouncilSource: House of Commons Foreign Affairs Committee. (20 March, 2012). UK-Turkey Relations and Turkey’s Regional Role: Twelfth Report of Session 2010-2012.5 8Turkey

Yet despite these close connections, therelationship between German ChancellorAngela Merkel and Erdogan is lukewarmat best. Erdogan has repeatedlycriticized Berlin for poor treatment of theTurkish minority and angered Germanofficials by calling for ethnic Turks to“integrate, but not assimilate” intoGerman society. 22 For her part, Merkelhas continued to resist calls for Turkishmembership in the EU, preferring a“privileged partnership” status forAnkara. The future of this position mayhinge on next year’s national elections,as Germany’s Social Democratic Party(SPD) has been far more bullish than theCDU on EU membership for Turkey.Ankara’s uneven relationship withEurope’s major players has naturallytranslated into equally complex tieswith the EU. Beyond its large traderelationship, EU-Turkey engagementscontinue to revolve largely around themembership process. As of 2012, onlyone of the 35 chapters of the acquiscommunautaire has been successfullynegotiated (science and technology).Only 12 other chapters have beenopened, and their closure and theopening of the remaining 21 chaptershave been blocked by Cyprus, France,Germany and the European Councilas a whole. Resolution of the Cyprusquestion remains a key precondition,but little movement has taken placesince the failed 2004 peace plan ledby Kofi Annan. Cyprus has vetoed sixchapters, while the Council has frozen anadditional eight because Turkey refusedto open its ports to Cypriot shippingas required by the EU-Turkey CustomsUnion agreement. 23Yet the lack of movement on EUmembership has also raised alarmsamong Turkey’s supporters that theEU is “losing Turkey”, especially as itsforeign policy becomes increasinglyindependent of Brussels and publicsupport for membership declines.During a bilateral visit to Berlin inOctober 2012, Erdogan went so far as tosay that the EU would lose his countrypermanently if Turkey wasn’t made amember by 2023, the 100th anniversaryof the Turkish state. 24 Eleven EU foreignministers signed an op-ed in late 2011calling for the EU to make a renewedpush toward membership for Turkey. 25The European Commission has alsosought to inject new momentum bypushing the “Positive Agenda”, a seriesof working groups that will seek to speedup Ankara’s compliance with the acquison 8 chapters. 26 While not replacingthe accession process, the PositiveAgenda is viewed as a complementarytool to increase Ankara’s ability toclose chapters should objections by EUmember states ever be lifted.Relations between NATO and Turkeyhave remained stable, if ambiguous. Thestalled EU membership negotiations andthe Cyprus question stand in the way ofa deeper NATO-EU strategic relationshipand fuller implementation of the BerlinPlus Agreement. Nonetheless, Turkey forthe most part has adopted a commonline with the EU’s NATO members onkey flashpoints, particularly missiledefense and the ongoing Syrian conflict.Ankara has sought alliance solidarityagainst potential attacks by Syrianforces, requesting the placement ofPatriot missile batteries on its territoryand considering invoking Article 5 iftensions with Damascus escalated anyfurther. European NATO states haveexpressed solidarity with Turkey, withGerman Defense Minister Thomas deMaiziere suggesting that the deploymentof Patriot missiles would be done “withGerman soldiers”. 27 However, Europeancapitals, particularly Berlin, still remainconcerned over a potential Turkish-Syria war that could engulf the alliance,and have quietly pressured Ankarato limit the size and scope of NATOmilitary requests. 28Recommendations for 2013As the situation in Syria continuesto unravel and as post-revolutionaryconditions in other states (particularlyEgypt) remain unclear, Turkey willremain an important actor in the regionand a key partner for the next U.S.administration. Yet maximizing thebenefits of this partnership will requirea foreign policy strategy that addressesthe complex and in many cases interconnectedissues that hamper closerYet the lack of movementon EU membership hasalso raised alarms amongTurkey’s supporters thatthe EU is “losing Turkey”,especially as its foreignpolicy becomes increasinglyindependent of Brusselsand public support formembership declines.partnership with the US and greateracculturation with its European allies.1. Encourage Turkey torenew efforts to solve the“Kurdish question”:The next US administration, andits European counterparts, shouldencourage the AKP government tocontinue down the path of inclusion andopenness towards its Kurdish minority.The Erdogan government initially brokefrom its predecessors by recognizing thatthe Kurdish question requires a politicalsolution rather than a military one, andinitiated a number of overtures towardsthe Kurdish community, including mostrecently the 2009 “Kurdish Opening”,which granted unofficial amnesty to asmall number of PKK militants. Despitethese small concessions, however,progress has mostly been fleeting. Publicopposition led little weight to be thrownbehind the Kurdish Opening, and theSyrian war has complicated the conflict,prompting Erdogan to largely abandonpolitical options in favor of a militarysolution once again. This approachalso raises concerns over Turkey’s hardwondemocratic consolidations. Thegovernment has grown increasinglyauthoritarian as it attempts to dealwith the problem, suppressing freedomof expression and jailing journalistscovering Kurdish issues deemedoffensive to the government. 29The US recognizes the PKK as aterrorist organization and shouldcontinue to provide military andintelligence assistance to Turkey asPKK attacks escalate. Nonetheless,Turkey5 9

CASE STUDY: TURKEY’S ENERGY ROLE: A PATH TOWARDSEU MEMBERSHIP?One of the major deciding factors in whether Turkey joins the EU may very well be its role as an emerging energy hub betweenEast and West. While Turkey only produces about 1 billion billion cubic meters (bcm) of natural gas annually inside its borders,its strategic location between Europe, the Middle East, and the Caspian region means that it is within reach of nearly 70 percentof the world’s known oil and gas reserves. Such a favorable location leaves Turkey in a prime position to become a major player onworld energy markets.The Erdogan government has sought to leverage this favorable position and transform Turkey into a gas hub for Europe and theregion. Turkey serves as a central transit point for two major gas pipelines (the Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurumpipelines) with plans to serve as a key connection point for the long-planned Nabucco pipeline that would bring Caspian gas toCentral and Eastern European states. In June 2012, Erdogan and Azerbaijani President Ilham Aliyev reached an agreement on theconstruction of the Trans-Anatolian Pipeline (TANAP), a 1,250-mile-long pipeline with the potential to transport between 30 and60 bcm per year from Azerbaijan’s Shah Deniz II gas fields through Turkey and on to Europe beginning in 2018.Turkey’s increasingly vital role in the energy market will have profound ramifications for the region. For Europe, the plans for TANAPrepresent a large step towards the long-sought after Southern Corridor pipeline that will help the EU lessen its dependence onRussian hydrocarbons. For Turkey, TANAP could provide the leverage needed to induce a change of approach by Brussels towardmembership. A Turkish state firmly within the EU and in prime position to ensure Europe’s energy security may be too enticing forBrussels to ignore.the US and Europe should encouragethe AKP to renew efforts at integratingKurdish citizens into Turkish society.Greater cultural rights, bilingualism ineducation and more autonomy in localgovernment are legitimate concerns thatshould be addressed. The governmentcan take advantage of upcoming effortsto reform the constitution by assuringthat Kurdish representatives, such asthe Peace and Democracy Party (BDP),have an active role in the process. TheUS and EU should also emphasize theimportant benefits of a political solutionof the Kurdish question. The release ofKurdish journalists and the relaxing ofrestrictions on freedom of expressionwould have a substantially positiveimpact on Turkey’s allies and the Kurdishcommunity. These actions would go along way towards undercutting supportfor the PKK’s violent tactics and wouldbe seen as a positive gesture that couldaid accession negotiations with the EU.2. Promote confidence-buildingmeasures between Turkey andthe Republic of Cyprus throughnatural-resource cooperation:At a minimum, the next US administrationshould signal its strong support for negotiations andoffer to consult on chapters where it has a distinctinterest in seeing Turkish reforms, particularly thejudiciary and fundamental rights chapter.Europe and the US should use theconclusion of Cyprus’s rotating sixmonthEU presidency in January 2013 tojump-start dialogue between Cyprus andTurkey and promote confidence-buildingmeasures that can address some ofthe longstanding issues affecting therelationship. One potential area ofcooperation, ironically, is an issuethat over the past year has furtheredanimosity between both sides: oiland gas exploration in the easternMediterranean. Since September 2011,the rights to significant gas reservesdiscovered in the Aphrodite gas field offthe southern coast of Cyprus have beendisputed. While Nicosia argues thatthe gas field falls within its ExclusiveEconomic Zone (EEZ), Turkey hasmaintained that Nicosia cannot claimits own EEZ without a comprehensivesettlement and without the involvementof the island’s Turkish Cypriots. 30The abundant resources off its coastcould bring considerable wealth toCyprus but also pose major challenges.Nicosia will find it difficult to provide gasto Europe cheaply and quickly withoutconstructing pipelines that run throughTurkish waters. 31 Recent Turkish saberrattling,meanwhile, will likely scare offdrilling companies. 32 Given the distinctdisadvantages both Ankara and Nicosiaface in developing these resources,cooperation is the most feasible option.The US and EU should thereforeencourage all sides to work togethertowards a comprehensive solution thatallows the Republic of Cyprus to buildpipelines through Turkish waters inexchange for sharing a percentage ofthe income earned from the gas with itsTurkish Cypriot neighbors. 33 The OSCEcould also play a role here, as it has inrecent years developed and implementedeconomic and resource-based confidencebuildingprograms in areas of ethnicconflict, such as Georgia-South Ossetia/6 0Turkey

in millions of USDin millions of USDUS-Turkey Bilateral Trade & Investment Relationship16,00014,00012,00010,0008,0006,0004,0002,00002001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011US exports to TurkeyTurkey exports to USUS FDI in TurkeyTurkey FDI in USEU-Turkey Bilateral Trade & Investment Relationship100,00090,00080,00070,00060,00050,00040,00030,00020,00010,0000Sources: US Census Bureau: Foreign Trade; BEA: Foreign Direct Investment*2008-09 FDI data from Eurostat, International Trade2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011EU exports to TurkeyTurkey exports to EUEU FDI in TurkeyTurkey FDI in EUSources: Eurostat, International Trade; Eurostat, Balance of Payments*2011 EU-Turkey FDI data not yet published as this went to printAbkhazia and Moldova-Transnistria. 34Such a cooperative arrangement could bea first step toward an eventual solution tothe standoff over Cyprus.A Turkish state that isstronger economically,politically anddemocratically wouldaid Ankara’s desire tobe a regional player andserve US interests in theregion more broadly.3. Look for alternativepaths to progress on theTurkish-EU relationship:Solving the Cyprus and Kurdish disputeswould substantially increase Turkey’schances of achieving EU membership. Butwith negotiations currently at an impasseand growing concerns over Turkey’sfuture, the US should encourage Europeto seek alternative paths to achieveprogress on the Turkish-EU relationship.Such a path could be found in the earlysuccesses of the Positive Agenda. Bothsides have already made strides inworking groups focusing on energy andvisa liberalization. 35 At a minimum, thenext US administration should signalits strong support for negotiations andoffer to consult on chapters where ithas a distinct interest in seeing Turkishreforms, particularly the judiciary andfundamental rights chapter. As the UShas previously expressed concern overrule-of-law issues in Turkey, it couldfacilitate judicial exchanges between bothcountries similar to retired US SupremeCourt justice Sandra Day O’Connor’svisit to Turkey in 2011. 36/37 It should alsoencourage the expansion of negotiationsbeyond the selected eight chapters toinclude areas such as foreign, securityand defense policy, where progress couldlead to parallel improvement in EU-NATOcooperation. Perhaps most importantly,the US should draw direct links betweendemocratic consolidation domesticallyand Turkey’s role in the region. A Turkishstate that is stronger economically,politically and democratically would aidTurkey6 1

22%12%Turkey’s Main Trading Partners (2010)4%Ankara’s desire to be a regional playerand serve US interests in the regionmore broadly.4. Use stronger economic tiesas a positive motor for improvedTurkish-European andTurkish-American relations:While the volume and the nature oftheir trade with Turkey differ, bothEurope and the US would benefitfrom addressing obstacles to bettereconomic ties with Ankara. In the caseof the US, the government can focus onthe following steps: creating with theirTurkish counterparts a new bilaterallegal framework to spur investmentand help build trade; ensuring thatAmerican and Turkish trade strategiesconverge; facilitating greater businessdialogue and cooperation through new5% 9%6%EU Russia China US42%Iran Middle East & North Africa Rest of the WorldSource: European Commissionplatforms between Turkish and US firms;and instituting closer consultation at agovernment and business level to aimfor common views on issues on theG20 agenda. 38 Involving Turkey in theongoing US-EU free trade agreementnegotiations (which are of great interestto Ankara) could also benefit relationsbetween Turkey and the West.The consequences of arapprochement betweenAnkara and Tel Aviv wouldbe significant not onlyfor the region, but also forthe EU and the US.In regard to the EU-Turkey partnership,the US can encourage and supportefforts on both sides toward concessionsto ensure that the 1996 EU-TurkeyCustoms Union works more effectively,to boost trade, and to help improveatmospherics. In exchange for Turkeyfulfilling promises to remove technicalbarriers to trade in areas such as importlicenses and to guarantee enforcementof intellectual property rights, 39 the EUneeds to take firmer action to enforce the“Turkey clause”. 40 Despite that provision,many countries that have concluded orare negotiating free trade Agreements(FTAs) with the EU have refrained fromconcluding similar agreements withTurkey, as called for by the clause. 41Moreover, the US should encouragethe EU and Turkey to quickly define amulti-year roadmap that outlines boththe implementation of a “readmissionagreement”, under which Turkey wouldtake charge of illegal immigrants crossinginto the EU from its borders, and theeventual lifting of visa requirementsfor Turkish citizens in the EU. 42 Bothinitiatives should move in parallel, butas a first move the EU should considerliberalizing visa practices for Turks doingbusiness in Europe as a boost for trade.5. Promote Turkish-Armenianreconciliation, particularly atthe civil society level:Despite Turkey and Armenia’s failure toratify the October 2009 Zurich protocols,which involved an agreement to establishdiplomatic relations and open theirshared border, the EU and the US canwork in tandem to push forward theTurkish-Armenian normalization process.At the government level, the EU and theUS can encourage Ankara and Yerevanto cooperate on matters of commoninterest, such as emergency preparednessand heritage preservation, 43 and toexperiment with special openings of theirshared border for cultural or educationalexchanges. The trans-Atlantic partnerswill also need to plan ahead for thepotential political minefield of the 100thanniversary of the Armenian genocide in2015. Helpful measures to navigate thattense commemoration could include:avoiding any parliamentary legislationsin the US or Europe pertaining to thegenocide; supporting the establishmentof joint Turkish-Armenian historical6 2Turkey

commissions; and encouraging Ankarato show contrition in a similar vein toErdogan’s apology in 2011 for the masskilling of Kurds in the 1930s. At thegrassroots level, the US and the EU couldprovide support and funding for localcivil society groups, NGOs and businessventures in Armenia and Turkey that areworking towards reconciliation. 446. Create a favorable environmentto facilitate a Turkish-Israelirapprochement:The rising instability in the MiddleEast and the continuing civil war inSyria create a pragmatic opportunityfor Turkey and Israel to put aside theirdifferences. Both countries share a clearinterest in preventing the Syrian conflictfrom spilling over to their territory, andshare the desire not to see Assad’schemical weapons arsenal falling intothe wrong hands. The consequences ofa rapprochement between Ankara andTel Aviv would be significant not only forthe region, but also for the EU and theUS. It would allow Turkey to revert to itsposition of regional broker and mediatebetween the Israelis and Palestinians—arole that was taken up by MohamedMorsi’s government in Egypt duringthe recent bombing of Gaza; 45 therapprochement could bring somestability to the Middle East and helpcreate broader diplomatic coalitionsover Iran and Syria; and it would improveTurkey’s image in the US. Thus, the USand the EU need to take all possible stepsto create favorable terrain for a Turkish-Israeli normalization process. Importantmeasures could include holding backchanneltalks with both states on Syria’sfuture, encouraging Israel to involveTurkey in the development of offshoregas fields in the eastern Mediterranean,promoting joint Turkish-Israeli businessprojects, advocating Turkey and Israel toavoid excessive rhetoric, and supportingthe creation of a bilateral commissionto determine reparations for theflotilla incident. 46 6 3Turkey

MEMO ONRUSSIAThe State of PlayIn President Obama’s second term,the US will encounter a Russia that isa far cry from the boastful, confidentand assertive country that in early2008 seemed destined to become amajor global player again. For muchof the first decade of the 21st century,Russia experienced explosive economicgrowth thanks to its abundant supplyof hydrocarbons and the rapid rise ofoil and gas prices. Between 2000 and2007 alone, Russia’s real GDP per capitagrew an average of 7 percent a year,with nominal GDP increasing fivefoldsince 2002. 1 In early 2008, Russia heldnearly $162 billion in reserve andnational welfare funds as well as nearly$600 billion in hard currency and goldreserves, an amount exceeded only byJapan and China. 2This economic rise coincided with aforceful return of traditional Russianrealpolitik. Successive rounds of NATOand EU enlargement were viewed asthreats to Russian national security,while perceived Western involvementin the “color revolutions” in formerSoviet states played on fears of Russianweakness. A more confident Moscowflexed its muscle against the West, usingthe state-owned gas company Gazprom’sdominance in the European energymarket as an effective foreign policyweapon. Energy disputes with Belarus(2007) and Ukraine (2009) over pricesand unpaid gas bills resulted in Russiacutting off gas to both countries—and, inturn, to much of the European continent.Moscow showed a willingness to useenergy to gain leverage over EU memberstates, some of which are almost entirelydependent on Russian exports to meettheir energy needs. Russia’s actionscoincided with a growing consensus thatthe US was no longer the sole globalIn President Obama’s second term, the US will encountera Russia that is a far cry from the boastful, confident andassertive country that in early 2008 seemed destined tobecome a major global player again.superpower. This decline paralleled therise of Russia in a new multipolar orderalong with the rest of the so-called BRICcountries (Brazil, India and China).The 2008 global financial crisis hassince fundamentally altered Russia’sview of itself in that international order.The tightening of the global creditmarkets caused the country’s total grosscapital inflows to decline by nearly 40%between 2007 and 2008. 3 A sharp dropin commodity prices, particularly forhydrocarbons, shook an economy thatrelied on oil and gas for more than twothirdsof its export receipts. Russia’s GDPactually declined by 10 percent between2008 and 2009, while unemploymentand inflation increased considerably. 4Russia’s fading fortunes prompted thenpresidentDmitry Medvedev to seek tomodernize and diversify the Russianeconomy. However, the failure of theMedvedev administration to achieveany substantial economic reform andthe return of Vladimir Putin to thepresidency in March 2012 raises doubtsabout Russia’s willingness to continuethe modernization agenda.The Obama administration shouldexpect a Russian state that is a status quopower with rollback tendencies. Russia’sthree sinews of power—its pivotal voteon the UN Security Council, it naturalsresources, and its nuclear arsenal—will guarantee a seat at the table onmajor global issues. But in almost allother measures, Russia is regressing.Economically, endemic corruption, apoor investment climate (capital flighttotaled nearly $80 billion in 2011 5 ) andweak state institutions throw cold wateron Moscow’s modernization agenda.Domestically, the return of Putin tothe presidency prompted proteststhroughout Russia whose size and scopeshocked the ruling apparatus. Theseprotests, and the Kremlin’s politicalcrackdown in response, have throwndomestic stability into question.Internationally, Russia will continue tostruggle to keep pace with more dynamiceconomies and find its influencediminishing in many areas of the world,despite its accession to the World TradeOrganization in 2012. China’s rise in theeast will undoubtedly become a greaterconcern as its global profile increasesand its thirst for energy resourcesleads to an increasing presence in theformer Soviet space in Central Asia.The Arab uprising has seen Moscowlose traditional partners in the region,while its support of the Bashar al-Assadregime in Syria continues to isolate itregionally and internationally. As newgovernments emerge in the Middle East,few countries, if any, will look to Moscowas a model to emulate.European PerspectivesA reconciliation of sorts betweenEurope and Russia has taken place, thefoundation of which was in many wayslaid by the bilateral US-Russia “reset”.EU member states and Moscow havetaken small but important steps to easetensions and solve lingering bilateral6 4Russia

disagreements. In Poland, traditionalhostility towards Russia has partiallygiven way to a more nuanced pragmatismand a slow, but steady reconciliationwith Moscow. Under the auspices of itsmodernization agenda, the Medvedevadministration moved to solve problemssuch as the Exclusive Economic Zoneborder dispute with Norway and addressthe Nordic countries’ environmentalconcerns over the Nordstream gaspipeline running through the Baltic Sea. 6Yet overall, bilateral and regionalrelationships remain mostly unchanged.Russia is still an important geopoliticalconcern in Europe, and the Russia-EUenergy relationship necessitates activeengagement with Moscow. But EU statesremain split between those that havetraditionally taken a nuanced positiontowards Russia (i.e. Cyprus, France,Germany, Italy) and those states thatcontinue to view it as a threat to Europeansecurity (i.e. the Baltic states and muchof Central Europe). Little movementhas been made on negotiations towardsreplacing the Partnership CooperationAgreement that have been ongoingsince 2008, and the EU’s Partnership forModernization Agreement (signed withRussia at the 2010 EU-Russia Summit)has thus far failed to lead to any largescalepolitical or economic reforms.Among Europe’s major players,cooperation with Moscow has continuedto vary between suspicion and strategicengagement. Politically, relationsbetween the UK and Russia have beenfrosty since former KGB agent AlexanderLitvinenko died of radiation poisoningin London in 2006, the victim of apresumed assassination. When Putinvisited London for the 2012 SummerOlympics, both he and British PrimeMinister David Cameron expressed awillingness to improve the bilateralrelationship. 7 However, London’s criticalline toward Moscow’s handling of theSyrian crisis will ensure that politicalreconciliation remains far off. Instead,both countries will continue to engageeach other mainly through the economicsphere.2011 EU Natural Gas Imports by Country1%4% 1%1%4%11%13%9%1%Source: EurostatRussia Norway Algeria Qatar NigeriaTrinidad & Tobago Egypt Libya OtherFrance, meanwhile, has maintained atraditional pragmatism toward Russia.Despite the cautionary line taken byParis towards Russian actions in the 2008conflict with Georgia and then-presidentNicolas Sarkozy’s efforts to negotiatea cease-fire, Franco-Russian relationshave since returned to the interestbasedcooperation that has traditionallycharacterized the relationship. Thiswas particularly evident with the saleof French military assault ships to theRussian government in 2010. 8 Pariscontinues to recognize the reality ofRussia as a major European power, andthis views seem should not change withnew President François Hollande.Under Chancellor Angela Merkel,Germany has articulated a Russia policythat seeks constructive engagementand a place at the EU table for Moscow,while balancing German businessinterests with concerns about humanrights in Russia. Russia remains a27%33%critical market for Germany; from 2010to 2011 alone, trade between the twocountries increased by 30 percent (to€75 billion) while German FDI jumpedto €8.2 billion. 9 Merkel’s supportfor a partnership with Moscow onmodernization efforts had the supportof German businesses and aimed toestablish a stronger rule-of-law-basedinvestment climate. Berlin has alsosought close political cooperation withMoscow. Merkel and Medvedev agreedto a joint communiqué calling for thecreation of a “new EU-Russia SecurityCommunity” in exchange for cooperationin solving the Transnistrian conflict withMoldova during the Meseberg Process inJune 2010. 10But since that communiqué, theMerkel government’s attempts to winRussian cooperation have hit a wall.Little headway has been made eitherin solving the deadlocked conflictin Transnistria or the creation of anRussia6 5

EU-Russia security apparatus. Themodernization partnership has sufferedfrom diverging visions, as Germanyhas viewed it as a vehicle for domesticand economic reform while Russia hasbeen more interested in knowledgeand technology transfers to stateownedindustries. 11 Merkel is also facingincreasing pressure from civil societygroups, the German Green Party, andeven members of her own party to take amore vocal stance against the Kremlin’scrackdown on political opponents.Merkel’s trip to Russia for the annualbilateral St. Petersburg Dialogue inNovember 2012 was overshadowed bya Bundestag resolution put forward bythe CDU’s Andreas Schockenhoff, one ofthe Bundestag’s leading Russia experts,which raised alarm over the country’sworsening human rights record.The EU relationship with Russia continuesto be dominated by energy and trade. Itis Moscow’s largest trade partner, withexports from Russia totaling nearly $200billion in 2011. 12 In 2011, 33 percent of theEU’s natural gas imports originated fromRussia (see chart). On the other side ofthe equation, the EU is the destination ofnearly 70 percent of Russia’s gas exports. 13Energy security concerns have led Brusselsto take a number of steps towards lesseningEuropean dependence on Russian energyimports to hedge against Russian businessand political practices in the energy sector.The EU has shown active interest inseveral alternative energy interests, suchas the Nabucco gas pipeline from theCaspian region and the emerging shalegas and liquefied natural gas (LNG)markets in Poland and the US. The EU’sThird Energy Package, adopted by theEuropean Commission in 2009, bars theownership of sales and transmissionoperations by non-member states, amove which may force Gazprom to sellits transmission assets and give upsome of its dominance of the Europeanenergy market just as other competitors,particularly LNG from Qatar, areemerging on a spot market. That theCommission is now investigatingGazprom for anti-competitive marketpractices has only added to the tensionbetween Brussels and Moscow. 14Recommendations for 2013Formal engagement between the twocountries will not begin in earnest afterPresident Obama is inaugurated for hissecond term. However, with a Septembervisit to St. Petersburg for a Group of 20Summit meeting on the horizon and witha post-election invitation by VladimirPutin for a bi-lateral visit to Moscowon the table, the topic of US-Russiarelations will likely find itself near theforefront of the administration’s 2013foreign policy agenda. Therefore, it will beincumbent upon the new administrationto quickly articulate a policy that willbalance cooperative engagement withaddressing concerns on human rightsand democracy in Russia. It can do so byconsidering a number of steps:1. Graduate from the “reset”:Despite some ups and downs, the Obamaadministration’s policy reset was a relativesuccess. Its overtures helped soften viewsamong Russian leadership that the USis actively seeking to weaken Moscow,and both sides can point to several areasin which agreement has been reached:counterterrorism efforts, Russia’s allowingNATO supplies to cross its territory on theirway into Afghanistan, the 123 Agreementand mutual ratification of the New STARTTreaty. The new administration shouldbuild on the successes of the reset andmove relations to the next level. It shouldcontinue to find issues where interestsare compatible. Russia has previouslyshown a willingness to cooperate withthe US and EU on missile defense andIran, and while the sides remain far apart,continued engagement can producepositive results. To that end, the US shouldpursue frequent dialogue in forums thatbuild stronger working relationships andcooperation. The US Presidential BilateralCommission jointly agreed to in 2009 hasled to frequent contact between officials,and the next administration should seekto make that a permanent aspect of thebilateral relationship.Vladimir Putin Approval Ratings (2011-2012)747270in percent686664626058Jan Feb Mar Apr May JunJul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun2011 2012Source: The Levada CenterJul6 6Russia

2. Prepare to grapple with Putin:The return of Putin to the Russianpresidency and the crackdowns ondissent raise immediate questionsover how relations will progress. Tohis domestic audience, Putin hasoften portrayed the US as a belligerenthegemon that acts counter to Russianinterests, sometimes using the US andNATO as scapegoats useful for whippingup nationalist fervor. The recent passageof legislation clamping down on politicalprotests, Internet freedom, and thefunding of Russian NGOs by foreigndonors is an attempt to eliminatepolitical opposition and reduce Westernengagement with Russian civil society,as seen in the recent eviction of USAIDstaff from the country.Yet Putin is also aware that Moscowcannot afford to ignore Europe and theUS. Russia has benefitted from Westerncooperation on many issues, such ascounterterrorism, and this is unlikelyto change under Putin. As internationalforces begin to draw down in Afghanistanpost-2014, Russia will be eager to workwith the US and Europe to ensurestability in northern Afghanistan and theSouthern Caucasus region. The Obamaadministration must work with Europeto create a common understanding withMoscow, one that takes the nationalinterests of both sides into account.Disagreements on global issues haveoften arisen because Russia felt itsnational interests were being ignored.In the Libya conflict, Putin’s contentionthat NATO overstepped the parametersof UN Security Council Resolution 1973spoke as much to Moscow’s concern overits economic interests in Libya as it didto concern over political sovereignty.On Syria, Putin has been steadfast inhis support of the Assad regime, inpart because the Russian naval base atTartus is one of its last remaining warmwateraccess ports. Recent comments byRussian officials suggest, however, thatthe Kremlin is preparing for the realitiesof a post-Assad Syria. 15 If the Obamaadministration can show that addressingthese issues is not a zero-sum gameand at least try to accommodateRussian concerns, it should find amore cooperative partner in Moscow ingeneral and Putin in particular. Europeand the US can entice Moscow intochanging its stance by guaranteeingRussia an important role in any post-Assad discussions.3. Understand today’sinternal dissent:While considering Moscow’s coreinterests is important, the US must alsotake great strides towards understandingand accommodating the new generationof Russian activists. The protests thatfollowed the parliamentary electionsin December 2011 and the presidentialelection in March 2012 demonstrateda widening chasm between thegovernment and the populace. Today’sactivists are no longer marginalizedliberal intelligentsia, but members of theyoung, urban middle class. The middleclass represents nearly 20 percent ofthe population and is expected to reach40 percent by 2020. 16 At the same time,a generation is coming of age that hasgrown up largely in the post-Soviet era.Of those who took part in the massiveprotest along Moscow’s ProspektSakharov on Dec. 24, 2011, 25 percentwere between the ages of 18 and 24, andmore than 50 percent were under 40. 17Today’s activists are nolonger marginalized liberalintelligentsia, but membersof the young, urbanmiddle class. The middleclass represents nearly 20percent of the populationand is expected to reach 40percent by 2020.Having accumulated wealth during theboom years from 2000 to 2008, Russia’smiddle class increasingly demandsmore political participation and greateraccountability and transparency fromgovernment institutions. Exposure toWestern countries through travel andbusiness, and widespread use of theInternet as a tool for communicationand knowledge, have fostered a growingdiscontent with the status quo. 18 Eventhe rural working class, one of Putin’smain bases of support, is increasinglydoubtful of the state’s ability toprovide health care and education andmaintain infrastructure. 19 If Russia’seconomic struggles continue, thedomestic situation will be prone tofurther fragmentation.The Obama administration, along withits European partners, should thereforework together to articulate a commonposition that takes the Kremlin’sforeign policy interests into accountwhile being assertive on political andhuman rights issues inside Russia. Bothsides have explored legislation (theso-called Magnitsky bills) that wouldbar the officials allegedly involved inthe death of Russian lawyer SergeiMagnitsky from entry into either the EUor US, with the US Congress recentlyapproving such legislation along withPermanent Normal Trade Relationstatus (PNTR) for Russia. The US shouldencourage European governments topass similar legislation in order to senda message to Kremlin officials and asa show of support to Russia’s growingactivist movement.4. Build upon the passageof PNTR by pursuing a broadermodernization agendawith Moscow:The recent passage of PNTR status forRussia by the US Congress highlightsthe potential growth of bilateral tradebut also its current shortcomings. WhileEurope and Russia maintain a large androbust trade relationship, economictrade and investment between the USand Russia has been relatively small,with Russia accounting for just 1.6% of USexports in 2011. 20 The passage of PNTRis expected to change that, bringinginnumerable benefits to US businesseswhile bringing US. companies intocompliance with WTO rules mandatingPNTR between members. US exports toRussia are forecast by some to doublefrom $9 billion in 2010 to nearly $19billion as WTO-mandated reductionson Russian tariffs are expected to createRussia6 7

greater market access for US businessesand more opportunities for US FDI inthe Russian market. 21 Nonetheless, theRussian market remains a legitimatesource of concern. Rampant corruption,poor business practices, and the lack of arule of law continue to hamper economicdevelopment. Recent controversies,particularly the case of murdered lawyerSergei Magnitsky demonstrate thatsignificant pitfalls to doing business inRussia remain. 22Therefore, in lockstep with PNTR, the newadministration should consider pursuinga broader modernization partnership withRussia in conjunction with the EuropeanUnion that emphasizes Western businessnorms and works towards strengtheningthe rule of law in Russia. Many Russiacritics point out that Putin has shownlittle, if any interest in pursuing genuinewidespread economic reforms. However,events may dictate a more concerted efforttowards modernization and economicdiversification. Russia’s failure tomodernize means it will fall increasinglyfarther behind the US, Europe and China.Additionally, Russia’s heavy reliance onhydrocarbons means that the Russianeconomy will continue to be susceptibleto fluctuations in oil and gas prices. GivenRussia’s dependency on the Europeanmarket, an exacerbation of the eurozonecrisis or a precipitous drop of oil and gasprices could impact the economy in a waysimilar to the 2008 global economic crisis.in millions of USDUS-Russia Bilateral Trade & Investment Relationship40,00035,00030,00025,00020,00015,00010,0005,00002004 2005 2006 2007 2008 2009 2010 2011US exports to RussiaUS FDI in RussiaRussian exports to USRussian FDI in USEU-Russia Bilateral Trade & Investment Relationship300,000250,000Sources: US Census Bureau; Foreign Trade; BEA: Foreign Direct InvestmentThe US and Russia have previouslypledged to work together on PrimeMinister Medvedev’s ModernizationInitiative, as evidenced by the “JointStatement on a Strategic Partnershipin Innovation” released during the US-Russia Business Summit in 2010. Thefocal point of US support has been the“Skolkovo Innovation Center” intended toserve as a Silicon Valley-like communityjust outside Moscow. The Center ispromising, and several US companieshave already pledged to invest in theproject, but the venture represents atop-down approach to modernizationthat does not address the broader needto reduce corruption, strengthen rule oflaw, and protect intellectual property. 23in millions of USD200,000150,000100,00050,00002004 2005 2006 2007 2008 2009 2010 2011EU exports to RussiaRussian exports to EUEU FDI in RussiaRussian FDI in EUSources: Eurostat, International Trade; Eurostat, Balance of Payments*2011 Eu-Russia FDI data not yet published as this went to print6 8Russia

The US should instead focus on effortsthat seek to broaden the scope ofmodernization and move cooperationaway from the political level and towardsa bottom-up, grassroots approach.It can also utilize the knowledgeand experiences gained through theEU’s ‘Partnership for Modernization’including those countries with vestedbusiness interests inside Russia. Trilateralcooperation can work towardsstrengthening Western business normsand creating a vibrant market economyin Russia. But perhaps more importantly,an improved investment climate andexpanded US economic trade with Russiacould lead to economic growth in sectorsoutside of the extractive industriesaffiliated with or controlled by theRussian government. This in turn wouldstrengthen the growing middle class ofmoderates and reformers that constitutethe most significant constituency forlong-term change in Russia.5. Expect Russia to make a “pivot”of its own to Asia:The clear message from the recentAPEC Summit in Vladivostok is thatRussia increasingly sees its futurein Asia. Moscow’s need to reduce itssusceptibility to a major economiccrisis in Europe and the growing roleof the US and China in the region willnecessitate a move eastward. TheObama administration should thereforeprepare for a Russian “pivot” of its ownto Asia that will bring challenges in theAsia/Pacific region and along the post-Soviet periphery.Since Putin’s return to office, the Russiangovernment has placed expandingeconomic ties in the region at the top ofits agenda. A major priority at the APECSummit was touting the developmentof the Eurasian Customs Union, whichPutin declared would “play an active partin shaping the regional and internationalagenda”. 24 The union, based largelyon the EU model, creates a commoncustoms market for three states (Russia,Kazakhstan and Belarus) with hopes ofeventually bringing most of the formerSoviet Union into the fold.The ECU will be especially importantas Russia increasingly faces stiffcompetition in the Central Asia region.The EU’s pursuit of the so-calledSouthern Gas Corridor has turned its gazeincreasingly towards Central Asia, whilethe US and NATO continue to maintainan active interest in the region thanksto operations in Afghanistan. China isalso taking a more active interest in theregion. Central Asia currently supplies10 percent of China’s energy needs, andtrade with the five Central Asian statestotaled $23 billion in 2010. 25 Navigatingrelations with Beijing is tricky. On onehand, China has replaced Germany asRussia’s top bilateral trade partner,totaling $80 billion in 2011, and Russiais eager to build the infrastructurenecessary to export its hydrocarbonseastward. 26 Yet both countries areincreasingly in competition forresources and influence in CentralAsia. Russia’s economic struggles haveweakened its influence in Central Asia,and the financing of oil and gas fieldsand infrastructure in Turkmenistan,Kazakhstan and Uzbekistan threatensto upset Moscow’s dominance of theregion’s energy transport network andreduce Russian leverage. 276. Forge a common trans-Atlanticposition on Europe’s periphery:Both the US and European states willwant to continue bilateral engagementswith Russia, but the Obamaadministration should also stronglyconsider pursuing a common trans-Atlantic position on Europe’s easternperiphery, particularly with countriessuch as Ukraine and Georgia. The EUhas pushed its Eastern Partnershiptowards these states and other countrieson the European periphery with theaim of acculturating them to EU normsand standards.But Europe’s efforts to integrateUkraine and Georgia have been slowand uncoordinated, as EU memberstates are split between those seekinginclusion in Euro-Atlantic institutionsand those reluctant to do so due toissues such as visa liberalization or fearof harming relations with Russia. WhileUkraine has professed that its destinylies in Europe, its weak institutions,widespread corruption, and PresidentViktor Yanukovych’s more pro-Russianforeign policy has make it difficult tomeet EU standards. Georgia’s prospectshave likewise dimmed considerablyfollowing the 2008 war with Russia. Thelonger the Association Agreement andDeep and Comprehensive Free TradeAgreement (DCFTA) negotiations dragon, the more difficult it may be for thesegovernments (particularly Ukraine’s) tobuild the political support necessaryto ratify them. And apprehension insome European capitals, particularlyBerlin, has stalled Georgia’s efforts tojoin NATO.The stalling of negotiations presentsan opportunity for Russia and the ECU,into which Moscow has campaignedheavily for Ukraine’s inclusion. While aDCFTA with Europe would force Ukraineto adopt EU rules without having a sayin them, the ECU would offer Ukrainefull membership rights and allow it tomaintain access to the Russian market. 28Georgia has maintained a strident pro-West attitude, but it also has a sizabletrade relationship with Russia. Theother factor is that while the ECU is sofar relatively weak, further developmentcould see it end the EU’s role as the“only game in town”. Therefore, the USand Europe must together to find acommon position on the region thatmaintains the attractiveness of Euro-Atlantic institutions and pushes fordemocratic reforms.Russia6 9

MEMO ONCHINAThe State of PlayIn 2013, the US and China will gothrough a deep transition in politicalleadership and Europe a protractedtransition in political structure. Amidthis uncertainty, the US pivot to Asiaprovides some organizing logic forEurope’s own engagement with theregion. The US pivot is a recalibrationwith both strategic and economicdimensions, with the launch of the Trans-Pacific Partnership (TPP), US rotationaldeployment of 2,500 Marines at theDarwin base in Australia, the presence offour littoral combat ships in Singaporeand the declaration that freedom ofnavigation in the South China Sea is inthe US national interest. Coupled withWashington’s five treaty alliances in theAsia Pacific and central role in securityand potential geopolitical flashpoints(Taiwan, North Korea, and the Southand East China Seas), the US presenceaims to stabilize the region in a way thataccommodates China’s continued rise inthe existing global order.The US and Europe have shared asimilar ambivalence in recent yearsabout China’s evolving place in theinternational system. Beijing’s rockyleadership transition has focusedattention on the country’s increasingbellicosity in territorial disputes, whichhas led to high-profile dust-ups withits neighbors, particularly Japan. Whilethe potential of China as an area ofeconomic opportunity and a globalpartner is unparalleled, there is agrowing sense of buyer’s remorse inthe US and Europe over the belief thatChina’s integration into global marketsand the institutions underpinningthem would change Beijing’s economicand political behavior. Increasingly,discussions of “reciprocity” in Europeand “a level playing field” in the US areWhile the potential of China as an area of economicopportunity and a global partner is unparalleled, there isa growing sense of buyer’s remorse in the US and Europeover the belief that China’s integration into global marketsand the institutions underpinning them would changeBeijing’s economic and political behavior.dominating bilateral narratives vis-àvisChina, particularly around elections.Chinese national champions emergingon the global stage are subject toinnuendo and outright accusationsthat they have benefited unjustly frompilfered intellectual property, thattheir competitiveness is artificiallyenhanced by generous state subsidies,and that they are loose proxies forChinese geopolitical interests. Whilepolicymakers in the US and Europe workto build a constructive relationship withthe Middle Kingdom, there is a growingsense that it will be incumbent to workwith the China “we have” within theframework of global governance.2005 represented a high water markin sino-European relations. After ahoneymoon period accentuated bytrans-Atlantic tensions caused by theIraq war, China saw the EU as a potentialbalancing force to unchecked US power.But the subsequent events left Chinesepolicymakers with the sense thatbilateral relationships with individualEU member states are the most effectiveway to achieve desirable outcomes at theEU level. 1 Strategically, this has meanta stronger relationship with Germany,which China sees as the preponderantarbiter of European power. Tactically,it has meant flirtations with smallerEuropean states, particularly in CentralEurope and those most stricken by theeffects of the eurozone crisis.China has taken a cautious banker’sapproach to the eurozone crisis. It couldhave used its vast currency reserves infall 2011 to purchase bonds throughthe European Financial Stability Facility(EFSF) and sovereign debt of thedistressed eurozone south. The effectmight have been similar to its politicallyminded currency intervention in the 1997Asia crisis, an effective public diplomacytool that would have transformed its imagein Europe. Perhaps the Chinese decisionnot to pursue this course was the resultof European fears about the abdicationof authority to an authoritarian Beijing,or the political risk posed by arduous andmessy public negotiations on eurozonegovernance is too problematic. On theChinese side, the image of the countryusing its financial assets to preserve thehigh European standard of living, whenhundreds of millions in China still live inpoverty, would prove politically difficult.These factors led China to consider theeurozone crisis not as a geopoliticalmatter but as a largely financial anddomestically political one.Beijing has, however, voiced its publicsupport for the German approach ofconstraint through austerity in theeurozone south. And while China hasmoved approximately one-third of itsforeign reserves into euro-denominatedsovereign assets—partially accountingfor the currency’s buoyant value during7 0China

the crisis—this debt is primarily from thenorthern core rather than the south.European Perception of the US Pivot to AsiaThe size of the US, EU and Chineseeconomies and their systemicimportance to global security has ledsome prominent analysts, particularly inEurope, to call for a G3 caucus within theG20. They believe it could cut through thecacophony of the larger group to makeglobal governance more effective. Thestructural allure of the G3 constellationis undeniable—for the next 30 years thethree powers will jockey for the top spotsin the global economy.StrategicPivotGermanyUnited KingdomEuropean CommissionSupportivePolandEconomicPivotBut while the push for greater trilateralcollaboration is clear, most evidencesuggests that the strategic triangle hasnot yet reached maturity. China and theUS appear disinclined to establish a G2or G3 format that would elevate theirstatus above other members of the G20,potentially sharpening their differences.And the EU itself is not yet a coherentactor that could operate at such a level.An analysis of EU-statements on Chinaover the last decade demonstratesboth a conspicuously low number ofdefined common interests with theMiddle Kingdom and an overwhelmingpreponderance of economic issues, inparticular a “trade bias”. 2 One exampleis the successful settlement of the US-EU-Mexico dispute in the WTO againstChina’s export restrictions on rawmaterials. Many see this as a model forsimilar cooperation between the US,EU and Japan to settle the dispute overrare earths, a panel ruling on which isexpected in early 2013. 3The EU has sought to expand beyond thetrade-centric nature of its engagementwith China in recent years. TheNovember 2012 Asia-Europe Meeting(ASEM) in Laos confirmed this trend. InJuly 2012, the EU and US released a jointdocument calling for a shared strategicvision for the Asia-Pacific region andproviding insight into how the twopowers are looking to coordinate in Asia.The EU has supported the role of ASEANin regional territorial conflict resolutionand that could be built upon, particularlyat the member state level. 4PolandCzech RepublicEuropean PerspectivesEuropean engagement in China has twokey characteristics: it is predominantlydriven by bilateral relations withindividual member states, and it isoverwhelmingly economic in nature.The eurozone crisis and its aftermathhave exacerbated this trend. The EU’swinnowed soft power on the continentcould prompt a mad dash by variouscountries to build stronger bilateralrelations with China at the expenseof fellow European member states.These bilateral ties will be one of theprimary forces in the centrifugal driftof Europe as each state strives to setits own terms of engagement with theMiddle Kingdom.Germany’s economic growth isincreasingly tethered to that of China,even as the latter is a direct competitor toAmbivalentUnited KingdomGermanyEuropean Commissionother economies in Europe, particularlyin the south. With a $160.1 billionbilateral trade relationship, China is setto surpass France as Germany’s largesttrading partner by 2014. 5 Once willing toyield to the EU to shape Europe’s Chinapolicy, Germany has now demonstratedthat it is willing to pursue an overtlybilateral relationship. As the world’slargest trade surplus countries, withsimilar export-led growth models,high-skilled labor competitiveness, andtechnological leadership, Germany andChina have cooperated on questionsrelated to global economic imbalances,debt-targeting and, in the G20, mostnotably in debates over demand-drivengrowth in 2009 and current accountbalances around the 2010 Seoul Summit.Subsequently, think tank and ministerialdialogues on Berlin-Beijing cooperationhave mushroomed.China7 1

But China’s competitive meridian withEurope is slowly moving northward.Whereas for most of the past decade,China’s direct competition was withthe light industry of the south (textilesin Italy and Greece), movement intoautomobiles, brand developmentin computers and machinery, andgreen technology posit China directlyagainst Germany. In some ways, this issimilar to the movement of US-Chinamanufacturing competition from lightindustry to heavy industry and services.This trend is expected to continue.European engagementin China has two keycharacteristics: it ispredominantly driven bybilateral relations withindividual member states,and it is overwhelminglyeconomic in nature.France, which was the driver of theSino-European relationship at itszenith, has somewhat lost its footingwith China in recent years, beginningwith the diplomatic battle in 2008 overPresident Nicolas Sarkozy’s willingnessto informally meet with the Dalai Lama,which led to the cancellation of theEU-China Summit. This continued withSarkozy’s high-profile and unsuccessfulattempt to galvanize Chinese financialsupport for EFSF bonds in fall 2011. SinceFrance’s most recent elections, relationswith China have largely remained static.François Hollande’s government has yetto articulate a strategic relationship,a fact that perplexes senior Europeanofficials, particularly from Germany.The US pivot to Asia rates high on theagenda of European policymakers. Thereis concern among some Europeansthat they will be neglected as the USshifts focus. The small and mediumsizedCentral and Eastern Europeancountries, whose exposure to potentialsecurity risks from Russia is moreimmediate, are more alarmed by therealigned emphasis on Asia and willrequire the greatest assurance fromWashington. Yet these governmentsrealize the budget constraints on the USmilitary and, unwilling to increase theirown defense budgets, recognize that toomuch pressure on Washington will beunseemly and unlikely to change policy. 6There are others that welcome greaterUS engagement in the Asia Pacific. It isin Europe’s, and particularly Germany’s,interest that the strategic pivot to Asiago ahead. As Europe’s largest tradepartner with Asia, Germany can free-rideon US military presence in the region tostabilize sea trade routes and other globalcommons. The British share this viewand expect to be the quiet beneficiariesof US force posture readjustment. Thatsaid, the UK, Germany and the EuropeanCommission are more ambivalentabout the potential consequences ofthe Asia pivot’s economic aspects. TheEuropeans are aware however that theUS expects them to play a bigger rolein their immediate neighborhood as aresult of the pivot.The EU retains a grander vision forits China relationship. 57 percent ofEuropean foreign policy elites arenot satisfied with the EU’s role in theAsia Pacific, and 96 percent believe itshould be doing more. 7 Accordingly it isbeginning to play catch-up to memberstates on China and the Asia Pacificregion more broadly. The publicationof the June 2012 Guidelines on the EU’sForeign and Security Policy in East Asiaand recent high-profile dialogues onsecurity and economic issues indicatesan expansion of thought on the topic. 8But there is no policy area today inwhich Europe and China see each otheras main strategic partners. Negotiationson a Partnership and CooperationAgreement (PCA), to codify a newstrategic relationship between the EUand China, have slowed to a standstillsince 2007. The European ExternalAction Service (EEAS) still sees Chinaas one of six global strategic partners,as was identified in the 2003 EuropeanSecurity Strategy (ESS). But it has notreleased an updated communicationon China in six years, a conspicuousindication that Brussels’ China policy,once seen as promising, remainssomewhat underdeveloped.Recommendations for 2013The US and Europe have numerousareas in which cooperation on Chinaand the Asia-Pacific more broadly areripe for development in 2013. Theseare primarily in, but not limited to, theeconomic sphere, based on the manyareas where economic and strategicthinking intersect. The US must maintaina modular approach to Europe in itsapproach to cooperation on China. Boththe EU and individual member states,at varying levels, have unique assetsand political considerations that canadvance US interests in the region.1. Aim for policy alignment atall levels on regional strategicgeopolitical issues:Europe will not represent a traditionalsecurity power in its own right in EastAsia. Limited expeditionary capabilitiesand bases, weak security alliancenetworks and anemic domestic politicalinterest are among the reasons thatEuropeans will have a lesser role inmajor security questions. As such,Europe remains a limited player insecurity on the Pacific Rim and has notshown aspirations to change this.However, the US and EU can worktogether for strategic clarity on jointinterests in the region. The joint US-EU ASEAN Regional Forum statementis a positive start. In it, both powerssupported multilateral moves to resolvelongstanding territorial disputes. Thiswas a turning point, representing awillingness to forge common positions.But it was countered in numeroussubsequent communiqués, includingthe Sino-German communiqué in Beijing(August 2012) and the EU-China SummitCommuniqué in Brussels (September2012), which, in territorial disputes werenot mentioned. 9 Still, the EU has openlyrecognized the importance of regionalsecurity architecture and the key US rolein it. 10 The EU has expressed interest inacceding to ASEAN’s Treaty of Amnityand Cooperation (TAC) and enhancedcooperation in the Asia-Europe Meeting(ASEM) process. Greater politicalrepresentation in the regional securityarchitecture, while modest, should be7 2China

welcomed. But true credibility will comethrough consistency at all levels. Twoareas in particular are key to moving thiscooperation forward:a) Consult on developments in the trans-Atlantic defense industry in Asia: Longseen as the cornerstone of the US-EUdialogue on China, the EU weaponsembargo seems likely to remain in placefor the next four years. The most stalwartopponents to lifting the embargo againstChina—the Scandinavian members ofthe EU and the post-Lisbon EuropeanParliament—have gained strength since2005, and given the appreciation of theenhanced security role of the US in theAsia Pacific, a lifting of the embargo ishighly unlikely without marked politicalchanges in Beijing.But the embargo’s points have beenwhittled away in the two decades sinceit was imposed, and implementation atthe national level has led to a narrowinterpretation of its applicability.European states have a key interest inthe growing defense market that a risingAsia, and particularly China, represents.As a result of the financial downturn,European states have pushed throughsignificant cuts in domestic defensespending (8 percent in both Germany andthe UK). 11 Many European States havea substantial and globally competitivedefense industrial base, with blue-chipcompanies in France, Italy and the UK anda strong base of specialized Mittelstanddefense companies in Germany (whichsurpassed France and the UK over thelast decade to become the country withEurope’s largest defense sector). Starvedfor domestic sales, these companiesand their home states’ governments willmore aggressively seek foreign markets.Given these trends and the growing USsecurity role in the Asia Pacific, it will beimportant for both the US and Europe toconsult regularly on the potential impactof defense procurement contracts onthe region’s threat assessment. Thepartners should also look at how theircooperation will affect rising defenseand dual-technology industries such asspace and cybersecurity technology [seepage 44].b) Pursue greater complementarity inthe Asian periphery: The EU and itsconstituent states have greater leverageand are able to act with greater resolveand unity in the high-growth smallstates of Southeast Asia. The EU ispursuing bilateral FTAs with Singaporeand Malaysia, negotiating a widerangingFramework Agreement with NewZealand, and exploring ambitious tradeagreements with ASEAN, India andJapan. The EU has also been involvedin conflict resolution and post-conflictreconstruction programs in Aceh,Indonesia; East Timor; and Mindanaoin the Philippines, while undertakingdevelopment efforts on water rightsand usage along the Mekong River inCambodia. The EU, along with Australiaand New Zealand, is a significantdevelopment donor to Pacific islandstates. A strong ground game in thesmall and medium states on the PacificRim is perhaps the greatest asset to atandem approach to Asia. The US andEurope should harmonize developmentefforts on political system reform,capacity building, judiciary reform, ruleof law and media. They should alsowork together on people-to-peopleexchanges, particularly relating tobusiness and law.A tandem strategy—pursuing TPP and atrans-Atlantic compactsimultaneously—isambitious but couldproduce the bestbargaining position forthe US with [Europe andthe Asia Pacific].2. Work on an intra-Atlanticreaffirmation of globaleconomic governance:While most of Europe’s largesteconomies are sanguine about themilitary aspect of the US pivot to Asia,some leaders, particularly in Germanyand the European Commission, areconcerned that the TPP will drain all ofthe US administration’s political capitalfor market liberalization, leaving littleleft for a similarly ambitious economiccompact with the EU. They fear thatthis could 1) leave the US and Europeuntethered as they engage Asia or 2) pitthem against each other as competitorsin the region. As a result, both the US andEurope would be in a weaker negotiatingposition in the Asia Pacific.A tandem strategy—pursuing TPP and atrans-Atlantic compact simultaneously—is ambitious but could produce the bestbargaining position for the US with bothregions. As counterintuitive as it maysound, one of the most effective jointAsia strategies would be for the US andEurope to commit fully to talks witheach other. The implicit effect of a trans-Atlantic compact [discussed at lengthon p. 11] will be a recommitment to therules-based liberal order that has beenthe basis for US and European economicsuccess. This commitment could have asignaling effect to China and other majoremerging economies in the region. Suchdiscussions should fall along two lines:a) Initiate a frank, depoliticized discussionabout investment and procurementmarkets: The US and Europe shouldwork together informally to createcoordinated norms in their economicinteraction with China. Some of themost dynamic and fruitful exchangesbetween the US and EU in recent yearshave been on this topic, and they haveyielded positive results on joint policyalternatives for exploration, recyclingand substitution of rare earth mineralsand concerns around intellectualproperty rights (IPR), particularly in theIT sector. Two areas ripe for intensifiedUS-EU consultation are investmentand procurement policy. Chinese FDIrepresents an opportunity for whichboth the US and EU should prepare.Despite representing a low stock in theUS and EU (approximately 0.2 percentof total FDI), Chinese investment powerin the coming years will reach a degreematching its status as a trade powertoday. 12First, the US should closely monitor EU-China Bilateral Investment Treaty (BIT)China7 3

in millions of USDUS-China Bilateral Trade & Investment Relationship450,000400,000350,000300,000250,000200,000150,000100,00050,0000EU-China Bilateral Trade & Investment Relationship400,000350,000300,0002001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011US imports from ChinaChinese imports from USUS FDI in ChinaChinese FDI in USSources: US Census Bureau: Foreign Trade; BEA: Foreign Direct Investmentnegotiations for an indication of theconditions a post-Lisbon EU will requireand what sort of investment relationshipthe Chinese will accept. China alreadyhas BITs with 26 of the 27 EU memberstates, and the market for Chinese FDIin Europe is already relatively open.A pan-European BIT could tidy up thelegal climate for Chinese investors inEurope and perhaps extend to coverlarge individual investors.Second, while most Chinese FDI iseconomically beneficial and politicallyneutral, the US and EU shouldconsult on its nature in sensitive andstrategic sectors. 13 The two sides couldundertake a frank and open dialogueon the procedures and decision-makingapproval of the Committee on ForeignInvestment in the US (CFIUS) and otherbodies regulating inbound FDI into theUS. Openness has been the guidinglight in European investment strategy,with only three countries having limitson investment for national security instrategic sectors. The eurozone crisis andprivatization conditions championed bythe lending troika have augmented thepotential role of Chinese investment inEurope. For instance, the Chinese seempoised to enter into global bankingprimarily through M&A with undervaluedEuropean banks. Investments insensitive national security areas mightrequire consideration in light of the US’son-the-ground role in NATO.in millions of USD250,000200,000150,000100,00050,000Third, the trans-Atlantic partners shouldconsider the potential implications ofasymmetric market access and disclosurerequirements in China. This has alreadybegun and should be broadened. The twoshould jointly encourage China to clarifythe opaque management structure ofChinese state-owned enterprises, someof which are seeking to expand theiractivities in the US and EU.02001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011EU imports from ChinaEU exports to ChinaEU FDI in ChinaChinese FDI in EUSources: Eurostat, International Trade; Eurostat, Balance of Payments*2011 EU-China FDI data was not yet published as this went to printThis dialogue should include a jointassessment on conditions for an openand reciprocal procurement marketin China, a potential jewel for US andEuropean industries but one to whichaccess is limited and subject to heavypolitical intervention. Access itself has7 4China

pitfalls, given the sometimes cavalierChinese attitude toward ownershipand licensing of intellectual property(for example in renewables technologyand automobile parts). China hasdemonstrated its willingness to use itsprocurement market—and market accessmore broadly—as a political weaponand retaliatory tool. In this vein, the USand Europe should compare access andcompetiveness asymmetries in their ownprocurement markets.b) Narrow US-EU focus on realistarguments for enhanced multilateralismon governance and enforcement: Inrecent years, China has become a moreassertive political actor in multilateralsettings, particularly the UN SecurityCouncil. It played a key role in blockingaction on Syria, changing from itstraditional track of hiding behindRussia in veto decisions or expressingdisapproval through abstention. Rather,it has jointly pursued a veto strategy withMoscow, demonstrating a willingness tospeak or even play a spoiler role. Beijing’sincreased assertiveness, matched in itsregional relationships, is rooted in partin the principle of non-interference,which plays an important role in Chineseunderstanding of global governanceand is reflected other emerging powers,both democratic and non-democratic.Another factor is the specter of domesticinstability, including slower economicgrowth, a protracted and fragile politicaltransition and the potential aftershocksof the Arab uprising. 14Institutions of global governance lackthe degree of legitimacy in China thatthey have in Europe and, to a lesserextent, in the US. They are seen throughthe realist lens of power relationships asthe mechanisms for achieving desiredends. But there are cases in which Chinasees its long-term national interests bestserved by compliance with multilateralrules and norms, even going so far as tocontribute to the maintenance of publicgoods it sees as necessary for stableinternational commerce. The willingnessof China to adhere to WTO rulings is onecase, and its willingness to cooperatewith the US and Europe on counterpiracy is another.Germany, China’s no. 1 trade partner in the EU,had the only trade surplus with China of any countryin Europe in 2011—$12.97 billion.In those areas and others, the USand Europe should work together toexpand the realist case for multilateralcooperation with China. This shouldfocus first on the readjustment of globalimbalances, the area in which the G20has been stymied since 2010. The abilityto frame the economic crisis in terms ofunsustainable global current accountimbalances will depend on China’sacknowledgement of the problem inglobal forums. 15There is also a realist case for Beijing’sgrowing openness to binding emissionstargets and other initiatives aimed atincreasing the use of renewables. AsChina continues on its massive campaignto develop global competitive advantagein solar and wind, its use of the UN’sClean Development Mechanism, thegreater pragmatism shown at the climateconferences in Cancun and particularlyDurban can begin to integrate China intoan active stakeholder role on climatechange policy.3. Explore the potential of aUS-German dialogue on China:The Sino-German bilateral relationship isby far the most dynamic between Europeand Asia. Germany is perceived by theChinese as the political keystone toEurope, and its SME niche manufacturingcompetitiveness has been a boon in theChinese market, which seeks to emulateit. Germany, China’s no. 1 trade partnerin the EU, had the only trade surpluswith China of any country in Europe in2011—at $12.97 billion. 16 But prominentGerman politicians from the Bundestag,particularly from Chancellor AngelaMerkel’s CDU, have been vociferouscritics of China’s human rights record,highlighting systemic abuses in Tibetand Xinjiang, media restrictions and therising issue of Internet freedom.Both Germany and the US have complexpolitical and economic relationshipswith China, defined by dense tradebetween the two and convergence on IPRprotection, investment and procurementas well as concerns related to humanrights, the rule of law, civil societydevelopment, environmental conditionsand the role of the media.Given the overlap of interests, the twoshould consider launching a US-GermanDialogue to discuss and coordinateChina policy. Such a dialogue shouldcover six areas in which both sideshave signaled policy interest: trade,IP and investment; global economicgovernance; environment and climatechange; energy and natural resources;human rights; and media and Internetfreedom. Such a dialogue could be animportant element in establishing jointUS-German positions both on a bilateralbasis and in multilateral forums such asthe WTO and the G20.China7 5

7 6Acknowledgements

ACKNOWLEDGEMENTSAt the culmination of a year-long effort, the Bertelsmann Foundation wishes to acknowledge the contributions and efforts of thecountless individuals who helped make the Field Manual to Europe a reality. Tyson Barker, director of the trans-Atlantic RelationsProject, was the key architect of the Field Manual, shepherding its development and successful completion. Without his vision andstrong leadership, this publication would not have been possible. Working closely with him on the drafting and organization of theField Manual’s memos were Rebecca Bertram, Meghan Kelly, Garret Martin, Joshua Stanton and Kara Sutton. Their extensive support,thorough research and tireless dedication to the project were essential to the success of this publication.The Foundation is grateful for the support, insights, and contributions provided by our colleagues at the Bertelsmann Stiftungin Brussels and Gütersloh, Germany. Their assistance on the project, years of expertise and unique European perspective provedinvaluable to the project. In particular, the Foundation wishes to acknowledge the efforts of Thomas Fischer, Joachim Fritz-Vannahme,Stefani Weiss, Ting Xu, Cornelius Ochmann, Christian-Peter Hanelt, Christal Morehouse and Helmut Hauschild.Our appreciation also goes to those who helped edit and produce the Field Manual, in particular the Bertelsmann Foundation’s AndrewCohen as well as Donna Brutkoski. Additional support was provided by the rest of the Foundation’s Washington, DC team, includingFaith Gray, Alison Nordin, Samuel George, Peter Kimball, Anneliese Guess and Jonathan Stevens.Over the course of 2011–2012, the Bertelsmann Foundation hosted a series of off-the-record dinner discussions, each based on adifferent topic addressed in the Field Manual, that brought together leading authorities in European-US policy, as well as young, wellplacedthinkers on the brink of taking key positions shaping policy in the future. The expertise they shared and the discussions thatemerged from these dinners formed a powerful foundation for each memo and helped shape the policy recommendations made tothe incoming administration. We are sincerely grateful for their participation and support.Finally, the Bertelsmann Foundation wishes to thank the numerous other individuals from government offices, think tanks, academia,and the private sector who took the time to sit down with Bertelsmann staff and share their views on key issues. In particular,several people volunteered their time and expertise in providing peer reviews for each memo. These individuals, all distinguishedpractitioners in their respective fields, contributed reviews that were vital to crafting a final product and ensuring that the Field Manualkept a firm pulse on the many elements affecting particular issues in the contemporary trans-Atlantic relationship.With sincere gratitude,Annette HeuserExecutive DirectorBertelsmann FoundationWashington, DC, January 2013Acknowledgements7 7

CITATIONSINTRODUCTION1See “Confidence in the U.S. President: How much confidence do you have in the U.S. President (Bush ‘03-’08, Obama ‘09-)?” Retrieved from http://www.pewglobal.org/database/?indicator=6&survey=14&response=Confidence&mode=chart2See 2010 United States National Security Strategy. Retrieved from: http://www.whitehouse.gov/sites/default/files/rss_viewer/national_security_strategy.pdfTRANS-ATLANTIC ECONOMY1Hamilton, D., & Quinlan, J. (2012). The Transatlantic Economy 2012: Annual survey of jobs, trade, and investment between the United States and Europe. (p. v).Washington, DC: Center for Transatlantic Relations.2Fritz-Vannahme, J. (2012). Für die Vereinigten Staaten von Europa. Spotlight Europe, (13), p. 3.3Testimony of James Quigley (29 February, 2012). Panel on the Future of US Trade Negotiations: Hearing before the US House Committee on Waysand Means, 112th Congress, p. 4.4EU-US High Level Working Group on Jobs and Growth. (2012). Interim Report to Leaders from the Co-Chairs: EU-US High Level Working Group onJobs and Growth. Retrieved from: http://trade.ec.europa.eu/doclib/docs/2012/june/tradoc_149557.pdf5Committee on International Trade. (15 October, 2012). Report on trade and economic relations with the United States (report no. 2012/2149[INI]).European Parliament. http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A7-2012-0321&language=EN6Chase, P. (July 2011) The United States, European Union and International Investment. (GMF Paper Series). The German Marshall Fund of theUnited States. Retrieved from: http://www.gmfus.org/wp-content/blogs.dir/1/files_mf/chase_us_eu_intlinvestment_jul111.pdf7There are certain asymmetries developing in the investment relationship. Whereas Europe still directed 72 percent of its outbound FDI to the USin 2010, the share of US’s FDI to Europe fell to 55.2 percent. There have been some confounding trends in European investment. European banks inurgent need of shoring up their balance sheets have deleveraged international investments. Even as the crisis compels European firms to repatriatecapital, some companies have poured investment into the US. Airbus announced in summer 2012 the opening of a $600 million facility in Alabama,its first US plant. See Hamilton, D. and Quinlan, J. (2012). The Transatlantic Economy 2012: Vol 1. Headline Trends, Center for Transatlantic Relations, (pp.vi-ix).8German Marshall Fund of the United States (February. 2012). A New Era for Transatlantic Trade Relationship: A Report from the Transatlantic TaskForce on Trade and Investment. p. 23. Retrieved from: http://www.gmfus.org/wp-content/blogs.dir/1/files_mf/tatf_report_2012.pdf.9International Monetary Fund. (April 2012). World Economic Outlook Database (data file and code book). Retrieved from: http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx10Erixson, F. and Bauer, M. (April 2012). A Transatlantic Zero Agreement: Estimating the Gains from Transatlantic Trade in Goods, ECIPE, p. 2. (pp.1-18).11US Chamber of Commerce (2012). Transatlantic Economic and Trade Pact: An Opportunity to Bolster Growth and Job Creation in the United States and the EuropeanUnion. Retrieved from: http://www.uschamber.com/sites/default/files/international/files/17566_TransEconomic_TradePact_OPT.pdf12Deutscher Industrie- und Handelskammer (DIHK). (11 April, 2012). Contribution to the Public Consultation of the European Commission on the EU-US HighLevel Working Group on Jobs and Growth. Retrieved from: http://www.rgit-usa.com/fileadmin/ahk_rgitusa/media/pdf/2012/DIHK_COM_Consultation_on_EU-US_Working_Group_on_Jobs_and_Growth.pdf13European Commission (accessed 17 December, 2012). International Affairs: EU-US High Level Working Group on Jobs and Growth. Retrieved from:http://ec.europa.eu/enterprise/policies/international/cooperating-governments/usa/jobs-growth/index_en.htm14See the Leahy-Smith America Invents Act 2011 at: http://www.gpo.gov/fdsys/pkg/BILLS-112hr1249enr/pdf/BILLS-112hr1249enr.pdf15Schwab, S. (2011). After Doha: Why the Negotiations Are Doomed and What We Should Do About It. Foreign Affairs p. 105. ( p.104-117).16Business Roundtable and the TransAtlantic Business Dialogue. (February 2012). Joint Statement: Forging a Transatlantic Partnership in the 21stCentury. Retrieved from: http://businessroundtable.org/news-center/forging-a-transatlantic-partnership-for-the-21st-century17Only the agriculture sector has expressed its preference for a single undertaking in its most extreme form. Other organizations, including TABD,have called for a single undertaking as well but recognize the need to be open to other options.7 8Citations

18Offices of Sens. John Kerry and Rob Portman et al. (22 February, 2012) “Letter to President Obama supporting an Ambitious Trade Agenda withEurope” [Press Release]. Retrieved at: http://portman.senate.gov/public/index.cfm/press-releases?ID=3b3f67e0-a74a-44e5-97f3-efeef000441019Transatlantic Legislators Dialogue. (11 June, 2012). TLD Joint Statement. Retrieved at: http://www.europarl.europa.eu/document/activities/cont/201206/20120612ATT46685/20120612ATT46685EN.pdf20The TLD’s recent move to restructure its biannual meetings based on specific, discrete issues is a move in the right direction. The administrationshould encourage the TLD to appoint a committee-based roster of membership that mirrors the trans-Atlantic partnership agenda. Selection shouldbe designated by membership on committees salient to the partnership, such as Ways and Means, Financial Services and Agriculture. It shouldalso look for ways to include Senate representation. This membership should also assign relevant committee staff that can serve as liaisons forTLD activities. Such an approach could serve as a way station for coordinating the passage of agreements established within the trans-Atlanticpartnership.21See the Anti-Counterfeit Trade Agreement at: http://register.consilium.europa.eu/pdf/en/11/st12/st12196.en11.pdf22The manner in which ACTA was signed has been a source of some controversy in the US. Senator Ron Wyden (D-Ore.), in particular, has questionedthe administration’s assertion that the agreement will not alter existing US law. See Office of Senator Ron Wyden (2011). “Wyden to President: Isn’tCongress Supposed to Approve International Trade Agreements?”(press release). Retrieved at: http://www.wyden.senate.gov/news/press-releases/wyden-to-president-isnt-congress-supposed-to-approve-international-trade-agreementsEUROZONE CRISIS1Gurria, A. and Padoan, P.C.(27 November, 2012). Economic Outlook No. 92. (press conference). OECD. Retrieved from: http://www.oecd.org/eco/economicoutlookanalysisandforecasts/Handout%20EO92%20-%20English.pdf2Elliot, L., Smith, H. and Kollewe, J. (16 June, 2012). World Bank Warns that Euro Collapse Could Spark Global Crisis. The Guardian. Retrieved from:http://www.guardian.co.uk/business/2012/jun/16/world-bank-euro-collapse-crisis3International Monetary Foundation. (4-5 November, 2012). Global Prospects and Policy Challenges: Meeting of G-20 Finance Ministers and CentralBank Governors. p. 18 (special report). Retrieved from: http://www.imf.org/external/np/g20/pdf/110512.pdf4Ibid. p.3.5Ibid.6See Joint Statement of the Ministers of Finance of Germany, the Netherlands, and Finland. Retrieved from: http://www.vm.fi/vm/en/03_press_releases_and_speeches/01_press_releases/20120925JointS/name.jsp7See Rede Von Bundeskanzerlin Merkel Anlaesslich der Eroeffnung des 61. Akademischen Jahres Des Europakollegs Bruegge. Retrieved from: http://www.coleurope.eu/sites/default/files/speech-files/rede_merkel_europakolleg_bruegge.pdf8Bledowski, K (6 November, 2012). “Political Risk Moves to the Forefront in the European Crisis” (issue brief) MAPI. Retrieved from: http://www.mapi.net/political-risk-moves-forefront-european-crisis9See “Speech from German Chancellor Angela Merkel in European Parliament “(7 November, 2012). Retrieved from: http://www.bundeskanzlerin.de/Content/DE/Rede/2012/11/2012-11-07-merkel-eu.html;jsessionid=E0A3525A0CF7EB8650CAADAB08AF9870.s1t2?nn=7442010Bureau of Economic Analysis. (18 September, 2012). BEA International Transactions. (Database). US Department of Commerce. Retrieved from: http://bea.gov/iTable/index_ita.cfm11Hamilton, D. & Quinlan, J. (2012). Pg ix.12Hamilton, D. & Quinlan, J. (2012. Pg v.13Petersen, T. and Böhmer, M. (2012). Economic Impact of Southern European Member states exiting the Eurozone. (policy brief 2012/06). Pg. 5-6. DieBertelsmann Stiftung. Retrived from: http://www.bertelsmann-stiftung.de/cps/rde/xbcr/SID-8466B5BD-06382534/bst_engl/xcms_bst_dms_36656__2.pdf14Odion-Esene, B. (9 November, 2012). Phil Fed Survey: Q4 GDP Outlook Revised Down, Payrolls Raised. Deutsche Boerse Group. Retrieved from: https://mninews.marketnews.com/index.php/phil-fed-survey-q4-gdp-outlook-revised-down-payrolls-raised?q=content/phil-fed-survey-q4-gdp-outlookrevised-down-payrolls-raised15Miles, D. (7 May, 2012). “Force Changes in Europe to Preserve Strategic Edge.” American Forces Press Service. Retrieved from: http://www.defense.gov/news/newsarticle.aspx?id=11622116See IMF Members’ Quotas and Voting Power, and IMF Board of Governors. Retrieved from: http://www.imf.org/external/np/sec/memdir/members.aspx17Mayer, C. (24, September, 2012). Germany After the Poll: A World Leader? Time. Retrieved from: http://www.time.com/time/world/article/0,8599,1925849,00.html18See Speech by Mario Draghi, President of the European Central Bank at the Global Investment Conference in London, 26, July 2012. Retrieved from: http://www.ecb.int/press/key/date/2012/html/sp120726.en.html19Mason, J. (11 May, 2010). Obama Presses Spain’s Zapatero over Economic Reform. Reuters. Retrieved from: http://www.reuters.com/article/2010/05/11/eurozone-spain-obama-idUSN1166321220100511Citations7 9

20Castle, S. (17 September, 2011). Meetings on European Debt Crisis End in Debate, but Little Progress. The New York Times. Retrieved from: http://www.nytimes.com/2011/09/18/business/global/meetings-on-european-debt-crisis-end-in-debate-but-little-progress.html21Chon, J. (2012). US Lessons for the Eurozone: Restoring Confidence through Transparency.(issue brief). The Bertelsmann Foundation. Retrieved from:http://www.bfna.org/publication/us-lessons-for-the-eurozone-restoring-confidence-through-transparency22Cave, T. (2 September, 2012). EU Mulls European Jobs Act to Ease Capital Access. Marketwatch. Retrieved from: http://www.marketwatch.com/story/eu-mulls-european-jobs-act-to-ease-capital-access-2012-09-0223Kollatz-Ahnen, M. (September 2012). A Growth Programme for Europe. (policy analysis). p. 13. Friedrich Ebert Stiftung. Retrieved from: http://library.fes.de/pdf-files/id/ipa/09306.pdfMEMO ON POST-AFGHANISTAN NATO1See Chicago Summit Declaration. (20 May, 2012). Retrieved from: http://www.nato.int/cps/en/natolive/official_texts_87593.htm2As of 8 October 2012, ISAF still has 104,905 troops in Afghanistan, representing fifty different countries. For the exact breakdown by country, seeInternational Security Assistance Force (ISAF): Key Facts and Figures. Retrieved from: http://www.nato.int/isaf/docu/epub/pdf/placemat.pdf3Current plans see a force of 228,500 for the ANSF, with an estimated annual budget of $4.1 billion. Fact Sheet. (21 May, 2012). See White HouseOffice of the Press Secretary (21 May, 2012). Fact Sheet: Chicago Summit- Sufficient and Sustainable ANSF. (press release). Retrieved from: http://www.whitehouse.gov/the-press-office/2012/05/21/fact-sheet-chicago-summit-sufficient-and-sustainable-ansf4NATO’s toppling of the Gaddafi regime proved controversial since the UN resolution 1973 (2011), retrieved from http://www.un.org/News/Press/docs/2011/sc10200.doc.htm, adopted by the Security Council on 17th March 2011, had only authorized the use of force to protect civilians.5The Future of NATO: Bad Timing. (31 March 2012). The Economist. Retrieved from: http://www.economist.com/node/21551491; NATO’s Sea of Troubles.(31 March 2012). The Economist. Retrieved from: http://www.economist.com/node/215514646“Green-on-blue” attacks (using the military code in which blue refers to friendly forces and green to neutral forces) by ANSF troops against ISAFsoldiers have significantly increased in the last two years, leading to the suspension of certain joint ISAF-ANSF training missions and combatoperations. Starr B. (17 September 2012). US restricts Afghan operations after ‘green-on-blue’ killings. CNN. Retrieved from: http://www.cnn.com/2012/09/17/world/meast/us-afghanistan-attacks/index.html7Sperling, J. and Webber, M. (2009). NATO: From Kosovo to Kabul. International Affairs, 85(3), p.508.8Sheridan, M. B. and Wilson, S. (19 March 2011). US actions in Libya may speak louder than words. Washington Post. Retrieved from: http://www.washingtonpost.com/world/us-actions-may-speak-louder-than words/2011/03/19/ABVWsZx_story.html9Labbot, E. (18 May 2012). NATO’s post-Afghanistan future unclear. CNN. Retrieved from: http://security.blogs.cnn.com/2012/05/18/natos-postafghanistan-future-unclear/10US Department of Defense. (5 January, 2012). Sustaining US Global Leadership: Priorities for 21st Century Defense. Retrieved from: http://www.defense.gov/news/Defense_Strategic_Guidance.pdf11NATO’s Sea of Troubles. The Economist; see Grissom, A. (July 2012), The United States, in The Implications of Military Spending Cuts for NATO’s LargestMembers. (Analysis Paper). Ed. by Clara Marina O’Donnell, Brookings Institution. Retrieved from: http://www.brookings.edu/~/media/research/files/papers/2012/7/military%20spending%20nato%20odonnell/military%20spending%20nato%20odonnell%20pdf, p.25. Even after the withdrawal of forcesfrom Germany, about half of American troops stationed abroad will be located in Europe.12Gienger, V. (4 February, 2012). Panetta Pledges Troops for NATO Response Force to Assure Europe. Bloomberg. Retrieved from: http://www.bloomberg.com/news/2012-02-04/panetta-pledges-troops-for-nato-response-force-to-assure-europe.html13See Krepinevich Jr., A. (2012). Strategy in a Time of Austerity. Foreign Affairs, 91(6), pp. 58-69.14O’Donnell, C. M. (6 July, 2012). Are Europeans a Better Transatlantic Security Partner than Meets the Eye? Brookings Institution (Opinion). Retrievedfrom: http://www.brookings.edu/research/opinions/2012/07/06-security-partner-odonnell15Gates, R. (10 June, 2011). The Security and Defense Agenda (Future of NATO). (speech). Retrieved from: http://www.defense.gov/speeches/speech.aspx?speechid=158116Murphy, J. (10 November, 2011). A future for UK and NATO defense. NATO Source (weblog post). Retrieved from: http://www.acus.org/natosource/future-uk-and-nato-defense17Molling, C. (July 2012). Trends within the European Union, in The Implications of Military Spending Cuts for NATO’s Largest Members. (Analysis Paper).Ed. by Clara Marina O’Donnell, Brookings Institution. Retrieved from: http://www.brookings.edu/~/media/research/files/papers/2012/7/military%20spending%20nato%20odonnell/military%20spending%20nato%20odonnell%20pdf, pp.6-718Burns N., Lightfoot, J. and Wilson, D. (14 May, 2012). Anchoring the Alliance. Atlantic Council. Retrieved from: http://www.acus.org/files/publication_pdfs/403/051412_ACUS_Burns_AnchoringAlliance.pdf19Dorman, A. (July 2012). The United Kingdom. in The Implications of Military Spending Cuts for NATO’s Largest Members. (Analysis Paper). Ed. by ClaraMarina O’Donnell, Brookings Institution. Retrieved from: http://www.brookings.edu/~/media/research/files/papers/2012/7/military%20spending%20nato%20odonnell/military%20spending%20nato%20odonnell%20pdf, pp.10-12. The UK’s October 2010 Strategic Defense Review decided to scrapwith immediate effect its existing aircraft carrier. Two new vessels will be built, but the first one will not be fully operational before 2020 at the veryleast.8 0Citations

20See Giegerich, B. (July 2012). Germany. in The Implications of Military Spending Cuts for NATO’s Largest Members. (Analysis Paper). Ed. by Clara MarinaO’Donnell, Brookings Institution. Retrieved from: http://www.brookings.edu/~/media/research/files/papers/2012/7/military%20spending%20nato%20odonnell/military%20spending%20nato%20odonnell%20pdf, pp.15-18.21See Keller, P. (2012). Germany in NATO: the Status Quo Ally. Survival, 54(3). pp.95-110.22Germany plans Afghan-Mediterranean AWACS shuffle. (23 March, 2011). Reuters. Retrieved from: http://www.reuters.com/article/2011/03/23/germanylibya-awacs-idAFLDE72M07E2011032323Schockenhoff, A. and Kiesewetter, R. (30 May, 2012). Strengthening Europe’s ability to act in the area of security policy. German Bundestag. Retrievedfrom: http://www.kas.de/wf/doc/kas_7120-1442-1-30.pdf?12070923354924Future of Europe Group. (17 September, 2012). Final Report of the Future of Europe Group of the Foreign Ministers of Austria, Belgium, Denmark,France, Italy, Germany, Luxembourg, the Netherlands, Poland, Portugal, and Spain. Retrieved from: http://www.auswaertiges-amt.de/cae/servlet/contentblob/626338/publicationFile/171844/120918-Abschlussbericht-Zukunftsgruppe.pdf;jsessionid=71BFAE417B998C52A15B480A78298BE325France ended its combat mission in Afghanistan on 20 November. See France ends Afghan combat mission early. (20 November 2012). BBC News.Retrieved from: http://www.bbc.co.uk/news/world-asia-20417134.26Financial and Economic Data Relating to NATO Defence. (13 April, 2012). NATO Press Release (PR/CP, 047-REV1). Retrieved from: http://www.nato.int/nato_static/assets/pdf/pdf_2012_04/20120413_PR_CP_2012_047_rev1.pdf27Pawlak, P. and O’Donnell, C. (9 July, 2012). Are Europeans a better transatlantic security partner than meets the eye? (weblog post). Centre forEuropean Reform. Retrieved from: http://centreforeuropeanreform.blogspot.fr/2012/07/are-europeans-better-transatlantic.html28Faleg, G. and Giovannini, A. (May 2012). The EU between Pooling & Sharing and Smart Defence: Making a virtue of necessity? Pp.11-20. Centre forEuropean Policy Studies (special report number 61). Retrieved from: http://www.ceps.eu/book/eu-between-pooling-sharing-and-smart-defence-makingvirtue-necessity29O’Donnell, C. M. (12 July, 2012). Integrating the EU Defence Market: An Easy Way to Soften the Impact of Military Spending Cuts? BrookingsInstitution. Retrieved from: http://www.brookings.edu/research/opinions/2012/07/12-eu-defense-odonnell30Rettman, A. (16 November, 2012). Five EU countries call for new military ‘structure’. EU Observer. Retrieved from: http://euobserver.com/defence/11822631For more, see Buckley, E. and Volker, K. (February 2010). NATO Reform and decision-making. Atlantic Council (Strategic Advisors Group issue brief).Retrieved from: http://www.acus.org/publication/nato-reform-and-decision-making32Michel, L. (2003). NATO Decision-making: Au Revoir to the Consensus Rule? Institute for National Strategic Studies/National Defense University (StrategicForum number 202). Retrieved from: http://www.au.af.mil/au/awc/awcgate/ndu/sf202.pdf33See The Washington NATO Project. Alliance Reborn; Valasek, T. (July 2011). What Libya says about the future of the transatlantic alliance. Centre forEuropean Reform (essay). Retrieved from: http://www.cer.org.uk/publications/archive/essay/2011/what-libya-says-about-future-transatlantic-alliance34See Kupchan, C. (10 May, 2012). NATO: Chicago and Beyond. Senate Committee on Foreign Relations, United States Senate, 2nd Session, 112th Congress(prepared statement). Retrieved from: http://www.cfr.org/nato/nato-chicago-beyond/p2820435See Valasek, T. and Korski, D. (December 2009). Closer NATO-EU Ties: Ideas for the Strategic Concept. Retrieved from: http://transatlantic.sais-jhu.edu/transatlantic-topics/Articles/nato/Closer_NATO-EU_Ties_Valasek_Korski.pdf; Lindley-French, J. (13 November 2008). The Future of NATO-EURelations. New Atlanticist (weblog post). Retrieved from: http://www.acus.org/new_atlanticist/future-nato-eu-relations36See the Field Manual Chapter on Russia for more details.37See Kupchan, R. (10 May, 2012). NATO: Chicago and Beyond. Prepared Statement before the U.S. Senate Committee on Foreign Relations. UnitedStates Senate, 2nd Session, 112th Congress (testimony). Retrieved from: http://www.foreign.senate.gov/imo/media/doc/Charles_Kupchan_Testimony1.pdf;and Slaughter, A.-M. (5 June, 2012). Two NATOs in One. WE-NATO (weblog post). Retrieved from: http://we-nato.org/2012/06/05/two-natos-in-one/38See the Field Manual chapter on cybersecurity for more details.39Sorel, M. (14 May, 2012). NATO’s Cyber Security Strategy: A Good Start, But Much to Do. Chicago Council on Global Affairs (commentary). Retrievedfrom: http://2012summits.org/commentaries/detail/sorel_240Idem.41McGee, J. (8 July, 2011). NATO and Cyber Defense: A Brief Overview and Recent Events. CSIS (weblog post). Retrieved from: http://csis.org/blog/nato-and-cyber-defense-brief-overview-and-recent-events. Article 4 states that “the parties will consult together whenever, in the opinion of any ofthem, the territorial integrity, political independence or security of any of the Parties is threatened”.42Kramer, F. (March 2012). Transatlantic Nations and Global Security: Pivoting and Partnerships. Atlantic Council. Retrieved from: http://www.acus.org/files/publication_pdfs/403/031912_ACUS_Kramer_TransatlanticNations.PDF43Shea, J. (April 2012). Keeping NATO Relevant. Carnegie Endowment for International Peace (policy outlook). Retrieved from: http://carnegieendowment.org/2012/04/19/keeping-nato-relevant/acl9#.44Ruhle, M. (5 June, 2012). NATO and Energy Security. Atlantic Council (transcript) Retrieved from: http://www.acus.org/event/nato-and-energy-securityreadout-chicago/transcriptCitations 8 1

ARAB UPRISING1Koch, C. (summer 2011). The Arab Spring is a real opportunity for Europe. Europe’s World. Retrieved from: http://www.europesworld.org/NewEnglish/Home_old/Article/tabid/191/ArticleType/articleview/ArticleID/21837/language/en-US/Default.aspx.2Witney, N., and Dworkin, A. (September 2012). A Power Audit of EU-North Africa Relations. London: European Council on Foreign Relations. p.6.3Errard, G. (11 September 2011). Le G8 promet 40 milliards de dollars aux pays arabes. Le Figaro. Retrieved from: http://www.lefigaro.fr/conjoncture/2011/09/10/04016-20110910ARTFIG00491-le-g8-promet-40-milliards-de-dollars-aux-pays-arabes.php; Irish, J. and Baker, L. (27 May 2011).G8 pledges $20 billion to foster Arab Spring. Reuters. Retrieved from: http://www.reuters.com/article/2011/05/27/us-g-idUSTRE74P00320110527.4Koch.C. (Summer 2011). The Arab spring is a real opportunity for Europe.5Hamdan, S. (11 October, 2012). Arab Countries Waiting for Promised Aid. New York Times. Retrieved from: http://www.nytimes.com/2012/10/12/business/global/arab-countries-waiting-for-promised-aid.html?pagewanted=all&_r=0.6Taspinar, O. and Laurence, J. (20 December, 2011). Will Europe Shrink from the Arab Spring? World Politics Review (feature report). Retrieved from:http://www.jonathanlaurence.net/wp-content/uploads/2011/12/LaurenceTaspinar-WPR_Arab_Spring_12202011.pdf .7Libya unrest: UK envoy’s convoy attacked in Benghazi. (11 June 2012). BBC News. Retrieved from: http://www.bbc.co.uk/news/world-africa-18401792.8Witney, N. and Dworkin, A. (September 2012). pp.16-17 and p.22.9French Foreign Minister Alliot-Marie quits over Tunisia. (27 February, 2011). BBC News. Retrieved from: http://www.bbc.co.uk/news/worldeurope-12591452.10Juppé, A. (16 April, 2011). Arab spring symposium – Closing speech in Paris. Retrieved from: http://www.ambafrance-uk.org/Alain-Juppe-s-speechat-the-Arab.html.11Fabius, L. (27 June, 2012). Speech in Paris at the International Conference “Le monde arabe à l’âge des revolutions”. Retrieved from: http://www.franceonu.org/la-france-a-l-onu/espace-presse/declarations-presse/interventions-publiques/article/27-juin-2012-colloque.12Crumley, B. (14 November, 2012). France Recognizes Syria’s Opposition—Will the West Follow Suit? Time World. Retrieved from: http://world.time.com/2012/11/14/france-recognizes-syrias-opposition-will-the-west-follow-suit/.13Witney, N. and Dworkin, A. (September 2012). p.44; figure refers to the total aid provided by France to Algeria, Egypt, Libya, Morocco and Tunisia.14Kundnani, H. (9 July, 2011). Germany’s contribution to the Arab spring: arms sales. The Guardian. Retrieved from: http://www.guardian.co.uk/commentisfree/2011/jul/09/germany-arms-sale-saudi-arabia.15German support for new North Africa underlined. (10 January, 2012). The Local. Retrieved from: http://www.thelocal.de/politics/20120110-40015.html.16Westerwelle, G. (8 November, 2011). Speech to the 2011 CFSP Review Conference: “Democratic and Economic Transformation in North Africa andthe Middle East. Retrieved from: http://www.auswaertiges-amt.de/EN/Infoservice/Presse/Reden/2011/111108-BM_SWP.html?nn=605326; on the risingarms sales to Algeria, see Tanks in the Desert Germany Plans Extensive Arms Deal with Algeria. (12 November, 2012), Der Spiegel. Retrieved from:http://www.spiegel.de/international/germany/german-arms-sales-to-algeria-have-increased-dramatically-a-866690.html.17See Netherlands, Germany may send missiles to Turkey: report. (18 November, 2012) Reuters. Retrieved from: http://www.reuters.com/article/2012/11/18/us-syria-crisis-turkey-idUSBRE8AH0JL20121118.18See Norton-Taylor, R. (12 July, 2012). Arab spring took British intelligence by surprise, report says. The Guardian. Retrieved from: http://www.guardian.co.uk/uk/2012/jul/12/arab-spring-british-intelligence-report; See also House of Commons Foreign Affairs Committee. (3 July 2012).British foreign policy and the ‘Arab Spring’. (Second Report of Session 2012-2013), p.20. Retrieved from: http://www.publications.parliament.uk/pa/cm201213/cmselect/cmfaff/80/80.pdf.19See Porter, A. and Spillius, A. (27 May, 2011). Arab Spring will add to extremism if we do not help, says David Cameron. The Telegraph. Retrievedfrom: http://www.telegraph.co.uk/news/politics/david-cameron/8539420/Arab-Spring-will-add-to-extremism-if-we-do-not-help-says-David-Cameron.html; and Cameron, D. (26 September, 2012). Speech to the United Nations General Assembly Retrieved from: http://www.number10.gov.uk/news/david-camerons-address-to-the-united-nations-general-assembly/.20Syria conflict: UK to give extra £5m to opposition groups. (10 August, 2012). BBC News. Retrieved from: http://www.bbc.co.uk/news/uk-19205204;German spies ‘active on rebel side in Syria’. (19 August 2012). The Local. Retrieved from: http://www.thelocal.de/national/20120819-44445.html.21Abbas, M. (6 November, 2012). Assad’s safe exit “could be arranged”: Britain’s PM Cameron. Reuters. Retrieved from: http://www.reuters.com/article/2012/11/06/us-syria-crisis-cameron-idUSBRE8A50O320121106.22The European Commission and the High Representative of the Union for Foreign Affairs and Security Policy. (8 March 2011). A Partnership forDemocracy and Shared Prosperity with the Southern Mediterranean. Joint Communication to the European Parliament, the Council, the EuropeanEconomic and Social Committee and the Committee of the Regions. Retrieved from: http://ec.europa.eu/europeaid/where/neighbourhood/documents/communication_conjointe_mars_2011_en.pdf.23Witney, N. and Dworkin, A. (September 2012). p.27.8 2Citations

24The European Commission and the High Representative of the Union for Foreign Affairs and Security Policy. (25 May, 2011). A new response to achanging Neighbourhood. Joint Communication to the European Parliament, the Council, the European Economic and Social Committee and theCommittee of the Regions. Retrieved from: http://ec.europa.eu/europeaid/where/neighbourhood/documents/communication_conjointe_mai_2011_en.pdf.25Witney, N. and Dworkin, A. (September 2012). p.28.26See European Neighbourhood and Partnership Instrument website for the 2014-2020 figures at http://www.enpi-info.eu/main.php?id_type=2&id=402#Funding.27Santini, R. (9 June, 2011). The Transatlantic Relationship After the Arab Uprisings: Stronger in North Africa, Shakier in the Middle East? BrookingsInstitution (paper). Retrieved from: http://www.brookings.edu/research/papers/2011/06/09-arab-uprisings-santini.28Hanelt, C.-P.. (12-16 November 2012). Europe, Turkey and the Arabellion after the US elections. Bertelsmann Stiftung (Panel Discussions). p.11.Retrieved from: http://www.bertelsmann-stiftung.de/cps/rde/xbcr/SID-626BE397-463D3063/bst/xcms_bst_dms_36867__2.pdf. For more, see Witney, N.and Dworkin, A. (September 2012), pp.60-65.29See Bertelsmann Stiftung. (May 2011). Establishing a European-Mediterranean Community (discussion paper for the 13th Kronberg Talks).Retrieved from: http://www.bertelsmann-stiftung.de/cps/rde/xbcr/SID-4C729351-2CFC7980/bst/xcms_bst_dms_33961_33962_2.pdf.30Eralp, N. A. (12-16 November 2012). Europe, Turkey and the Arabellion after the US elections. Bertelsmann Stiftung (panel discussions). p.11.Retrieved from: http://www.bertelsmann-stiftung.de/cps/rde/xbcr/SID-626BE397-463D3063/bst/xcms_bst_dms_36867__2.pdf.31Santini, R. (9 June, 2011). The Transatlantic Relationship After the Arab Uprisings.32Ibid.; see also Bertelsmann Stiftung. (May 2011). Establishing a European-Mediterranean Community.33Mneimneh, H. (25 October, 2012). Why Democratic Transitions in the Arab World Will Be Harder than in Post-Communist Europe. German MarshallFund of the US (blog post). Retrieved from: http://blog.gmfus.org/2012/10/25/why-democratic-transitions-in-the-arab-world-will-be-harder-than-inpost-communist-europe/.34Mirow, T. (15 March, 2012). Speech to the London School of Economics and Political Science, London: “Where next for the Arab Spring? Learningfrom EBRD engagement in Eastern Europe”. Retrieved from: http://www.ebrd.com/pages/news/speeches/mirow_120315.shtml.35EU response to the Arab Spring: the SPRING Programme. (27 September, 2011). European Union (EU MEMO/11/636). Retrieved from: http://europa.eu/rapid/press-release_MEMO-11-636_en.htm?locale=en; Rogin, J. (18 May, 2012). State Department’s new Middle East fund in trouble on CapitolHill. Foreign Policy (the Cable). Retrieved from: http://thecable.foreignpolicy.com/posts/2012/05/18/state_department_s_new_middle_east_fund_in_trouble_on_capitol_hill.36Meyersson, E., Olofsgård, A. and Roine, J. (December 2011). Transition All Over? Lessons from the Experience of the Post-Communist Countries forthe Countries of the Arab Spring. European Institute of the Mediterranean (papers IEMed). Retrieved from: http://www.iemed.org/publicacions-en/historicde-publicacions/papersiemed/10.-transition-all-over-lessons-from-the-experience-of-the-post-commuist-countries-for-the-countries-of-the-arabspring-en.37Tocci, N. (24 May, 2012). One Year On: A Balance Sheet of the EU’s Response to the Arab Spring. German Marshall Fund of the US (op-ed). Retrievedfrom: http://www.gmfus.org/archives/one-year-on-a-balance-sheet-of-the-eus-response-to-the-arab-spring/.38Muasher, M. and Wilkens, K. (29 November, 2012). Awakening to a New Arab World. Carnegie Endowment for International Peace (Global Ten article).Retrieved from: http://carnegieendowment.org/globalten/?fa=50146.39Witney, N. and Dworkin, A. (September 2012). pp.56-57.40For more see Hamid, S. (20 June, 2012). Prioritizing Democracy: How the Next President Should Re-Orient US Policy in the Middle East. BrookingsInstitution (campaign 2012 papers Number 11). Retrieved from: http://www.brookings.edu/research/papers/2012/06/20-middle-east-hamid.41Idem.42For more on the outreach to underserved communities, see Martin, G. (April 2011). In Smart-Power Shift, US Now Actively Cultivating MuslimMinorities In The EU. European Institute (European Affairs Article). Retrieved from: http://www.europeaninstitute.org/EA-April-2011/in-smart-powershift-us-now-actively-cultivating-muslim-minorities-in-the-eu.html.43Tocci, N. (24 May, 2012). One Year On.44See more at Hassan, O. (undated). The Arab Spring: US Policy and Lessons for Europe. Warwick University (knowledge centre policy brief). Retrievedfrom: http://www2.warwick.ac.uk/knowledge/culture/europeanpolicybrief/.45For more, see Wagner, B. (July 2012). After the Arab Spring: New Paths for Human Rights and the Internet in European Foreign Policy. EuropeanParliament (policy department briefing paper). Retrieved from: http://www.europarl.europa.eu/committees/en/studiesdownload.html?languageDocument=EN&file=75431.Citations 8 3

COUNTERTERRORISM & HOMELAND SECURITY1With 60 percent of cargo being transported on passenger airplanes, cargo security is directly tied to passenger security, which is why the US hasbeen active in promoting the 100-percent mandate.2European Commission. (1 June, 2012). EU-US Security Agreement Allows Cheaper and Faster Air Cargo Operations. (press release). Retrieved from: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/544&format=HTML&aged=0&language=EN&guiLanguage=en.3Agreements include Europol, Extradition, Mutual Legal Assistance, Container Security Initiative, Eurojust, TFTP and PNR. See: http://www.statewatch.org/Targeted-issues/EU-USA-dp-agreement/eu-usa-dp-info-exchange-agreement.htm4U.S. Travel Association. (August 2012). Economic Impact of Travel and Tourism. Retrieved from: http://www.ustravel.org/sites/default/files/page/2009/09/EconomicImpactofTravelandTourism2012Updates.pdf5U.S. Travel Association. (accessed 17 December, 2012). World Tourism: US Datasheet. (datasheet). Retrieved from: http://www.ustravel.org/sites/default/files/page/2009/09/World_US_Datasheet_09a.pdf6Marketwire. (11 October, 2010). US Citizens Cancel Travel Plans to Europe Following Govt. Safety Warnings. (press release). Retrieved from: http://www.marketwire.com/press-release/US-Citizens-Cancel-Travel-Plans-to-Europe-Following-Govt-Safety-Warnings-1332565.htm7International Trade Administration. (accessed 17 December, 2010). Top 10 International Markets: 2009 Visitation and Spending. US Department ofCommerce. Retrieved from: http://tinet.ita.doc.gov/pdf/2010-Top-10-Markets.pdf8International Trade Administration. (2011). 2011 Market Profiled: Europe. International Trade Administration. (datasheet). US Department of Commerce.Retrieved from: http://tinet.ita.doc.gov/outreachpages/download_data_table/2011_Europe_Market_Profile.pdf9Pawluk, P. (Ed.). (2011). The EU-US Security and Justice Agenda in Action. Paris: European Union Institute for Security Studies. p. 38.10Wetzling, T. (2011) What Role for What Rule of Law in EU-US Counterterrorism Cooperation? in Pawlak, P. (Ed.), The EU-US Security and Justice Agendain Action (p. 36). Paris: European Union Institute for Security Studies.11European Parliament. (11 September, 2012). European Parliament Resolution of 11 September 2012 on Alleged Transportation and IllegalDetention of Prisoners of European Countries by the CIA: Follow Up of the European Parliament TDIP Committee Report. (report no. 2012/2033 INI).Retrieved from: http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2012-30912May, T. (15 October, 2012). Home Secretary Oral Statement on European Justice and Home Affairs powers. Retrieved from: http://www.homeoffice.gov.uk/media-centre/speeches/home-sec-eu-justice-statement13The Lisbon Treaty annex provides opt-outs for the UK and Ireland from freedom, security and justice agreements. Retrieved from: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:083:0201:0328:EN:PDF14“It’s better for Europe to have a common position because it makes no sense for European passengers to travel from London to Madrid and backand have different controls,” Spanish Transport Minister Jose Blanco Lopez (7 January, 2010), in “Spain Calls for Common EU Stance on Airport BodyScanners.” Deutsche Welle. Retrieved from: http://www.dw-world.de/dw/article/0,,5098288,00.html15Fulton, S.M. (20 March, 2012). EU Commissioner: US Should Catch Up with Europe on Data Privacy. Retrieved from: http://www.readwriteweb.com/cloud/2012/03/eu-commissioner-us-should-catc.php16Cañas, G. (1 October, 2012). “El imperio de la informacióHLCG) rthe Crtment of Justices Athe flight carrying a person of concern?n,” El Pais.Retrieved from: http://sociedad.elpais.com/sociedad/2012/09/30/actualidad/1349026374_446501.html17The EU welcomed US District Court Judge Katherine Forrest’s determination on May 15, 2012, that section 1021 was unconstitutional.18De Kerchove, G., Emmerson, B., and Søvndal, V. (19 March, 2012). Counter-Terrorism and Human Rights. European Voice. Retrieved from: http://www.europeanvoice.com/article/2012/march/counter-terrorism-and-human-rights/73907.aspx19The Visa Waiver Program, introduced in 1986 as a pilot program, was made permanent by Congress in 2000 and changed in 2007 to give countrieswho are partners with the US on the war on terrorism the ability to allow their citizens to travel to the United States without a visa for up to 90 days.Even though Congress, through the 9/11 Commission Act of 2007, expressed a sense that it would like to further extend visa-free travel to alliednations, VWP has become enmeshed in a matrix of conditions and benchmarks that make it difficult if not impossible to gain entry. That is becausea country’s eligibility is measured not only by good relations with the United States, but also by its nationals’ overstay rate, according to the act. Thecurrent rate of overstay for maintenance of VWP is 3 percent. According to State Department statistics, Poland has reduced its refusal rate from 13.5percent to 9.8 percent between 2009 and 2010. This would be low enough to enter VWP under the relaxed guidelines for DHS, but not low enoughunder the current 3 percent threshold. Attached to VWP is the Electronic System for Travel Authorization (ESTA), which Congress created to enhancethe security of VWP.20De Kerchove, G. (2011). Preface. In Pawlak, P. (Ed.), The EU-US Security and Justice Agenda in Action (p. 38). Paris: European Union Institute for SecurityStudies European Union.21The HLCG had previously agreed on common language emphasizing the need to make redress available to aggrieved passengers, but disagreementstill exists over the necessary scope of judicial redress.22European Council. (23 November, 2009). Reports by the High Level Contact Group (HLCG) on Information Sharing and Privacy and PersonalData Protection. (Report No. 15851/09). Retrieved from: http://www.europarl.europa.eu/meetdocs/2009_2014/documents/libe/dv/01_st15851_09_hlcgnov2009_/01_st15851_09_hlcgnov2009_en.pdf8 4Citations

23European Parliament Committee on Civil Liberties, Justice and Home Affairs. (2010). Future European Union (EU)- United States of AmericaInternational Agreement on the Protection of Personal Data When Transferred and Processed for the Purpose of Preventing, Investigating, Detecting,or Prosecuting Criminal Offences, including Terrorism, in the Framework of Police and Judicial Cooperation in Criminal Matters. (working document2). Retrieved from: http://www.europarl.europa.eu/meetdocs/2009_2014/documents/libe/dt/830/830120/830120en.pdf24Ibid.25Most recently, as demonstrated by the PNR case, Germany and Austria abstained from the council vote, and many members of the EuropeanParliament, including rapporteur Sophie in ‘t Veld (Netherlands – ALDE), did not support final passage due to privacy concerns.26Or longer if the ESTA application is part of an active investigation.CYBER SECURITY1Center for Strategic and International Studies (4 May, 2012). Significant Cyber Incidents Since 2006. Retrieved from: http://csis.org/files/publication/120504_Significant_Cyber_Incidents_Since_2006.pdf2Office of the National Counterintelligence Executive. (October 2011). Foreign Spies Stealing US Economic Secrets in Cyberspace. Report toCongress. p. i, pp. 1-11.3Klimburg, A. & Mrtl, P. (September 2011). Cyberspace and Governance—A Primer. (special issue). p. 5. Retrieved from Österreichisches Institutfür Internationale Politik website: http://www.oiip.ac.at/de/publikationen/policy-paper/publikationen-detail/browse/1/article/93/cyberspace-andgovernance-a-primer-1.html4Nye, J. (personal communication, 6 February, 2012).5United States Government Accountability Office. (July 2011). Defense Department Cyber Efforts: DOD Faces Challenges In Its Cyber Activities. (GAOpublication No. 11-75). Retrieved from: http://www.gao.gov/new.items/d1175.pdf6Klimburg, A. & Tirmaa-Klaar, H. (April 2011). Cybersecurity and Cyberpower: Concepts, Conditions and Capabilities for Cooperation for Actionwithin the EU (report). Brussels: EU Directorate General for External Policies Policy Department. p. 37See 2010 NATO Strategic Concept. Retrieved from: http://www.nato.int/cps/en/natolive/official_texts_68580.htm#cyber.8See Cyber Atlantic. Retrieved at: http://www.enisa.europa.eu/activities/Resilience-and-CIIP/cyber-crisis-cooperation/cyber-atlantic.9European Network and Information Security Agency. (3 November, 2011). First Joint EU-US Cyber Security Exercise Conducted Today, 3rd. Nov. 2011(press release). Retrieved from: http://www.enisa.europa.eu/media/press-releases/first-joint-eu-us-cyber-security-exercise-conducted-today-3rdnov.-2011.10Fahey, E. et al. & Pawlak, P. (Ed.).(December 2011). The EU-US Security and Justice Agenda in Action. (Chaillot papers). European Institute forInternational Security Studies. Retrieved from: http://www.iss.europa.eu/uploads/media/cp127_EU-US_security_justice_agenda.pdf11Klimburg & Tirmaa-Klaar (April 2011), p. 4.12Government of the United Kingdom. (2010). A Strong Britain in an Age of Uncertainty: The National Security Strategy. Retrieved from: http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/documents/digitalasset/dg_191639.pdf?CID=PDF&PLA=furl&CRE=nationalsecuritystrategy.13Palmer, M. (3 November, 2011). EU and US Conduct First Cybersecurity Test. The Financial Times. Retrieved from http://www.ft.com/intl/cms/s/2/18ef64b6-063a-11e1-a079-00144feabdc0.html#axzz22jZxsvBe14Klimburg & Tirmaa-Klaar (April 2011), p. 37.15A IP-Forsa poll taken in June 2012 showed that based on party leanings, pluralities or majorities of members of the SPD (47 percent to 45 percent),Greens (52 percent to 32 percent) and the Linke (70 percent to 16 percent) where opposed to the use of cyberweapons. Only a majority of the CDU/CSU were in favor (54 percent to 38 percent). Interestingly, a plurality of members of the Pirate Party were also supportive (45 percent to 42 percent).See Deutsche Gesellschaft fuer Auswaertige Politik e.V. (July/August 2012). Cyber War. Internationale Politik(4). p. 4.16Sees Speech by Uri Rosenthal, Minister of Foreign Affairs of the Netherlands, at the session on Economic Growth and Development of the LondonConference on Cyberspace (1 November, 2011). Retrieved from:17See 2010 NATO Strategic Concept. Retrieved from: http://www.nato.int/cps/en/natolive/official_texts_68580.htm#cyber18Government of the United States of America. (2003). National Strategy to Secure Cyberspace.. Retrieved from: http://www.us-cert.gov/reading_room/cyberspace_strategy.pdf19Council of the European Union. (Dec. 8, 2008). Council Directive 2008/114/EC of 8 December 2008 on the identification and designation ofEuropean critical infrastructures and the need to improve their protection. (council directive 2008/114/EC). Retrieved from: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:345:0075:0082:EN:PDF20Kalfin, I. (February 2012). Draft Report on critical information infrastructure protection—achievements and next steps: toward global cyber security.(report no. 2011/2284 INI). Brussels: Committee on Industry, Research and Energy. p. 4. Retrieved from: http://www.europarl.europa.eu/sides/getDoc.do?type=COMPARL&reference=PE-474.017&format=PDF&language=EN&secondRef=01Citations 8 5

21Healey, J. (January 2012). Beyond Attribution: Seeking National Responsibility for Cyber Attacks (issue brief).. pp. 2-3. Retrieved from: https://www.fbiic.gov/public/2012/mar/National_Responsibility_for_CyberAttacks,_2012.pdf22Ibid.23Mackinnon, R. (2012). Consent of the Networked: The Worldwide Struggle for Internet Freedom. New York: Basic Books.24In the 2007 attack on Estonia, information sharing between national CERTs of Germany, Finland, Slovenia and Estonia was key to monitoringsources of distributed denial-of-service attacks and was able to provide information on the sourcing of attacks even when systems in Estonia werecompromised.25Organisation for Economic Co-Operation and Development. (June 2008). Malicious Software (Malware): A Security Threat to the Internet Economy.Background paper presented at the OECD Ministerial Meeting on the Future of the Internet Economy, Seoul.26Klimburg & Tirmaa-Klaar (April 2011), p. 9.27Europol. (28 March, 2012). European Cybercrime Center to be Established at Europol (press release). Retrieved from: https://www.europol.europa.eu/content/press/european-cybercrime-centre-be-established-europol-1417.28See Federal Trade Commission. (March 2012). Protecting Consumer Privacy in an Era of Rapid Change: Recommendations for Businesses andPolicymakers (FTC report). Retrieved from: http://www.ftc.gov/os/2012/03/120326privacyreport.pdf.29Council of Europe. (2 March, 2012). Global Project on Cybercrime (Phase 3) (report). Retrieved from: http://www.coe.int/t/DGHL/cooperation/economiccrime/cybercrime/cy_project_Phase3_2571/2571_Phase3_summary_V6_Mar2012.pdf.30Archick, K. (21 May, 2012). US-EU Cooperation Against Terrorism (Congressional Research Service Report No. 7-5700). p. 7. Retrieved from: http://www.fas.org/sgp/crs/row/RS22030.pdf.31Obama, B. (20 July, 2012). Taking the Cyberattack Threat Seriously. The Wall Street Journal. Retrieved at: http://online.wsj.com/article/SB10000872396390444330904577535492693044650.html?mod=WSJ_Opinion_LEADTop.32See Department of Justice (21 June, 2012). Joint Statement on the Negotiation of a EU-US Data Privacy and Protection Agreement by AttorneyGeneral Eric Holder and European Commission Vice-President Viviane Reding (press release). Retrieved from: http://www.justice.gov/opa/pr/2012/June/12-ag-783.html.33European Commission (30 November, 2011). Horizon 2020: The Framework Programme for Research and Innovation (report). Retrieved from:http://ec.europa.eu/research/horizon2020/pdf/proposals/communication_from_the_commission_-_horizon_2020_-_the_framework_programme_for_research_and_innovation.pdf#view=fit&pagemode=none.ENERGY & CLIMATE CHANGE1International Energy Agency (12 November 2012). World Energy Outlook 2012. (annual report).2Ibid.3Ibid.4Ibid.5US Energy Information Administration. (July 2011). Review of Emerging Resources: US Shale Gas and Shale Oil Plays. (report). Retrieved from: ftp://ftp.eia.doe.gov/natgas/usshaleplays.pdf.6Ernst & Young. (2012). Shale Gas Report – Poland. (report). Retrieved from: http://www.ey.com/Publication/vwLUAssets/Shale_gas_report_-_Poland/$FILE/Shale_gas_report%E2%80%94Poland.pdf7US Energy Information Administration. (September 2011). International Energy Outlook 2011. (DOE/EIA Report No. 0484/2011). Retrieved from: http://www.eia.gov/forecasts/ieo/pdf/0484(2011).pdf8National Energy Technology Laboratory. (24 October, 2011). Life Cycle Greenhouse Gas Inventory of Natural Gas Extraction, Delivery and Electricity Production.(DOE/NETL report-2011/1511). Retrieved from: http://www.netl.doe.gov/energy-analyses/pubs/NG-GHG-LCI.pdf9Geden, O. (23 November, 2011). Auslaufmodell Erdgas. Süddeutsche Zeitung. Retrieved from: http://www.swp-berlin.org/fileadmin/contents/products/medienbeitraege/Auslaufmodell_Erdgas_SZ_KS.pdf10World Resources Institute (2012). Developed Country Fast-Start Climate Finance Pledges: A Summary of Self-Reported Information. Retrieved from:http://pdf.wri.org/climate_finance_pledges_2012-11-26.pdf11Purvis, N. & Stevenson, A. (March 2010). Rethinking Climate Diplomacy. (paper series). The German Marshall Fund of the United States. Retrieved from:http://www.gmfus.org/brusselsforum/2010/docs/BF2010-Paper-Purvis-Stevenson.pdf12Soest , J.P.V. (2011). Klompen in de machinerie: Bewuste en onbewuste sabotage van de transitive naar een duurzame energiehuisbouding. (essay). De Gemeynt.Retreived from: http://www.rli.nl/sites/default/files/essay_van_soest_-_klompen_in_de_machinerie_1.pdf8 6Citations

13In fall 2012 the EU agreed on a new Energy Efficiency Directive, which sets a new momentum in the EU’s efficiency efforts. Key measures requireenergy companies to reduce energy sales by 1.5 percent per annum and the public sector to retrofit and renovate 3 percent of public buildingsaccording to the latest efficiency standards.14Interview with Thomas Enders, CEO of Airbus.(2012).15EU Commission (2012). EU Transport in Figures – Statistical Pocketbook. Luxembourg: Publications Office of the European Union.16See 2009 US-EU Summit Declaration. (3 November, 2009). Retrieved from: http://ec.europa.eu/transport/facts-fundings/statistics/doc/2012/pocketbook2012.pdf17President Obama: “In recent years, a full 25 percent of high-tech start-ups in the United States were founded by immigrants, leading to more than200,000 jobs in America”. The White House Office of the Press Secretary. (10 May, 2011). Remarks by the President on Comprehensive ImmigrationReform in El Paso, Texas. (press release). Retrieved from: http://www.whitehouse.gov/the-press-office/2011/05/10/remarks-president-comprehensiveimmigration-reform-el-paso-texasTURKEY1Between 2002 and 2011, the country’s GDP grew on average by 5.2% per annum (despite the global recession of 2008–09) and per capita income hasnearly doubled from $ 5500 to $10,500. For more information, see Sidar, C. (20 September, 2012). Turkey’s Fragile Success. Foreign Policy. Retrievedfrom: http://www.foreignpolicy.com/articles/2012/09/20/turkeys_fragile_success; and Taşpinar, Ö. (2011). The Rise of Turkish Gaullism: Getting Turkish-American Relations Right. Insight Turkey, Vol.13(1). Retrieved from: http://file.insightturkey.com/Files/Pdf/insight-turkey_vol_13_no_1_2011_taspinar.pdf;.2Dombey, D. and Guler, F. (10 September, 2012). Turkey’s Economy Runs Out of Steam. The Financial Times. Retrieved from: http://www.ft.com/intl/cms/s/0/9b49abc0-fb61-11e1-b5d0-00144feabdc0.html#axzz2DX9C9TMC3Sidar, C., Turkey’s Fragile Success.4Watson, I. and Comert, Y. (18 September, 2012). Report says Turkey’s Kurdish Conflict Has Turned More Violent. CNN. Retrieved from: http://www.cnn.com/2012/09/18/world/europe/turkey-war-within/index.html5Human Rights Watch. (January 2012.) Country Summary: Turkey. (issue brief). p.503-509, Retrieved from: http://www.hrw.org/sites/default/files/reports/wr2012.pdf; as of 1 August 2012, 76 journalists are supposedly in prison in Turkey, see Committee to Protect Journalists. (October 2012).Turkey’s Press Freedom Crisis: The Dark Days of Jailing Journalists and Criminalizing Dissent. (special report). p.6. Retrieved from: http://www.cpj.org/reports/Turkey2012.English.pdf.6Committee to Protect Journalists. Turkey’s Press Freedom Crisis. p.16.7Paul, A. (19 October, 2012). Turkey-EU Relations: Time to Rebuild Trust. European Policy Centre. Retrieved from: http://www.epc.eu/pub_details?cat_id=4&pub_id=30218European Commission. (10 October, 2012). Turkey: 2012 Progress Report. Retrieved from: http://ec.europa.eu/enlargement/pdf/key_documents/2012/package/tr_rapport_2012_en.pdf9Paul, A. (12 August, 2012).Turkey and Iran: an unraveling relationship. Al Arabiya News. Retrieved from: http://english.alarabiya.net/views/2012/08/12/231743.html.10Larrabee, F.S. (11 July, 2012). The Turkish-Iranian Alliance That Wasn’t. Foreign Affairs. http://www.foreignaffairs.com/articles/137773/f-stephenlarrabee/the-turkish-iranian-alliance-that-wasnt?page=show11Alcaro, R. (July 2012). A Tale of Wasted Opportunities: The EU, Turkey and Iran’s Nuclear Issue. Istanbul Policy Center (issue brief). Retrieved from:http://www.iai.it/pdf/GTE/GTE_C_01.pdf.12Turkey’s Foreign Policy: Growing less Mild. (14 April, 2012). The Economist. Retrieved from: www.economist.com/node/21552602.13In June 2012, 57 percent of Turks in an opinion poll believed that the country should stay out of Syria, 32 percent supported intervention, and 11percent did not know. See German Marshall Fund of the United States. (12 September 2012). Transatlantic Trends 2012. p.77. Retrieved from: http://trends.gmfus.org/files/2012/09/TT-2012-Topline-Data.pdf.14House of Commons Foreign Affairs Committee. (20 March 2012). UK-Turkey Relations and Turkey’s Regional Role. (twelfth report of session 2010-2012). p. 66. Retrieved from: http://www.publications.parliament.uk/pa/cm201012/cmselect/cmfaff/1567/1567.pdf15Glaze, B. (3 October, 2012). Nick Clegg Leads Trade Mission to Turkey. The Independent. Retrieved from: http://www.independent.co.uk/news/uk/politics/nick-clegg-leads-trade-mission-to-turkey-8195183.html16House of Commons (2012). p. 68. The UK-Turkey CEO Forum aims to “improve perceptions among the UK business community about doingbusiness in Turkey”.17See Strategic Partnership. Retrieved from: http://ukinturkey.fco.gov.uk/en/about-us/working-with-turkey/bilateral-relation/strategic-partnership.18Cameron ‘Anger’ At Slow Pace of Turkish EU Negotiations. (27 July, 2010). BBC News. Retrieved from: http://www.bbc.co.uk/news/ukpolitics-1076776819Chrisafis, A. and Hipkins, N. (22 December, 2011). Turkey Freezes All Political Relations with France over Genocide Row. The Guardian. Retrievedfrom: http://www.guardian.co.uk/world/2011/dec/22/turkey-france-freeze-relations-over-genocideCitations 8 7

20Berlemont, I. (25 July, 2012). France-Turkish Relations: Expectations from François Hollande’s Presidential Term. Wise Men Center for Strategic Studies.Retrieved from: http://www.bilgesam.org/en/index.php?option=com_content&view=article&id=524:french-turkish-relations-expectations-fromfrancois-hollandes-presidential-term&catid=70:ab-analizler&Itemid=13121German-Turkish Trade Relations are Gaining Momentum. (2 April, 2012). Deutschwelle. Retrieved from: http://www.dw.de/german-turkish-traderelations-are-gaining-momentum/a-15853653-122Gezer, O. and Reimann, A. (28 February, 2011). “You are Part of Germany, But Also Part of Great Turkey”. Der Spiegel. Retrieved from: http://www.spiegel.de/international/europe/erdogan-urges-turks-not-to-assimilate-you-are-part-of-germany-but-also-part-of-our-great-turkey-a-748070.html23House of Commons. (2012). p.77.24Coskun, O. (30 October, 2012). EU Will Lose Turkey If It Hasn’t Joined By 2023: Erdogan. Reuters. Retrieved from: http://www.reuters.com/article/2012/10/30/us-germany-turkey-idUSBRE89T1TG2012103025The EU and Turkey: Steering a Safer Path Through the Storms. (1 December 2011). EU Observer. Retrieved from: http://euobsever.com/opinion/11447326Those eight chapters are: company law; right of establishment and freedom to provide services; information society and media; statistics; judiciaryand fundamental rights; justice, freedom and security; consumer and health protection; and financial control.27Benitez, J. (19 November, 2012). German Defense Minister Expects Request Today to Deploy Patriot Missiles to Turkey. NATO Source (Weblog post).Retrieved from: http://www.acus.org/natosource/german-defense-minister-expects-request-today-deploy-patriot-missiles-turkey28Crawford, D., Peker, E. and Fidler, S. (26 November, 2012). Germany, Turkey Spar Over Patriots. The Wall Street Journal. Retrieved from: http://online.wsj.com/article/SB10001424127887324784404578143271316436766.html?mod=googlenews_wsj29As mentioned previously, of the 76 journalists currently imprisoned in Turkey, more than 70 percent are of Kurdish ethnicity. See Committee toProtect Journalists (October 2012). p.20.30International Crisis Group. (2 April, 2012). Aphrodite’s Gift: Can Cypriot Gas Power A New Dialogue? (issue brief). Retrieved from: http://www.crisisgroup.org/en/publication-type/media-releases/2012/europe/cyprus-aphrodites-gift-can-cypriot-gas-power-a-new-dialogue.aspx31Ibid.32Turkey’s Foreign Ministry has announced that any oil and gas companies cooperating with Nicosia would be banned from energy projects insideTurkey. See Turkey Warns Oil Firms Eyeing Cyprus Shelf. (5 November, 2012). UPI. Retrieved from: http://www.upi.com/Business_News/Energy-Resources/2012/11/05/Turkey-warns-oil-firms-eyeing-Cyprus-shelf/UPI-99481352091840/33International Crisis Group (2 April, 2012). Aphrodite’s Gift: Can Cypriot Gas Power a New Dialogue?34See OSCE Guide on Non-military Confidence-Building Measures (CBMs). Retrieved from: http://www.osce.org/cpc/9108235See European Commission (21 June, 2012). Statement by EU Commissioner Cecelia Malstroem on the Initialling of the EU-Turkey ReadmissionAgreement. (memo/14/477). Retrieved from: http://europa.eu/rapid/press-release_MEMO-12-477_en.htm36In its 2011 Human Rights Report, the US State Department cited Turkey for “deficiencies in effective access to justice”, including “broad lawsagainst terrorism and threats against the state” as well as “close connections between prosecutors and judges [that] gave the appearance ofimpropriety and unfairness in criminal cases…”. In US State Department (2011). Country Report on Human Rights Practices for 2011: Turkey.Retrieved from: http://www.state.gov/documents/organization/186624.pdf.37During a two-day trip to Turkey, O’Connor met with members of the High Council of Jurors and Prosecutors, the Justice Academy, andConstitutional Court. See US State Department (5 October 2011). Justice O’Connor: Keep It Short, Keep It Simple (press release). Retrieved from:http://turkey.usembassy.gov/justice_oconnor.html38For more on this topic, see Sidar Global Advisors, US Chamber of Commerce, and Turkish Industry and Business Association. (March 2012).US-Turkish Economic Relations in a New Era: Analysis and Recommendations for a Stronger Strategic Partnership. Retrieved from: http://www.uschamber.com/sites/default/files/reports/20120312-USCC-Report.pdf.39See European Commission (10 October 2012). Turkey: 2012 Progress Report. Retrieved from: http://ec.europa.eu/enlargement/pdf/key_documents/2012/package/tr_rapport_2012_en.pdf40Because of the EU-Turkey Customs Union, a third country that signs an FTA with the EU can get access, without customs duties, to both the EUmarket and the Turkish market. Turkey, however, cannot benefit from the same access to the FTA partner market, since it is not technically part of theaccord. The EU has attached a “Turkey clause” to its FTAs with third parties, whereby it asks the latter to conclude a similar agreement with Turkey.But these are non-binding clauses, and the EU has not really tried to enforce them.41Togan, S. (March 2012). The EU-Turkey Customs Union: A Model for Future Euro-Med Integration. The Center for European Policy Studies. (MEDPROtechnical report No. 9). Retrieved from: http://www.ceps.eu/book/eu-turkey-customs-union-model-future-euro-med-integration42EU, Turkey Attempt Immigration Give-and-Take. (22 June, 2012). EurActiv. Retrieved from: http://www.euractiv.com/justice/eu-turkey-attemptimmigration-gi-news-51349843See Phillips, D. de Waal, T. and Lemmon, H.E.M. (17 April, 2012). Diplomatic History: The Turkey-Armenia Protocols. Carnegie Endowment forInternational Peace. Retrieved from: http://carnegieendowment.org/2012/04/17/diplomatic-history-turkey-armenia-protocols and International CrisisGroup. (14 April, 2009). Turkey and Armenia: Opening Minds, Opening Borders (Europe report no. 199). Retrieved from: http://www.crisisgroup.org/~/media/Files/europe/199_turkey_and_armenia___opening_minds_opening_borders_1.pdf8 8Citations

44Güsten, S. (24 October 2012). Using Cheese to Bridge the Turkey-Armenia Gap. The New York Times. Retrieved from: http://www.nytimes.com/2012/10/25/world/middleeast/25iht-m25-turk-armenia.html?pagewanted=all45Huber, D. (September 2012). Turkish-Israeli Relations in a Changing Strategic Environment. Istanbul Policy Center (issue brief). Retrieved from:http://www.iai.it/pdf/GTE/GTE_C_05.pdf.46Koplow, M.J. and Sasley, B.E. (27 June, 2012). Time to End the ‘Cold War’ between Turkey and Israel. The Christian Science Monitor. Retrieved from:http://www.csmonitor.com/Commentary/Opinion/2012/0627/Time-to-end-the-cold-war-between-Turkey-and-Israel.RUSSIA1Sharma, S. (2011). Not an Exceptional Country: Russia and the Global Financial Crisis of 2008-2009. Mediterranean Quarterly, 22(4), p. 35.2Ibid., p. 36.3Ibid., p. 37.4Ibid.5Belton, C. (5 July, 2012). Big Drop in Capital Flight from Russia-But No Change in Trend. The Financial Times. Retrieved from: http://blogs.ft.com/beyond-brics/2012/07/05/big-drop-in-capital-flight-from-russia-but-no-change-in-trend/6Trenin, D. (2011). Russian Policies towards the Nordic-Baltic Region. in Nurick, R. and Nordenman, M. (Eds.), Nordic-Baltic Security in the 21st Century:the Regional Agenda and the Global Role (special report). The Atlantic Council.7“Putin and Cameron Emphasize Trade Ties” (2 August, 2012). Financial Times. Retrieved from www.ft.com/intl/cms/s/0/5627e6b0-dc1-11e1-bbdc00144feab49.a.html#26MWkl85J8The Cruel Sea. (11 February, 2010). The Economist. Retrieved from: http://www.economist.com/node/155149149Ost-Ausschuss der Deutschen Wirtschaft. (2012). Russische Foederation. (Economic Trade Summary). Retrieved from: http://www.ost-ausschuss.de/russland#wibeziehungen10Timmins, G. (June 2011). German-Russia Bilateral Relations and EU Policy on Russia: Normalization and the “Multilateral Reflex”. Journal ofContemporary European Studies, 19(2). p. 197.11Meister, S. (9 May, 2012). An Alienated Partnership: German-Russian Relations After Putin’s Return. (FIIA briefing paper no. 105). The Finnish Instituteof International Affairs. p. 6.12European Commission. (2012). Directorate General for Trade Country Profile: Russia. Retrieved from: www.ec.europa.eu/trade/creatingopportunities/bilateral-relations/countries/russia/13European Commission (2011). EU-Russia Energy Dialogue 12th Progress Report. Retrieved from: http://ec.europa.eu/energy/international/russia/doc/20111201_eu_russia_report.pdf14EU Probe into Gazprom Adds to Energy Tensions. (4 September, 2010). Reuters. Retrieved from: http://in.reuters.com/article/2012/09/04/gazprom-euidINL6E8K4GJU2012090415On July 20, 2012, the Russian Ambassador to France Aleksandr Orlov stated that,”it will be difficult for him (Assad) to stay in office given everythingthat happened”. in Park, S. (1 August, 2012). “Russia’s Diplomacy During the Syria Crisis (Web log post). Center for Strategic and International Studies.Retrieved from: http://csis.org/blog/russias-diplomacy-during-syria-crisis16Bryanski, G. (9 December, 2011). Russia’s Middle Class: A Growing Problem for Putin. Reuters. Retrieved from: http://www.reuters.com/article/2011/12/09/us-russia-protests-middleclass-idUSTRE7B80QU2011120917Quoted in Aron, L. (2012). Russia’s Protesters: The People, Ideals, and Prospects (issue brief). The American Enterprise Institute for Public Policy Research.p. 3.18Ibid.19Dmitriev, M. and Treisman, D. (September/October 2012). The Other Russia: Discontent Grows in the Hinterland. Foreign Affairs. Retrieved from:http://www.foreignaffairs.com/articles/137836/mikhail-dmitriev-and-daniel-treisman/the-other-russia20Cooper, W.H. (2012). PNTR for Russia and US-Russian Economic Ties. (report no. 7-5700). Congressional Research Service Report for Congress. p. 3.21Asland, A. and Hufbauer, G.C. (November 2011). The United States Should Establish PNTR With Russia. (issue brief) Peterson Institute for InternationalEconomics.22Russian Lawyer Sergei Magnitsky was imprisoned and eventually found dead in a Russian jail cell after uncovering a $230 million tax evasionscheme by Russian government officials while working on behalf of Hermitage Capital Management. For more information, see: Thornhill, J. andDyer, G. (27 July, 2012). The Magnitsky Law. The Financial Times. Retrieved from: http://www.ft.com/intl/cms/s/2/7efe34d6-d5f0-11e1-a5f3-00144feabdc0.html#axzz2EJ8qkUjL23Epatko, L. (24 June, 2010). “Q and A: Medvedev Meets with Obama on Modernization Plan, Arms Control”. PBS Newshour.Citations 8 9

24Putin, V. (6 September, 2012). An Asia-Pacific Growth Agenda. Wall Street Journal. Retrieved from: www.online.wsj.com25Judah, B., Kobzova, J., and Popescu, N. (2011). p. 26.26Pilling, D. (13 September, 2012). Russia Begins Its Slow and Reluctant Pivot to Asia. The Financial Times. p. 11.27Judah, B., Kobzova, J., and Popescu, N. (2011). p. 26.28Dragneva, R. and Wolczuk, K. (August 2012). p.10.CHINA1Kundnani, H. and Parello-Plesner, J. (May 2012). China and Germany: Why the Emerging Special Relationship Matters for Europe. (ECFR PolicyBrief). European Council on Foreign Relations. p. 5.2Holslag, J. (2011). The Elusive Axis: Assessing the EU-China Strategic Partnership. Journal of Common Market Studies, (2), pp. 297-298.3Geitner, P. (27 June, 2012). US, Europe, and Japan Escalate Rare Earth Dispute with China. New York Times. Retrieved from: http://www.nytimes.com/2012/06/28/business/global/us-europe-and-japan-escalate-rare-earth-dispute-with-china.html4See US-EU Statement on the Asia-Pacific Region. Retrieved from: http://www.state.gov/r/pa/prs/ps/2012/07/194896.htm5Statisches Bundesamt. (2012). Germany’s major trading partners, 2011. Retrieved from: https://www.destatis.de/EN/FactsFigures/NationalEconomyEnvironment/ForeignTrade/_Graphic/TradingPartners.png;jsessionid=0D1CEEE3D51AB28787C1EC4028B4AEC5.cae4?__blob=poster6Colby, E. (2012). “US-Central European Relations after the “Pivot”. In: Navigating Uncertainty: US-Central European Relations. Center for European PolicyAnalysis. p. 85.7Pawlak, P. and Ekmektsioglou, E. (June 2012). Transatlantic strategies in the Asia Pacific. (analysis) p. 2. European Union Institute for Security Studies.Retrieved from: http://www.iss.europa.eu/uploads/media/analysis_asia_pacific.pdf8See EEAS Key Documents. Retrieved from: http://eeas.europa.eu/asia/docs/9For example, see 15th EU-China Summit Joint Press Communique: Towards a Stronger EU-China Comprehensive Strategy Partnership. Retrieved from: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec8/132507.pdf10See Guidelines on the EU’s Foreign and Security Policy in Asia. Retrieved from: http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressdata/en/misc/97842.pdf11Mölling, C. (July 2012). “Trends Within the European Union”. in O’Donnell, C. (Ed.) The Implications of Military Spending Cuts for NATO’s Largest Members.The Brookings Institution. p. 7.12US and European FDI has led to benefits to the Chinese economy greater than the raw stock of FDI (only 1 of global transatlantic FDI). Trans-Atlantic FDI is tied to 45 million jobs, 56 percent of total exports, and a majority of the technology transfer to Chinese companies. See Xu, T.,Petersen, T. and Wang, T. (2012), Cash in Hand: Chinese Foreign Direct Investment in the US and Germany, p. 4. Bertelsmann Stiftung and CCIEE.Retrieved from: http://www.bfna.org/sites/default/files/publications/Cash%20in%20Hand%20Second%20Edition%20final.pdf13The Chinese themselves have explicitly identified 11 strategic sectors, such as banking and construction, in which outside actors are heavilyrestricted or must do business via joint ventures with Chinese firms.14Grant, C. (2012). Russia, China, and Global Governance. London: Centre for European Reform. p. 57.15Ibid., p. 5416OECD. (2012). Germany International Trade Statistics (database). Retrieved from: http://stats.oecd.org/index.aspx?datasetcode=MEI_TRD9 0Citations

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