Henri Simonet, “Energy and the Future of Europe,” Foreign Affairs, April
1975
(Summary by Harminder Bhullar)
The Main Point
Simonet discusses the problems
arising form the energy crisis, in particular the dependency of Europe on
imported energy sources, especially OPEC oil, and the challenge the European
Community faces to act as a single economic and political entity with OPEC’s
recent embargo and the staggering rise in oil prices. He also compares the
differences between Europe and the
U.S. in regards
to policy issues and probable outcomes or actions the two seek, and the barriers
each faces.
Summary
Background
The
U.S. and the
major European countries had long been at variance over issues such as money,
trade, and defense. The energy crisis in the early 1970s presented an even
greater threat to the industrialized nations. However, Simonet argues, even though Secretary of State Henry
Kissinger addresses the crisis in his “Year of Europe” speech
in April 1973, neither the
U.S. nor the EEC
(European Economic Community) was taking any action to
formulate a unified energy policy. The Community ignored the American demand
that trade, money and defense be seen in a common perspective, and before this
could be achieved, the Community insisted that they must work out a common
position.
However, in the fall of 1973, it
was revealed that Europe was unable to display “the
solidarity and the cohesiveness Europeans were supposed,” as a Community or as
an intergovernmental organization. The Community exposed its inability to face a
major challenge, the challenge which the oil embargo presented to them.
Simonet
states that the political and economic differences (btw U.S. and Europe) arose
due to the deterioration of the U.S. balance of payment and the subsequent
depreciation of the dollar, coupled with rapid expansion in Europe which raised
the value of some European currencies, thus distorting the general assessment as
to the relative strength of the two economies. Plus, the European will to assert
itself with its own political “identity” evoked the prospect of the Community
pursing a more independent course than that of the
U.S. The European countries were viewed as a
“loose aggregate of weakened states,” yet any attempt by the EEC countries to
implement a common decision was regarded as “useless procrastination or even as
counterproductive.”
Simonet
argues that despite all the difficulties, some accomplishments were made in the
field of energy in 1974. Even though France opted out (due to their objections
to cooperation with the U.S. and a joint approach by major oil-consuming
nations), the remaining eight nations of the EEC joined with the U.S., Japan,
Canada, and Norway to establish the Energy Coordinating Group (ECG) and
coordinate their policies with each other. This was an attempt by the
U.S. to form an
international organization that would be able to cope with OPEC.
He states that the two main
elements of the “American long-term energy strategy” were 1) implement an
“oil-sharing mechanism” to protect the main oil-consuming nations from future
embargos and 2) enforce oil-saving measures and promote a switch to alternative
energy sources to shift from a seller’s market to a buyer’s market. The
intention was to create an oil surplus, forcing major producers to either lower
the price or cut-back on production. Furthermore, an allocation of production
quotas among producers would weaken the cartel and its negotiation powers in the
future. Soon after, the ECG established an International Energy Agency,
embracing several additional nations, and implanted an oil-sharing program in
the event of another embargo. In committing to a unified policy with the
U.S., Simonet asserts, these member-states of the EEC expressed
their preference for the “American Strategy” over the French (who wanted no such
formal agreement) to build a countervailing power to OPEC.
In December 1974, an agreement
was reached between Presidents Ford and Giscard
d’Estaing to engage in a full-scale dialogue between producers and consumers,
but emphasized the need to coordinate their positions well in advance. One of
the three critical elements of their unified position was to have “financial
solidarity.” This meant making financial arrangements for individual countries
faced with difficulties due to oil deficits. In the past, the
U.S. had
resisted any such financial measures due to fear that they could intervene in
their own private efforts to negotiate lower oil prices. However, when American
officials failed to persuade Saudi
Arabia, Kissinger and Simon proposed a $25
billion “financial safety net.”
During this time, the European
Community had also made progress and set-up a Community Loan System which
allowed the EEC medium-term loans from the oil-producing countries to re-lend
the money to member-states experiencing balance of payments deficits under
specified conditions. This, Simonet asserts, was the
first step by Europe towards a unified economic policy.
The European members felt that their plan had more appeal as it had a stronger
possibility of participation and interest from oil-producing nations, than the
U.S. “safety
net,” which tended to exclude producers. In the end, the European plan, to
expand the IMF facilities involving direct contributions and a share of voting
by the producers, was voted in favor with Europe’s voting
power. Simonet asserts that this was most significant
in that the Community was able to come together as one on a common position and
negotiate as a single unit to an effective compromise.
Simonet’s
Argument
Simonet
states that two methods have been used in the past “to concert, as between
America and the
European Community, the necessary common positions on the central issues on
energy policy.” The first, represented by the negotiations of the ECG and the
International Energy Agency (IEA), views Europe acting as individual nations,
“closely linked but not seeking to form a single solid position in advance. The
second, negotiations of financial solidarity, see EEC operating effectively as a
single unit. He argues that the issue at hand for the European Community is how
they will form a broad solidarity among the consumer countries and make fairly
rapid decisions and action in formulating a common energy policy among the nine
nations, extending beyond merely economic and financial measures, to addressing
energy conservation and development of alternative energy sources. Although a
common energy policy is a matter for the Community nations themselves,
inevitably, the
U.S. has had to
lead the major oil consumers to cooperate and define their agenda. It is also
important that
U.S. external
energy policy reflect its pursuit at the domestic level, namely concerning
energy conservation and alternative sources, issues that remain unsettled among
the consuming countries.
He states, “it is precisely in connection with these issues that the need
for a Community energy policy is greatest and more apparent.” Although there are
only incremental differences among the Community members, the Community as a
whole occupies a position vastly different from that of the
U.S. The
Community’s realization of the need for common action will, he argues, bring a
common energy policy that will override past differences within the Community
that have prevented the development of such a common policy.
In addition, as the
U.S. continues
to lead, “its initiatives could be the impetus the Community needs to design its
own energy policy.” This is already apparent as U.S. “Project Independence,”
which suggests that the continued price of $11 per barrel of imported oil will
lower demand in the U.S. and cause a shift towards alternative energy sources
substantially eliminating the need for imported oil by 1985, had forced the
Community to define its basic objectives regarding imported oil. However, the
level of dependency on energy imports is much higher for
Europe than the
U.S., 63% vs.
17% for energy and 98% vs. 35% in case of imported oil. Therefore, he concludes,
although Europe cannot reach the same goals as the
U.S. as to be
completely independent of energy imports, they can try to be less dependent,
i.e. the suggested 7% cut on oil imports for 1975-76 by Community countries.
However, European countries can
commit to such a unified policy only if other oil-comsuming countries,
particularly the
U.S., implement
similar measures in. In regards to the development of alternative energy
sources, it is equally important that a common policy be implemented, while
differing policies by individual nation could jeopardize the entire effort,
which is likely to be very costly.
It is in light of such issues that
the European Community has “started to come to grips with” what concertation measures to adopt with other industrialized
nations “which are anxious to achieve the same energy independence objectives
within the framework of the International Energy Agency.
The two alternatives:
- Seek the establishment
of a consensus on this question within the IEA, and then ensure that the
consensus is accepted by non-members, including
France,
through diplomatic contacts.
- Prior to any important
decisions committing the IEA member-states, arrange for concertation of the nine Community member-states, which
should have a common policy and a common attitude in order for there to be any
consistent action.
He states that the Commission
believes that the second alternative is the only approach, in institutional and
political terms, since the Treaty of Rome establishing the EEC explicitly
provides for concertation among the Community nations.
Hence, the Council accepted the proposal by the Commission that “any important
issue involving the eight Community member-states within the IEA should be
harmonized in advance through concertation procedures
among the Nine, i.e., France.” He believes, that, although, this is hard task
for the Community, “the time is ripe for the Community to act on the key energy
issues,” as some members have already granted the IEA to act with majority rule.
However, he argues that there
still remains one point “which impinges especially on the problems connected
with the establishment of an external policy for the European Community.” This
concerns the development of contacts between the Community and the Arab
countries, “the Euro-Arab dialogue.” The problem, he says, is a delicate one in
many respects:
- First, the question as
to whether Europe has a political entity of its own,
which he argues, it does not in fact possess.
- Second, “the
involvement of the Community in the changing pattern of international
relations in areas where the U.S. has its own policies and strategies and, of
course, speaks with one voice,” which is extremely hazardous since the
existence of Israel is at stake, “which is the same as saying the world
equilibrium is at stake.” The Euro-Arab cooperation may lead to an even more
complicated solution to this issue. Furthermore, he notes, “the Community’s
political coherence may be put to the kind of test to which it is at present
unable to respond.”
He argues
that mere mention of such issues not only indicates the complexity of the
present situation, but is also an admission that “the Community is not—yet—a
political power in a position to adopt decisions and exert influence. And
Europe can act as a single entity only if a) there is a
consensus among member-states and b) there is a basis for a common decision. And
while this is far from the case, it accounts for the
U.S. attitude of
“active reluctance” towards Europe.
Conclusion:
The
staggering increase in oil prices has markedly changed the whole context of
U.S.-European relations. Member countries realize the need to “harmonize” their
views and work on a common policy. He argues that “though some suspicions as to
the role of the United States has played in the oil crisis still linger, nobody
now thinks, as some once did, that it was all engineered by the United States or
at least that the Americans had endorsed it.” The two have negotiated towards
“mutual consultations,” the GATT agreement in regards to trade, and the expanded
IMF in regards to money.
“..there is at least the first outline of a new
partnership in the limited though essential field of energy.” He argues that,
although new difficulties may arise, “the dialogue on
the momentous issues which face and will face the industrialized countries of
the Alliance is taking shape.” He
ends by referring to the title of Kissinger’s speech, asking whether the “Year
of Europe” is at last here, and concludes that only when the Europe can answer
the question, “whether Europeans want to live up to the stern conditions of a
real Community that involves not only a common market and common economic and
financial policies but also a common political vision and a coomon decision center, on all the issues which are of a
fundamental European concern and interest,” will the “Year of Europe” have
arrived.