Press Releases

American Business, the Promise of Europe, and the Case for NATO Enlargement

(Archived Content)

Lawrence H. Summers Deputy Secretary of the Treasury
International Forum U.S. Chamber of Commerce,
Washington, DC

Good morning. I am delighted to have thisopportunity to return to the Chamber’s International Forumand to join the distinguished business and civic leaders thatthis Forum regularly brings together.

Today I would like to talk about the future ofAmerican business in Europe and the future of American businessthroughout the world. In particular, I want to focus on oneAdministration initiative that may not be on the radar screens ofmany people in the American business community, but should be;namely, the administration's effort to help build an undivided,democratic, peaceful and prosperous Europe and, as part of thatgoal, enlargement of the North Atlantic Treaty Organization toinclude new members from Central Europe.

You may well ask why should the Deputy Secretaryof the Treasury be concerned about NATO enlargement. The answeris that there are vital economic implications to this issue. Mychoice of this topic today should serve to underscore theimportant economic stake that we and our allies have in theexpansion of NATO. Our experience in Europe since World War IIdemonstrates that economic prosperity and security areinextricably linked. US leadership in helping to rebuild Europeafter the War through such unilateral measures as the MarshallPlan and multilateral means as the International Bank forReconstruction and Development helped lay the foundations forpeace. By the same token, the security alliance we formed inEurope, helped create the conditions for economic growth andrecovery. Now, with the end of the Cold War, we have anopportunity to widen this circle of security and prosperity.

As President Clinton has said since his earlydays in office, the end of the Cold War gives us a singularopportunity to build a broader Europe, united for the first timein history by practices of democracy and free markets. To achievethat goal, we have developed and pursued a set of policies overthe past five years that unite economic and security concerns.These range from our support of political and economic reform inRussia and the other new independent states, to a host ofsecurity policies -- for example, our policy to limitconventional and nuclear arms across Europe.

On the economic front, the InternationalFinancial Institutions such as the IMF and the World Bank havebeen important catalysts of economic reform, financial stabilityand development. In the transition economies, the IFIs haveconcentrated on strengthening private sector institutions toprovide the underpinnings for growth and stability. Accordingly,as the President has said, it is vital that we pay our bills atthese institutions to insure that they remain strong and that ourleadership remains unimpaired.

As part of this broad strategy of internationalengagement, one of the President’s top priorities is toadapt NATO -- the most successful alliance in human history -- toensure that it addresses the new needs of a new Europe. Thateffort involves changes in NATO's missions as well as thecreation of a new relationship between NATO and a democratizingRussia. But another major part of that effort involves adding newCentral European members to the alliance -- a step that both thePresident and NATO endorsed in 1994 and plan to bring to fruitionby 1999 when the Alliance will celebrate its 50th anniversary.

Those of you in the business community may wonderwhat this has to do with business. My answer is: a great deal. Alarger, updated NATO will help preserve the security environmentin Europe that is a prerequisite for business growth. It willhelp Central Europe lock in practices of market democracy andreconciliation among neighbors -- practices that have made thisregion the fastest growing in all of Europe. And it willcomplement our efforts to help foster a democratic and moreprosperous Russia.

Above all, the American decision to proceed withNATO’s enlargement will send a strong signal regarding ourrole in Europe and the world. It will not only be a decision toadd new members to an alliance, but a reaffirmation of our activeengagement in Europe and our determination to be active abroad inpursuit of both our security and commercial interests.

Let me take a moment to explain in more detailwhy this initiative is of great importance to the TreasuryDepartment, and not just the Departments of State and Defense.

The case starts with the centrality of Europe tothe health of American business. I know I don’t need tospend much time convincing this audience of that fact. Youunderstand that our ties with Europe lie at the core of ourcommercial cosmos. Europe and the US together produce over halfof the goods and services of all humanity. Our annual bilateraltrade with Europe exceeds $250 billion. Our direct investment inEurope also exceeds $250 billion and is greater than in any otherregion of the world. Although we do not always agree with ourEuropean partners on every economic issue, the fact is that ourshared values and outlook have made us primary partners inefforts ranging from international monetary coordination to thenegotiation of the Uruguay round and the creation of the WorldTrade Organization. And Europe’s movement toward anintegrated market through the EU is a project we support and fromwhich we benefit.

Central Europe is also vitally important to oureconomic future. Although it remains small as a percentage of theentire European economy, it is arguably Europe’s mostvibrant region. Since the start of this decade, as thedevastation caused by Communist rule and command economics hasgiven way to bold market reforms, the region between the Elbe andthe Urals has witnessed rapid renewal and solid growth,especially in Central Europe, where reforms have progressed thefurthest and deepest.

The economies of Central Europe including theBaltic states have been growing at four to five percent annuallyin real terms and show every sign of continuing their impressiveperformance. US exports to the region have grown at double digitrates. While Western Europe markets for most durable goods havebecome largely saturated, Central Europe is experiencing robustdemand for cars, televisions, VCRs, refrigerators, and homefurnishings. As just one of many examples, Poland’s autosales grew by 41% in 1996.

There are also enormous opportunities created bythese countries’ efforts to privatize state industries,improve antiquated infrastructure, and remedy the environmentaldamage that was one of communism’s many dark legacies.Examples range from a $3 billion Czech effort to update theirelectrical power systems, to a billion dollar telecom upgrade inPoland. Central Europe as a business location also boasts aneager and well-educated work force, with outstanding access tothe vast market of the EU. As a result, there has been nearly $40billion in foreign direct investment in these states since theBerlin Wall fell -- roughly a quarter of it from the US -- and weexpect to see more than $40 billion more in just the final fouryears of this decade. Today, only eight years since thesecountries opened up to the West, the list of US firms thriving inthe region reads like a who’s who of Fortune titans and thesmall business world alike.

Our administration has pursued a broad range ofinitiatives to ensure that Central Europe continues to enjoy thisrobust market growth, and that American business continues toenjoy a sizable share. In January of 1995, the White Housesponsored a Conference on Trade and Investment in Central Europeto showcase the region’s opportunities for US firms. We haveopened a Central and Eastern Europe Business Information Centerwithin the Department of Commerce, including a Small BusinessSupport Facility to ensure that smaller American firms can gainfrom the region’s growth. We have launched a Big EmergingMarket program for Poland, as part of the government’soverall "BEM" strategy. And we have devoted substantialtime and resources to supporting economic reforms in Russia andthe other new independent states, because they are a part ofEurope as well. Our support to these countries has included over$2 billion disbursed under the Freedom Support Act to helpfinance private sector initiatives, the development of enterprisefunds, such as the "The US-Russia Investment Fund" andthe "Russia Small business Fund", as well as otherprograms aimed at advancing the economic restructuring of theseeconomies. We have also provided over $7 billion in Ex-Im Bankand OPIC guarantees, loans, and insurance to Russia and the othernewly independent states.

But if our aim is to help American businessesbenefit from robust growth in Europe and Central Europe, then anindispensable part of our strategy must involve questions ofsecurity. For the business community, as for nation statesthemselves, security is like oxygen: you many not think muchabout it from day to day, but once it starts to disappear you canthink about nothing else. Just ask the business community inZaire, or in Afghanistan -- if you can find it. The EU isimportant as part of the transatlantic security equation but wealso need NATO--for both security and prosperity. Our strongeconomic relations with Europe could not have evolved over thepast 50 years if not for that continent’s security andstability -- thanks in large part to NATO. And just as theoriginal Alliance brought a half century of security and growthto Western Europe, a new and larger NATO can provide the securityrequired for affluence and extend it from Europe’s West intoits East.

Let me take a minute to explain where NATOenlargement stands. Ever since the Cold War ended NATO has beenadapting itself to a vastly changed security environment. Withthe disappearance of the Soviet threat, NATO has moved away froma "trip wire" strategy of forward deployment of troopson the Eastern front, it has reduced its force levels, it hasdeclared that it does not see Russia as an enemy, and it hasbegun addressing itself to a new range of security challenges,from out-of-area missions like the one in Bosnia, to emergingthreats like the proliferation of weapons of mass destruction.

A key part of that process of adaptation is theaddition of Central European democracies to the Alliance. ThisJuly, in Madrid, President Clinton will join the other NATO headsof state to name the first states that will be invited to jointhe Alliance. After accession talks with the new states, thePresident will ask the Senate to ratify the addition of thesestates to the North Atlantic Treaty of 1949. He and NATO havesaid that it would be desirable to have these states take theirplace as members by 1999. These new allies will be full members,benefiting from the same solemn security commitments current NATOallies make to each other, but also agreeing to shoulder theresponsibilities of being security producers as well asconsumers.

The strategy of NATO enlargement also includessteps to ensure that, as we erase the illegitimate dividing linesStalin carved across Europe half a century ago, we do not createnew ones. Therefore, the President has also said that NATO’senlargement will be a process, not a one-time affair -- just asthe economic transformation of Europe is an ongoing process --and the first group of states admitted to NATO will not be thelast. Moreover, as NATO takes in new members, it is also buildinga deeper and more constructive relationship with Russia, Ukraine,and other states that have not sought admission to the Alliance.That is partly why the recent Helsinki Summit was so important --because it demonstrated that even as NATO adds new members, itcan also if it is steady and determined, add a deeper dimensionof cooperation to our relations with Russia.

The President, Secretary of State Albright, andthe other members of the President’s national security teamhave often stressed the security benefits that NATO’senlargement will bring. It will ensure stability in CentralEurope -- a region whose past instability helped spawnEurope’s two world wars and the Cold War. And it will bringinto NATO valuable new allies who have already shown theirwillingness to add to Western security, such as by contributingforces to the military mission in Bosnia.

But the security benefits of NATO enlargement arealso matched by economic benefits -- for Europe, and for Americanbusiness. Most important, by preserving and deepening the stablesecurity environment that now exists in Central Europe, NATOenlargement will ensure that the region’s robust economicgrowth can continue. For that reason, American businessesshouldn’t view NATO enlargement as just the parsley on theplate of Central European economic growth. It is the plate -- itis part of the foundation on which that economic growth rests.

Let me briefly suggest four specific ways inwhich NATO enlargement will benefit the European business climateand the US business community. First, the prospect of NATOenlargement already has helped to lock-in Central Europe’spractices of market democracy, which are essential for economicgrowth. The political upheaval inherent in the transition ofplanned to market economies has made policymaking and governanceextremely difficult in Eastern Europe. But the widely held desireacross the political spectrum to enter European economic andsecurity structures, including NATO, has exerted a powerfuldiscipline on policy making and has helped countries stay thecourse of both political and economic transition.

For example, NATO has said explicitly that marketdemocratic practices are a prerequisite to membership, and statesin the region have made remarkable efforts to meet thisqualification. In Hungary, the prospect of NATO membershipweakened political extremists and strengthened centrists whoushered in a second round of privatization. Romania radicallychanged its economic policies and openness toward foreigninvestment. The Estonian government has said repeatedly that itis the prospect of joining the west -- both NATO and the EU --that has kept them on the track with radical free marketpolicies, including extraordinarily low tariffs. And whenBulgaria’s new reformist government chased out the oldstatist leaders who had run the economy into the ground, they didtwo things --they reversed economic course; and they declaredtheir interest in joining NATO -- and they told us they saw thesetwo steps as linked.

The second specific economic benefit of NATOenlargement is that it is encouraging Central European states tosettle old disputes over borders and their treatment of ethnicminorities. Many of those disputes had the potential to damageeconomic relations within the region, and even to flare intodestructive and disruptive violence. But these states know theymust settle their issues with their neighbors to be consideredfor membership in the Alliance. And even for states in thisregion that are not on a fast track for Alliance membership, theUS has stressed the centrality of settling their disputes. Apartial list of agreements that have resulted, in part, due to USefforts include agreements between Poland and Lithuania, Hungaryand Romania, Italy and Slovenia, Greece and Macedonia, the CzechRepublic and Germany. These accords and others have improvedcross-border relations, increased the region’s stability,and enhanced its business climate--because regional stability isas important for business as it is for peace.

The third reason this strategy will benefit theUS business community involves Russia. As you may know, I havespent a major part of my time at Treasury working on ways tobolster Russia’s economic reforms and encourage itsintegration into the multilateral economic institutions so thatit can play a constructive and productive role in global economicaffairs. A prosperous, democratic Russia is as essential forEuropean and American security as an enlarged NATO. And contraryto what some Russian and American critics have asserted, the twoare not mutually exclusive, or even incompatible.

It is true: President Yeltsin and other Russianleaders have stressed their opposition to NATO enlargement. Yet Ifirmly believe that this policy, along with the others we arepursuing toward Russia and the region, can increase Russia’ssecurity and integration into the West. After all, NATOenlargement will foster democratic stability along Russia’swestern border -- a region that has often been the launchingground for threats to Russia’s own soil. And it willincrease trust, and therefore enable broader economic ties,between Moscow and Central Europe. And the Central Europeansthemselves know they want a secure, prosperous neighbor to theireast. Moreover, issues about NATO's future do not constitute thecore of our own country's relations with Russia; that coreinvolves efforts that address Russia's economic and politicaldevelopment. Partly for that reason, as we enlarge the Alliance,we will continue a wide range of efforts to support Russia'songoing reforms, and we will also continue our efforts to drawRussia into institutions such as the G-7 process, the OECD, theParis Club, and the WTO. President Clinton stressed hiscommitment to these steps at Helsinki, and they can help persuadeRussia that our goal is not to threaten or isolate Russia, but towelcome it into a broader, democratic, and prosperous Europe.

Finally, the business community needs to realizethat the US vote on NATO enlargement will not simply be adecision over whether to add a few members to a military group.It will also become a statement about our role in the world. Itwill be seen, here and abroad, as a sign of whether we intend tokeep reaching out to pursue our prosperity and security, orwhether after the end of the Cold War we intend to retreat fromour responsibilities to advance the processes of global security,market reforms, and trade liberalization.

The fact is, this will be one of the firstdebates since the end of the Cold War that leads people to askwhy we have a NATO, why we are in Europe, and why Europe isimportant to our own prosperity and security. That is why theratification of NATO enlargement next year will be a boost to theUS business community. It will reaffirm our nation’s supportfor outward-looking policies, not only with regard to NATO, butalso with regard to trade and everything else we do abroad.Conversely, if this effort were to fail, it would embolden thosevoices in America who say we should attend to needs at home butnot our duties abroad -- as if we could achieve one without theother. Our business community has a stake in preventing anAmerican retreat from the world, and in the broadest sense, thatis what the vote over NATO enlargement will be about.

Nor should anyone delude themselves that NATOenlargement will happen easily or automatically. It is a stepthat must be ratified by the governments of all 16 NATO allies.Here in Washington, it requires a two-thirds vote in the Senateand majorities in both chambers to provide the necessary funding.And outside the beltway, NATO enlargement will require the clearsupport of an informed public, because that is part of what makesour security guarantees in NATO meaningful.

The American business community can play a keyrole in the educational effort we need to achieve that kind ofsupport. Both here and abroad, people listen to what we in thegovernment may say, but they watch to see what you in thebusiness community do. The business community has unique standingwith both the public and the press, and you can help explain whythis kind of active, internationalist strategy is good forAmerica’s own interests. I hope that America’s businessleaders will give this initiative the full attention and supportit deserves -- because on this issue, your own bottom line, ourbroader national interests, and our transatlantic future are oneand the same. Thank you.