What the Iran Crisis Reveals About European Power
Without a rival currency, there is none.
Donald Trump is forcing Europe to confront its own weakness.
The U.S. president’s bellicose policy toward Iran has, until now, been met with an unusual unity of opposition from Europe’s big three powers, the U.K., France, and Germany, as well as from the European Union itself. And yet, despite their combined economic weight and presence on the world stage, Europe’s principal players have proved largely powerless to do anything in the face of raw American hegemony.
The brute reality, as things stand, is that Europe does not yet have the tools—or the will—to project its power. The euro cannot be a credible alternative to the dollar as a reserve currency until it is radically reformed, and without a credible reserve currency, Europe’s financial might cannot match that of the United States. Even more fundamentally, there remain deep divisions within Europe over whether it should even seek to be a power, with or without Britain.
For 15 months, following Trump’s May 2018 decision to pull the U.S. out of the Iran nuclear deal and subsequent decision to reimpose sanctions on the regime in Tehran, tensions have steadily grown between the U.S and Iran. Throughout this time, Europe has urged the U.S. back to the table in a bid to keep the 2015 agreement negotiated by the U.S., U.K., France, China, Russia, and Germany alive, but with little obvious success.
Whether they like it or not, the E3 will have to respond to the Trump administration’s imposition Monday of further sanctions on the Islamic Republic, including restrictions on its supreme leader, Ayatollah Ali Khamenei, and individuals close to him. Following the announcement, Steven Mnuchin, the U.S. Treasury secretary, said he also planned to designate Iranian Foreign Minister Javad Zarif, the country’s main interlocutor with the West, later this week. This not only ensures that the U.S. cuts off any avenue it has for negotiations with Tehran to ease tensions, but puts Europe’s efforts at keeping the nuclear deal alive in an ever more perilous position.(Iran, in its response Tuesday, called the sanctions “useless.”)
Europe’s warnings, public and private, about the dangers of escalation have been ignored; its decision to remain outside the new U.S. sanctions regime introduced by Trump in November has proved largely irrelevant. In the face of the continuing dominance of the U.S. financial system, underpinned by the global currency reserve, European power has melted away. The dollar remains king—and so does the U.S., regardless of the current presidential incumbent’s strained international standing.
“The U.S. position on Iran has shown that the EU’s security policy is controlled by the importance of the U.S. dollar to global trade,” Tom Tugendhat, the British member of Parliament and chair of the U.K. Parliament’s foreign-affairs committee, told me. “U.S. sanctions determine our policy, and unless there is a new global currency and banking system, it will remain so.”
This reality, acknowledged in private by European diplomats, officials, and foreign-policy advisers, has all but eliminated European leverage in the crisis so far. But it is also—now—serving to shine fresh light on the internal divisions within the EU over its foreign policy and aspirations as it looks to its future following Britain’s 2016 vote to leave the bloc. The mounting crisis over Iran has revealed the fundamental tension at the heart of the EU and its vision for its future role in the world: Does it want to be a global power or not?
To rival U.S. economic power, Europe may need a rival currency—and a single monetary policy. But to develop such an alternative, the euro needs the kind of radical reform fiercely opposed in Berlin. Germany fears taking on the responsibility of the bloc’s debts, because of the varying economic strengths of the EU’s 19 members that use the currency. Berlin also is concerned that a true rival to the U.S. dollar would increase the euro’s value, hitting its own highly successful export-driven economic model. And to even begin to rival U.S. military power, Europe would need yet more radical reform of its structures and aspirations—a step just as controversial, particularly in Berlin.
Charles Grant, a preeminent expert on Europe and the Franco-German relationship, says Europe’s inability to exert itself in the Iranian crisis gets to the heart of Europe’s own crisis of direction.
“The problem is France wants Europe to be a power; Germany does not,” he says. “If you want to be a serious power, you need a serious global currency. France wants that; Germany does not.”
It is not just German reluctance, though. In 1997, the U.K. spent 2.7 percent of its GDP on defense. Today that is barely at 2 percent—and the U.K. is one of Europe’s only two serious military players, along with France. One ambassador of a major European power, who requested anonymity to speak candidly on the subject, told me there were actually only “four or five” EU countries that even had a foreign policy. The rest didn’t want one, because they were perfectly content within the twin protective shields of European economic protection and U.S. military protection. The ambassador said the Continent did not even really have a single currency—it had multiple currencies all called the euro, but essentially operating independently because of the bloc’s failure to develop Europe-wide structures.
Lina Khatib, the head of the Middle East and North Africa program at the London-based international-affairs think tank Chatham House, says the Iranian crisis exposed not only European weakness but continuing U.S. strength, and this, she says, explained the Continent’s failure to exert itself in any meaningful way.
The European powers will always have to prioritize the American relationship over Iran, given the economic and security links with the U.S. “The U.S. has shown they have leverage over Europe as well as Iran,” Khatib says. “Europe, both economically and diplomatically, is unable to stand up to U.S. interests and wishes.”
Nathalie Tocci, a special adviser to the EU’s foreign minister, Federica Mogherini, says Europe’s obvious powerlessness throughout the Iran crisis could prove to be a catalyst for it to become a more influential global power, challenging U.S. global leadership. “This Iran story is far greater than Iran,” Tocci says. “It really epitomizes a structural turning point in the transatlantic relationship.”
Tocci says the agreement that has held since World War II—that the U.S. would provide for Europe’s security in return for accepting American leadership of the alliance—is collapsing. “The movement we’re seeing toward recognizing Europeans ought to develop a greater autonomy is an extremely painful process, because it starts from the recognition that [the] social contract between the United States and Europe no longer holds,” she says. “This is something which goes way beyond Trump. We can no longer take for granted [that] Americans are going to provide for our security. We’re obviously not there yet. We’re only at the very, very early stages of this recognition.”
A senior U.K. official who requested anonymity because they are not permitted to speak on the record said Europe’s strategy had not been entirely without merit, insisting that had the E3 simply abandoned the nuclear deal to join the American push on Tehran, the situation would likely have escalated much more quickly. The European decision to continue to defend the agreement, despite Trump’s decision to abandon it, had kept space open for Iran to “stay in the game,” the official said.
Europe’s powerlessness is perhaps why its opposition to the U.S. administration has also gone largely unpunished by Trump.
A second U.K. official who also asked to remain anonymous because they are not permitted to speak on the record said the British opposition to Trump’s strategy had not driven a wedge between the U.S. and U.K., insisting that it was not a “point of tension” on the recent state visit to London. The U.K. accepts that the nuclear deal is “not perfect,” in the words of the senior official, who is familiar with Theresa May’s thinking, but maintains it had constrained Iran’s nuclear development. “We are not convinced that further pressure on Iran will have the desired effect,” the official said, adding: “I think they get that we definitely share the assessment of the threat even though we continue to support the [nuclear deal].”
Until Europe is able to challenge the U.S., it might not matter much whether Washington “gets” it or not—Europe will be powerless to do anything about it.