In the wake of the Wikileaks cables and on the brink of nuclear proliferation fears, the relationship between Germany and the United States faces challenges as it remains an important alliance for the world. American broadcast journalist and Robert Bosch Fellow Jenny Hoff sat down with the Federal Foreign Ministry’s Coordinator of Transatlantic Cooperation, Hans-Ulrich Klose, for a discussion on where the relationship stands now, what challenges it will likely face in the future and what both countries must do to retain its standing in a continuously changing, globalized world.

Where would you say the relationship between Germany and the U.S. is now compared to the past?

Hans-Ulrich Klose: I tend to believe that the relationship has changed ever since the watershed of 1989/90. Until then, the relationship between the U.S. and Europe, the transatlantic relationship was very intense because we were kind of forced together by the necessities of getting over the Cold War. And, Germany was extremely important because the line of conflict ran right through the center of Germany.

Since then, the United States' geostrategic interest has shifted from Western Europe towards the East and beyond the borders of the EU to countries like Ukraine and Turkey, the Middle East, Central Asia and Asia. This actually reflects the changes in the world. We are witnessing a shift of wealth and power from West to East, from the Atlantic to the Pacific. Since the United States is not only an Atlantic power but also a Pacific power, it has moved its interests to that region. That does not mean that the U.S no longer cares about Europe, but an interest based foreign policy looks where your main interests are. And, these are now increasingly concentrated on East Asia, China and some others and not anymore so much on Europe.

We got a taste of this during the situation in Iraq and more recently, with the economic crisis. Do you feel like the interests of Germany and the United States are diverging and will continue to diverge?

Iraq is a different story. Iraq was a bitter debate between the US and Germany, especially between then Chancellor Gerhard Schröder and the Bush Administration. I was not convinced of the necessity of the Iraq War, and I think the decision of Schröder turned out to be a good one. However, the wording all around this conflict and the way it was handled brought a bitter tone into the relationship between the U.S. and Germany, which I regretted very much and which I tried to help overcome. The debate around Iraq was something that had to do with presumed broken loyalties, to some extent. I think this was a low mark in our relationship. But that was different from what has happened in the past years in the field of finances and economy.

First I must say I was surprised by the development, because I thought that the United States with its specific optimism would overcome the crisis before the Europeans, including Germany. But, actually we did overcome it much faster, for a number of reasons. The biggest point is that our industrial base is still relatively large in comparison with the industrial base of the United States and, for example, countries like Britain or France. Industrial production still contributes about 25% to Germany’s gross national product. In the United States the share right now is 12%. It has gone down from 25% to 12% within the last 20 years.

This is one reason. The other one is our handling of unemployment, which I think was very clever. Our Minister of Labor at that time used what we call Kurzarbeit (short-time work) to keep people employed. This means that if companies didn’t have enough work for the regular 40 hours week, the employees worked lesser hours and were paid for these hours by their companies while a certain percentage of the difference to their regular wages was paid by the Federal Agency for Labor. Therefore companies kept most of their staff. When the economy started to improve, you had all these skilled laborers in place to increase production immediately.

That is a big difference to what happened in the United States. In the United States, the flexibility of the labor market suffered from the subprime crisis. In former times, when someone lost his job and couldn’t find a new one in the place where he lived, he would sell his house, get a good price for it and then move to a place where he could find a job. But, since he can’t sell his house anymore, he has to stay put. So, the flexibility of the labor market in the United States is not what it used to be. Germany has the lowest unemployment rate in the last 15 years and the United States has the highest unemployment rate in the last 15 years.

Where do you see the financial crisis going from here? Many people fear it will take another dip and that we haven’t seen the worst of it yet.

I think it started in the United States, but to be frank, a lot of German banks were actively involved in what happened in the United States. The crucial point was Lehman Brothers, which really caused more than a headache worldwide. I believe that the US government subsequently did a lot to define new rules for banking and financial markets; probably in some ways better than we did in Europe and more successful.

But, that didn’t bring a big change in the economy because consumption in the United States was not high enough and consumption is the major factor for an increase in production in the United States. In Germany it is consumption but also export. Our export rates just went up and up and up, which also had something to do with the crisis in Greece: The Euro rate was extremely high and with the crisis in Greece, the value went down and with it the prices for our export goods.

What could happen to Germany if the United States were to devalue its currency?

This is our greatest fear, actually. The devaluation of the dollar is actually a process that started decades ago. We had times when you would get over four German mark for one dollar. When the Euro was first introduced, it was I think 89 or 90 US cents for one Euro. So, the value of the dollar has sunk dramatically, not the least because the United States is printing money, heavily printing money. And, this could actually be a starting point for inflation. And, if Germans are afraid of one thing, it’s inflation. This is even a bigger fear than unemployment.

So, if the US continues to devalue its dollar, what will that do to the relationship and to the health of the European Union?

If this trend continues, if the exchange rate of the Euro goes up again, it would make it more difficult for our companies, but I believe they would survive in the market. We have a fair number of big companies, but what makes the German economy strong is the great number of small and mid-size companies that survive in the market because they have developed a certain expertise, invented some special feature that only these companies can provide. That is what makes the German economy different. I think we will be able to stand the competition with countries like China and others. Because, at least this is my hope, our people will continue to be creative and invent new products that the world wants to buy.

Let’s talk about the Wikileaks controversy. Did that cause any kind of a problem or is the relationship between the US and Germany, as they say, as strong and robust as ever?

No, it didn’t cause any problems for us. Maybe some of the people mentioned in the cables had some headaches for sometime. I didn’t because I know all diplomats are writing reports and they all give assessments of people and situations. The assessments are not always all positive. But, if we are honest, all of us sometimes make critical remarks about people we also call our friends. That is human nature. So, no, that didn’t cause any problems.

Do you think that just the fact these cables were able to be released, will that close off openness?

That is a problem. The United States needs to do something to maintain the secrecy of data and the privacy of people. I don’t know how many people had access to this information. Some people talk about a million, some people talk about two and a half million. Even if it is 500,000 that is too many. You can’t control 500,000 people. That’s impossible.

So I think the United States has to look at this, and the world together has to look at how to solve the conflict between the right to privacy and the need for secrecy and, on the other hand, maintain the right of information and transparency. Those who decide that everything should be open for everybody, what kind of legitimacy do they have for what they are doing? Who authorized them? Is it just Mr. Assange saying ‘I’m the hero and I’ve decided for the rest of the world and if necessary, I declare war?’ – an “Internet war” against governments, states, banks. That is a conflict that we have to solve.

Looking toward to the future, what would you say are the biggest challenges that Germany and the U.S will face together as two of the biggest powers of the Western world?

Well, I believe the biggest threat of the future is a possible breakdown of the non-proliferation regime. That’s the real threat that is coming from Iran. Because, if Iran became a nuclear power, then we would have two Muslim countries that are nuclear – Pakistan and Iran and none of them is Arab. So, I believe that one day we could have a situation recalling the prophecy of John F. Kennedy, who said that in 20 years from his time, we will have about 30 nuclear states. So, this is the biggest threat. We have to do something to prevent this.

What do you think should be done about it?

Well, I think there should be a cooperative approach among the “big powers”. This means that countries like the U.S., Russia, China, India, Brazil, and the EU should cooperate and enforce a non-proliferation regime. Russia is very important because it still is a big nuclear power. So, I am very glad that the U.S. Senate ratified the New START treaty before Christmas because this is an important signal for the continuation of the “reset” between the U.S. and Russia.

I spoke with a think-tank in the United States and they think as Germany gets stronger due to its geopolitical standing, there is a going to be a weakening of the relationship (between the US and Germany) as their interests diverge.

No, I don’t think so. You see, what some people in the United States don’t realize is the basic difference in the development of our two countries. The United States is a growing society. 150 years ago, the population of the United States and Germany was almost equal. Today, the United States has over 300 million inhabitants and we have 82 million. This will go down to 70 or 68 towards the end of this century because our population growth is negative.

This has a major influence on our development and Germany is lucky if it can maintain its ranking in the world that it has right now, but I’m not even sure about that. We are an aging population. For example, we have problems in finding enough skilled labor in the country. We already lack engineers, we lack medical doctors, we lack skilled laborers and craftsman. We will probably lose half of our handicraft base due to this development.

When you say that the United States and Germany are different in their development, do you think that Germany needs to become more a country of immigrants in order to have population growth?

We are an immigrant society, but in our mentality we are still exclusive and not inclusive. That is something we have to learn. The second thing is that we have to concentrate on family and education. Those are the real priorities of our politics, or should be the real priorities. And, we have to cooperate as Europeans because most Europeans face the same problems. Together, we are strong. Economically, we are still the strongest region of the world. But, we have to cooperate. If not, we will be marginalized. So, our destiny is European.