Interview with Peter Sutherland

Transatlantic magazine:
President Bush in his State of the Union speech said that the American economy was strong and growing. Do you agree with his assessment of the U.S. economy? How do you see the economies of the European Union countries - are they also strong and growing?

Peter Sutherland:
There is no question that the U.S. economy is growing. The real question is whether that growth is at the expense of excessive borrowing and whether the deficit position is sustainable. I must say that I view with some concern the extent of the fiscal deficit. The trade deficit is a more complicated issue involving as it does many U.S. corporations that are exporting back into the U.S.

But the current extent of the fiscal deficit is unsustainable and dangerous
in terms of long-term position.

European growth is at a trend rate over 10 years, which is probably 2 percent as against 3 percent in the U.S. Structural problems such as flexibility in the core countries of Europe have a bearing on that growth rate. It is mainly explained by lower labor participation in Europe, women and older people in particular and lower hours worked. Hours worked per capita productivity is more or less the same as in the U.S. Equity returns over 10 years are more or less the same as in the U.S. Europeans in many instances have made a lifestyle choice. Another factor is demographics. European population growth is much lower than in the U.S. and this affects growth rates. I don’t think there is a fundamental problem with European productivity and growth. It is explained by lifestyle choices and the issue of demographics. We, in Europe, have to improve our lot by dealing with flexibility of workforces and by completing the functioning of the internal market.

Speaking of demographics, projections show that Europe will be losing population in the next 50 years. What will this mean for the economies of Europe in the future?
We have a real issue here which raises also the issue of immigration.

Amongst the countries doing very well in Europe is my own little country of Ireland, which has very significant immigration. Counterintuitively, if you have immigration you actually improve your employment. The reaction of most Europeans is that if they feel they have high unemployment and they bring in immigrants then this will reduce their own prospects for employment. I think immigrants add a vibrancy to the economy that is positive. There are social problems which have to be accepted with increases in immigration, which is more difficult to handle than in the United States. The U.S. is a multicultural society from its definition. Europe is going to have to become more constructive in immigration.

What has to be done to make the dollar stronger?
Deal with the deficit problem. One can exaggerate the current weakness of the dollar. It could become much weaker. If you go back to the inception of the euro there is not a huge fluctuation. The fluctuation comes from a big dip in the value of the euro. What would be very worrying is that much of the world is pegged to the dollar; therefore, the Europeans alone would be shouldering a great deal of the burden.

What people or issues will make a difference in transatlantic relations in 2005?
The big issues in transatlantic relations this year are in foreign policy and not in economic policy. Economics could have the ability to become a flash point more so than it is currently. There are real differences in foreign policy issues between the U.S. and Europe to my mind. The key issue in order to move toward a more cooperative position is specifically Israel and Palestine.

What needs to be done for the economies of the Middle East countries?
I did chair the Council on Foreign Relations Group on the Middle East. I pointed out that in the whole area from Turkey around to Morocco, with the exception of Israel, it was a very negative economic picture going back to World War II and the period after. For example, Egypt had a GDP similar to Korea back then but today Korea has a GDP six times greater than Egypt. A lot of this is due to a real lack of liberalization of the economies of the Middle East and North Africa. There is a failure to deal with issues dealing with cronyism in economic affairs and over regulation and corruption. These are major issues that need to be addressed. The main answer to the economic malaise and developing growth has to be domestically driven within these economies by political action. It is not primarily an external problem.

Do you see, as a result of the large turnout to vote in Iraq, that democracy has a chance of growing and succeeding in the Middle East?
I would hope that a growth in democracy in the region would help in economic liberalization. I don’t know what the results of democratic change in the Arab countries will do to economic policy. You can find examples going both ways. Some democracies have become protectionist. So, it is not necessarily the case that democracy will lead to economic liberalization.

So, you are saying that finding a true and real peace between Israel and the Palestinians will lead to better transatlantic relations? That this is a key issue in transatlantic relations in 2005?
Absolutely. That is the source of both a possible rapprochement and a potential for some more aggravation.

On British Petroleum’s advertising in the United States they say they are moving Beyond Petroleum. What exactly does that mean for an oil company to move beyond petroleum?
Well, we are not indicating that we are going to give up oil. We are saying that we are a corporation that encompasses more in our values and in our company strategy than just oil. We are a company that is committed to a source of values, including ethical values in terms of what we do and what we will become. We have broader perspectives in terms of what we seek to achieve. This is not an attempt
to say that we are giving up oil. It is our base commodity. BP is environmentally and ethically aware. We believe in transparency and being open in our work. To answer your question, BP is not in Iraq.

As a former head of the World Trade Organization how do you feel the WTO is performing today?
The WTO is one of the great advances in modern history in multilateralism. It is vitally important for the future of the world economy. It is a rule-based system that ensures that we do not live by the law of the jungle in the area of trade, which is a recipe for conflict as we know by history. The WTO, since it has come into existence, has been remarkably successful. This is seen by the fact that its membership in the last 10 years has gone up from around 127 nations to around 150 countries today. It is a core foundation for globalization.

Do you see the European Union as an economic entity or mainly a peace organization?
I see its foundation as a desire to remove the age-old conflict between the nations in Europe. However, one of the functional mechanisms is to achieve economic integration. One aspect is political integration that is taking place and should take place.

Does it matter if Americans know about the European Union?
It seems that some people associated with the U.S. administration didn’t know what it meant during the last four years under Bush I. They seemed to be more concerned, and certainly some think tanks in Washington seemed to be more interested, with a divide and conquer attitude towards the European Union than in recognizing that it is in the vital national interest of the United States that Europe should have an integrated and united view on political issues. That makes it much easier ultimately to conduct a coherent foreign policy for the United States even if there is disagreement on occasion between the parties as to what the right course is. The long-standing U.S. policy first developed by former Secretary of State Dean Acheson and subscribed to by successive U.S. presidents right up to the 1990s believed that European integration, in principle, was a good thing. I hope that will now be revived. President John F. Kennedy made the comment that “We Americans do not regard a strong and united Europe as a rival but as a partner.” That is the way it should be. The jury is still out on how the second Bush administration will view the transatlantic alliance in its second term.

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