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The Reckoning: Amid Global Economic Rubble
Leaders Must Scale New Peaks of Cooperation

Never waste a crisis: it can open opportunities. Thus runs a mantra in the Obama White House. Certainly, the crisis is stark already, and worse seems set through 2009. So where are the opportunities in this crisis? So far, a main one seems to be renewed transatlantic commitment to the principle of "survival together." Both in the European Union and in Washington, policy-makers have vowed to avoid the "beggar-thy-neighbor" approaches, protectionism and trade wars that worsened the Depression in the 1930s. Today, they agree, there can be no success, no salvation, no solution for any country acting alone to protect itself.

With the stakes so high, the April summit of the "G-20" nations, representing the world's leading economies, stands as the most important economic conference since the Bretton Woods talks 60 years ago. That historic meeting set the post-war global economic framework. Now the results of the G-20 will be tested and judged against the expectations raised by leaders who pledged that the summit would produce a global response to the current crisis. A transatlantic line of fracture is bound to persist about the right balance between stimulus spending and better regulation as the way to get the global economy back on its feet. Washington is far out in front in terms of deficit spending to kick-start consumption. Heavyweight European members of the G-20, notably Germany and France, emphasize that the first step should be a radical overhaul of the financial and regulatory structures - to revive public confidence in the financial system. There is an element of resentment in this European view (explained in Doug Rediker's article) - a mood that "America is to blame for the break-down; America should pay to fix it." On the other hand, in Washington and London, there is suspicion that Europe's drive for more universal regulation is aimed at hobbling the very creativity in U.S. and British financial markets that have given them global leadership in this sector. This profound clash in priorities can only be settled over time. There must be a sequencing process. That can only work if leaders' practical actions increase mutual trust that both objectives can be accomplished with tight linkage. It is an encouraging sign of solidarity that the International Monetary Fund will be getting more funds (particularly vital for Eastern Europe) and a larger role (tracking countries' degree of economic cooperation) and momentum toward reforms and greater legitimacy.

The crisis is so extraordinary because it poses a triple threat, simultaneously - to our economies, to our environment and to our defense. On all three fronts, Western governments are striving, collectively, to deliver responses to the challenges of recession, climate change and new security threats. But, in every case, governments run the risk of seeing their electorates balk at programs that can be depicted as "giving away" something to others.

On the economy, the risk with emergency-spending packages is "spill-over." If country A launches a stimulus package (funded by tax-payers there), the extra demand there is bound to be met partly by imports that "spill over" from country B and create jobs there. The reaction in country A is liable to be protectionism. This reflex is not new, but it is wrong. A rising tide of stimulus and recovery is bound to flow unevenly as it lifts all boats. Outbursts of protectionism will sink all boats.

On the environment, there is a momentum toward global action to curb carbon emissions. The risk here is "carbon leakage" - i.e., rising costs of carbon usage in one country could push manufacturers there to relocate plants and jobs across borders to countries where carbon taxes are lower and production costs therefore cheaper. No national electorate will support environmental actions that penalize its country unfairly. And the purpose of a cap and trade system, as practiced in the EU and favored by the Obama administration, is to cut carbon emissions, not simply relocate them. (See article by C. Boyden Gray in this issue.) To be sustainable, sacrifices must be shared.

On defense, Europeans welcome new thinking in Washington, including a fresh start with Russia and with Iran and a clearer, more limited strategic ambition in Afghanistan. That is all- important since the greatest challenge in the security sphere probably comes less from adversaries than from disarray among friends. It is urgent to obtain working intimacy between NATO and the EU. (Bruno Tertrais analyses this in his article.) France, hosting a NATO summit for the first time, has framed its reasons for rejoining the alliance's military command very constructively - both to consolidate U.S.-European military cooperation and to incite stronger collective European defense efforts. President Sarkozy has repeatedly warned that "institutional progress" in European defense must be matched with "modern, robust and interoperable capabilities" if it is create a new military reality.

Helpfully for transatlantic coherence, the Obama administration is recalibrating its security doctrine around the notion of "smart power." This means that U.S. combat capabilities will be more closely married with diplomacy, development and other forms of soft power. Europeans who welcome this new approach need to reinforce the shift by coming up with more resources of their own, even in these dire economic times.

The EU and the U.S., separately and together, face mounting and competing demands on their scarcer financial resources. The array of threats - economic, environmental and existential - has come to a head simultaneously. In this perfect storm, the hope must be that the scale of the crisis can push leaders and peoples to surpass themselves and perform in exceptional ways. We must embrace a paradox of hope - that the difficulty of surmounting all these challenges will move Europe and the U.S. to a new level of mutual trust and cooperation. If that happens, it will mean that the opportunity was seized, the crisis was not wasted.

To paraphrase Winston Churchill, there are times when people must do better than their best. This is one of those times.