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Berlin Dispatch

Hans-Ulrich Klose, a thin, graying, 67-year-old Social Democrat, is deputy chair of the Committee on Foreign Affairs in the Bundestag, Germany's parliament. Known for his pro-American views, he was critical of Chancellor Gerhard Schrder for aligning Germany too closely with France against the United States before the Iraq war. But, seated around a table in the Bundestag on a cold, gray Berlin morning, Klose gives a cryptic answer when asked about the advisability of seeking regime change in Islamic countries. "It was worthwhile in Germany, but I don't think it is worthwhile in countries of that kind," he says. "They don't want to commit suicide. If you really look at the world, and think we are heading for a clash of civilization, then it should be another country. I forget the name of the country." I ask Klose whether he is referring to Pakistan. Someone else conjectures Saudi Arabia. He shakes his head. Suddenly, it occurs to me that he is talking about the United States.

What Klose may have expressed wryly, other Germans put more boldly in reaction to George W. Bush's reelection. At lunch near the Brandenburg Gate, a senior government official tells me, "The result of the election was devastating. The question for us is whether the United States has now shifted decisively to the right." At a small gathering of officials and intellectuals in Berlin, the guests mull--and finally reject--a comparison between Bush's United States and Germany's darker past, but they still worry that the United States could be on a "slippery slope" toward religious fanaticism. Antipathy to the United States unites left and right. One November day, left-wing demonstrators are out on Berlin's famous boulevard, Unter den Linden, with signs accusing Bush of terrorism. Around the same time, in Saxony, part of the former East, politicians from the far-right Nationalist Party of Germany call for an end to U.S. investment.

In September 2002, Schrder rode popular opposition to the Iraq war to reelection, pledging not to send German troops into battle. It might be expected that, with another tough reelection campaign looming in two years, Schrder would continue to exploit public opposition to the war and to the Bush administration, moving Berlin closer to Paris. And yet, since Bush's reelection, Schrder has stepped up efforts to mend fences with the White House. Says Gary Smith, executive director of the American Academy in Berlin: "Schrder realized that [French President Jacques] Chirac is trying to take him too far. The Germans understand that their future is in a strong link to the United States." But unfortunately, even as Schrder has reached out, Washington has continued to ignore Europe's largest nation.

SCHRDER'S MOST NOTABLE attempt to conciliate the United States has come over Iraq. He adamantly opposed the U.S. invasion, favoring containment against Saddam. Yet German officials have not taken the same view of the occupation as the French. While Chirac is virtually attempting to force the United States out of Iraq, the Germans believe that, while the United States made a mistake in invading, it would be equally mistaken for the White House to retreat in the face of radical insurgents. Speaking with German officials, I was surprised to hear little protest about the siege of Falluja. One German foreign ministry official told me, "The United States is at war and has no choice. It would be worse to fall back and let things go backwards." Harald Braun, Schrder's deputy security adviser, put German objectives this way: "Chancellor Schrder has stated very clearly: No German troops in Iraq. He made this statement not because he so pleased, but because it reflects a deep felt concern in the German public and parliament. However, the German government sees instability in Iraq as a problem that affects us at least as much as the United States, because we are much closer geographically to the Middle East. We are quite willing to help stabilize Iraq."

In June, in fact, Schrder agreed to a U.S. plan to send nato trainers to assist the Iraqi police and military, though he insisted Germans do the actual training in neighboring Middle Eastern states. German trainers are now working out of the United Arab Emirates. And, in the wake of the U.S. election, the German government made a more unequivocal gesture. At a November meeting in Berlin of the Paris Club--a group of 20 creditor nations--German Finance Minister Hans Eichel worked with American Treasury Secretary John Snow to craft a plan to reduce Iraq's debt to non-Arab nations by 80 percent. That agreement ended a year of tortuous negotiations and forced other creditor countries, including France, to agree.

Now, German officials want reciprocal goodwill gestures from the Bush administration on Iran's nuclear ambitions and the euro-dollar exchange rate. The Germans fear that the Iranians want to develop nuclear weapons and that, if they succeed, they will destabilize an already chaotic region. According to Klose, the Germans see three options in Iran: diplomacy aimed at gaining concessions through carrots and sticks, trade sanctions through the U.N. Security Council to pressure the Iranians, or a military strike aimed at Iran's nuclear facilities. The Germans don't see diplomacy as a cure-all, but they see sanctions as unfeasible and a military strike as strategically disastrous. Says one foreign ministry official, "We worry that a military strike is technically and strategically problematic. If Iran were attacked, that could lead to an explosion among Shiites in Iraq. Maybe in the whole region."

As a result, Germany joined Great Britain and France last year in launching a diplomatic effort. Germans acknowledge that the EU effort relies on the threat of sanctions or military force, but the agreement itself would rest on Iran giving up the development of nuclear weapons in exchange for aid and a security guarantee from the United States. An agreement would conceivably include U.S. diplomatic recognition and sponsorship of Iran's entry into the World Trade Organization. Says Klose, "I have heard the United States is considering security guarantees for Pyongyang. If the United States is considering them for an evil state like North Korea, why not for Iran?"

But, while American officials have not denounced the EU efforts, they have been unwilling to offer guarantees that the European Union could use to woo the Iranians. Instead, the United States appears obsessed with the military option. One German official who met with his American counterparts in mid-October says, "When I was there, I heard repeatedly about a military strike against Iran." EU negotiators who came to Washington in October also encountered U.S. hostility. The Europeans had gotten Russia and China, which have substantial economic ties to Iran, to agree to a diplomatic strategy if the United States went along. Iran would be promised aid and security in exchange for abandoning its nuclear program; if it refused, the matter would be referred to the Security Council for a vote on sanctions. If that happened, Russia would support sanctions, and China would abstain rather than veto a resolution. When the Germans took this plan to the Bush administration in late October, they received initial support from Secretary of State Colin Powell, but soon the administration, led by Under Secretary of State John Bolton, balked.

The Germans also want the Bush administration to help halt the dollar's precipitous decline against the euro, a fall that is hurting German exports and, in the opinion of some German bankers, threatening a global recession. The euro was designed to enjoy rough parity with the dollar. It initially fell in value but, in 2002, began to rise, and this year it has skyrocketed to over $1. 30. The Europeans worry that the falling dollar, which raises the price of European exports, will imperil Europe's export-dependent economies. According to Deutsche Bank Senior Economist Werner Becker, each 10 percent rise in the euro against the dollar reduces the European Union's annual growth by half a percent. Germany can hardly afford any impediment to growth: Its economy is only projected to expand by 1.3 percent this year.

But Germany's banking establishment is even more worried about the threat the falling dollar poses to the world economy. They attribute the dollar's decline primarily to the steep rise of the U.S. "twin deficits"--the budget deficit and the current account deficit. "The American budget is out of order," Becker says at Deutsche Bank's towering glass office in Frankfurt. In the 1990s, foreign investors happily bought massive amounts of dollars; but, in recent weeks, central bankers in Russia and China have hinted that they might shift to euros. The fear, German bankers say, is that, if foreign central banks become hesitant to finance U.S. deficits, the United States will have to raise interest rates dramatically to woo them back. Higher interest rates will discourage domestic investment, and the U.S. economy will plummet--taking Europe and Asia with it.

German bankers also blame the dollar's fall on weak consumer demand in Europe, which is fueling the trade deficit. But they don't expect Germany's recently adopted economic structural reforms to raise consumer demand for several years. That places the onus for change on the United States. The short- run solution, many German officials say, is for the Bush administration to come out strongly against the dollar's fall while arranging with other bankers to increase the demand for greenbacks. This kind of strategy has worked in the past--it helped boost the dollar in the 1995 agreement between the United States and Japan and lower it again in the 2000 EU-U.S. accord. But, for these measures to have a lasting effect, the White House would also need to commit itself to reducing the U.S. budget deficit through tax increases or spending cuts.

Bush, however, has strenuously resisted these European pleas. Instead, the White House has continued to talk down the dollar. In a recent tour of European capitals, Treasury Secretary Snow blamed the dollar's fall on the EU countries' failure to grow. "The euro zone is growing below its potential," Snow said. "When a major part of the global economy is below potential, there are negative consequences." Snow also insisted that government intervention to raise the dollar's value couldn't work. At the Berlin conference last month, Germany proposed that the 20 nations endorse a statement that "excess volatility and disorderly movements in exchange rates are undesirable for economic growth." Berlin had reason to believe the Americans would agree to the statement-- American representatives at a G-7 meeting last February had endorsed a similar statement. But, this time, Bush administration representatives refused to accept any statement about exchange rates. Said Schrder, "It's difficult to ask Europeans to implement structural reforms--which they are already doing--and at the same time not put a lot of focus on [their] own economic issues."

DURING BUSH'S FIRST term, his administration's hostility toward "old Europe" speeded European unification. It led, among other things, to the decisions of all 25 EU nations to accelerate the development of the European Union's own rapid-reaction force, designed to replace nato as an instrument of European military intervention. That's not necessarily a bad thing. Expanding and strengthening the European Union means expanding the realm of democracies committed to eliminating the nationalist rivalries that led to centuries of war.

But the Bush administration didn't just accelerate the unification of Europe; it also gave Chirac's view of Europe as a "counterweight" wide currency (see Stphanie Giry, "Collateral," December 13). After Bush's reelection, Spanish Prime Minister Jos Luis Rodriguez Zapatero told the German weekly Der Spiegel, "Europe must believe that, in 20 years, it can become the most important world power." This view of Europe, and the strategy that might achieve it, has a clear downside for the United States--and for the world. If Europe becomes a contending force against, rather than a partner with, the United States, world politics will, in some important respects, have returned to the parlous circumstances that led to two world wars and a depression.

Germany is America's best hope to preserve a united Europe within an Atlantic alliance. Former U.S. Ambassador to Germany John Kornblum, now chairman of Lazard %amp% Co. in Berlin, says, "The United States has an unbelievable partner here. Germans and Americans like each other. This is the place where we can define our role in Europe.... But we have picked a fight with each other and have the worst relations ever." Kornblum, like other experienced observers, thinks that Schrder, in spite of public opinion, is now trying for a rapprochement with the United States, but Kornblum is worried about how the Bush administration will respond. How it does could determine not just the direction of Europe in the coming decade, but of the world. John B. Judis visited Germany through the generosity of the Atlantik-Brke.