BRUSSELS (Reuters) - Just when the European Union was hoping to cement better ties with President Barack Obama at a summit later this month, the U.S. midterm elections may end up stalling transatlantic coordination on important policy issues.
The Republicans’ strong gains will put a brake on Obama’s agenda and could sharpen divergences between the United States and Europe on major portfolios such as financial regulation, climate change, trade and aspects of foreign policy.
The long-term risks are a more uneven regulatory playing field on either side of the Atlantic, failure to make progress on a deal to cut CO2 emissions, and uncertainty over who holds the lead on Iran over its uranium enrichment program.
“What this election is likely to do is confirm that there is no chance in the foreseeable future of the U.S. being disposed to engage in a deal to fight climate change,” said Thomas Klau, a senior analyst at the European Council on Foreign Relations, who also cites financial regulation among his concerns.
Both issues will be on the agenda when Obama and the EU’s top officials -- European Council President Herman Van Rompuy and Commission President Jose Manuel Barroso -- meet for a summit in Portuguese capital Lisbon on November 20.
The meeting was originally scheduled for May but was called off in February after Obama said he would not go. U.S. officials said there was no point holding a summit unless there were concrete issues to discuss.
Shortly afterwards, the euro zone debt crisis came fully to a head, with the near-collapse of Greece’s sovereign debt market and a knock-on impact on U.S. financial markets and the economy. That prompted a rapid rescheduling of the summit.
In the interim, both the United States and Europe have pushed ahead with efforts to introduce new regulations on banks and financial markets, hoping to put systems in place to prevent a repeat of the 2008 financial and economic crisis.
But differences in opinion over the rules and how they should be applied have produced different regulatory frameworks on each continent. That could be exacerbated if the Republican majority in Congress pushes to give U.S. supervisors an even lighter touch than Europe, creating a regulatory arbitrage.
“The Republicans are unlikely to introduce major new financial regulations in the next two years,” said Nicolas Veron, a finance specialist at Bruegel, a Brussels think tank.
“But where Congress will have an impact is in terms of the resources and oversight of the federal agencies that have a role in implementing policy... Clearly they are likely to try to restrain the scope of the activity of those agencies.”
TRADE AND DIPLOMACY
EU diplomats say they see no shift in relations between the 27-country union and the United States as a result of the midterm vote, which is a domestic issue. And they are quick to point out that EU-U.S. coordination on foreign policy is unlikely to change, with Obama’s policy team staying the same.
But privately there is an acknowledgement that he is now a president who faces uncomfortable legislative gridlock at home and the very real prospect of not being re-elected in 2012.
That changes the unspoken dynamic between EU leaders and the president at a time when Europe’s economy -- led by a dominant Germany -- is growing steadily if patchily, and the U.S. economy is struggling, with unemployment stubbornly high.
Ruprecht Polenz, a German lawmaker, sees the risk of the United States becoming more self-absorbed on foreign policy, leaving Europe to play a more influential role.
“It is on the whole not a good thing for the world,” said Polenz, a member of the ruling Christian Democrats and the head of the lower house of parliament’s foreign affairs committee.
“No major international conflict can be resolved without the United States. So we must be ready for Europe to engage more boldly,” he said, emphasizing diplomacy not military engagement.
“American ratification of important international agreements like the Start disarmament treaty with Russia will definitely be more difficult now,” Polenz told Reuters.
How the relationship develops in the next two years, ahead of the next U.S. election, may well depend on the substance of the November 20 summit and the candor with which it is conducted.
But it will also depend on what attitude the Republicans in Congress adopt toward Obama, and by extension the world. An unyielding Congress that makes domestic progress impossible may prompt the president to look abroad for a legacy issue. But even that carries risks for Obama, says the ECFR’s Klau.
“The problem for Obama is that there is no low-hanging fruit on foreign-policy,” he said, pointing out that Iraq, Afghanistan, Pakistan and the Middle East were all bad options.
Additional reporting by Andreas Rinke in Berlin; Editing by Louise Ireland
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