Forex traders thought otherwise. A few days after we met, Professor Yu’s comments at Davos on the floating of the yuan sparked another wave of selling.

Of course, Yu Yongding is neither unimportant nor just an academic. Director of the prestigious Institute of World Economics and Politics at CASS, Yu is the only external representative on the Monetary Policy Committee of China’s central bank and has an inside track on the hottest issue in global finance. But unlike the tight-lipped officials from the People’s Bank, any conversation, class or conference with Yu Yongding yields genuine insights on the direction of China’s economic policies. ‘It’s not my power, it’s China’s power’ he replied when I asked how he felt holding the fate of the dollar in his hands. But as the rest of the world tries to puzzle out the implications of this growing power, it is increasingly to people like Professor Yu that they need to turn.

This is as true for political intelligence as it is for the world of high finance. In the not-too-distant past, policymakers could afford a degree of sanguinity about their thin understanding of Chinese intentions when they formulated their positions on humanitarian intervention in Darfur or coordinated efforts to exert pressure on Iran to freeze its nuclear programme. Outside a narrow field of China’s direct interests, they could generally have confidence that, while there may a certain volume of diplomatic noise, when it came to the crunch China would keep its head down. But that ‘narrow’ field has been expanding at the same rapid pace as the Chinese economy. Burgeoning trade relationships, ravenous demands for energy and raw materials, and a new found enthusiasm for multilateralism have already turned China into a fully global actor. For the first time since Maoism was its primary export, you are as likely to read about China in the Europe or Latin America sections of the paper as the Asia Pacific pages. Policymakers are waking up to the fact that on the most pressing global issues, China may be a critical part of the solution – as it has been in the Six Party Talks on North Korea – or, less positively, it may act to undercut European and American efforts to exert economic and diplomatic pressure on countries such as Sudan. From peacekeeping to climate change, from the US trade deficit to Japan’s economic recovery, there are few conversations that now take place without China cropping up somewhere down the line. Chinese policymakers are also getting their heads round the transformation this implies. As one prominent Beijing-based academic explained: ‘There has been talk in the United States of China’s rise for many years but Chinese leaders didn’t really adopt this standpoint themselves. Last year that changed. For the first time there was a sense that China had genuine economic strength and this provided the confidence and impetus to take a fresh look at China’s foreign policy’.

But most of the conversations outside China include questions that have no straightforward answers, as the growing numbers of people following Peter Mandelson’s injunction that ‘we all need to become China experts now’ face a number of obstacles. Anyone trying to make sense of America’s role in the world has, from within the United States alone, countless websites to consult, every third newspaper column devoted to the subject, the output of hundreds of think tanks, and a vast list of books that provide illumination for the interested non-expert. Taking a trip to Washington, he can hold meetings from Foggy Bottom to Dupont Circle to the Pentagon that are straightforward, revealing and open. After a time, it is not unrealistic for him to expect to emerge with something of a picture of the competing agendas, interests and ideas that are shaping US foreign policy. Whether or not he likes what emerges, he can see the kaleidoscope of the process in its full colour.

It is safe to say that this would not be his experience from a trip to Beijing. While the ‘China hands’ have their long-established networks of friends and associates to give them the bottom line, the enthusiastic neophyte has a hard task on his hands if he wants to penetrate beyond the Party line and a few convivial meals. Moreover, the putative China expert would have little luck finding an e-subscription to ‘Strategy and Management’ to add to his bookmarks list next to ‘Foreign Affairs’ and ‘The National Interest’, laying his hands on tell-all memoirs by Chinese security policy advisers to stack with his Scowcroft and Brzezinski tomes, or skimming through the latest report from hardline Chinese military strategists. Unlike the perspective afforded on the US, the end result for the policy analyst who trains his eyes on China is often a picture that is black, white or a fuzzy grey. When they climb on to the plane to London or Brussels to return to work on their principal policy focus, whether peacekeeping in Africa or UN reform, their new strategies will probably not be infused with the ‘China dimension’ they know they need.

If foreign policy were crafted solely by diplomats this would be less of a concern. The top sinologists in Guangha Lu and Sanlitun would feed briefs back to the capitals, deal with queries from their Europe or US desks when they came up, comment on ‘The World in 2020’ papers from their policy planners and everyone would be happy. But in a world where NGOs, businesses, think tanks, political parties, a range of government departments, the media and broader public opinion all have a major role to play, it matters a great deal if this array of non-expert stakeholders in the policymaking process don’t have access to the information necessary for factoring China into their thinking in the right way.

It was with this challenge in mind that the Foreign Policy Centre established its new programme on ‘China and Globalisation’. Launched in Downing Street during Wen Jiabao’s visit to the UK, among its major premises was that policy thinking on China and most global issues beyond will be much the stronger if as broad a constituency as possible is informed by a ‘technicolour’ view of the country. While traditional China specialists have been involved at every stage since its initial conception, the programme has been explicitly aimed as much at the policymakers, businesspeople and thinkers whose exposure to China has been more limited. On issues ranging from energy to technology, from global governance to Sino-European relations, the goal has been to expose people to China’s evolving international role in its full complexity, to do so at first hand rather than mediated through the eyes of outside observers, and to ensure that there is a two-way flow of people and ideas. With the global power transition that is underway, China is not an isolated case in this respect. As we argue in a new pamphlet on British public diplomacy:

‘the overcoming of international divisions requires a broader understanding in British society of the context of decision-making in the US or China, or India or Turkey, quite as much as it requires a broader reciprocal understanding of the UK – a mutual immersion. This understanding is essential if decisions and actions – and in particular apparently dissonant actions such as the war in Iraq – are to be interpreted by others in a positive light rather than sowing the seeds of division or creating antipathy’.

Naturally, we are not alone in these efforts, which also form a vital part of the work of organisations such as the Great Britain China Centre and the British Council, with whom we have been delighted to collaborate, but this has been a particularly propitious time for a think tank to launch a venture of this sort. Firstly, because the new leadership in Beijing has recognised the urgency of these issues too and is starting to do something about them. A perspective in grey is a perspective that is likely to be characterised by fears and suspicions about motives, problematic miscalculations an underlying lack of trust. China can’t afford an external environment of this sort any more than the rest of the world can afford to get their China calls wrong. At one level, this has led to a shift in the foreign ministry’s treatment of journalists, which has become increasingly open. Bilateral dialogues between government ministries have been expanded and white papers on foreign policy have been published in English. At another level, the government has seen increasing value in research institutes’ holding more open and expansive discussions than can take place through official channels. When Wen Jiabao arrived in the Hague for the EU-China summit last year, he made a point of making his first port of call a gathering of European and Chinese think tankers, who briefed him on the outcomes of their pre-summit roundtable.

In itself, this is nothing new – the Chinese government has long used its think tanks, all of which are attached to specific government ministries or to the State Council itself, as one of the instruments in its diplomatic tool kit. But this is a very different context to the early 1980s when the Chinese People’s Institute of Foreign Affairs (CPIFA) and the Chinese Institute of Contemporary International Relations (CICIR) were the main conduits for “people-to-people” diplomacy. The think tank environment in China is now in a far more evolved state and government policy is increasingly emerging out of analysis rather than analysis serving to provide ideological justification for policies after the fact. While there may still be hesitancy about ‘public intellectuals’ in the ‘telling truth to power’ mould, the flourishing new media in China, which have increasing influence on the leadership’s thinking – from FT-style newspapers to ‘talking heads’ television shows – have created a voracious demand for comment and opinion on international affairs that the likes of CASS have rushed to fill.

Chinese leaders have also made a point of showing their openness to new ideas. The Politburo famously organised a series of internal lectures (‘study sessions’) for the senior leadership from China’s top intellectuals, on subjects ranging from ‘The Rise and Fall of Great Powers’ to ‘The New Developments in International Military Transformation’. Some of the lecturers, such as Jiang Xiaojuan, have subsequently been brought in to work in the Premier’s policy office and others have been asked to submit detailed policy proposals outlining their thinking. The ‘supergroup’ among Chinese think tanks, Zheng Bijian’s China Reform Forum, with experts pulled together from many research institutes and universities, was tasked with a major multidisciplinary process of research to feed into China’s ‘peaceful rise’ strategy. The rise and fall of that particular theory, with large-scale internal debates that were little concealed from the public, in itself illustrated a policymaking process of a kind that would have been unrecognisable even in the 1990s. It’s not just Chinese think tanks that are getting the audience either – our first publication, The Beijing Consensus, by Joshua Cooper Ramo, saw its most dramatic reaction in China itself. Described on CCTV as ‘perhaps the most influential paper in China by a foreigner since Reform and Opening’ we were pleasantly surprised to hear that it had been translated and circulated in full among the Politburo and a wider group of 5000 Chinese leaders as well as being made the subject of a primetime television programme. The list of institutions that foreigners have access to is also growing. In addition to the traditionally designated ‘open units’, research bodies from Zhongnanhai itself have been given growing license to deal directly with the outside world – we had the opportunity to host a seminar with the Policy Research Office of the State Council in London following their recent training programme with the Prime Minister’s Strategy Unit.

With Chinese think tanks increasingly influential both in public and high-level private forums, rapidly expanding the intensity of their international contacts, opening up to outside ideas and gaining the solid support from a leadership that recognises the value of their activities, there are important opportunities for an organisation like the Foreign Policy Centre to make an impact. We have an ambitious range of activities lined up for this critical year in Sino-British relations, which sees Hu Jintao’s State Visit and Britain’s Presidency of both the EU and the G8. As well as a variety of events with senior Chinese and European leaders that aim to advance thinking on the long-term future of EU-China relations, the Centre will be publishing the liveliest material from contemporary debates in China, establishing a fellowship to provide a European base for visiting Chinese policymakers and thinkers, setting up one of the first offices by an international think tank in Beijing, and providing a platform for China’s most prominent intellectuals. While the opening up of China’s opaque decision-making processes takes place, the need for avenues through which policymakers can get an accurate picture of the state of the latest thinking here is clear. In the months and years ahead, it is organisations like the Foreign Policy Centre that we hope will be in the vanguard in the task of making ‘China experts’ of as many people as possible.

Andrew Small is a researcher at the Foreign Policy Centre. As well as coordinating the Centre’s programme of work on China he has worked on national, regional and global public diplomacy strategies for different European governments. He is currently based in Beijing.

Andrew Small is a researcher at the Foreign Policy Centre, and currently based in Beijing. He coordinates the FPC’s
China programme, and has worked on national, regional and global public diplomacy strategies for several European governments.

The China Review is the quarterly magazine of the Great Britain-China Centre (GBCC). For more information visit www.gbcc.org.uk

In their recent comments on your pages, William Pfaff and Viktor Erofeyev have once again over-simplified the analysis of Vladimir Putin’s Russia. Their basic premise is sound: The West should not senselessly turn Russia, a key strategic partner, into an enemy by rash and ill-considered outbursts at Putin’s “antidemocratic” reforms. There is little doubt that Putin’s government is in an unenviable position of having to find a way to reassert the authority of the weak and corrupt Russian state.

It does not follow, however, that Europe should stand back and watch as Putin centralizes power and damages the prospects for Russia’s democratic and economic development. It is precisely because Russia is the West’s “strategic partner” that we must take an active interest in its fate.

Europeans must now work more effectively to persuade Russia’s leadership that guaranteeing the rule of law and allowing for a more open public debate will not only make for better relations with the West, but promote domestic stability and prosperity as well.

The West must avoid the traps of advocating unrealistic change and denying that anything can be done. Instead we should place the focus on progressive and attainable reforms that benefit the Kremlin as well as the Russian people.

There’s no need to exaggerate the problem: the figures speak for themselves. Trains on the UK’s Virgin West Coast line were delayed by an average of seven minutes each in 2003, compared to just 26 seconds for the high-tech bullet trains on the Tokyo-to-Osaka commuter line in Japan. France’s new high-speed train link takes passengers between the country’s two economic hubs of Paris and Marseille, 758km apart, in not much more than three hours – while passengers between Edinburgh and London travel the more modest 530 km in four-and-a-half hours. Nor do we pay less for as much: recent research by the Liberal Democrats shows that £10 will take a passenger only 25 miles on the UK railway network on average – compared to a staggering
175 miles in Italy.

Unsurprisingly, the unreliability and expense of public transport have increased the appeal of private cars – creating logjams on an overburdened road network, adding to emissions of CO2 and air pollutants, and showing us up still further against our greener and more efficient neighbours in Europe. Road congestion is worse in the UK than anywhere else in the EU. Congestion causes average delays of more than an hour on a quarter of Britain’s major roads, against only 4.5 per cent of roads in France, and 7.5 per cent in Germany.

To many, unreliability, inefficiency and overcrowding are a straightforward consequence of decades of under-investment in transport across the board. A 2001 report from the Commission for Integrated Transport (CfIT), which provides ‘blue skies thinking’ to the government on policy, concluded that Britain’s transport system had been “half-starved of investment for nearly half a century”.

It points out that between 1990 and 1995 France invested nearly 50 per cent more per person into transport infrastructure than Britain, while Germany invested two thirds more – despite the far superior infrastructure that both countries already enjoyed.

This exemplifies the historical ground that Britain now has to make up. The result: the user pays more at the point of service than anywhere else in the rest of Europe, where the taxpayer bears more of the cost; yet receives a poorer service. Increase investment, the argument goes, and the transport system will take care of itself.

Yet many argue that the problem lies in deeper structural and management problems that make extra investment ineffective.

Under pressure from the public, the government has significantly
increased investment in transport since the Hatfield crash, and moved transport up the priority list next to schools and hospitals.

Although there have been improvements, notably a welcome increase in punctuality in 2004, these have been modest: nearly one in every five trains in Britain still runs late, and Network Rail, the not-for-profit company created to run the railways after Railtrack’s demise in 2001, is only aiming to reach pre-Hatfield punctuality levels by 2009.

France’s slick SNCF rail network, critics stress pointedly, is not split into 26 private train operating
companies (TOCs) with dividends to pay and profits to make, operating under complex franchise arrangements, and regulated by a dizzying array of organisations and watchdogs.

The apparent inability of Network Rail and TOCs to deliver improved train services has led to growing calls to renationalise the railways. Delegates at last year’s Labour Party conference voted overwhelmingly in favour of “resolving
the fragmented structure of the industry by introducing an integrated, accountable and publicly owned railway”.

The Green Party included a pledge for renationalisation in its 2005 election manifesto. And a recent report from the Catalyst think tank makes a convincing case that not only could Britain afford the one-off costs entailed, it would bring almost immediate savings – to the tune of £500m a year. In fact, it is unlikely either that any single factor is to blame, or that there is one clear-cutsolution.“

The extra investment ploughed into the transport network in recent years is merely clearing a backlog of decades of under-funding,” says Dr Steve Toole, transport advisor to the Liberal Democrats. “We should gradually start to see modest year-on-year improvements, but the big question still to be resolved is just how deeply the public sector should be involved in running the system.”

Ironically, although Europe shows up our shortcomings most cruelly, it could also provide some of the benchmarks and incentives to improve it. Francesco Grillo, director of the Italian think tank Vision, believes that smarter use of technology and road-pricing systems could help the UK, and especially the congested South East, to overcome some of the more formidable problems that it faces compared to its less population-
dense neighbours. It could also stand to learn from others.“

If you combine the experiences
of 25 countries, many of which – like Estonia – have devised original solutions to transport challenges, the potential
is enormous,” Grillo argues. “Brussels is wary of producing country rankings; but better knowledge-management could help identify critical situations and share best practice.”

“What does Britain get out of Europe anyway?” is the question that most frustrates pro-European politicians. “Better roads, trains and buses,” would be a snappy reply – and even the Sun would be hard put to argue against European improvement of Britain’s roads and railways.

The EU has already played a part in raising the bar in UK transport standards: a measure pushed through by the European parliament last month means that train companies across the EU, like airlines before them, will now have to compensate customers in cash for delays.By promoting the sharing of information and technology, and creating ‘peer pressure’ through comparisons and minimum targets, Europe could yet play a part in dragging Britain up to meet transport standards on which it currently falls sorely short.

LUCY AHAD is communications manager at the Foreign Policy Centre, the European think tank on international issues. For more information visit www.fpc.org.uk Despite increased investment, Network Rail is aiming to reach pre-Hatfield punctuality levels only by 2009

The French president may be trying to make a link between the failed referendum in France and the UK rebate, but that wasn’t his tune before the vote. As long ago as February 2004, he attacked the rebate as “indefensible”, but in February this year felt that he could get still a positive result in a referendum.

He is clearly embarrassed by his defeat, and the grand political theatre going on in Brussels over the UK rebate and the 2007-13 EU budget has raised the stakes even higher for him. Jose Manuel Barroso, the president of the European Commission, has warned that failure to agree the budget this week will plunge the EU into a crisis of confidence.

But Mr Chirac, like Mr Barroso, may be miscalculating. They seem to assume, or at least try to imply, that a lack of popular French support for the EU has to be reversed by denying Britain its rebate. This is bad politics. The European project is not dead in France. The electorate did not vote against Europe per se and the budget rebate was always going to be on the agenda. The No camp’s slogan was “J’aime l’Europe et je vote non” (I love Europe but I am voting No).

In a poll on the day of the vote, 72 per cent said they were comfortable with the “pursuit of European integration”. More than 60 per cent of No voters explained their decision with reference to rising unemployment.

Mr Chirac is under fire from Valery Giscard d’Estaing, the former president and architect of the constitution, who accused him of confusing voters and of using the referendum for his own ambitions in the 2007 presidential election.

The crisis widely trumpeted as afflicting the EU is actually a crisis afflicting France. Mr Barroso’s fear of a “contaminating” effect from the French vote on the EU as a whole will not be realised. The French are stamping their feet in a symbolic protest against a national government. What is in doubt is the French leadership, not the support of one of the EU’s founding states for the European project.

The contents and vision of the treaty need not be abandoned; rather, EU leaders have to change course on the ratification timetable and accept that the French vote was about other things. France still likes the European project, and will probably vote Yes in a referendum once Mr Chirac is out of office.

During his European tour in February 2005, President Bush bluntly warned European leaders that they must “sell” the lifting of the arms ban to Congress or face retaliation in the form of restrictions on lucrative European defense contracts in the U.S. market. That warning was repeated to Brussels by Deputy Secretary of State, Bob Zoellick.
In contrast, with hostile sentiment in the U.S. Congress, the Bush Administration itself — with few exceptions — is taking a more moderate approach, saying that the U.S. government will judge EU policy not by changes to this or that regime, but by what the EU actually sells to China. There are several reasons for this.
First, the administration knows that other limits on arms sales will still apply after the EU lifts the embargo, which has been in place since 1989.
European countries — alongside other states like Canada, Japan and Australia — will continue to apply restrictions on sales of military-related technology to China.
They do so under a number of regimes that include China, but do not target it exclusively (such as the Wassenaar agreement or the Missile Technology Control Regime).
Strengthening EU Code of Conduct
The Bush Administration is also well aware that Brussels will accompany the lifting of the 1989 ban with a strengthening of the EU Code of Conduct on Arms Exports to address American concerns.
Second, the administration knows that the United States has sold much more military-related technology to China than Europe has in the 16 years since the ban was imposed.
U.S. military sales
The United States was more liberal in its sales policies under President Clinton.
In some years, the total value of military-related technologies approved by the United States was in excess of $1 billion. This compares with just $200-300 million a year in total for the few EU member countries selling to China.
Third, and most importantly, EU sales after the arms ban is lifted would be insignificant in affecting the Chinese calculus of risk for using force against Taiwan to prevent secession. This is true even if they are doubled or even tripled from present value in the next five to ten years.
A miniscule contribution
At the same time, such sales would definitely contribute to an improvement in China’s military capabilities. But the contribution would be miniscule and would likely take ten to 20 years to have any effect at all on the capacities of the Chinese armed forces for large-scale combat operations.
This is even the assessment of the U.S. Department of Defense, an organization which until recently has had a reputation for being “hawkish” on China.
A political strategy with a military component
In their 2004 report to Congress on China’s military power, the Pentagon assessed, “Beijing still has a political strategy for unification with a military component, not a military strategy with a political component.”
“Its longstanding approach to resolving the cross-Strait standoff is multifaceted, integrating political, economic, cultural and military strategies to exert all of its national power to dissuade Taiwan against ever crossing any red lines.”
Most importantly, the Pentagon noted that “China does not wish to attack Taiwan,” but that “it needs to be prepared to do so for the non-military components of its strategy to be sufficiently persuasive.”
One of the leading China security specialists in the United States, Bates Gill of the Center for Strategic and International Studies, assessed as recently as March 2005 that lifting the EU arms embargo imposed in 1989 will have little impact on China’s military technology development.
Lifting the embargo
Bates Gill observed, “Lifting the embargo in and of itself will have little impact on technology flows of concern to China.” (Testimony before the Committee on Foreign Relations, United States Senate “Lifting of the EU Arms Embargo on China,” March 2005.)
According to the US Department of Defense, “self-sufficiency will continue to be China’s long-term defense industrial goal.” (From the 2004 U.S. Department of Defense Report to Congress on China’s military strength.)
Promoting a peaceful resolution?
The Pentagon also assessed that if the EU eased its restrictions, “Beijing likely will continue to look to Russia to fulfill its military procurement goals and Russia most likely will remain the primary supplier of China’s advanced conventional weapons.”
The Pentagon also assesses that self-sufficiency, not foreign imports, will remain the main strategy of China’s military industries and procurement planning.
The anti-secession resolution passed in March 2005 by China’s legislative body, which authorizes the use of force against Taiwan in certain circumstances, appeared as a strong vindication of Congressional opposition to lifting the EU ban.
Although ill timed, the law does not represent a hardening of Chinese policy on Taiwan towards a more aggressive stance.
In fact, the new law actually represents a hardening of China’s commitment to a peaceful resolution of the problem. The law mandates the exhaustion of all possible means for peaceful resolution of the dispute before a resort to military means.
Settling the Taiwan issue
Such language has never before been used by the Chinese government in respect to settling the Taiwan problem.
After the EU lifts the ban, there may well be some differences between the United States and its European allies as to which arms are restricted to China — and which are not. But in terms of the motive forces of world power politics — or the big decisions for war — these differences will not be significant.
Domestic considerations
As is usually the case with sanction regimes, the fierceness of Congressional opposition to the lifting of the embargo stems more from domestic political considerations than from any evaluation of the embargo’s effectiveness in changing the policy of the target state.
As the U.S. relationship with China remains fiercely contested within the senior levels of the Bush Administration, there are persistent disputes all the way up to the president.
It must be noted that some of the loudest U.S. critics of the EU plans to end the 1989 arms ban are just as critical of the U.S. government for its own approach to the issue.
Many in the United States who attack Europe on this point are in fact using it as a proxy in the domestic argument.
Europe must now face down the alliance of special pleaders within the United States to convince the Congress that it will continue to restrict the sales of weapon systems to China effectively — much as the United States does itself. This is true even if the 1989 China-specific ban is written off the books.
Tactful diplomacy
This will require a vigorous public diplomacy campaign involving senior European political figures and well-informed specialists to explain the EU’s position to the American public and their elected representatives in Congress.
Leading EU member states — namely Britain, France, Italy and Germany — must act together to deliver a common message. Failure to do so could lead to a dangerous misunderstanding that the transatlantic alliance can ill afford.

The economic rationale for greater collaboration has clearly helped to push longstanding political differences aside. India’s Prime Minister, Manmohan Singh, admitted as much with his recent statement that, “ultimately, foreign policy is the outcome of economic policy”. Both sides have recently begun to talk warmly and optimistically about India-China relations. China’s rise as a global economic power is being watched with envy in India. But India is being taken seriously too as a rising power, particularly in the IT, outsourcing and services industry. Both see strong benefits in seeking to leverage off each other’s strengths by increasing trade, investment and joint technology projects.

One of the most ambitious ideas is the Chinese proposal of a Free Trade Agreement between the two countries, which, if concluded, would form the biggest free trade area in the world. This has not however elicited much enthusiasm from India, which, fearing being overrun with cheaper and better quality Chinese goods, is pushing instead for a Bilateral Investment Promotion and Protection Agreement. Although any such measures would undoubtedly, it is easy to lose sight of the fact that these developments are coming off a very low base. China is much more integrated into the world economy and less reliant on any economic agreements it may sign with India; its bilateral trade with the country accounts for only one per cent of its global trade.

In fact, the true implications of a new India-China nexus for the geo-economic balance of power go beyond any bilateral trade and investment agreements. Their growing willingness to form an effective alliance on matters of common interest or concern on the world stage is giving other nations cause for thought. Most famously, India and China played a leading role in the world trade negotiations in Cancun in 2003 among the new G-22 coalition of emerging powers, which put forward a proactive agenda to oppose the EU-US stance on agriculture. The Sino-Indian alliance was a crucial factor in the eventual collapse of the talks; and it is not difficult to imagine how similar collaboration in the future on key issues of economic governance could impact on the centre of gravity. Already there are increasing calls to involve both countries more deeply into governance institutions by expanding the G-8, reconfiguring its membership, or replacing it with a G-20 or G-22.

India and China have other reasons for collaborating on the international stage. Both countries would like to give a more prominent voice to developing countries; and despite the benefits that they have gained from globalisation, believe that the rules of the international economic and financial system are still skewed in favour of the western hemisphere. As the Indian Finance Minister, P. Chidambaram said on a recent visit to London to attend the G-8 summit of ministers – the first time that India was invited to the event: “The real question is the terms of engagement in globalisation. As of today, the terms are heavily weighted in favour of the developed countries. Millions of people in the developing countries, and in the least developed countries, watch in silence, and with a growing sense of bitterness, that the Age of Prosperity is passing them by”.

The hunger for resources in energy and raw materials to feed their growing economies is another factor motivating the two countries to seek increased ties internationally, from Africa and the Middle East to South America. Both are for the first time emerging as donors providing development aid to poorer countries, setting up a Forum on China-Africa Cooperation and an India-Africa Fund respectively to assist their efforts.

The unconventional approach that both countries have pursued towards economic development – albeit with more success in China than India – is fuelling interest internationally and rekindling old debates. Greater government involvement in the economy, captive banking sectors and less openness mark them out from the paradigm of the Washington Consensus. These policies have nevertheless helped to lift nearly 300 million people out of poverty within a decade. African leaders and state development planners increasingly talk of their interesting an alternative East Asian development paradigm. Through their increased role in global institutions or more directly by example, the combined impact of China and India will be magnified in the world economy.

At the sidelines of the Asean summit in 2004, Wen Jiabao told his Indian counterpart, Manmohan Singh: “The handshake between you and me will catch the attention of the entire world”. If India and China can continue to act in concert on the world economic stage, his words will be proved right.

Four years later, I celebrated Schröder’s second general election victory in London and, on that occasion, felt nothing more than a surge of relief.

This time around, though it pains me to admit it, I am not so sure. In fact, let me be honest: although I will not vote in this election, being long settled in London, I think Germany will be better off if Angela Merkel wins next Sunday.

I have been a progressive all my life: SPD in Germany, New Labour in Britain. So for me to find myself backing Merkel is as big a step as it was for Democrats to back Reagan and disenchanted Tories to back Blair. But the truth – and one which many on the Centre-Left in Germany are embracing, however reluctantly – is that the Schröder years have been an era of abject disappointment.

Look at the German economy: its strengths remain fundamental, and, to a great extent, untapped. That is why Schröder’s delay in launching the economic reforms that Germany so badly needs has been inexcusable. Meanwhile, unemployment has soared to five million, or 11 per cent, levels last seen in the days of the Weimar Republic.

Some observers claim that unemployment has actually been healthy for German businesses because it has enabled companies to shed labour, cut costs and extend working hours without resistance from the unions. That is a point of view. But it shows little grasp of the corrosive effect long-term unemployment has on any society, and – more darkly – the appalling uses to which extremist parties have turned the grievances of the jobless in the recent German past.

Earlier this year, Schröder finally introduced a package of reforms, the so-called Hartz programme, but has encountered formidable difficulties in driving them through his own party. Part of the problem is that the SPD, unlike the Labour Party, has never had to go through a painful process of internal reform.

In Britain, losing a general election means powerlessness, then irrelevance and – possibly – extinction. In federal Germany, the political blow of losing an election is never so severe. Even in its 15 long years of national opposition, the SPD still held power in some of the key Länder, or states: it never really tasted life in the wilderness, and the desperation that comes with it.

During this election campaign, one in which the polls continue to oscillate, Schröder has made much of the fact that Germany is the world’s leading exporter. No thanks to you, Germans might reply. It is precisely because Germany remains so central to the world economy – its links with the US are particularly intimate – that it needs comprehensive labour market reform, quickly and courageously delivered.

Labour market reform is in everyone’s interest. My former boss, Denis MacShane, who was then Europe Minister, used to send cards, entitled “Social Britain”, to fellow politicians in other European counties, when he was trying to persuade them of the merits of the opt-out from the European Working Time Directive. Lighter regulation, he argued, would make it easier for -companies to employ workers. Unemployment would fall. And – the richest irony – the unions who had been resisting market liberalisation would gain new members.

Germany in 2005 is not like Britain in 1979. It is easy to bill Angela Merkel as Thatcher-on-the-Rhine – easy, but wrong. The last thing Germany needs after the traumas of reunification is a collective handbagging. She will face formidable difficulties in building a consensus for her proposed market reforms. But it seems that she is willing to try, and as the first prospective Chancellor to emerge from the old DDR, has a “back story” that has the potential to mark a new beginning in German political history.

There is every sign that Mr Blair would be less than heart-broken if Schröder is defeated. His opposition to the Iraq war and close alliance with Jacques Chirac over the EU rebate have scarcely endeared him to the Prime Minister. In June, Mr Blair laid out his vision for Europe in a powerful speech to MEPs. His message was that if we are serious about enabling Europe to compete in the globalised economy, then new rules and a new culture are required. The view in Number 10 is that Schröder is not capable of delivering this change.

It was no accident that Mr Blair broke protocol when he went to see Merkel at the British embassy before an official visit to Schröder in Berlin in June. The two politicians have fundamental disagreements (not least over Turkey’s membership of the EU, which Merkel, quite wrongly, opposes). But there was evidently a meeting of minds over economic reform. One can only hope that their relationship, should she become Chancellor, is sufficiently strong for Mr Blair to persuade her to change her position on Turkey.

As a German living abroad, finally, I fear for the German national psyche – and it is this, above all else, that has persuaded me that some things matter more than tribal party loyalty. It has always amazed me that a country that has taken on and achieved so much through re-unification can be so down-beat. But it is. Any other European country that had taken on an economy as shattered as that of the former DDR, would probably have collapsed. Yet Germany did not. It still has an extremely efficient infrastructure, highly-skilled workforce, world-class innovation and rich natural resources.

And yet few in Germany feel the confidence that might be expected to flow from this historic achievement. Though the world caricatures the German mind as aggressive and orderly, it has a deeper, melancholic streak: Germans famously see the glass as half-empty. And, at present, unsure of its destiny, it is no exaggeration to say that Germany is in the first stages of a national nervous breakdown. If we are so mighty, Germans ask, why do we feel so bad?

What Germany needs is something as basic as a new start. Even New Labour’s fiercest critics would be hard pushed to deny that Britain – a country that had grown grey and tired – was rejuvenated by the first Blair victory in 1997. Of course, Germans thought that their own new dawn had come in 1998 with the arrival of Schröder – only to realise that they were still sunk in twilight. Perhaps next week, under the improbable leadership of a female conservative from the East, they will believe at last that their moment has come to be led into the sun.

Sarah Schaefer is Director of the Europe Programme at the Foreign Policy Centre

By contrast, the three-party left-wing bloc, led by former Labour Prime Minister Jens Stoltenberg, but also including the Socialist Left and Centre parties, scored 51.1 per cent, enough to give them an absolute majority in the Storting, Norway’s lower house, with 90 out of 169 seats. The far right Progress Party, which had been informally supporting the government but recently fell out with it, is slated to win an impressive 19.1 per cent.

The question of a third Norwegian application to join the EU is not an issue in the election. Nevertheless, Stoltenberg is far more enthusiastic than Bondevik, and has told friends that if the level of support for membership, which has risen to more than 50 per cent in recent polls, continues to grow he would favour calling a third referendum on the issue.

A cautious man, Stoltenberg will not act precipitately, and is only too aware that the two previous referenda were deeply divisive, not least in his own party. He is, however, thought to have set a bench-mark of around 60 per cent of popular support before taking the risk of another appeal to Norwegian voters.

Meanwhile, along with Iceland and Liechtenstein, Norway benefits from its membership of the European Economic Area, which enables it, in particular, to gain free access to the single market, except for fish and agricultural products, which were excluded from the agreement. On the whole, the EEA has worked surprisingly well, and has led to very few disputes.

These have been adjudicated by the Brussels-based Efta Surveillance Authority, currently presided over by the senior Norwegian diplomat, Einar Bull. Its authority, in relation to the Efta members, is equivalent to that of the European Commission within the EU.

Nevertheless, many Norwegians regard the EEA as an unsatisfactory half-way house to full EU membership. Norway, they feel is essentially marginalized. It has no say in the formation of EU policies on, for example competition and state aids, but is legally bound to implement them. It resents the application of anti-dumping duties on its salmon exports to the EU, claiming that its lower prices were a consequence of the greater efficiency of its fish farms than in those of its competitors in Ireland and Scotland (where some 60 per cent of the farms are, in any case, Norwegian owned).

Iceland undoubtedly feels more comfortable within the EEA than Norway, and has never previously sought membership of the EU. For many years it was an article of faith for most Icelanders that their unique dependence on the fishing industry would preclude their entry into the Union.

Yet this dependence is no longer as great as it used to be. Other industries, attracted by the abundance of natural energy resources have established themselves, including a large aluminium plant, now owned by Alcan. These new industrial concerns now account for more than half of Iceland’s exports, compared to 41 per cent for fish and other marine products.

Pressure has been building up for some time from the non-fisheries sector for Iceland to join the EU. Partly in response to this, the Prime Minister, Halldór Ásgrímsson, has appointed a high level committee, chaired by Justice Minister Björn Bjarnason to examine afresh the whole question of Iceland’s relations with Europe. The Committee on Europe, as it is called, came to Brussels in May, and had long discussions with EU enlargement Commissioner Olli Rehn.

The committee members have differing views on the desirability of EU membership, and Bjarnason made it clear in Brussels that he personally prefers the existing relationship through the EEA. The presentation of the committee’s report seems likely to provide the occasion for the first serious debate on the issue in the Icelandic Parliament.

Of the three main parties represented in Parliament, only one – the opposition Social Democrats – has an official policy. It is strongly in favour of EU membership. Both parties in the governing coalition are split on the issue, with the Progressive Party, of the Prime Minister, being marginally in favour, and the larger Independence Party predominantly against.

Ásgrímsson was the first senior politician in Iceland to argue that fishing would not be an insuperable obstacle to Icelandic membership. As Foreign Minister, he made a well publicized speech, suggesting that under the EU ‘subsidiarity’ provisions, Iceland should be left free to manage fishery control in its own waters. Since becoming Prime Minister, in September 2004, however, he has not repeated this argument.

All Icelandic parties are agreed on one thing: no membership application could be launched unless it had been approved in advance by a referendum. It is extremely unlikely that any decision will be taken before the next general election, due in 2007. That, incidentally, was the date mentioned to me by a senior Norwegian official, as his personal estimate of when a Norwegian referendum might be held.

There is no direct link between the positions of the two countries. It is, however, unlikely that Iceland would apply if the Norwegians had once again said “no” to the EU. Conversely, a Norwegian majority in favour would greatly encourage Iceland’s pro-EU supporters to press ahead.

One thing neither country has to worry about is a negative reaction from the EU side. As highly prosperous countries, with long established democracies they would be most welcome recruits – despite the ‘enlargement fatigue’ currently prevailing, and most probably would easily leap-frog past existing candidates, including Croatia and the Former Yugoslav Republic of Macedonia, whose application Greece has just threatened to veto.

Dick Leonard, an FPC Senior Associate, is the author of ‘The Economist Guide to the European Union’, whose 9th edition has just appeared.

Plagued by image problems around the globe, the United States could use some good news. Such an image boost may be forthcoming from an unlikely place — the Balkans. Richard Gowan explains how Kosovars are still grateful for U.S. actions in the late 1990s — and how prudent U.S. policies are steering Kosovo and the rest of the Balkans in generally the right direction.

How did you celebrate Bill Clinton’s 59th birthday? Even ardent Democrats may have let August 19 pass without much thought.

But in Kosovo’s main city, Pristina, posters were plastered up wishing the former president of the United States well.

While Clinton secured the lasting affection of the people in the province by launching the 1999 intervention, the pro-Americanism of the province is broader based.

At a time of mounting concern over international perceptions of the United States, it retains a loyal fan-base in Kosovo.

No image problems here

Recent polls there show only 41% public satisfaction with the UN administration. While the UN is currently gaining popularity, it is overshadowed by nearly 60% approval for NATO’s forces. A big reason is the perception that NATO’s presence means a continued U.S. involvement in regional politics.

The strength of that commitment is crucial to the negotiations over Kosovo’s future announced by Kofi Annan in early October. Local observers and the international community alike agree that, whatever agreement is reached, will require full U.S. backing. It also means that NATO forces must remain, perhaps for a decade.

Europe taking the lead?

Yet, it is equally a commonplace opinion that responsibility for Kosovo should ultimately lie with the European Union.

In fact, in April 2005, an independent International Commission on the Balkans recommended that the UN should hand over its responsibilities in Kosovo to the EU.

The European Council has been tasked with drawing up the basic principles for talks between Pristina and Belgrade. The prospect of eventual EU membership will be the key incentive for both sides.

The international community is thus pushing Kosovo in the direction it has already pointed Bosnia. Its High Representative in Sarajevo, Lord Ashdown, has framed a series of difficult reforms as steps on “the road to Europe” — and local leaders have acquiesced, if sometimes grudgingly.

Meanwhile, the EU maintains 7,000 troops in Bosnia, more than most analysts think strictly necessary militarily, but a clear political symbol of intent.

No more Europe

But while this “Europeanization” of the Balkans is expanding, it continues to meet with skepticism. Memories of the 1990s remain strong. The International Crisis Group warns that “due to its failure to act unanimously and decisively during the war, the EU is still viewed with considerable suspicion in Bosnia.”

In Kosovo, the EU is also blamed for problems in the present. Having taken responsibility for the province’s economy as part of the UN administration, it is currently struggling with over 60% unemployment.

EU image problems

Moreover, the incentive of eventual EU membership has lost some of its luster. The summer’s “no” votes to the European constitution resulted in rumors that even Romania, scheduled to join the Union in 2007, might be blocked.

This fear may have been exaggerated, but the French government has suggested that it will hold referendums on all future enlargements: If the “Polish plumber” helped sink the constitution, what hope for the Bosnian builder?

While Balkan leaders may be working towards the EU, they still turn to the United States for reassurance — or tactical advantage. Julian Braithwaite, formerly a senior advisor in Sarajevo, has observed that U.S. officials demonstrate “considerable forbearance” in fending off local politicians’ efforts to play them off against EU policies.

While Europeans may like to contrast their respect for “legitimacy” with supposed American arrogance, the United States is actually helping to legitimize the EU’s policies in much of the former Yugoslavia.

Tough love

This is true not only where America is seen as the liberator — Kosovo and Bosnia — but also in Belgrade, where grievances over the “NATO aggression” of 1999 are coupled with efforts to join NATO’s “Partnership for Peace”.

And while much is made of “European values” in shaping the EU’s enlargement, NATO has likewise been tough on matters of principle in dealing with Serbia and Montenegro. The “Partnership for Peace” remains conditional on the arrest of leading Bosnian Serb war crimes suspects Ratko Mladic and Radovan Karadzic.

Working together in Eastern Europe

While the United States thus continues to play a key part in shaping Balkan politics, its role will diminish as the EU’s ascendancy continues.

The U.S. contribution to NATO forces in Kosovo is already confined to a National Guard division — although these older, wiser troopers are often said to make canny peacekeepers. Unless moves towards Kosovo’s independence spark serious trouble, Washington’s planners will be happy to keep their commitment limited.

And, as the EU continues to expand its engagement with the former Yugoslavia, it is likely to win increased trust. While many ex-Warsaw Pact nations valued the United States over the EU in the early 1990s, opinion polls showed a shift in the latter’s favor as they were brought towards — and then into — the Union.

Washington may find itself promoting a similar process in the Western Balkans, lobbying for EU enlargement to succeed as it has this year with the start of Turkish membership talks.

U.S. success?

If — a daunting if — the former Yugoslav states do all eventually complete their progress down the “road to Europe,” the Clinton and Bush Administrations will be remembered for readying them for the journey.

It is ironic that Bill Clinton’s decision to use force over Kosovo may come to be interpreted as a successful example of the philosophy now associated with George W. Bush: The use of hard power to expand the zone of freedom and democracy. And given recent transatlantic spats, it is doubly ironic that this zone should be called the European Union.

Richard Gowan, The Globalist

Successive Home Secretaries have found it difficult to define or encourage the notion of ‘British-ness’, even three hundred years after the Union of 1707, when the idea of a ‘Briton’ re-emerged. The centuries-long identities of the English, Scots, Irish and Welsh have been forged from culture, language, history and conflict. The question now seems to be whether or not we can tack on another layer of identity that lacks these bonding factors.
Our neighbours seem to be adopting the labels of ‘Europeo’ in Spain, ‘Evropaios’ in Greece and even ‘Europejczyk’ in Poland; so can we do the same here? Anecdotal evidence suggests that Britons shy away from this new identity almost with the same fervour that many new Europeans embrace it.
Old jokes about the Irish, or the Poles and Belgians for that matter, arouse strong feelings of identity that are based on emotions noticeably lacking with regards to ‘European-ness’. While we all relate to many layers of identity, such as family, community, and nation, we rarely associate ourselves with something grander: the EU. This is one of the Union’s singular deficiencies: its citizens lack the necessary identity to support it.
No single culture over-arches the Continent that Europeans can recognise; attempts to create a single European language have failed; the history of the EU only goes back fifty years; and, conflicts, such as Iraq, have only served to divide us.
War, however, formed the original impetus. The idea to bind sovereign nations together tarnished the allure of unilateralism, and as such, dissolved the instability inherent between independent states. The prevention of a third world war on the continent has in large part been due to the integration of persistently warring nations.
Unfortunately, peace and security, as Dutch MP Lousewies van der Laan noted at a recent Foreign Policy Centre seminar on Europe, do not resonate with the majority of European citizens. The greatest complaints by the French and Dutch over the Constitution were largely economic and little to do with the idea of the document itself.
The British vision of Europe is also largely one of economics. Obviously there are those, like Giscard D’Estaing, who see the ‘EU Project’ as something greater, who believe it should encapsulate something more than just the economy; and perhaps one day it will. At the moment, though, it remains an ‘Economic Project’. This, unfortunately for the advocates of the flagging European Constitution, is what the EU is largely judged on, daily, by its citizens. The economy, however, rarely stirs the soul.
Boring legislation, stories of inefficiency, technocrats and ‘gravy trains’, are the few impressions of the EU people have. National leaders blaming Brussels to save their own skin from voter discontent have made it even harder to be proud of being European.
The Constitution could have provided an inspirational first step toward the goal of a more organic European identity. Nick Clegg MP, speaking after Ms. Van der Laan, said that the Constitution was not ‘a Bible, or a tablet of stone’ that we could all rally around. The 200 pages of numbing content made it difficult for the majority of people to understand it let alone attach themselves to it.
Ideally, the Constitution should have brought together the principles and beliefs that we all hold dear; the lofty values that in our hearts we know are the base for peace and prosperity. The Constitution would have then established the axiomatic ideals that do exist between the nations of Europe.
Creating a document worthy of the disparate peoples of the EU to unite around should have been the first priority of those who wrote the Constitution. This would have laid solid foundations for the building of an embraceable European identity.
Benedict Anderson believed that national identity is a sense of an ‘imagined community’. If European leaders want their voters in the end to support a more constitutionalised Europe, they have to be able to solve one basic contradiction. How are we to vote for an EU Constitution that is supposed to create a European identity until we imagine ourselves as English, British and European?