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Back to the fertile crescent: the Middle East, Europe and the US

    • Venice
    • 5 March 2010

          The Middle East is an increasingly diverse region where very old problems coexist with genuine opportunities for renewal and socio-economic progress. A powerful driver of change has become the Gulf, thanks to very large financial resources and a willingness to invest in the neighboring countries – as well as beyond, with a special emphasis on East Asia. In the meantime, demographic factors are pushing most countries in the Middle East toward a fork in the road: either sustained economic growth becomes the norm or expanding populations will actually reduce standards of living, putting enormous pressure on rather inflexible political systems.

          Europe, by virtue of its historical links and expertise in key sectors, has a unique role to play in engaging the most dynamic regional actors and channeling outside resources toward constructive programs. Government and private initiatives are both indispensable, as business activities cannot be entirely separated from wider political and security conditions. The Union for the Mediterranean has so far remained largely on paper, and there is still a long way before we reach the stated goal of a free trade area – which would certainly be widely beneficial and according to some should be the real focus of our efforts.

          Infrastructural projects are vital to industrial sectors such as energy, telecommunications (and indirectly education), transportations, tourism. Modern infrastructure is indeed indispensable to make the region more attractive to investors and also stimulate endogenous growth when this is possible.

          The sub-region of the Gulf is becoming more interconnected with the regional and the global economy, thus serving as a potential multiplier of opportunities. In particular, the growing level of integration (in the financial, trade and possibly even monetary sectors) within the sub-region can become a model for others to follow. While the United States continues to have a central security role there, Europe could raise its profile and benefit from complementarity: this requires a readiness to remove trade barriers and a better understanding of local dynamics, starting with sovereign wealth funds and Islamic finance.

          A key flashpoint in the region is the Iranian nuclear problem – and more broadly Tehran’s adversarial relations with the US and Israel and troubled relations with some of its regional counterparts. Many uncertainties surround the domestic evolution of Iran, which are bound to have major implications for the region in any event, given the ideological, cultural and geopolitical influence the country now exercises all the way from Central Asia through the Gulf to Lebanon. The urgent priority of the international community is rightly to defuse the immediate nuclear crisis, but beyond that there is a whole range of issues to be discussed with Iran and its neighbors if we are to realize at least part of the wider region’s economic potential. In the short to medium term, there is wide consensus on the need for keeping open all channels of communications with several actors (government and non) in Iran, while designing new sanctions against the regime and developing a careful containment and deterrence strategy.

          Looking specifically at the most intricate and long-standing problem in the region, i.e. the Israeli-Palestinian dispute, a methodological requirement is probably to break a recurring and destructive cycle: worsening diplomatic/security conditions which periodically damage partial improvements in economic conditions. Economic relations have traditionally been held hostage to security issues which, in turn, can more easily deteriorate if basic economic needs are not met and social frustration is widespread, especially among very young populations. Some observers believe there is hope for significant improvements in the daily lives of many Palestinians if the ongoing growth trend continues, but in any case at some point a diplomatic agreement will be necessary to consolidate the gains.

          Any concerted political effort the EU may decide to pursue in the Middle East will be heavily affected by its ability to mobilize resources in the context of several competing priorities: this is especially true in times of tightening budgets and strong pressures to focus on domestic concerns. The next few months will tell whether the Europeans will succeed in adjusting their growth and social model to a changing global environment in the recession’s aftermath. Dealing effectively with the immediate challenges inside the eurozone is obviously crucial, but it is probably just one step in a more complex process of economic and institutional rethinking. In particular, the Venice conference discussed the hypothesis of creating a European Monetary Fund, the pluses and minuses of “eurobonds”, as well as other forms of strong coordination to increase solidarity among member states. The key seems to be striking a balance between a certain amount of flexibility and effective rules to ensure a common discipline.

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