Sorry, Donald: Europe Will Move on Without You

Jun 01, 2017

PARIS—The tone could hardly have been more blunt: A young, untested politician upbraiding the leader of the world's biggest economy, nearly twice his age, in a video message that zipped across the world.

Published to YouTube last March, Emmanuel Macron, then vying to be the President of France, spoke directly to "American researchers, entrepreneurs, engineers working on climate change," telling them that he stood in stark opposition to President Donald Trump over a crucial issue: climate change. If he won France's presidential election, Macron promised them, he would pour money into environmental research and throw open the country's resources to Americans looking for friendlier terrain and more funding for their work.

"Please come to France," he told them in fluent English. "You're welcome. We want people working on climate change, energy, renewables, and new technologies."

So far, there is no sign that numbers of American entrepreneurs, engineers, and climate scientists are upping stakes and moving to France. But three months on, the video message from 39-year-old President Macron—now the youngest French leader since Napoleon—sounds more relevant than ever, offering a foretaste of the deep divisions between the European Union and the U.S. that surged to the surface in the last 10 days.

Those sentiments reached a pinnacle on Thursday night (Europe time) with Trump's announcement he would pull the U.S. out of the Paris accord, also known as the 2015 Paris climate change agreement, which virtually every country—barring Nicaragua and Syria—has signed, committing themselves to cutting carbon emissions.

Within minutes of Trump's withdrawal from the Paris accord, President Macron called Trump, telling him in a five-minute call "that nothing was renegotiable in the Paris accord," a Macron spokesman told Fortune in a text message late Thursday night. "The U.S. and France will continue working together, but not on the subject of climate."

The turning point for European leaders, say political observers on the continent, unfolded two weeks before Thursday's Rose Garden announcement, during Trump's first trip to the continent as President.

Transatlantic tiffs

There, E.U. leaders appeared to hit a brick wall in their talks with him and top U.S. officials, according to European political observers. The cleavage goes far beyond climate change. Issues at stake include long-standing agreements over military spending, multilateral trade deals, and immigration. In Europe last month, a defiant Trump excoriated NATO leaders in Brussels for not spending enough on the military alliance, which he had deemed "obsolete" during his presidential campaign last year. Days later, at the G-7 summit in Sicily, Trump refused to back the global climate accord and lashed out at Germany for its "very bad" trade surplus with the U.S.

The tensions could have far-reaching effects on political relationships as well as business opportunities on both sides of the Atlantic.

Even as Trump flew home and settled back into the White House, the aftertaste has lingered in Europe. The E.U.—the world's biggest market, with 500 million people—may realign its relationships without a friendly U.S. leader. Last Sunday German Chancellor Angela Merkel told an audience in Bavaria that "the times when we could completely rely on others are to an extent over"—a dramatic shift from decades of an unquestioned bond with the U.S. According to a Macron spokesman, Merkel and Macron spoke by phone Thursday night, shortly after Trump's withdrawal from the climate deal, "confirming their common engagement and resolve to put in place the Paris accord and defend it on the international scene."

"This is serious for us," says Jacques Pelkmans, senior research fellow at the Center for European Policy Studies in Brussels. "We will now have to take care of ourselves, because he [Trump] is impossible to deal with," he told Fortune on Thursday. "It breaks a bond we depend on a lot."

For businesses, the fraught relationship could have real-life consequences, some of which will come into much sharper focus on Friday and Saturday during events in Brussels and Paris.

Europe looks east

At a major E.U.-China summit in Brussels, the bloc's 28 leaders and China's president Li Keqiang are set to agree on boosting trade deals and cooperation on new technologies in sectors such as transportation and power. They also plan to work together on slowing global climate change through tactics including strategic collaboration between European and Chinese cities.

E.U. and Chinese officials believe the pact is good not only for the environment but for business, too—a striking contrast to Trump's statement on Thursday that the Paris climate accord was "very unfair at the highest level to the United States" by allowing emerging countries like India to continue using cheap coal as its use is restricted in the U.S.

The Paris accord offers the prospects of huge new trade to Europe and China. Business ties between the partners have skyrocketed in recent years; bilateral trade is now worth about €1.4 billion (or about $1.57 billion) per day, according to the E.U.'s official statistics. An early version of a joint statement drafted by E.U. and Chinese officials for Friday's summit in Brussels, released on Thursday, says that "tackling climate change and reforming our energy systems are significant drivers of job creation, investment opportunities, and economic growth."

That process appears to be galloping forward, despite Trump's announcement on Thursday that he wanted to "negotiate a new deal," which will be "much better than the Paris accord."

Pelkmans says he met business leaders in Shanghai last week and was struck by their keen interest in making economic deals off the Paris climate agreement. The leaders see its global targets as prized opportunities for businesses like solar-panel manufacturing and exports—an industry now worth tens of billions of dollars to China.

The art of the deal

Ironically, the tensions between the U.S. and Europe positions China—the world's biggest polluter, accounting for about 20% of all carbon emissions—to fill the leadership position on climate change left by Trump. "The E.U. and China now preach multinationalism without the U.S.," Pelkmans says, adding that he is amazed at the downturn in relationships with the U.S. "I cannot believe this has happened," he says.

China is not the only big economic power eyeing a golden moment to strengthen their relationships with E.U. leaders in the wake of Trump's trip to Europe. So too is India: In Germany on Wednesday, India prime minister Narendra Modi discussed trade deals with Merkel, gushing to her in a joint press conference, "We are made for each other."

On Saturday, it will be Macron's turn to host Modi, with a lunch planned in the ornate Elysée Palace. The meal comes just one week after Macron hosted Russian President Vladimir Putin at a working lunch in the even more sumptuous Palace of Versailles. Just three weeks since he was inaugurated, President Macron is rapidly emerging as a masterful diplomat, that could perhaps prove crucial as the E.U. attempted to forge new relationships with emerging markets.

One key market is India, which the U.N. estimates could overtake China as the world's most populous country within the next decade. France is pushing for a slice of India's military business, which has traditionally gone to Russian defense contractors. That includes a deal to sell India six Scorpene submarines, built by France's DCNS Group. And on May 15—just as Macron was inaugurated in a small ceremony in the Elysée—Dassault Aviation revealed it was in talks with India to sell about 16 Rafale fighter jets, all French-built. That would add to the company's huge $9 billion deal it signed last year to sell India 36 Rafale jets. "India's requirements are enormous," Dassault CEO Eric Trappier said in the wake of the announcement.

When Macron meets Modi for lunch on Saturday for his first meeting with the Indian leader, he will also certainly zoom in an issue close to his heart: climate change. For Macron, a fierce defender of the global climate deal inked in the French capital in December 2015, Modi's commitment to reining in carbon emissions is crucial—especially now that the U.S. has proved an unreliable partner on the issue. Immediately after Macron's victory on March 7, Modi tweeted that he "looked forward to working closely" with him.

Now is Modi's moment to make good on that. India is one of the world's biggest consumers of coal, and although the prime minister has vowed to ramp up the country's solar power infrastructure within the next decade, Macron will likely make it clear he expects Modi to stick to his word. If not, he could find Macron posting another YouTube video, inviting India's engineers and entrepreneurs to ditch their country and move to France.

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