Chapter III.
Regional Developments

D. Europe

a) Enlargement and deepening of the European Union

In 1999, introduction of the euro by 11 European Union (EU) members and large-scale industrial reorganization, as well as other activities, strengthened the EU's position still further as one of the three poles of the world economy, while great progress was also made toward political integration. Suspicion of corruption involving several Commissioners of the European Commission (the EU's administrative organ) resulted in the resignation en masse of the Commission, led by Jacques Santer. A new Commission headed by Romano Prodi was launched in September, setting the European Commission off to a new start.

  • EU moves toward political and diplomatic unity

    The Amsterdam Treaty, the new treaty underpinning the EU, went into force on 1 May, strengthening the second pillar of the EU, namely its Common Foreign and Security Policy (CFSP). It should be especially noted that the post of CFSP High Representative was created to represent EU foreign policy, to which former NATO Secretary-General Javier Solana was appointed in October.

    The handling of the Kosovo situation prompted heated debate on European security and defense policies. The Helsinki European Council (the EU Summit) in December agreed to create a crisis management unit to handle the EU's conflict prevention and crisis management duties, drawing fresh attention to the EU's role in defense and military matters.

  • Toward the fifth EU enlargement

    In addition to the six countries which have already launched accession negotiations (Poland, the Czech Republic, Hungary, Estonia, Slovenia and Cyprus), the Helsinki European Council in December decided that negotiations would also be initiated in 2000 with Romania, Slovakia, Latvia, Lithuania, Bulgaria and Malta. Although Turkey was also accepted to be eligible as a candidate for accession by the European Council, the meeting required Turkey to satisfy political criteria in terms of human rights, territorial issues and settlement of the Cyprus issue before officially entering negotiations.

    To cope with this enlargement, the EU agreed on the strategy paper "Agenda 2000," which includes a budget framework responding to the greater expenditure accompanying enlargement, at the special European Council in Berlin in March. The Intergovernmental Conference (IGC) on institutional reforms was also held in early 2000, focusing on the number of European Commissioners and improving decision-making processes. The necessary work in these areas are scheduled to be completed by the end of the year.

  • The European economy after the introduction of the euro

    The euro was introduced in early 1999 without any major troubles. The use of the euro is, however, originally restricted only to checks, settlements between companies and bond issuance. The distribution of actual bills and coins is scheduled to begin on 1 January 2002.

    Due to the disparity of the economic outlook between the U.S. and Europe and other factors, the euro depreciated against the dollar almost constantly throughout 1999. In the meantime, euro-denominated bonds in the offshore markets (approximately US$588 billion cumulated from January to December) have surpassed those denominated in dollars (US$585 billion). This reflects the international influence which is steadily appearing as a result of the introduction of the single currency by the EU, which occupies nearly 30% of world GDP. One factor shaping the future of the euro is the stance of the four countries which have yet to participate in the euro area, particularly that of the United Kingdom, which accounts for 20% of total EU GDP. (While there were fears that non-participation could weaken the foundations of the City, the services which the City can provide have in fact been regarded as increasingly important.) Others include the direction of monetary policy, particularly by the European Central Bank (ECB); the division of roles between the ECB and member countries (Economic and Financial Affairs Council (ECOFIN) and the Euro 11 Group, the latter comprising finance ministers from euro area countries) in terms of the decision-making of the monetary policy; progress in the coordination of social security systems and tax systems necessary to promote further economic and monetary integration; and the employment situation, including the coordination of member states' employment policies. Since tax policy coordination involves the issue of the right to collect taxes, one of the most intrinsic powers of a sovereign state, and could also affect the prosperity of domestic money markets, as well as member states' ability to attract businesses, differences in stances among member states have been particularly marked. As a result, the EU failed to fulfil its original plan and reach final agreement at the Helsinki European Council in December, and the issue was passed on to the agenda of the year 2000.

    Looking at the economic performance of the EU in 1999, 2.1% of annual GDP growth rate (European Commission's November forecast) undercut the 2.6% achieved in 1998 (actual performance). However, given clear indications of economic recovery in the second half of the year, including an expansion in intra-regional demand and exports, the growth rate for 2000 is expected to rise to 3.0% (European Commission's November forecast). Spurred by these promising signs, European stock markets have begun to display considerable vigor in late 1999. Prices held generally stable. Employment has been improving gradually, with the average unemployment rate for the EU dropping to 9.0% in November 1999 from 9.6% in December 1998.

    The scale merit offered by the progress of the economic and monetary integration has expanded business chances across Europe as a whole, while euro-based single pricing within the euro zone has intensified competition. The need to deal with such factors leads to reorganization in a variety of industries, such as finance and telecommunications, and the greater range of institutional investors has clearly shifted European companies toward direct financing. One key issue which has emerged, however, is how to find a balance between the traditional values of European countries, such as protection of workers' rights, and the strengthening of market principles in line with economic globalization. This conflict has been apparent, for example, in the German Government's intervention to prevent a foreign company from staging a hostile take-over of a key German company, as well as its injection of massive government funding to rescue other key companies experiencing management crises. In these cases, the market has reacted against such government intervention, leading to the subsequent acceleration of euro selling.

    In regard to employment, the Cologne European Council in June adopted the European Employment Pact, which includes coordination of economic policy through macroeconomic dialogue, and the improvement of wage, currency and fiscal policy coordination, signaling the beginning of EU policy coordination in this area as well.

b) Adapting to a new security environment

Approximately ten years after the conclusion of the Cold War, NATO, the Organization for Security and Cooperation in Europe (OSCE) and other European security organizations are individually seeking to adapt to the new European security environment, and trends in this area are being observed in tandem with the above-mentioned evolution of EU security and defense policy.

  • 50th NATO anniversary

    The year 1999 was a transitional period for NATO. The Czech Republic, Poland and Hungary-the three countries comprising the old Warsaw Pact-became NATO members, while NATO also initiated air strikes on Yugoslavia in response to the Kosovo situation. In April, a Summit commemorating NATO's 50th anniversary was held in Washington in the midst of the bombing campaign, with members adopting the New Strategic Concept, which lays out a direction for NATO toward the 21st century. Overall, 1999 was a year in which renewed attention was paid to the role of NATO in European security.

    The NATO New Strategic Concept reviews the Strategic Concept observed to date (adopted in 1991) in order to adapt to the new post-Cold War strategic environment. It posits collective defense as the foundation of NATO, while also clearly indicating that NATO will address conflict prevention, crisis management and crisis response policies as new duties in order to contribute to the security and stability of the European and Atlantic region.

    As for further NATO expansion, the Summit also reaffirmed the principle that NATO will remain open to new membership, and the international community is watching further developments.

  • OSCE Summit

    The OSCE Summit was held in Istanbul in November. The meeting adopted the European Charter for Security, advocating greater cooperation with international institutions such as the United Nations and a greater role in peace-keeping, and indicating that OSCE functions will be strengthened to ensure more expeditious exercise of these.

    During the Summit, the 30 parties to the Conventional Armed Forces in Europe (CFE) Treaty signed the Agreement on Adaptation of the CFE Treaty. This agreement introduces the new concept of adaptation to the post-Cold War environment in regard to limitations on European armed forces by shifting away from the limits imposed on armed forces for Eastern and Western blocs during the Cold War to new limits imposed by country and region.

c) Japan-Europe relations

In January, Prime Minister Obuchi visited France, Italy, the Vatican and Germany, meeting with leaders, who agreed to work to build personal relations of trust and to further strengthen bilateral relations in a wide range of areas, including politics, economy and culture, as well as Japan-Europe relations. A Japan-EU Summit was also held in June in Cologne, which announced that the Japan-EU partnership would be further broadened and deepened over the next millennium.

A number of high-level dialogues also took place again between Japan and the European countries in 1999. For example, Summit talks were held with Germany at the Cologne Summit in June, after which Prime Minister Obuchi visited the United Kingdom and Iceland. He engaged in a Japan-UK Summit Meeting in the United Kingdom, and in Iceland took part in the second Japan-Nordic Summit with the leaders of the five Northern European nations. An opening ceremony was held in Berlin in September for the Year of Japan in Germany, attended by Their Imperial Highnesses Prince and Princess Akishino and German Federal President Johannes Rau and his wife. Federal Chancellor Gerhard Schroeder visited Japan in October.

Japan and the United Kingdom held their regular foreign ministers' consultations in Tokyo in September, creating "Action Agenda 21: The UK and Japan in the 21st Century", which outlines Japan-UK cooperation toward the 21st century.

As for relations between Japan and France, Prime Minister Lionel Jospin made his first visit to Japan in December, with a Joint Communiqué produced on four areas, among them greater mutual investment.

  • Japan-Eastern Europe relations

    Foreign Minister Koumura visited Macedonia and Kosovo in May, followed by Foreign Minister Yohei Kono in December, announcing that Japan would contribute actively to bringing peace and stability to Kosovo and elsewhere in Southeast Europe.

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