JULY - DECEMBER 1996 5

The Economic Dimension of Diplomacy- a Component of Foreign Policy

Hans -Dietrich Genscher*

"The economy is the destiny" - this famousdictum of the German industrialist and ForeignMinister in the Weimar Republic, WalterRathenau, is today more appropriate than everbefore during this century.

With the end of the ideological and mili-tary confrontation between the East and the West,the economic factor attained an unprecedentedsignificance in European and international poli-tics. The common commitment of all Europeanstates to democracy and the market economy hasopened prospects for cooperation that transcendsborders and ensures prosperity and peace as neverbefore in this century.

And this is why foreign policy and diplo-macy must take into account the factor economymore than before if they are to attain their mainaims - peace, stability and prosperity. It is, namely,truer today than in Rathenau's times that, in anintegrating Europe, prosperity and social andpolitical stability are no longer attainable withinthe boundaries of single states.

This is all the more so in view of the accel-erating and all-pervasive globalization of theworld economy. In the 1990-1994 period alone,the annual growth rate of the world trade volumeincreased by about five times faster than that ofthe world's GDP.

However, globalization does not imply justthe expansion of world trade but also an evergreater mobility of capital and labour. Beginningin the 1980s,foreign investment has been expand-ing considerably faster than world trade.

The international circulation of capital hasalso become globalized. Parallel to theglobalization of the commodity, service and capi-tal markets, a world labour market has also beenemerging, and introducing global competition inlow-cost jobs.

The disappearance of trade barriers, thefurious rate of progress in communication andtransport technologies, and the growing mobilityof production factors are transforming the world

• Introductory address at the Symposium organizedby the Ministry of Foreign Affairs of Slovakia, Bratislava,14th May 1996

more and more into a global market, with keenworld-wide competition between its various parts.

NEW CULTURE OF COEXISTENCE

In view of the ever firmer integration ofnational economies and of the increasingly toughglobal competition, it would be a fatal error tobelieve that the challenges of tomorrow can bemet with the old instruments used by nationalstates yesterday.

The revolutionary consequences of globa-lization following the end of the cold war demanda profound change of outlook and a new way ofthinking also in diplomacy and foreign policy.Thisimplies, to begin with, the modernization and aneven stronger professionalization of the economicdepartments in our embassies and foreign minis-tries. The practice of periodically exchanging per-sonnel between companies and diplomatic rep-resentations would provide a substantial contri-bution in this respect. Perhaps more than everbefore in its history, diplomacy should be regardedas the caretaker of the economic exchange be-tween our countries.

However, globalization requires more thanjust the modernization of the instruments of ourdiplomacy.

In fact, we are dealing here with a deep-reaching structural change of international poli-tics itself: the ever greater global interdependencedemands from us multilateral thinking and act-ing in foreign policy. The most important task ofdiplomacy and foreign policy in the age ofglobalization is, therefore, to provide conditions,within a multilateral framework, for the free playof forces and factors of production, interveningonly where this is absolutely necessary. This con-cerns above all the progressive lifting of trade andinvestment barriers and the evolvement of a fairand equitable world trade order.

The prosperity of nations depends to a greatextent on future-oriented world-wide cooperationin economic and monetary policies, as well as onthe willingness of our businessmen to take risks,on the educational level of our population, on theimagination of our inventors and researchers.

No economic diplomacy, however good, can vated only by the emergence of new regional cen-compensate for this; but it can reinforce the eco- tres of power, such as the North American Freenomic performance of our respective countries. Trade Association NAFTA, or the Asian-Pacific

One of the lasting contributions of the Economic Community APEC, or ASEAN. It isfounding fathers of European integration is to also the great political challenges - underdevel-have fundamentally redefined the relationship opment, mass migrations, the proliferation ofbetween European economy, diplomacy and for- weapons of mass destruction, international crimeeign policy. A decisive initiative in this direction and terrorism, as well as the threat to our com-was provided by the two great Frenchmen and mon basis of existence, to natural resources -Europeans, Robert Schuman and Jean Monnet, which call for resolute common action.with their proposal to establish the European Coal There is no doubt, however, that the Euro-and Steel Community and thus to integrate the pean Union, which today numbers 15 membercoal and steel sectors and to subordinate them to countries and is expected to continue growing ina common, supranational authority. In doing this, the years to come, will have to adjust its institu-Monnet and the founding fathers of European tions to the changing international setting, if itintegration pursued the aim - to quote Monnet - wishes to remain effective. To make sure this will"of cutting a breach into the ramparts of national be so is the task of the Intergovernmental Re-sovereignty, deep enough to create among the view Conference on the Maastricht Treaty, whichstates the unanimity needed for peace". opened in Turin a few months ago. The main ob-

Theunifyingforceofcommoneconomicinte- . jectives are to enhance the democraticrests and a novel, supranational form of European legitimization of European institutions and tocooperation were conceived as barriers to prevent raise their efficiency. At the same time, the Eu-once for all a new military confrontation in Europe. ropean Union is required to formulate a more

The increasingly strong economic interlac- coherent and efficient common foreign and secu-ing of European national economies, combined rity policy, so as to be able effectively to pursuewith the simultaneous transfer of political pow- its interests, together with its most important part-ers to supranational European institutions, has ners, above all the USA and Japan. Furthermore,given an impetus to peace and prosperity without the citizens of the European Union expectprecedent in European history. In result, a com- progress also in the settlement of pressing is uespletely new culture of coexistence has emerged of common domestic and legal policies, of thein the EU in recent decades, based on jointly de- asylum policy, and of crime control.fined and exercised commitments. War between Together with the further development ofmember states of the European Union has be- common institutions, the realization of the eco-come inconceivable; in economic terms, the Eu- nomic and monetary union by January 1st 1999 isropean Union represents, together with the USA likewise of major importance for prosperity andand Japan, the most prosperous region in the stability in Europe. European diplomacy oughtworld. A decisive factor in this was the circum- to pursue these goals with full force, but also withstance that trade policy was placed within the com- a prudence that is always advisable in matterspetence of the European Community. This pre- concerning currency issues. It is only with the in-cluded any abuse of trade for the purposes of troduction of a single European currency that apower policy and paved the way to a common common internal market will be fully installed.perception of trade interests for Europeans. The EU can no longer afford the luxury and the

problems of 14 different currencies if it wishes toremain competitive in this age of globalization,which pervades also the financial markets. Fluc-tuations of exchange rates between Europeancurrencies are already affecting European exportindustries more adversely than fluctuations of thedollar or the yen. It is evident, therefore, that asingle European currency will provide security,not only for the European economy but also forits partners the world over. At the same time, itwill strengthen Europe's position in relation tothe dollar and yen areas.

I am, further, convinced that the states of

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DEVELOPMENT OF COMMON INSTITUTIONS

The current stage in European integrationis represented by the Treaty of Maastricht on theestablishment of the European Union. After theend of the cold war and of the division of Ger-many and Europe, the idea was adopted of build-ing a political and a monetary union in order toward against a renationalization of Europeanpolitics. The pooling of our resources appearedall the more urgent as no single European coun-try seemed to be capable of an effective responseto the new global challenges. This was not moti-

CROATIAN INTERNATIO AL RELATIO S REVIEW

JULY - DECEMBER 1996

Central, South-eastern and Eastern Europe willalso profit from the completion of the monetaryunion. A stable "Euro" will assume the functionof the most important reserve and transactioncurrency for those European states which are as-sociated to the EU or have close economic rela-tions. In this manner, the monetary union mightbecome the nucleus of an all-European economicand stability zone.

However, this deepening of European in-tegration must not take place at the cost of thefurther expansion of the EU. The peaceful free-dom revolutions of 1989/1991have demonstratedthat the peoples of Central and South-easternEurope do not only share with the EU a commonhistory and culture but that they are linked withit by common values. And yet, six years after theend of the East-West conflict, Europe is dividedby a prosperity and stability boundary, stretchingalong the eastern and south-eastern borders ofthe present EU. That is why the extension of theEU stability zone to cover the countries of Cen-tral and South-eastern Europe and the intensifi-cation of relations with Eastern Europe are anindispensable precondition for lasting stability andsecurity in all Europe.

SPECIAL RESPONSIBILITY OF THE EU

Since the end of the cold war, the Euro-pean Union has provided to the countries of Cen-tral and South-eastern Europe not only advice andsupport but also free trade through the so-calledEuropean Agreements and the prospect of fullmembership.

After the conclusion of agreements withPoland, Hungary, the Czech Republic, the Re-public of Slovakia, Romania and Bulgaria, thealready initialled agreement between the EU andSlovenia should be signed and ratified at the ear-liest possible moment. In addition to this, nego-tiations over a similar arrangement with Albaniashould be initiated in the nearest future. Finally,after the peaceful settlement of the conflict in theformer Yugoslavia, a European Agreementshould be concluded also with Yugoslavia's suc-cessor states. I am convinced that this Europeanprospect represents a major prerequisite for a last-ing peace in the former Yugoslavia.

And herein lies the special responsibility ofthe European Union: it is the only one who canoffer such a prospect for Europe.

The extension eastwards imposes a numberof heavy tasks on the EU as well as on the associ-ated states. Yet, the history of European integra-tion has shown that both the European Union and

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its individual member countries have alwaysprof-ited by the accession of a new member. With eachnew member, the European Union becomes moreEuropean.

I am confident, moreover, that the acces-sion of the Central and South-eastern Europeanstates as associated members, with their more than100 million inhabitants, consumers and produc-ers, will provide strong and lasting growth im-pulses to all Europe.

At the Copenhagen meeting of the Euro-pean Council, the EU linked the admission of newmembers with a series of political and economicconditions. This involves for the associated states:respect for democracy and human and minorityrights and the development of stable, good-neighbourly relations are considered no less im-portant than the necessary adjustments of legaland economic structures: the creation of a mod-ern legal system, of a viable public administrationas well as an efficient banking sector and consis-tent execution of privatization.

The European Union and its member stateswill continue to assist the countries of Central,South-eastern and Eastern Europe in this diffi-cult process of transformation with advice andsupport; the main responsibility, however, lieswith the governments and parliaments of the as-sociated states themselves. In this, they are fac-ing a series of major challenges. The same appliesto the elimination of social repercussions attend-ing the transformation process. This makes all themore relevant the decision of the European Coun-cil in Madrid to select by the end of 1997 thoseassociated states with whom negotiations on ad-mission will be first instituted - an important po-litical and psychological signal to the governmentsand the populations in the associated states.

Nevertheless, more will have to be donethan just this "structured dialogue" between theEU and the associated states in order to speed uptheir accession to the European Union. The as-sociated states should already now have the pos-sibility regularly to attend the sessions of the EUCouncil of Ministers - albeit without the right tovote. In addition, a date should be set as soon aspossible for the beginning of talks about admis-sion, to begin simultaneously with all associatedstates. January 1st 1998would seem to be a goodtime for this. On the other hand, the completionof the negotiations and the date of admission willdepend exclusively on the way political and eco-nomic conditions are met. There should be noplace in this for considerations of a geopoliticalnature.

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THE ROLE OF A TRANSATLANTIC COOPERATION

Europe of the future will also be a Europeof economic regions. The intensifying coopera-tion among Baltic states, together with the estab-lishment of the Central European Free TradeArea (CEFTA), are characteristic for this trend.CEFTA is an important contribution by the coun-tries of Central Europe to the revival of the eco-nomic relations among them and to the liberal-ization of European trade in general. At the sametime, CEFT A will also promote the economicrapprochement between the Central Europeanstates and the EU. The role which CEFTA hasthus undertaken should be further enlarged andstrengthened, leading towards a customs union.

Security, stability and prosperity in Europecannot be lastingly ensured without democracyand prosperity in Russia and in the other succes-sor states of the former Soviet Union. Aware ofthis, starting in 1992, the European Union signedtrade and cooperation agreements with Russia,the Ukraine and with most of the other membersof the Commonwealth of Free States. Althoughnot warranting the prospect of full membershipin the EU, these trade and cooperation agree-ments offer the possibility, presently to Russia,the Ukraine, the Belarus and Moldova, of estab-lishing a free trade area with the European Union.

It would be to the benefit of both the Euro-pean Union and of these states to set up this freetrade area at the earliest date possible, for this isan important precondition for the evolvement ofan all-European economic space, where bound-aries increasingly lose their divisive character.

The same applies also to the developmentof an all-European infrastructure. The EuropeanUnion is therefore required to continue with de-termination of its efforts to build trans-Europeannetworks in power transmission, telecommunica-tions and transport. In addition to this, an all-European environmental policy is an urgent ne-cessity. I am convinced: not only would an all-European infrastructure offer to the whole ofEurope new growth dimensions, but the unifyingpower of common economic interests would helpto overcome national prejudice and selfishness.

Support to the reforms in Central, South-eastern and Eastern Europe, however, and thecreation of an all-European economic space arenot a task for the EU and its members alone. Alsothe USA, Japan and international financial insti-tutions, like the IMF, the World Bank and theEuropean Bank for Reconstruction and Devel-opment must continue to play their part withinthe scope of a coordinated multilateral process.

CROATIAN INTERNATIONAL RELATIONS REVIEW

However, in this age of globalizaton, itwould be an error if the Europeans looked onlyafter themselves. A stable and cooperative worldorder presupposes close cooperation based onmutual trust between Europe and the NorthAmerican democracies. Neither the USA andCanada nor the European Union are today ca-pable of providing effective responses to the glo-bal challenges by relying only on their own re-sources. Without their joint action, none of thesecan be successfully met.

Both sides of the Atlantic are tied by linksof common values and political, economic andstrategic interests. It is therefore imperative thatthe European-American cooperation be takenbeyond the scope of the still indispensable NATOand permanent American involvement securedalso after the cessation of the cold war.

It is to be expected, however, that transat-lantic cooperation will be increasingly concernedin future with economic matters. It was, there-fore, quite justified that the "TransatlanticAgenda" and the "Joint Action Plan", signed bythe EU and the USA in Madrid, in December1995, should call for the strengthening of themultilateral trade system and for improved acces-sibility of markets. The great vision of a new"transatlantic market" that would cover the NorthAmerican Free Trade Area and the whole of Eu-rope can be materialized only if the eliminationof trade and investment barriers continues un-abated. There is no alternative, either for the USAor for Europe, to an enduring transatlantic part-nership, a true "Alliance for Freedom andProgress" .

CONCLUSION

With the end of the cold war, we are wit-nessing the emergence of new regional associa-tions all over the globe, motivated above all byeconomic interests. The establishment of theNorth American Free Trade Area NAFTA, theAsian-Pacific Economic Community APEC, andthe Latin American Free Trade AreaMER COSUR, or the increasingly intensive co-operation among the ASEAN group and the GulfCooperation Council are expressions of the everstronger tendency towards regional cooperationand liberalization. There is no doubt that themajor challenge of the 21st century will be how tobring together the emerging regional power cen-tres and to integrate them within a fair and coop-erative world economic order that is not basedon protectionism. Here, too, lies one of the greattasks of 21st century diplomacy.

JULY - DECEMBER 1996

The creation of a stable world order can beaccomplished only by means of a cooperative re-gionalism. On the contrary, a confrontational re-gionalism, or the establishment of new economicblocs, and thereby inevitably also of politicalblocs, would only reproduce the old nationalegoisms at an even higher level and serve as asource of new instabilities that might erupt intonew conflicts.

It is essential to resist the risky temptationof a renewed protectionism; this is the only wayto enable the poorer regions to profit by the op-portunities offered by globalization and to makegood use of their comparative advantages. Thefreedom of the world market must remain intact.At the same time, the growing economic unifica-tion of the world's regions should be accompa-nied by intensive political dialogue.

The large industrial countries bear a par-ticular responsibility for a new, just and stableworld order. This applies first of all to the USA-EU-Japan triad and to the G-7, the group of sevengreat industrial nations. In the past, the G-7 meet-ings resulted in considerable breakthroughs, such

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as the conclusion of the GATT Uruguay Round,support measures for Central and Eastern Eu-rope, or the reform of the United Nations. In fu-ture, however, the G-7 will have to work evenharder on common strategies in meeting the glo-bal challenges of tomorrow.

This, in turn, calls for new thinking alsowithregard to the composition of the world economicsummit. I mean that the G-7 group should be en-larged by one more member, Russia, and thusbecome G-S. But even this cannot be sufficient inview of the new global challenges. In other words,a globally effective economic policy is no longerconceivable over a longer term without India,China, Africa and Latin America.

Having transcended its divisions, Europefinds itself in the midst of the age of globalization.Taking advantage boldly of the opportunities thisoffers remains a particularly momentous respon-sibility of European politics and diplomacy. Theresponse to the challenges of globalization lies inEuropean integration and global cooperation,notin reverting to the mistakes and aberrations ofnationalism. •

Clinton's Second TermRadovan Vukadinovic

American presidential elections are an im-portant event, not just for the US but for all theparts of the world in which the impact of Americais felt. This is particularly true today, with the USas the only country which can independently as-sume the role of a superpower and act on the in-ternational political scene in accordance with itsnational interests.

The great pre-election show is over, andClinton is one of the very few Democrat Presi-dents to be given a second term in the WhiteHouse. Now is the time for political analysts, inthe United States and elsewhere, to get busy show-ingwhy and how America has re-elected Clinton.

When, in 1994, the Democratic Party suf-fered a heavy defeat in the elections for the Con-gress, this seemed to be a revenge by the voters,who would no doubt soon get rid of Clinton aswell. Today, however, it seems that this actuallymarked the beginning of the victorious offensive

by Clinton and his team and that the defeat hadactually served as a serious and timely warning.During the first two years, the American votersseemed to have seen in Clinton's policies too manyunknown factors, surprises, and even shocks, buttheir main objection was what they regarded as ashift to the left. This shift was reflected in the con-stant tendency by the Administration to seek rem-edy for every problem that befell American soci-ety in a new government programme or in a newtax. In voting against Democrat candidates, theAmerican electorate wanted to put an end to suchgovernment and to-give a chance to the Republi-cans to realize their much-vaunted "Contract withAmerica" .

THE CHAMPION OF PUBLIC INTEREST

This major defeat of the Democratic Partywas probably also the source of Clinton's successin winning the Presidency for a second time. The