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Economic Crisis in Europe
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One of France’s largest banks needs a bailout that its government likely cannot provide, a situation that is roiling global markets.

Introduction

One of France’s largest banks needs a bailout that its government likely cannot provide, roiling global markets. The National Security Council meets to recommend to the president how the United States should respond to this evolving European financial crisis, which threatens to infect U.S. banks. With Europe expected to enter an economic downturn, and the unity of the European Union (EU) and the eurozone challenged by the rise of extremist political parties in many countries, the crisis jeopardizes Europe’s ability to act as a strong partner to the United States in confronting global challenges.

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Content

The Situation

One of the largest French banks lost access to short-term debt markets three days ago. Facing a mountain of immediate payments it cannot make, the French bank has requested extraordinary financial support and signaled that it may declare bankruptcy. The costs of bailing out its banking system are expected to be too much for the French government, and reports that France will seek support from the International Monetary Fund are roiling global markets. Depositors in France have been lining up at ATMs to withdraw their savings, and this crisis of confidence has spread to other, smaller banks in France and elsewhere in the eurozone. In Paris, Marseille, and Lyon, protestors have taken to the streets demanding the government’s ouster. The National Security Council meets to recommend to the president how the United States should respond. The emerging financial contagion in Europe threatens to infect some U.S. banks. Furthermore, the European Union (EU) is Washington’s largest trading partner and has long worked with the United States to address global political challenges. With Europe expected to enter an economic downturn as a result of the financial crisis, and the unity of the EU and the eurozone challenged by the rise of extremist anti-EU parties in many countries, U.S. interests in the region are at risk.


 


Concepts


  • International economic policy
  • Monetary and fiscal union
  • Multilateralism
  • Financial crises and contagion
  • Banking runs

 


Issues


  • Debates surrounding economic austerity
  • Current and future challenges in the EU and eurozone
  • Role of international financial institutions and central banks
  • Interconnectedness of the global financial system
  • Rise of radical political parties in Europe
Guide Sections
An Introduction to the National Security Council
National Security Council meeting

“The function of the Council shall be to advise the President with respect to the integration of domestic, foreign, and military policies relating to the national security...”


– Title I of the National Security Act of 1947

1.1 Overview

The United States plays a critical role in establishing and maintaining international order in an increasingly globalized world. The range of foreign policy issues that require its attention or involvement is vast: from conflicts in Afghanistan, Iraq, and Syria to tensions with North Korea and Iran; from long-standing alliances with European and Asian powers to complex, evolving relationships with Brazil, China, India, Russia, and South Africa; from the stability of global finance to the promotion of economic opportunity in low-income countries; and from climate to health to nuclear proliferation to terrorism. There is little around the world in which the United States does not have a vested interest. Further, issues such as immigration, trade, and cybersecurity underscore the fading distinction between domestic and international matters.


U.S. leaders use a range of tools to pursue a foreign policy that they believe will safeguard national security and achieve U.S. goals:


  • diplomatic, such as bilateral or multilateral consultations and negotiations, treaties, defense and security agreements, resolutions at global and regional bodies such as the United Nations, and public diplomacy to promote U.S. views and culture
  • economic, such as trade and investment agreements, tariffs, sanctions, embargoes and boycotts, development assistance, loans for the purchase of U.S.-manufactured products, and sales of arms, equipment, and technology
  • military, such as missile strikes, nuclear deterrence, ground force deployments, ship and submarine patrols, blockades, unilateral or partnered military exercises, foreign military training, and special operations forces
  • unconventional actions, sometimes secret, undertaken by the U.S. government and its proxies, such as training and assisting foreign intelligence services, supporting armed nonstate actors, private security contracting, and cyberwarfare

Effective policymaking requires a deft combination of these tools. To accomplish this, policymakers need to clearly define U.S. interests and gauge the interests, resources, and motivations of foreign governments and nonstate actors. The U.S. intelligence community helps policymakers in their work by collecting and analyzing a vast range of information, including satellite images, communications records, documents, data, and personal observations.


Foreign policy successes and failures are often associated with presidential decisions. Less explored is the decision-making system that helps the president make those critical choices and coordinate their implementation. This guide will help you understand the system through which the United States creates and implements its foreign policy.

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National Security Council meeting
CIA Director George Bush discusses the evacuation of Americans from Beirut

“....I envisioned a special role for the national security advisor, who is the manager of the National Security Council. I needed an honest broker who would objectively present to the president the views of the various cabinet officers across the spectrum.”


— George H.W. Bush, “A World Transformed,” p. 18

1.2 The Interagency Process

Whether it aims to respond to an immediate crisis or to advance a long-term objective, a successful foreign policy–making process starts with a clear articulation of interests and goals. Policymakers and their advisors then formulate policy options to meet those goals and consider each option’s strengths and weaknesses. This process is challenging in the best of times. Information may be unreliable or incomplete, an adversary’s intentions may be unclear, and a decision’s consequences may be unknowable. Leaders often have to choose from a list on which every option is imperfect. Adding to this uncertainty is the complexity of the U.S. government’s foreign policy machinery: numerous agencies—each with its own interests and biases—seek to influence how policy is decided and carried out. In these circumstances, it takes considerable effort to run a process capable of producing sound policy decisions.

The National Security Council (NSC) plays a critical role in this effort. Its mission is to help the president effectively use a variety of instruments—military, diplomatic, or otherwise—to forge policies that advance U.S. national security goals.


The NSC was created by the National Security Act of 1947, which defined it as an interagency body intended to “advise the president with respect to the integration of domestic, foreign, and military policies relating to the national security.” Following World War II, in an age of expanded American interests and responsibilities, the NSC was expected to provide a place where the heads of federal departments and agencies could cooperate to develop and recommend to the president policies that would advance U.S. aims. The NSC and its staff were also meant to manage the policymaking process so that the president would receive a full range of advice and opinion from the departments and agencies involved in national security.

The NSC has evolved significantly over the years, adapting to the preferences of successive presidents and the challenges they faced. Variables such as NSC meeting attendees, the frequency of meetings, the amount and format of information passed to the president, the importance of consensus, and the relative dominance of the NSC over other government institutions have changed over the decades.


During this time, the NSC has evolved to comprise various interagency committees and a large staff to prepare analysis and coordinate policymaking and implementation. The NSC is at the center of the interagency process, one through which relevant government agencies address foreign policy issues and help the president make and execute policy choices.


I. National Security Advisor


The national security advisor (formally assistant to the president for national security affairs), a senior advisor to the president, is at the heart of the NSC structure. Ideally, the national security advisor’s role is twofold: to offer advice to the president and to coordinate and manage policymaking. Because they have direct access to the president and do not represent a cabinet department such as the State Department or Defense Department, national security advisors are in a unique position to drive foreign policy decisions, manage the actors involved, and mitigate conflict throughout the decision-making process.


II. National Security Council Staff


The NSC staff consists of individuals from a collection of agencies that support the president, the vice president, and the administration. NSC staff members are generally organized into directorates that focus on regions or issues. The size and organization of the staff vary with each administration.


The NSC staff provides expertise for the variety of national security policy matters considered by the committees and the president. It manages numerous responsibilities, including preparing speeches, memos, and discussion papers and handling inquiries from Congress on foreign policy issues. Staff members analyze both immediate and long-term issues and help prioritize these issues on the interagency agenda.


III. Committee Structure


Committees are at the core of policy deliberation and policymaking in the NSC. They fall into four categories:


  • The highest-level is the National Security Council itself. Formal NSC meetings are chaired by the president and include individuals named by the National Security Act of 1947 as well as other senior aides the president invites.
  • The principals committee (PC) comprises cabinet-level officials who head major government departments concerned with national security, such as the secretaries of state and defense. The national security advisor traditionally chairs the principals committee.
  • The deputies committee (DC) includes the deputy leaders of the government departments represented on the principals committee and is chaired by the deputy national security advisor.
  • Policy coordination committees (PCCs) cover a range of regional areas and issues. Each committee includes officials who specialize in the relevant area or issue at one of the departments or agencies in the interagency system. PCCs are generally chaired by senior directors on the NSC staff. Much of the day-to-day work needed to formulate and implement foreign policy across the U.S. government happens at the PCC level.

This committee structure tackles both immediate crises such as an outbreak of conflict and enduring issues such as climate change. In the normal course of events, PCCs conduct analysis on an issue, gather views on it and its importance from various departments, formulate and evaluate policy options, and determine what resources and steps would be required to carry out those options. The deputies committee, meanwhile, manages the interagency process up and down. It decides what PCCs to establish and gives them specific assignments. It also considers information submitted by the PCCs, ensuring that it is relevant, complete, and clear, before relaying it to the principals committee or the full NSC.


The principals committee is the highest-level setting, aside from the NSC itself, for debating national security issues. It consists of the heads of the NSC’s component agencies—essentially all the members of the NSC except the president and vice president. Formal NSC meetings, which the president chairs, occur whenever the president sees fit. They consider issues that require the president’s personal attention and a direct presidential decision.


The goal of this committee structure is to foster consensus on policy options or highlight where and why consensus cannot be reached. If officials at one level agree on an issue, it may not need to go to senior officials for a decision. This practice reserves the president’s time, and that of the principals, for the most complicated and sensitive debates.


When a crisis erupts, however, issues may not follow the usual path up from the PCCs. In these cases, NSC staff members and officials in government departments and agencies generally draft papers drawing on their expertise, available intelligence, and any existing contingency plans. Policy options are then debated and decided at the appropriate level, depending on the nature and severity of the crisis. The policymaking process may also deviate from this model based on the preferences of each president.


For the purposes of Model Diplomacy’s NSC simulation, you will role-play the NSC meeting with the assumption that the committees described have already done their jobs and passed critical information to the highest-level decision-makers.


Presidential Decisions


When the president makes a policy decision, it may take the form of a verbal instruction recorded in a NSC staff document and shared with relevant departments and agencies. The president may also issue formal decisions in documents that lay out the administration’s policy and explain its rationale and goals. These documents have gone by different names under different presidents. President Donald J. Trump issues national security presidential memoranda, which replace the presidential policy directives and presidential study directives that President Barack Obama issued.


The president may also issue an executive order. In the past, presidents have issued executive orders for such purposes as facilitating sanctions against foreign individuals and establishing new offices in government departments to achieve foreign policy aims. For federal agencies, both national security directives and executive orders carry the full force and effect of law, though the president’s authority to issue these kinds of documents is sometimes questioned.

National Security Council meeting
President Bush leads a meeting of the National Security Council.

“These complex times have made clear the power and centrality of America’s indispensable leadership in the world.”


— Obama 2015 National Security Strategy

1.3 Departments and Agencies

Although many executive branch departments and agencies are involved in foreign policy and, depending on the issue, play a role in the NSC process, the Department of State, the Department of Defense, and the intelligence community form the core of the foreign policy bureaucracy. The Department of the Treasury, the Department of Homeland Security, and the Department of Justice often play crucial roles as well.


Department of State


The Department of State conducts the United States’ relations with other countries and international organizations. It maintains U.S. diplomatic presence abroad, issues visas for foreigners to enter the country, aids U.S. citizens overseas, and manages cultural exchanges and other programs to promote American interests. As head of the department, the secretary of state is the president’s principal foreign affairs advisor and has a keen understanding of the United States’ international relations, the relationships between foreign countries, and the behavior and interests of their governments.


Department of Defense


The Department of Defense carries out U.S. defense policy and maintains U.S. military forces. It includes the U.S. ArmyNavyMarine Corps, and Air Force, as well as an array of agencies with missions ranging from advanced technological research to defense cooperation with friendly countries. The department employs more than two million military and civilian personnel and operates military bases across the United States and abroad. The secretary of defense, the head of the department and the president’s principal defense policy advisor, stays up-to-date on the security situation in foreign countries and the possibilities and implications of U.S. military involvement. The chairman of the joint chiefs of staff is the highest-ranking member of the U.S. armed forces and the president’s top military advisor.


Intelligence Community


The U.S. intelligence community consists of seventeen agencies and organizations, including the Central Intelligence Agency (CIA), National Security Agency (NSA), and Federal Bureau of Investigation (FBI), which gather and analyze intelligence to help policymakers formulate and implement U.S. foreign policy. Each of these agencies has its own mission; for example, the NSA focuses on signals intelligence (information gathered from communications and other electronic signals) and the Defense Intelligence Agency on military information. The director of national intelligence, the president’s principal advisor on intelligence issues, oversees this network of agencies with the aim of ensuring that they work together and deliver the best possible information to U.S. policymakers.


Department of the Treasury


The Department of the Treasury carries out policy on issues related to the U.S. and global economies and financial systems. The secretary of the treasury, as head of this department, serves as one of the president’s chief economic advisors and is responsible for addressing a range of economic concerns, including growth, trade and investment, and the position of the U.S. dollar. The Treasury’s ten bureaus, which include the U.S. Mint and the Internal Revenue Service, do much of the department’s work, which ranges from collecting tax to printing currency and executing economic sanctions.


Department of Homeland Security


Created soon after the terrorist attacks of September 11, 2001, the Department of Homeland Security works to counter and respond to risks to American security. It focuses on issues such as terrorism prevention, border security and immigration, disaster response, and cybersecurity. Familiar agencies within the department include U.S. Customs and Border Protection, which checks travelers and goods coming into the United States; the U.S. Secret Service, which protects the president and investigates financial crimes; and the Transportation Security Administration, which ensures security at airports. The secretary of homeland security oversees the department and advises the president on relevant issues.


Department of Justice


The Department of Justice investigates and prosecutes possible violations of federal law, represents the U.S. government in legal matters, oversees federal prisons, and works more broadly to prevent and respond to crime. Agencies such as the FBI and the Drug Enforcement Administration are part of the department, as are divisions focusing on particular areas of law, such as national security and civil rights. Leading the department is the attorney general, who offers legal advice to the president and the heads of other departments, including on matters under discussion in the NSC.

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Guide Glossary

A

alliance:an official partnership between two or more parties based on cooperation in pursuit of a common goal, generally involving security or defense.
attorney general:head of the Department of Justice and chief lawyer of the U.S. government. Among other duties, he or she offers advice on the legal aspects of proposed policies to the president and other department heads.

B

bilateral:undertaken between two entities, generally countries.
blockade:an act of war wherein a foreign military cuts off access to a specific location, usually a port, to impede deliveries of supplies. In 1962, President John F. Kennedy ordered a blockade of Cuba—calling it a “quarantine” to avoid the implication of declaring war—in response to Soviet missile activity on the island.

C

Cabinet:the group comprising the vice president of the United States and the heads of all fifteen federal executive departments, such as the secretaries of state, defense, commerce, labor, and education. Other officials may also have cabinet rank, depending on the administration.
Chairman of the Joint Chiefs of Staff (CJCS):the highest-ranking member of the U.S. armed forces. The CJCS does not exercise command authority over U.S. troops, but instead works with the leaders of the U.S. military services to fulfill his function as the top military advisor to the president and other senior officials.
chief of staff to the president:a close advisor to the president who is responsible for coordinating the implementation of presidential policy and managing the Executive Office of the President (EOP), which includes the national security staff among many other entities.
cyberwarfare:defensive and offensive actions taken by a government or nonstate actor in the realm of information network systems and digital infrastructure. Specific actions include planting computer viruses, mounting denial-of-service attacks to disrupt internet and network activity, and conducting electronic surveillance.

D

deputies committee (DC):the intermediate-level setting, below the principals committee, for debating issues in the National Security Council (NSC) system. Chaired by the deputy national security advisor, it comprises the second- and third-ranking leaders of the departments and agencies represented on the National Security Council. It manages the interagency process up and down, answering to the principals committee and assigning and reviewing the work of interagency policy committees.
director of national intelligence:the president’s principal advisor for intelligence-related matters and the head of the intelligence community, a network of seventeen agencies and organizations, such as the Central Intelligence Agency (CIA), Federal Bureau of Investigation (FBI), and Defense Intelligence Agency (DIA), that collect and analyze information to assist policymaking.

E

executive order (EO):a decision issued by the president that carries the full force and effect of law. An executive order usually instructs government departments and agencies to implement or modify particular policies or procedures.

F

foreign policy:a country’s attitudes and actions in the international arena. Foreign policy includes two principal elements: goals or interests as the country defines them, such as peace with one’s neighbors, and the means pursued to advance these interests, such as diplomatic negotiations, trade agreements, and military alliances. A country carries out its foreign policy through its dealings with other countries, international organizations such as the United Nations (UN), and nonstate actors such as corporations and advocacy groups.

I

interagency:involving two or more agencies. The National Security Council (NSC), for example, is an interagency forum, not a forum internal to any one agency.

M

multilateral:undertaken among three or more entities, usually countries. The term frequently describes organizations such as the United Nations (UN).

N

National Security Act:a law signed by President Harry S. Truman in 1947 to reorganize the agencies and processes related to intelligence, foreign policy, and the military. Among its reforms, the act established the National Security Council (NSC) and the Central Intelligence Agency (CIA).
national security advisor (NSA):the so-called honest broker of the national security policy process and the president’s principal advisor on national security issues. The NSA manages the National Security Council (NSC) staff, chairs the principals committee, and coordinates and manages policymaking with the goal of ensuring effective policy development and implementation.
National Security Council (NSC):an interagency body that serves as the forum for the president to discuss and take action on the most critical national security issues facing the United States. Its membership has varied since its creation in 1947, and now includes the president, vice president, national security advisor, secretaries of state and defense, and a variety of other senior officials.
National Security Council (NSC) staff:the president’s national security and foreign policy personnel. The NSC staff receives direction from the president via the national security advisor, provides expertise on issues and regions, and collaborates frequently with employees from other government departments and agencies to carry out the interagency policymaking process.
national security presidential memorandum:a type of presidential directive, or official order from the president, on matters related to national security. Called different names by different administrations, these documents may initiate a review of current policy, reorganize the structure of the national security policy apparatus, or lay out new strategies.
nonstate actors:individuals or groups that do not belong to or act on behalf of a state. This may refer to nongovernmental organizations such as Amnesty International, media outlets such as the New York Times, or terrorist groups such as al-Qaeda.

P

policy coordination committees (PCCs):the lowest-level setting for debating issues in the National Security Council (NSC) system and the home of much of the day-to-day work needed to formulate and implement U.S. foreign policy. Often chaired by a senior director on the NSC staff, PCCs develop, coordinate, and carry out policy options in distinct regional and functional areas.
principals committee (PC):the highest-level setting, aside from the National Security Council (NSC) itself, for debating issues in the NSC system. Generally chaired by the national security advisor, it comprises cabinet-level officials who head major government departments concerned with national security, such as the secretaries of state, defense, and homeland security, and other senior officials.

S

sanction:a tool of statecraft, frequently involving economic measures such as asset freezes and trade restrictions, used to exact a certain behavior or outcome from another party. The U.S. and EU sanctions against Russian companies and individuals that aim to encourage Russia to end its interference in Ukraine are an example.
secretary of defense:the principal defense policy advisor to the president and head of the Department of Defense, which oversees the formulation and execution of defense policy and manages U.S. military forces.
secretary of energy:the head of the Department of Energy, which executes U.S. policy on energy, environmental, and nuclear issues and oversees seventeen national scientific research laboratories.
secretary of homeland security:the head of the Department of Homeland Security since its creation after the attacks of September 11, 2001. This department works to protect U.S. security by implementing federal policy concerning terrorism prevention, border security, immigration, disaster response, and cybersecurity.
secretary of state:the president’s chief foreign affairs advisor, the country’s chief diplomat, and the head of the Department of State, which conducts the United States’ relationships with foreign countries and international organizations.
secretary of the treasury:one of the president’s chief economic advisors and head of the department of the treasury, which carries out policy on issues related to the U.S. and global economies and financial systems. The department is home to the U.S. Mint and Internal Revenue Service, among other agencies.

T

tariff:a tax on goods arriving from a foreign country, generally used as a tool of trade and foreign policy to penalize adversaries or favor allies or domestic producers.

U

U.S. permanent representative to the United Nations (UN):the ambassador-level official who advances U.S. foreign policy interests in the bodies and forums of the UN system.
unilateral:undertaken by only one entity, generally a country.

V

vice president:the second-highest-ranking official of the U.S. government and first in line to assume the presidency if the president dies, resigns, or becomes unable to serve. Though given only one responsibility in the Constitution—to serve as president of the U.S. Senate, with the power to break ties—the vice presidency has become a visible part of the modern White House. Today’s vice presidents undertake a variety of functions, from serving as an all-purpose presidential advisor to carrying out diplomatic trips abroad. The personality of the individual who occupies this post and his or her relationship with the president define the scope of the role.
Case Notes Sections
Police and protest
2 Euro Coin

“Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.”


— Jean Monnet, father of the European Union, 1976

2.1 The Issue

Since 2010, many European economies have struggled with high debt and low economic growth. The problem has been particularly acute in the eurozone, the group of nineteen European Union (EU) countries that use the euro as currency. (All eurozone countries are in the EU, but not all EU countries use the euro.) Many countries neighboring the eurozone have endured financial crises since 2010—most notably Greece, but also Cyprus, Ireland, Italy, Portugal, and Spain. Although the height of the eurozone crisis has passed, indebted governments, banks, and corporations continue to be a feature of many eurozone countries, a situation that could lead to more crises in the future.


One possible source of a reignited financial crisis in Europe is the banking sector. Banking crises can be particularly dangerous. Financial institutions and markets are built on confidence: if one bank fails, customers could panic and pull money out of other banks so that failure snowballs. Moreover, financial institutions and markets are global; a banking crisis in one country can quickly spread to others. The Great Recession began as a banking crisis when the U.S.-based investment firm Lehman Brothers went bankrupt in September 2008. Banking crises are also destructive because they can lead to a vicious cycle of economic problems, also known as a doom loop: when banks need governments to bail them out (i.e., provide money and resources to save them from failing), governments (sometimes already overindebted themselves) run into financial problems of their own, endangering confidence in the entire economy.

Eurozone banks have now recovered from the worst period of weakness (between 2010 and 2015). A return to steady economic growth in the eurozone in 2017 strengthened the banks, as did cheap credit from the European Central Bank (ECB) and injections of money and resources from governments. Even so, Europe’s banks are not out of danger. In an effort to increase confidence in financial institutions, organizations such as the ECB have begun work on protective measures to insure bank deposits—but these measures are incomplete. A banking crisis in a core country such as France, home to some of Europe’s largest banks, could have catastrophic effects on neighboring economies and even spread to the United States and beyond.

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EU Flag below a crowd

“Keep a watchful eye on France. France is at the heart of the European project: Will it be part of the solution or add to the problem? The government has not shown readiness or will to address France’s loss of competitiveness and increase in debt.”


— Former World Bank President Robert B. Zoellick, October 14, 2014

2.2 Background

In January 2002, euro banknotes (known commonly as bills) entered circulation in several European countries, replacing national currencies such as the French franc and the deutsche mark. The euro’s introduction was a major step in the post–World War II economic and political integration of Europe, which began with the Treaty of Paris in 1951. The treaty bound Belgium, France, West Germany, Italy, the Netherlands, and Luxembourg into a common market—free of tariffs and other trade barriers—for coal and steel. While the treaty was primarily economic, its proponents were pursuing political ends as well. The treaty, French Foreign Minister Robert Schuman declared, outlined “the first concrete foundation of a European federation indispensable to the preservation of peace.”


Six years later, in 1957, these countries took economic integration further with the Treaty of Rome, which introduced the European Economic Community (EEC). The agreement gradually abolished all tariffs among EEC members and led to rapid economic growth in Western Europe. In 1986, members of the EEC (which by then also included Denmark, Greece, Ireland, Portugal, Spain, and the United Kingdom) agreed to the Single European Act, which was designed to further advance the political structures of the EEC and implement a “single market” to foster the free movement of capital, goods, and people among the member states.

In 1992, as part of its attempt to realize the goal of a single market, the EEC members agreed to the Maastricht Treaty, creating the modern EU. The Maastricht Treaty also introduced a common currency, the euro, to smooth the economic integration of most EU countries. Because exchange rates for currencies change constantly, trading in multiple currencies is inherently riskier and cumbersome than doing so in a single currency. To facilitate the introduction of the euro, the treaty mandated that potential members of the eurozone meet certain criteria before adopting the euro, including limits on inflation rates, government deficits, and public debt.


The euro performed well in its initial years. Europe’s economy grew and the euro quickly strengthened to become one of the world’s reserve currencies (along with the U.S. dollar and the Japanese yen). Much of that progress halted with the 2008 global financial crisis, however. Beginning with the fall of Lehman Brothers, the global economy entered a severe crisis as banks, fearing new risks, pulled back from lending. Access to credit—in other words, money to borrow—dried up as a result. Between 2008 and 2010, world leaders united in response to the global crisis, promoting a new forum—the Group of Twenty (G20), which had been established in 1999—to address global economic concerns. In November 2008, the leaders of the G20 countries met in Washington to address the crisis. They agreed, first, to lower interest rates—making it cheaper for banks to borrow from one another—and increase government spending to stimulate growth, and, second, to ensure that the International Monetary Fund (IMF) and World Bank had enough resources (some of which are provided by national governments) to provide loans to countries in financial distress. They also agreed to regulatory reform of financial markets. These decisions were reaffirmed in 2009 at G20 meetings in London and Pittsburgh. By 2010, however, the worst of the crisis seemingly over, the G20’s efforts lost momentum and countries began to pursue nationally focused policies, including in some cases austerity policies that would have been ill-advised in 2008.

As the United States began to recover in 2010, Europe’s problems were just beginning. The eurozone’s entry standards had not been strictly enforced during the initial boom years, and countries such as Greece and Italy were able to mask their growing deficits and public debt to join. In 2010, Greece became the flash point of a debt crisis that spread to other countries, among them Spain, Portugal, and Ireland. The threat that Greece might exit the eurozone amid its financial difficulties prompted the EU and the IMF to bail out Greece the same year.


The specific causes of financial crises in the periphery varied. In Greece, it was excessive government spending and debt. In Spain and Ireland, it began in the banking sector; as banks faltered, the burden of providing enough money and resources to restore them to health, combined with a deep recession, endangered government finances. Responding to these crises, Germany, the eurozone’s largest economy and lender, advocated a program of fiscal austerity for eurozone members, most notably those on the periphery. Heavily indebted governments—such as those of Greece, Ireland, Portugal, and Spain—were forced to accept bailout deals that required them to make reforms and reduce deficits. These reforms were often painful, involving such measures as tax increases and cuts to social spending. Proponents of austerity argued that if debt was the problem, it was time for countries to reduce their debt and live within their means. Austerity programs are intended to bring government finances gradually back in line with accepted norms, restore confidence in these government’s policies, and achieve a sustainable level of debt.


Unfortunately, these austerity policies led to steep economic declines across Europe’s periphery. Following its bailout, Spain’s economy tumbled into recession before beginning to recover. Greece’s gross domestic product (GDP) fell by 45 percent between 2008 and 2016. Unemployment levels also rose across the eurozone, most significantly in France and Spain, though they eventually retreated. In December 2017, unemployment rate across the EU was 7.3 percent, the lowest since October 2008.


The economic medicine applied in Europe has also given rise to radical political parties. In France, stubborn economic problems fueled the rise of a far-right party called the National Front (FN). Long a marginal element of French politics, the FN capitalized on economic disenchantment—along with discontent over immigration and other issues—to reach new heights of popularity, arguably driven in part by austerity. FN leader Marine Le Pen was a leading candidate in France’s 2017 presidential election. The party’s economic program to address unemployment and other problems entailed pulling France out of the eurozone and the EU and increasing welfare and other spending for French citizens.


Le Pen, however, lost the presidential race to centrist candidate Emmanuel Macron. Contrary to Le Pen, Macron promoted free trade and strengthening EU institutions, called for expanding the currency union, and advocated for a combined budget and joint finance minister for the EU. He also promised to reduce France’s budget deficits by cutting public spending and eliminating public-sector jobs. In his first months in office, Macron pushed through reforms to the French economy to boost job creation by making some employment arrangements more flexible.


During the crisis, the United States under President Barack Obama generally opposed European austerity measures. U.S. officials tried to convince their European counterparts that austerity would be counterproductive and prolong Europe’s economic slump. The argument over austerity’s merits has faded in importance, though, as European economic growth has resumed.

2 Euro Coin
EU and U.S. Flags

“Our economy’s strength remains sensitive to events beyond our shores and we have an immense stake in Europe’s health and stability.… The [United] States has no bigger, no more important economic relationship [than] it does with Europe.”


— Jacob Lew, then U.S. Treasury Secretary, April 8, 2013

2.3 Role of the United States

The U.S. role in this scenario stems from the likelihood that U.S. financial institutions would suffer contagion from a crisis in Europe. The stakes for the U.S. economy could be higher now than they were for Europe in 2010. France is a larger country with bigger banks than, say, Greece. The French crisis is likely to affect more banks with ties to the U.S. economy and to do so more rapidly than past eurozone crises did. At worst, some U.S. banks could need bailouts or government assistance. Even if U.S. banks weather the storm, the threat of a renewed economic slowdown in the EU—the largest U.S. trading partner—could harm U.S. industries and cost jobs, possibly damaging the U.S. economy even without a domestic financial crisis. More broadly, Europe is home to many of the most prominent U.S. allies. Economic weakness and political uncertainty could erode their capacity to work with the United States on common interests, including maintenance of a strong military capacity in the North Atlantic Treaty Organization (NATO).


At the same time, as the world’s largest economy, the United States has unparalleled resources to take on this crisis. It has dealt with a similar crisis in the past, the 2008 onset of the Great Recession. If Washington does decide to act, it should decide whether and how it will repeat its 2008 playbook. Will it work multilaterally, bilaterally, or in both ways? Will it continue to push fiscal stimulus in Europe or embrace austerity? In all of this, the U.S. government should be aware of the evolving political situation in France and in Europe as a whole. The principal options in this case are discussed below. National Security Council members should note that some options may be combined.


 


Convene a high-level G20 meeting to coordinate international intervention protect the global financial system.


The president could direct the secretary of the treasury to coordinate a high-level G20 summit like those that took place in the aftermath of the 2008 crisis. Such a summit would signal to financial markets and businesses that world leaders, the United States in particular, are determined to address the situation in France and elsewhere in Europe. The summit could conclude with an announcement, like the one that ended the Washington summit of November 2008, in which world leaders pledge to end the crisis.


However, a summit could also be extremely risky. Not only is there no guarantee that an agreement would be reached, there is also none that such an agreement would be implemented. Either outcome would mean channeling limited U.S. government resources to a plan that would do little to further U.S. interests. A summit failure could also undermine U.S. credibility at a time of crisis. Furthermore, using the G20 would give voice to some countries whose interests do not align with the United States, such as Russia, whose relations with the United States and Europe are currently at a low point.


 


Work through the IMF.


The United States has traditionally exercised significant influence within multilateral financial institutions such as the International Monetary Fund, to which France could soon apply for a bailout. Through the IMF, the United States could provide aid to endangered European governments. An IMF loan would allow for additional spending and help create a more prompt and aggressive rescue package for French banks. The risk is that the massive government debt could undermine public confidence in the government’s financial health.


Even though the IMF could be part of an overall strategy to address the crisis, its assistance to the French government could cut two ways. IMF’s help could strengthen Macron’s government. However, because it is impractical to simply give France money, IMF assistance could also come with conditions imposing additional austerity measures. These austerity measures could reinvigorate the FN’s anti-American and anti-foreign rhetoric, even though the party was weakened by its presidential defeat in 2017.


 


Work bilaterally with France and other European countries.


The United States could decide to reach out to affected European countries to help them address problems in their financial systems before the crisis hits U.S. financial institutions. Congress could approve a proposal to provide direct financial support to France. The aid would get to France quickly and help firewall the French and European financial systems by providing enough money to end the crisis before contagion sets in and the crisis spreads to other parts of the highly interconnected global financial system. By working bilaterally, the United States could act without waiting to coordinate with other G20 or IMF members. It would also allow the United States maximum flexibility in pursuing its policy goals.


This plan also entails a number of risks. Should it propose giving direct assistance to France, the White House would likely face pressure from Congress and the American people to attach conditions that would impose additional austerity measures. As with IMF conditions, such a move could increase the popularity of the FN and fuel its far-right rhetoric. Moreover, bailouts sometimes require using what is essentially extraordinary financial force. In other words, to assure financial markets that France will be saved, the United States might need to pledge more than is strictly necessary. Given the size of France’s economy and banking sector, the amount will likely be substantial, in the order of hundreds of billions of dollars. Finally, any bailout proposal could cause political problems at home because Congress will likely be hostile to such a proposal.


 


Do nothing.


The United States could decide to do nothing about the crisis in France. The U.S. economy is comparatively healthy, and U.S. banks are in a far better position to survive this crisis than they were in 2008, thanks to regulations introduced after the last crisis. It would also save the United States from having to spend money and political resources. However, doing nothing could be harmful. There is no guarantee that U.S. banks could survive a crisis of this size. Further, by leaving France to fend for itself, the United States could risk political contagion. France or other countries could abandon the euro and embrace protectionist policies, which would have costly side effects such as slower economic growth and higher unemployment. Moreover, a fractured Europe would have enormous political repercussions for the United States in terms of cooperation on a host of issues from counterterrorism to trade.

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Case Notes Glossary

A

austerity:strict economic measures, such as tax increases and cuts to social spending, intended to reduce government deficits and debt. Such programs are common as a condition of bailout funds, including in Europe’s financial crisis in recent years. Austerity’s champions, such as Germany, view it as an essential step for indebted governments to rein in their spending. Detractors, such as the United States and countries receiving bailouts, such as Greece, argue that austerity compounds human misery and stymies the growth necessary for countries to eventually pay down their debts.

B

bailout:funds provided to an entity, such as a country or corporation, to help it avoid serious financial trouble, often bankruptcy. Critics view bailouts as letting governments and corporations off the hook for financial mismanagement; defenders argue they are regrettable but necessary to avoid the disruption that would stem from the collapse of a government or major financial institution.
bilateral:undertaken between two entities, generally countries.

C

central bank:the organization responsible for the monetary policy of a country (or group of countries in a currency union such as the eurozone). Central banks carry out monetary policy through such measures as issuing currency and setting interest rates. They are also noncommercial financial institutions that serve as a kind of bank for a country’s government and for major commercial banks.
common market:an area in which countries have agreed to reduce tariffs and other trade barriers, as well as adopt a common set of trade policies toward the rest of the world, in order to promote the movement of goods (and perhaps also of services and people) among them. The European Union also refers to this as a single or internal market.
contagion:a phenomenon in which an economic crisis in one country results in economic problems in another through disruptions in trade and financial flows, or through panic as a result of a loss of confidence. Often contagion is transmitted through the intricate links among banks and other institutions in the global economy.
counterparty:the other participant in a financial transaction.

E

European Central Bank (ECB):the central bank of the eurozone, which works in concert with the central bank of each eurozone country. The ECB differs from most central banks by covering more than one country. Its primary mandate is to maintain price stability, but it also works to ensure a stable financial system across the eurozone.
European Union (EU):a supranational organization composed of twenty-eight European countries, formally established by the 1992 Maastricht Treaty. The EU’s objectives include the economic, political, and security integration of its members, accomplished through such methods as removal of trade barriers; free circulation of EU citizens among certain member countries; and use of a common currency, the euro, by nineteen members. The EU is the largest U.S. trading partner and many of its members are among the most important U.S. allies.
eurozone:the group of nineteen European Union countries that all use the euro currency. Not all EU members are also in the eurozone.

F

firewall:policies that aim to prevent shocks from one country or region from spilling over to another. In the eurozone, the firewall erected to safeguard financial stability includes the European Stability Mechanism (ESM), which makes loans to countries suffering from contagion, as well as central bank facilities and regulations.

G

Great Recession:the U.S. economic downturn that began in 2008 as a banking crisis, triggered by the bankruptcy declaration of Wall Street investment house Lehman Brothers. It was so named because its origin and severity seemed to echo the Great Depression that followed the 1929 stock market crash.
gross domestic product (GDP):a measure of a country’s economic output determined by the value of goods and services it produces in a given year.
Group of Twenty (G20):a multilateral forum created in 1999 for officials from the largest advanced and developing economies to jointly address global economic concerns. Finance ministers and central bank governors of member countries meet several times a year; in 2008, in response to the global financial crisis, the G20 began hosting annual meetings for the leaders of its member economies. The G20 exists solely to coordinate policy and has no enforcement mechanisms.

I

International Monetary Fund (IMF):a multilateral financial institution established in 1944 that exists to foster stability and growth in the international monetary system, in part by observing countries’ monetary and currency exchange policies and providing them with technical assistance. As the global economic crisis firefighter, the IMF offers loans to struggling countries, usually conditional on the adoption of certain policies to manage their economies and return them to sustainable growth.

M

Maastricht Treaty:the 1992 agreement that created the modern European Union (EU) out of the European Economic Community, continuing the post–World War II trend of political and economic integration in Europe. Among other provisions, the treaty introduced the notion of EU citizenship; a central banking system; and a common currency, the euro, whose adopters were theoretically required to adhere to certain economic standards.
Marine Le Pen:a French politician who has been the leader of the far-right National Front (FN) political party since 2011. A member of the European Parliament known for arguing against immigration and France’s use of the euro, Le Pen is credited with softening the FN’s extremist image and increasing its popularity in France. She is now considered a strong contender for the French presidency in the 2017 elections.
multilateral:undertaken among three or more entities, usually countries. The term frequently describes organizations such as the United Nations (UN).

N

National Front (FN):a far-right French political party founded in 1972, known for its nationalist, anti-immigrant, anti-Semitic, anti-Muslim, and other extremist views. Long a fringe element of French politics, the FN has experienced a recent surge in popularity driven by economic discontent and the image rehabilitation efforts of party leader Marine Le Pen, who supports pulling France out of the eurozone.

R

reserve currency:a currency in which governments and other entities hold significant reserve funds. The U.S. dollar is the world’s most-used reserve currency; other reserve currencies are the euro, the United Kingdom pound, and the Japanese yen.

S

short-term debt market:the market for loans due within one year. Countries or banks are usually able to maintain access to short-term debt even if long-term debt is not available, so the inability to access these markets is usually a sign that a crisis is imminent.

T

tariff:a tax on goods arriving from a foreign country, generally used as a tool of trade and foreign policy to penalize adversaries or favor allies or domestic producers.

W

World Bank:a multilateral financial institution created in 1944 that funds long-term economic development of low- and middle-income countries through loans and grants for policy reforms and for projects in infrastructure, health, education, governance, and other areas.
Role Play Sections
Students at a Model Diplomacy simulation.
Students at a Model Diplomacy simulation.
Students at a Model Diplomacy simulation.

3.1 Role

Welcome to your role as a participant in the National Security Council (NSC)! You should have received an email with your role assignment, but if you did not, you can view your assignment by clicking on the “My Simulations” tab on your account page. At this point, you should have reviewed essential background information about the NSC, read the case, watched the accompanying videos, and perused some of the additional reading. Whether you have been assigned a specific role as an individual or part of a group, or as a general advisor to the president, we suggest you read the case once again to identify material that is particularly relevant to your role or that requires further investigation. After that, you will conduct independent research as you write your position memo and prepare for the role-play.


There are four subsections that follow. Research and Preparation (3.2) will aid your research for the position memo and provide additional reading to guide your research; the Guide to the Memoranda (3.3) provides information about position memos and an example; and the Guide to the Role-Play (3.4) provides more information on the in-class role-play.


You can learn about your role by reading the information provided on your role sheet, which can be found in the Guide to the Role-Play section (3.4).  Review this information thoroughly and often, as your objectives and strategy in the position memo and role-play will be shaped by the institutional perspective of the role you have been assigned (unless you are playing a general advisor). After you finish the role-play and subsequent debrief, you will have an opportunity to share your personal thoughts and recommendations on this case in a policy review memo (Section Four, Wrap-up).

Students at a Model Diplomacy simulation.
Students at a Model Diplomacy simulation.
Students at a Model Diplomacy simulation.

3.2 Research and Preparation

Your role sheet contains three parts: a description of your role, issues for consideration, and research leads. The role description details the position you will portray in the role-play. The issues for consideration will guide your thinking and assist you in approaching the case from the perspective of your assigned role. Most relevant, however, are the research leads. Going beyond the reports and articles linked to throughout the case and in the reading list, these research leads provide suggested materials and topics for further research specifically relevant to your assigned role. Below are some tips to review as you prepare for the role-play exercise.


Research and Preparation


  • Draw on the case notes, additional case materials, and your own research to familiarize yourself with

    • the goals of the NSC in general and of this NSC meeting in particular;
    • the U.S. interests at stake in the case and their importance to national security;
    • your role and your department or agency, including its purpose and objectives in the government and on the NSC;
    • the aspects of the case most relevant to your role;
    • the elements that a comprehensive policy proposal on the case should contain; and
    • the major debates or conflicts likely to occur during the role-play. You need not resolve these yourself, of course, but you will want to anticipate them in order to articulate and defend your position in the NSC deliberation.
  • Set goals for your research. Know which questions you seek to answer and refer back to the case notes, additional readings, and research leads as needed.
  • Make a list of questions that you feel are not fully answered by the given materials. What do you need to research in greater depth? Can your classmates help you understand these subjects?
  • Using the case materials, additional readings, and discussions with your classmates, weigh the relative importance of the U.S. interests at stake in the case. Determine where trade-offs might be required and think through the potential consequences of several different policy options.
  • Conduct your research from the perspective of your assigned role, but be sure to consider the full range of U.S. interests at stake in the case, whether diplomatic, military, economic, environmental, moral, or otherwise. This will help you strengthen your policy position and anticipate and prepare for debates in the role-play.
  • Consider what questions or challenges the president or other NSC members might raise regarding the options you propose and have responses ready.

 


Sources


  • Consult a wide range of sources to gain a full perspective on the issues raised in the case and on policy options. Seek out sources that you may not normally use, such as publications from the region(s) under discussion, unclassified and declassified government documents, and specialized policy reports and journals.
  • Remember: Wikipedia is not a reliable source, but it can be a reasonable starting point. The citations at the bottom of each entry often contain useful resources. 
  • Just as policymakers tackle issues that are controversial and subject to multiple interpretations, so will you in your preparation for the writing assignments and role-play. For this reason, evaluate your sources carefully. Always ask yourself:
    • When was the information produced? Is it still relevant and accurate?
    • Who is writing or speaking and why? Does the author or speaker have a particular motivation or affiliation that you should take into account?
    • Where is the information published? Determine the political leanings of journals, magazines, and newspapers by reading several articles published by each one.
    • Who is the intended audience?
    • Does the author provide sufficient evidence for his or her analysis or opinion? Does the author cite reliable and impartial sources?
    • Does the information appear one-sided? Does it consider multiple points of view?
    • Is the language measured or inflammatory? Do any of the points appear exaggerated?
  • Take note of and cite your sources correctly. This is important not just for reasons of academic integrity, but so that you can revisit them as needed.
  • Ask your teacher which style he or she prefers you use when citing sources, such as Modern Language Association (MLA), Chicago Manual of Style, or Associated Press (AP).

Reading List


 


2.1 The Issue


Christopher Alessi and James McBride, “The Eurozone in Crisis,” CFR.org Backgrounder, February 11, 2015, http://www.cfr.org/eu/eurozone-crisis/p22055.


“Crash Course: The origins of the financial crisis,” Economist, September 7, 2013, http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article.  

“European Debt Crisis Fast Facts,” CNN, Januray 28, 2019, https://www.cnn.com/2013/07/27/world/europe/european-debt-crisis-fast-facts/index.html.


 


2.2 Background


Paul Carrel and Michel Rose, “Merkel and Macron agree to draw up roadmap to deeper EU integration,” Reuters, May 15, 2017, http://www.reuters.com/article/us-germany-france-leaders-idUSKCN18B13A.


European Union, “The history of the European Union,” http://europa.eu/about-eu/eu-history/index_en.htm.


 


2.3 Role of the United States


Richard H. Clarida and Christopher Alessi, “The Euro Crisis and the U.S. Economy,” CFR.org, May 25, 2012, https://www.cfr.org/interview/euro-crisis-and-us-economy.  


Stephanie Lee, “The Group of 20,” CFR.org Backgrounder, March 30, 2009, http://www.cfr.org/world/group-20/p18975.


Charles A. Kupchan and Bernard Gwertzman, “Why Franco-American Ties Matter,” CFR.org, February 13, 2014, https://www.cfr.org/interview/why-franco-american-ties-matter.  


 


Further Reading


Christopher Alessi, “Germany’s Central Bank and the Eurozone,” CFR.org Backgrounder, February 7, 2013, http://www.cfr.org/world/germanys-central-bank-eurozone/p29934.  


BBC, “Q&A: The eurozone’s banking union,” December 17, 2013, http://www.bbc.com/news/business-20700946.  


Board of Governors of the Federal Reserve System, “Frequently asked questions: U.S. Dollar and Foreign Currency Liquidity Swaps,” October 31, 2013, http://www.federalreserve.gov/monetarypolicy/bst_swapfaqs.htm.


Suzanne Daley, “Europe’s Debt Crisis: No Relief on the Horizon,” New York Times, December 30, 2012, http://www.nytimes.com/interactive/2012/12/30/world/europe/eurocrisis-photos.html.  


———, “Pensions in Greece Feel the Pinch of Debt Negotiations,” New York Times, June 8, 2015, http://www.nytimes.com/2015/06/09/world/europe/greece-pensions-debt-negotiations-alexis-tsipras.html.  


European Banking Authority, “2014 EU-wide stress test results,” October 26, 2014, http://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing/2014/results.  


Foreign Affairs, “Economic Crisis in Europe: A Foreign Affairs Mini-Anthology for Model Diplomacy,” https://www.foreignaffairs.com/economic-crisis-europe.


Suzy Hansen, “A Finance Minister Fit for a Greek Tragedy,” New York Times, May 20, 2015, http://www.nytimes.com/2015/05/24/magazine/a-finance-minister-fit-for-a-greek-tragedy.html.  


Bryony Jones, “Why is unity so important to Europe?” CNN, September 6, 2012, http://www.cnn.com/2011/11/04/world/europe/european-unity-explainer.


Michael Mandel, “A Simple Guide to the Banking Crisis,” Bloomberg, March 12, 2009, http://bloomberg.com/news/articles/2009-03-11/a-simple-guide-to-the-banking-crisis.


Jonathan Masters, “The International Monetary Fund,” CFR.org Backgrounder, October 9, 2013, http://www.cfr.org/europe/international-monetary-fund/p25303.


James McBride, “The Trans-Pacific Partnership and U.S. Trade Policy,” CFR.org Backgrounder, January 31, 2017, http://www.cfr.org/trade/future-us-trade-policy/p36422.  


James McBride and Christopher Alessi, “The Role of the European Central Bank,” CFR.org Backgrounder, July 9, 2015, http://www.cfr.org/world/role-european-central-bank/p28989.  


Reza Moghadam, “Europe’s Road to Integration,” Finance & Development 51, no. 1, March 2014, http://www.imf.org/external/pubs/ft/fandd/2014/03/moghadam.htm.


Angela Monaghan, “Global financial system ‘incendiary’ risk to stability, says Bank regulator,” Guardian, October 29, 2014, http://www.theguardian.com/business/2014/oct/29/international-financial-system-incendiary-risk-stability-haldane.  


Hannah Murphy and Valentina Romei, “The economy that France's next president will inherit,” Financial Times, March 09, 2017, https://www.ft.com/content/c33bafde-fe68-11e6-8d8e-a5e3738f9ae4?mhq5j=e1.


Alison Smale and Liz Alderman, “Germany’s Insistence on Austerity Meets With Revolt in the Eurozone,” New York Times, October 7, 2014, http://www.nytimes.com/2014/10/08/business/rift-opens-among-eurozone-leaders-over-germanys-insistence-on-austerity.html.  


Benn Steil, “Lessons of the Financial Crisis,” Council Special Report No. 45, March 2009, http://www.cfr.org/international-finance/lessons-financial-crisis/p18753.  


Gabrielle Steinhauser, “Here’s How the European Bank Stress Tests Work,” Moneybeat, Wall Street Journal, October 23, 2014, http://blogs.wsj.com/moneybeat/2014/10/23/heres-how-the-european-bank-stress-tests-work/.


Paola Subacchi, “Can Europe Survive Without Greece?” Foreign Policy, June 2, 2015, http://foreignpolicy.com/2015/06/02/can-europe-survive-without-greece-grexit-possible/.


Strobe Talbott, “Monnet’s Brandy and Europe’s Fate,” Brookings Institution, February 11, 2014, http://www.brookings.edu/research/essays/2014/monnets-brandy-and-europes-fate#.  


Ian Traynor and Jon Henley, “Greek bailout terms to give eurozone vast powers over policymaking,” Guardian, August 12, 2015, http://www.theguardian.com/world/2015/aug/12/greece-bailout-terms-eurozone-policymaking-powers


Mark Whitehouse, “Financial Contagion,” Bloomberg QuickTake, August 24, 2015, http://www.bloombergview.com/quicktake/financial-contagion.


 


Quotation Sources


Juergen Baetz, “US Treasury chief urges EU to ease off austerity,” AP, April 8, 2013, http://news.yahoo.com/us-treasury-chief-urges-eu-ease-off-austerity-105515650--finance.html.


Baker Institute, “The Eurocrisis Minefield: Mapping the Way Out,” March 2014, http://bakerinstitute.org/media/files/files/c90b01e0/Econ-pub-Eurocrisis-031914.pdf.


Clive Crook, “Europe Can Beat This Crisis But Maybe Not the Next,” Bloomberg View, January 24, 2012, http://www.bloombergview.com/articles/2012-01-25/europe-can-beat-this-crisis-but-maybe-not-the-next-clive-crook.

Students at a Model Diplomacy simulation.
Students at a Model Diplomacy simulation.
Students at a Model Diplomacy simulation.

3.3 Guide to the Memoranda

A major goal of the Model Diplomacy program is to strengthen your ability to write concise, articulate, and persuasive documents that busy colleagues can absorb quickly. In completing this section and Section Four, you will write two memoranda, or memos. These assignments will improve your writing skills and give you a taste of how U.S. foreign policy is conceived, coordinated, and executed.


What is a memorandum?


  • A memo is a formal, succinct written message from one person, department, or organization to another. It is an important form of formal, written communication in the workplace. A memo is generally short, to the point, and free of flowery language and extraneous information. A memo is typically informative or decision-oriented and is formatted in a way that helps readers quickly grasp the main points.
  • In the National Security Council (NSC), memos consider, coordinate, and articulate policy options. They help analyze, evaluate, advocate, and channel those policy options and decisions within the bureaucracy.
  • Memos also function as historical record. Many memos related to NSC discussions and presidential decisions are filed in government archives. Some are later declassified and released to help people understand how policy was devised at a given time in U.S. history. You can access historical examples of memos online. One such resource is maintained by the Federation of American Scientists and offers links to memoranda and directives that various U.S. presidents have issued.

Position Memo 


 


  • The first memo everyone (except the president) writes is called a position memo. It is written from the perspective of your assigned role. It presents a set of policy options for consideration by the NSC and recommends one of them to the president. The recommendation, or position, outlined in this memo is the one you will present during the role-play. (Keep in mind you may change your position as a result of the role-play discussion.)
  • The position memo will help your fellow NSC members consider the issue efficiently and facilitate decision-making by the president. Equally important, it will help you clarify your understanding of the case by forcing you to identify the essential facts and viable policy options.
  • If you have been assigned a specific role, remember that you are writing from the point of view of the department, agency, or office you represent. Using your institutional position as a lens, you will outline a set of options to address the crisis. Make sure you take into account the pros, cons, and ramifications of each option as it pertains to your role and as it is informed by your reading of the case materials and further research. Also, anticipate critiques of your proposed policy and incorporate your response into the memo. Doing so will help you prepare for the role-play.

Note: If you are assigned the role of president, you will not write a position memo. Instead, you will write a two-page presidential directive, or PD, at the conclusion of the role-play. You will address the PD, which will follow a memo format, to the NSC members and inform them of your final decision regarding the policy option or options to be implemented (see below).


If your teacher has chosen to assign everyone the role of general advisor to the president, you will not need to write the position memo from a particular institutional position. Instead, you will have the flexibility to approach the issue from your own perspective, incorporating a comprehensive assessment of the crisis into your argument.


 


Position Memo Guidelines


Total length: approximately one thousand words


  • Subject and background (two short paragraphs): Summarize in the first paragraph the significance of the issue in the context of U.S. foreign policy and national security. Identify in the second the central policy question or questions to be decided. Provide just enough information about the crisis so that the reader understands your memo’s purpose and importance; do not attempt to discuss the case in any depth.
  • Objectives (bullet points): Succinctly state your department’s objectives in the current crisis. These can be general national security objectives (such as preventing war) or more specific goals tied to your department’s mission (such as protecting U.S. citizens). They should be important to U.S. national security, directly tied to the case, and feasible. These objectives should guide the policy analysis and recommendation that make up the rest of your memo.
  • Options and analysis (one paragraph for each option): Present and analyze several options for U.S. policy. Discuss their costs, benefits, and resource needs where possible. To illuminate the trade-offs inherent in complex policy decisions, be sure to acknowledge the weaknesses or disadvantages of each proposed option. No option is likely to be perfect.
  • Recommendation and justification (several paragraphs): Identify your preferred policy option or options and describe how you think it or they could be carried out. Explain your reasoning, keeping in mind that you aim to convince the president to follow your recommendation. Addressing the weaknesses or disadvantages you identified in the options and analysis section can help strengthen your argument.

Click here to see a sample position memo.

Presidential Directive


 


The format of the presidential directive is simpler than that of a position memo. A directive contains a record of the policy option or options that the president has chosen as well as the accompanying orders to various parts of the government with details on how to carry out these decisions.


  • Start with a short paragraph describing the purpose of the memo. Everyone you are writing to was in the NSC meeting, so only brief context is needed.
  • Explain in numbered paragraphs the decisions you have made, why you have made them, and any details regarding how you want the decisions carried out.
  • Explain the communications strategy for the decision, considering both relevant foreign governments and the public. Also, consider that you may wish to keep certain elements of the decision secret from the public.
  • Include any additional details before you sign.
  • Be sure to include all the information necessary for NSC members to understand and carry out your intentions.

Click here to see a sample presidential directive.

Students at a Model Diplomacy simulation.
Students at a Model Diplomacy simulation.
Students at a Model Diplomacy simulation.

3.4 Guide to the Role-play

During the simulated NSC meeting, you will meet to debate and discuss U.S. policy options in response to the issues outlined in the case. Consistent with the NSC’s mission to advise the president, you should raise the issues that are most important for the president to consider. This will enable him or her to make the most informed decision on policy options. Though you may or may not agree with this decision, your responsibility as an NSC member is to provide the best possible analysis and advice from the perspective of your role.


Role-play Guidelines


  1. Stay in your role at all times.
  2. Follow the general protocol for speaking.
    1. Signaling to Speak

      1. The National Security Advisor (NSA) will administer the meeting and should decide on a speaking order. Wait to be called on by the NSA.
      2. If you would like to speak out of turn, signal to the NSA, perhaps by raising a hand or a placard, and wait until the NSA calls on you.
    2. Form of Speech
      1. Address the president as Mr. or Madam President and your fellow NSC members in the same fashion (for example, Madam Secretary).
      2. Do not exceed predetermined time limits. If you exceed these limits, the NSA will cut you off.
      3. Frame your comments with a purpose and stay on topic. Remember that you must advise the president so that he or she can reach a decision on a precise policy question.
    3. Listening
      1. Take notes while others are speaking.
      2. Refrain from whispering or conducting side conversations.
      3. Applause and booing are not appropriate. Your words will be the most effective tool to indicate agreement or disagreement.

 


Role-play Tips


  • There is no right or wrong way to participate in a role-play, but the better prepared you are, the more likely you will be able to advance a position effectively, and the more you and your classmates will get out of the experience.
  • Be patient during the role-play. Do not hold back from sharing your perspective, but be sure to give others a chance to do the same.
  • Where there are competing interests, make the judgment calls that you would make if you were a government official, as informed by your earlier consideration of potential trade-offs. Ensure that the consequences of various decisions are carefully weighed.
  • Where appropriate, find common ground with other members of the NSC during the role-play. With whom might you work in advocating your proposed policies? You may find that combining several policy ideas into a new proposal with broader support is an effective strategy if the debate is at an impasse.
  • Think critically about the strengths and weaknesses of your approach as the discussion continues. It is important to subject your own arguments to the same scrutiny that you apply to those of your fellow students. Rethink your arguments as appropriate to take into account the feedback and counterarguments that other NSC members present.
  • You cannot win or lose the role-play. Instead, you should aim to offer a well-reasoned articulation of your position while making concessions and adjustments where you believe they are warranted.
Line Item
Round
One
Timing
2 to 3 minutes per participant
Objectives
  1. Present initial positions to the president.
  2. Investigate the nuances of the positions through questioning.
  3. Clarify the central questions to be debated.
Procedural Notes

Each participant presents his or her position statement. If time permits, the president may ask questions to understand each NSC member’s position and bring out the essential questions he or she wishes to debate.

Round
Two
Timing
30 to 60 seconds per participant
Objectives
  1. Clarify the obstacles, risks, opportunities, and threats.
  2. Evaluate the various positions on their merits.
Procedural Notes

This is the debate portion of the role-play, when participants can defend their recommendations against others’ and identify potential areas of compromise or agreement.

Round
Three
Timing
30 to 60 seconds per participant
Objectives
  1. Narrow the options to a few comprehensive and well- focused strategies that the president prefers.
  2. Provide the president with clear recommendations (from NSC members), perhaps as a consensus or through a vote.
  3. Arrive at a final presidential decision 
Procedural Notes

This round should start with the president’s stating one to three preferred options to be fleshed out.

Wrap Up Sections
Obama, Xi Jinping, and Ban Ki Moon.
The UN Security Council
JFK.

4.1 The Debrief

After the debate and deliberation close, the president will announce his or her decision, to be later finalized in the form of a written presidential directive (PD). If time permits, you will participate in a debrief following the president’s announcement.


Be active in this debrief. The role-play might seem to be the most challenging part of the experience, but the debrief is equally important. It will reinforce what you learned during the role-play exercise and refine your analytical skills. It will also force you to step out of your role and to view the case from a personal perspective. You will have the opportunity to discuss any challenges you encountered and how you felt about the final presidential decision. The debrief will close with a reflection on the complexities and challenges of crafting foreign policy. This should help clarify your understanding of what you learned and answer any lingering questions. This exercise will also assist you in completing your final assignment, the policy review memo.  

Obama, Xi Jinping, and Ban Ki Moon.
The UN Security Council
JFK.

4.2 Reflecting on the Experience

The following questions are proposed to guide the discussion in the in-class debrief. This is not an exhaustive list and may vary depending on how your role-play exercise unfolded.  If your class does not hold a debrief, these questions will nonetheless help you reflect on the role-play and write your policy review memo: 


  • Which issues received adequate attention during the role-play? Which, if any, received excessive attention or were left unresolved?
  • Did the group consider long-term strategic concerns, or was it able to focus only on the immediate issue and the short-term implications of policy options?
  • Which U.S. interests did the group or the president prioritize in the PD and why? Were you comfortable with this prioritization?
  • Did time constraints affect the discussion and influence the policymaking process?
  • What techniques did you use to convince others that your policy position was the best option? What were successful strategies employed by others?
  • What were the most significant challenges to your position? Did any make you rethink or adjust your position?
  • Did your points cause anyone else to change his or her arguments or position?
  • What political, economic, and other issues arose that you had not previously considered?
  • How did the simulation change your perspective on foreign policy decision-making?
  • If you could go back, what would you have done differently in presenting and advocating your point of view?
Obama, Xi Jinping, and Ban Ki Moon.
The UN Security Council
JFK.

4.3 Policy Review Memo

The policy review memo is your final assignment in the Model Diplomacy simulation. In the debrief discussion after the role-play, you and your classmates went beyond the role you played and thought about the issue from a variety of perspectives. Now that the National Security Council discussion and debrief are behind you, you can consider whether you personally support your recommended policy given the full spectrum of arguments and considerations that arose. Shedding your institutional role and writing from a personal point of view, you will craft a policy review memo that outlines and reflects on the policy options discussed, incorporating and critiquing the president’s decision where appropriate.


If you played the role of president in the simulation, your memo should still reflect your personal opinion. You can comment on the course of action you ordered as president, further justify it, write more extensively on the options you dismissed, or suggest and support alternate options.


No matter which role you played originally, take into account all you have learned. Your instructor will want to see whether and how your understanding of the issue and of the policymaking process has evolved from that expressed in your position memo.


As for the position memo, a sample policy review memo is provided for your reference.


Policy Review Memo Guidelines 


  • Subject (one short paragraph): Offer a brief statement about the significance of the issue as it relates to U.S. foreign policy and national security. Provide just enough information about the crisis so that the reader can understand the purpose and importance of your memo. Be sure to include an initial statement of whether you agree or disagree with the president’s decision.
  • Options and analysis (one paragraph per option): Present and analyze the options discussed during the debate, deliberation, or debrief. Discuss their drawbacks, benefits, and resource needs. Be sure to acknowledge any weaknesses or disadvantages of the proposed options.
  • Recommendation and justification (several paragraphs): Identify and explain your preferred policy option or options in more detail. Here, you can explain why you personally favor one or more of the recommendations that you initially presented or the president chose, or different options entirely. If you choose to support the options you presented in your position memo, make sure to justify why you feel yours is still the best position.
  • Reflection (one to two paragraphs): Discuss how your position and the presidential directive are similar; if they are not, discuss how they are different. Use this section to give your thoughts on what the president should have included in his directive, or what you would have done differently. Remember, this is from your point of view; you are no longer advocating on behalf of a department or agency.

Click here to see a full example of a policy review memo.