Europe – be careful what you wish for!

French Finance Minister Bruno Le Maire has told French radio that U.S. President Donald Trump’s decision to withdraw from the Iran nuclear deal was a mistake, adding that the United States should not consider itself as the world’s

“economic policeman.”

The Europeans, in particular the British, French and Germans, are angry at Trump’s unilateral withdrawal, but when in Washington D.C. in  April 2018, French President Emmanuel Macron said he would be looking to a wider deal to address Trump’s concerns, namely Iran’s ballistic weapons programme, its regional involvement and its  support for international terrorism.

These issues, the French believe, could be addressed without ditching the nuclear deal – which raises the question of why they were not addressed in 2015 in the first place and the related question of why it took 12 years to come to the agreement?

The answer is Iranian intransigence. All Iran had to do was to renounce these activities, and it would have reaped huge benefits from Western investment, trade and expertise years or even decades ago.

However strongly the Europeans feel on the U.S. withdrawal, their critique is fraught with huge risks.

Since 1945, the U.S. has frequently been frustrated at a classic example of the free rider problem:

The free rider problem is a situation where some individuals consume more than their fair share or pay less than their fair share of the cost of a shared resource. It is a market failure that occurs when people take advantage of being able to use a common resource, or collective good, without paying for it, as is the case when citizens of a country utilize public goods without paying their fair share in taxes. The free rider problem only arises in a market in which supply is not diminished by the number of people consuming it and consumption cannot be restricted. Goods and services such as national defense, metropolitan police presence, flood control systems, access to clean water, sanitation infrastructure, libraries and public broadcasting services can be obtained through free riding.

https://www.investopedia.com/terms/f/free_rider_problem.asp

This is Economics 101, but the Europeans seem to have great difficulty in understanding the concept. Even more surprisingly, the in-house journals of the global elite, The Financial Times and The Economist still have not grasped the problem.

Now, for the first time ever, an American president is seriously questioning the ability of the U.S. to act as global policemen – and he has very solid reasons to do so.

Most Europeans countries – the United Kingdom is a notable exception – have refused to pay their way on NATO while sheltering under the hugely expensive U.S. nuclear, conventional and security umbrella, leaving the U.S. to shoulder most of the defence burden for NATO – and that is without mentioning America’s allies in Asia and elsewhere.

This strategy resulted in huge benefits between 1945 and the early 1970s/1990s. The Europeans were able to invest the money saved on defence in their own economies, which resulted in a higher standard of living than would otherwise have been possible.

Now, however, the U.S. has the biggest debt in global history and can no longer afford the largesse it distributed  after 1945.

Trump is already highly sceptical of NATO and the contributions of most European countries. He is potentially a two-term president who could be in power until 2024 – and he might just decide fine, let’s marginalise or even scrap NATO and let Europe pay in full for its own defense.

Europe should not run this risk, even for the lucrative oil, airplane and other deals it has signed with Iran.

And yet Germany, for instance, is still unwilling to meet its promise to spend 2% of its GDP on defence. Indeed, the country is doing so well economically, with tax revenues rising, that its defence spending looks set to fall as a percentage of GDP.

France, however, has more room for manoeuvre with the U.S. After a decade of spending cuts and a 2017 budget which saw the country allocate only 1.7% to defence, President Macron approved an increase of EUR 300 billion by 2025 to take spending on the military over 2%.

 

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