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The TTIP Logic in Obama’s Trip to Berlin

by | June 17th, 2013 | 11:22 am
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Second term presidents have unfinished business, so it is no surprise that President Obama plans to speak later this month in Berlin at Brandenburg Gate, where Germany asked that he not speak in 2008. Aside from the occasion of the 50th anniversary of John F. Kennedy’s famous “Ich bin ein Berliner” address, Chancellor Angela Merkel has many good reasons to invite him this time. Her approval ratings are high, but it can’t hurt to hobnob with Obama, who is still popular in Germany. Her main motivation, however, is that she has business of her own to take care of.

The proposed Transatlantic Trade and Investment Partnership (TTIP) is a major policy objective for Merkel, a straightforward proposition for an export-oriented economy with many large German firms already present in the United States. Few EU countries would gain as much from TTIP as Germany seems likely to.

TTIP is important for Merkel for more partisan political reasons. It offers her a way to shore up her support in the German business community ahead of the election in September. Merkel has been a centrist chancellor, while seizing parts of her leftist opponents’ policies on German minimum wages and energy. Her U-turn on the German nuclear phaseout has cost her country’s industry dearly, so TTIP offers a chance to give German industry something it wants.

TTIP’s focus on “behind the border” issues like industrial standards and regulatory processes also suits Germany, which would like to see an aligning of transatlantic manufacturing industry safety and environmental regulations, eventually becoming de facto global standards. Adoption of such standards for trade with China or Brazil would be a dream come true for Germany’s global export industry. Who knows—maybe America will come to its senses and go metric with TTIP?

TTIP further offers Merkel her best way to neutralize a potential threat to Germany’s European interests, in the form of a potential UK exit from the European Union in the medium term. Keeping the free-market oriented and liberal United Kingdom in the European Union is in the interest of Germany’s export sector. A successful TTIP negotiation would offer Prime Minister David Cameron a rationale on which to campaign in favor of the United Kingdom staying in the European Union in a future referendum. Second, a TTIP would render meaningless any remaining notion, still strong among some conservatives, about a special economic relationship with the United States. TTIP would likely secure the United Kingdom a better deal in the US marketplace than a bilateral UK-US free trade agreement (FTA) outside the European Union ever could. Indeed if TTIP succeeds, the United Kingdom would become more locked into remaining in the European Union. Assuming that the “Norway solution” of a non-EU member being part of the European Union’s internal market, but with zero influence on it, would not be a viable option for the United Kingdom, a TTIP would make it madness for the United Kingdom to leave.

Obama’s trip to Berlin also makes business sense for his administration. TTIP, which has not stirred up much congressional opposition so far, is a key part of his second-term economic agenda. TTIP would strengthen the transatlantic relationship, which is worn down by the Afghanistan military withdrawal, defense budget cuts, and the US security focus on Asia. The White House understands that it will be up to Merkel to round up European support for TTIP and that she needs to get an idea from Obama about what kind of deal is possible.

The Obama administration’s focus on Germany suggests also that it correctly understands that European integration has been a series of large projects disproportionately paid for by Germans. That has been true from the beginning with the common agricultural policy, the European Monetary Union (EMU), the EU expansion with the new eastern members and, finally, the euro crisis. Germany has footed these bills in order to secure its identity as a “European Germany” anchored in the European Union. Even if Germany has recently shown reluctance to write large checks for Europe, TTIP is something Germany will be willing—again—to invest in.

While the Obama administration must offer Germany some of what it wants to secure an agreement, other EU members will seek concessions from Germany (and the other economically strong Northern European free traders) to secure an ambitious TTIP. The recent negotiating hiccup over France’s rejection of audiovisual and cultural sector opening in the TTIP offers an example of this dynamic. A compromise was reached, leaving these issues out of the initial negotiations, with the option of bringing them back in later. The TTIP negotiations will therefore be launched at the G-8 meeting in Northern Ireland. At some point, France may accept these issues as part of TTIP, provided that it secures offsetting benefits. Which country will ultimately have to provide the quid pro quo? Very likely, Germany.

Other EU countries will likely—indeed should—go outside the TTIP negotiations to figure out which concessions they seek from Germany to secure the trade and investment deal.

It would of course be silly of France or the ailing countries on Europe’s periphery to demand an increase in German spending to ease the euro area economic crisis. More German spending would have limited economic effects outside Germany. Yet other quid pro quos—intelligent bribes—are possible.

EU members could ask for a new and larger fund be set up to provide job search and skills development for workers, for example, mirroring the earlier €500 million European Globalization Adjustment Fund (EGF). Could it be a US-style Trade Adjustment Assistance (TAA) program for the European Union? Such assistance could also supplement unemployment support in countries with jobless rates above certain thresholds. Additional European funds could also be granted to investment co-financing in crisis countries, or perhaps even increased access through the European Stability Mechanism (ESM) to reciprocal direct bank recapitalizations, though this last idea may be far-fetched.

It is up to Germany’s partners to think of the smartest concessions to ask for. But they all share the same premise: Germany will have to provide the financing. With a potential ambitious TTIP dangling in front of her, Merkel might well loosen her purse strings.

President Obama is right to go to Berlin to find out.