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both defence and social services spending have not been immune from cuts. Likewise, the only moderate level of wage increases that have been permitted for German workers over the last three years has to some degree eroded the long-term consensus that linked government, management and unions into a 'productivity consensus' that seemed quite effective through the late 1980s down to about 1996 (Economist 2000b).

Likewise, Germany has tried to maintain its strong links with the US, but does not always agree with Washington initiatives, e.g. the US decision not to ratify the ongoing Kyoto process to reduce greenhouse gas emissions. Furthermore, the financial pressures on the Schroeder government has meant that he also does not support the US approach on seriously reducing the foreign debt that Russia has inherited from the former Soviet Union. Germany is one of the main members of the 'Paris Club', a group of nations owed some $100 billion. Germany is reluctant to ease this debt by $30-35 million, as former President Clinton had suggested (United Press International 2000). In this context, however, Germany remained critical of U.S. moves to create some kind of National Missile Defense (NMD) system, and did not think that such a system should be extended to European defense. Through early 2001, NATO foreign ministers, including those of France and Germany, decided not to back such a defense system, though agreed to continue negotiations with Washington. This fed into a early gap between the EU and the new US Bush administration on a number of issues including defense and the environment (see Daalder 2001). This relationship was somewhat improved with German-US cooperation over the reconstruction of Afghanistan, and with visits by President Bush which sought to emphasise trans-Atlantic cooperation.

However, the last round of tensions over Iraq seems part of a wider tensions on Atlantic cooperation that may take some years to fully resolve. In the wider setting, the EU has moved to rebuild the relationship with the US through a special EU-US Summit held in late June 2003. The political nuances of this stage of the process are worth noting: -

In the course of the meeting a new mutual legal assistance and extradition agreement was signed, a joint statement was issued on the proliferation of weapons of mass destruction, and an agreement was announced to begin comprehensive negotiations on a transatlantic aviation agreement intended to open access to markets on both sides of the Atlantic.

Speaking at the ensuing press conference President Bush noted the need for strong ties between America and Europe and the importance of these ties for peace and prosperity in the world. He went on to say that America and the EU are agreed that Iran must cooperate fully with the International Atomic Energy Agency (IAEA) and announced that the United States and the European Union would work together to achieve the two-state solution endorsed by the parties to the Middle East conflict at the Red Sea Summit held in Aqaba, Jordan earlier this month. EU President-in-office Simitis noted that the summit showed that the transatlantic relationship works, produces results, and is of fundamental importance for both sides.

Commission President Prodi concluded his comments with an analogy. He noted that many people have said that Europe is old and that if this is the case then it can be said that old age helps us to understand our strengths and weaknesses and the reality of the world. Prodi went on to say that "if we stay alone ... Europe is too old and the United States too young to be able to bring peace in this world. And it is our duty to stick together to bring peace to the world." (Federal Government of Germany

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