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:

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:

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.