If you look at recent newspaper headlines, you might assume the European-American relationship is a relic of the Cold War, producing more friction than friendship. "Europeans Charge Arrogance on Issues from NATO to Jobs," "Fight Looms Over Foreign Policy," "US and France: A Study in Rancor."

It is true that we live in a time of geopolitical reorientation. Through NAFTA, the United States has consolidated trade and deepened our relationship with Canada and Mexico. Through the Asia Pacific Economic Cooperation Forum and the ASEAN Regional Forum, we have strengthened our engagement in the Asia-Pacific community. Europe is also pursuing new global markets, investing heavily in Central Asia, competing with us in South America and building new political ties with the Pacific Rim. One is tempted to ask: Is the Euro-Atlantic Community a has-been? Are Europeans right when they look across the Atlantic and see a hegemon wearing Mickey Mouse ears? In the wake of the Cold War, is our common agenda powerful enough to unite the United States and Europe?

The answer to that last question, of course, is an emphatic yes. From the beginning of his administration, President Clinton has demonstrated the importance he attaches to transatlantic relations, and has probably devoted more personal attention and diplomatic capital to the relationship than any President since Kennedy. He initiated the New Transatlantic Agenda, a framework to move us forward together on a broad range of diplomatic, economic and trade issues and resolve our differences. The NTA is becoming a reality, spawning the path-breaking Mutual Recognition Agreement affecting 40 billion dollars in trade.

He has encouraged Europe's aspirations for deeper integration, supported military command reforms that increased the proportion of European flag officers in NATO, and proposed mechanisms from Combined Joint Task Forces to European use of NATO assets that will help foster a European security and defense identity.

The time is now right to be forward-looking, to take a serious look at where we are in adapting our old relationship to new demands. The Berlin Wall came down in 1989, but at the beginning of 1998, we are still witnessing historic change. It's less dramatic, but still comparable to the late 1940s when so much of our foreign policy architecture was built. Now, as then, Europe and the U.S. are centrally involved in reshaping global economic, political and security institutions. Together, we are providing the ideas, the resources and the energy to implement a broad agenda of change. Without our common efforts, there is little prospect that any of us - or the world - can master the challenge of the next century. But as the headlines I cited made clear, this is not a time for complacency.

We have a pressing agenda: to bring Europe's new democracies into the security and defense architecture that has guaranteed our transatlantic security and prosperity. To deter the actions of states who threaten the security of the international community. To be a force for peace from Northern Ireland to Bosnia to the Middle East. To assure productive jobs for our workers at home, and help those left behind reap the benefits of the global economy. To help Asia find the path back to financial stability. To stand together against the new transnational threats that affect all of us, from the proliferation of weapons of mass destruction to terrorism to cyber-crime to global warming.

I don't think anyone would dispute that these are shared goals. The problem lies more often in our inability to find complementary approaches to these shared goals. At times, we seem to work at cross-purposes, even when our interests are the same. We all know the issues that have divided us recently: the role of economic sanctions to change the behavior of states who threaten our interests, the environment, trade issues from biotechnology to audio-visuals to name a few.

It helps to take a wider perspective, seeing the problems as small stumbling blocks alongside the large building blocks we are putting in place.

The proof of our ability to find a common path to meet the changing international environment is our remarkable effort to adapt our security relationship to the 21st century. The bedrock of this security is NATO. Just as the alliance served a pivotal role in the Cold War, so it now underpins Europe's best hopes for a continent that is democratic, undivided and at peace. Together we are successfully navigating NATO's enlargement, strengthening our partnerships with Russia and Ukraine, and intensifying our cooperation with all states of Europe through the Partnership for Peace and the Euro-Atlantic Council. This will lay the basis for a generation of peace to come.

True, a perception that U.S. leadership is heavy-handed rankles some. But it is easy to forget the cries of alarm at the thought that with the end of the Cold War the U.S. might abandon our leadership and retreat into isolation. The fact is, our leadership is essential in support of the larger cause of an integrated Europe. In the coming weeks, the President will ask the Senate to ratify treaty changes that will make Poland, Hungary and the Czech Republic NATO members. And the Partnership for Peace continues to bring together countries as far apart as Canada and Uzbekistan to plan for our common security with new tasks of peacekeeping, emergency evacuation and humanitarian relief.

Elsewhere in Europe, American leadership and engagement is helping to make a difference. The President has named superbly qualified Americans to work with our European partners to address some of Europe's oldest problems. Dick Holbrooke is working with the EU to find a solution to the still-unresolved Cyprus problem. In Northern Ireland, George Mitchell is chairing the all-party talks that give us the best chance for lasting peace since the start of The Troubles. And the United States, Europe, Russia and others are hard at work on the ground in Bosnia, where the road to a lasting peace is long, but clearly demarcated. There is no clearer example of America's commitment to Europe's stability than our continued engagement in Bosnia. Our common determination offers the best - perhaps the only - prospect to bring peace in these areas of conflict. These are all real accomplishments.

We may not always get the balance exactly right, but President Clinton welcomes enhancing the European role from civilian implementation and indigenous police support in Bosnia, to co-leadership in Trans-Caucasus diplomatic efforts like the Minsk group, to reducing Aegean tensions, name just a few.

We recognize that leadership has its responsibilities, and for all our efforts, we do not always live up to them. Nowhere is that more true than the refusal of Congress to pay our arrears. We recognize this a serious situation undermining confidence in American leadership, and we are working hard to repair the problem. The administration is committed to a strong UN, as are the American people. But we also need your help to ensure that Secretary-General Annan continues to make necessary reforms, and that UN budget is shared fairly and responsibly.

Alongside the security community linking the United States to Europe, there is an obvious economic community, which is the engine of the world. You know the numbers as well as I do, but they're so big they're worth repeating. Over 300 billion dollars of good and services flow back and forth with few barriers. There's another $650 billion in combined investment. This results in at least fourteen million jobs on both sides of the Atlantic. And our economic policies have forcefully converged. We have a deep stake in each other's prosperity.

But we cannot afford to rest with the status quo, and there is a growing recognition on both sides of the Atlantic that opportunities exist for moving forward even more boldly. The administration has taken one step after another to promote these opportunities, from the Uruguay Round in 1993 to the New Transatlantic Agenda in December 1995, to the Information Technology Agreement and the recent Financial Services Agreement. These initiatives are yielding concrete results. To cite just the NTA, the Mutual Recognition Agreements concluded under the aegis of the NTA last year eliminated redundant standards on almost $50 billion of two-way trade - saving 100 million dollars for manufacturers of everything from computers to jet-skis. We have a brisk and promising Trans-Atlantic Business Dialogue involving industry leaders. And we have mechanisms to solve emerging trade disputes before they become serious.

Our economic partnership also has ramifications that go beyond the Euro-American community. Cooperation between the G-7 countries is helping to mitigate the effects of the recent Asian financial crisis. As major creditors to the IMF and the World Bank, we have a strong interest in working closely to ensure that new micro- and macro-economic policies are effective in Asia and that our institutions are up to the task of sustaining global prosperity in an era where billions of dollars of capital can move at the stroke of a computer key.

The U.S. welcomes the European Union's initiatives to stabilize its economic future as well as its political cooperation through deeper integration. When Europe prospers, so does the United States. It will strongly serve the entire Euro-Atlantic Community to make sure a single currency starts off right.

A strong and growing European Union, working in tandem with an adapting NATO alliance, can be a powerful vehicle for bringing Europe's new democracies into a stable family of nations. No one can force seamless integration by edict. But time and time again, we have watched nations bring about necessary, often painful reforms because of the incentive of participating in our economic and security systems. This is the best way to secure progress. We welcome the EU's efforts to move this process forward.

True, there are areas where we have questions about the EU's economic and trade policies. One important area is agriculture. The CAP continues to consume a huge amount of EU resources, close to 60 per cent of the budget. This strikes us as a costly relic of the long-past era in European integration. The advent of new members in the EU provides a powerful incentive and opportunity for reform. We share Europe's commitment to food safety, but have trouble understanding objections to biotechnology innovations in the absence of any evidence of a public health threat. These same innovations promise more environmentally sound agriculture and greater output to feed the world.

Outside the traditional framework of our security and economic relationships, there are a host of emerging transnational threats posed by global warming, terrorism, cyber-crime, drug trafficking and states that thumb their nose at international norms. Through the NTA and our law enforcement cooperation, we are starting to find a common approach, but these are daunting problems that will demand intensified efforts in the future.

While treating these new problems, we have often differed on tactics, dangerously muddying the waters. Let me begin with the environment. Some seem to believe the United States is moving too slowly, but I think you will agree the President has made climate change a very high priority, and acted on that conviction. Our proposal to cut our own emissions by more than 30% led to a historic accord in Kyoto. Now the common challenge before Europe and the United States is to elaborate the rules for market-based mechanisms that allow us to continue our growth in the most cost-effective way, and secure meaningful commitments from developing nations to do their part to achieve Kyoto's goals. Climate change is a global problem that requires a global response.

We also need to find better ways to harness our efforts to counter the new kinds of crimes looming ahead in the next century. We have made progress through the summit of the eight ... taking new steps to increase airline security ... to protect our infrastructures ... to fight cyber-crime ... and most important, to promote nuclear safety. We are encouraged that Prime Minister Blair has identified cooperative law enforcement as a major topic for the Birmingham summit. We have been disappointed that Europe has not strengthened its cooperation with us on the vital third pillar, and the limited European support for the U.S.-sponsored International Law Academy (ILEA) in Budapest. Full integration in the Euro-Atlantic community means that all of our police forces must have the confidence to work together against the transnational threats. It is vital that the emerging democracies enjoy the rule of law during their transitional period. And we will all pay the price if the U.S. and E.U. are not able to work together to address the problem of encryption in a way that allows our cutting edge industries to thrive, and citizens to have security in their communications while protecting our common public security interests.

But the gravest and most immediate challenge before us is to find more common ground between U.S. and Europe dealing with states that threaten our common interest. We have started to fall into a troubling pattern of "good cop, bad cop." This pattern, whereby Europe provides the carrot and the U.S. is left holding the stick, is unhealthy for both sides, and only benefits our common adversaries. While we all believe that dialogue and engagement are the preferred course, dialogue cannot be an excuse for inaction when countries like Iraq fail to live up to Security Council resolutions, and other nations import weapons of mass destruction and export terror. This divergence compromises the effectiveness of our efforts. Secretary Albright put it well recently when she observed that Europeans are irritated by our willingness to reach for the trigger, while we are irritated by their willingness to reach for the contracts.

We need to devise clear rules for dealing with states that support terrorism and pursue weapons of mass destruction. Our position is clear: we think we must be uncompromising against regimes that flout the rules of international behavior. We know this is an area where the EU questions us. But in cases where normal diplomacy and dialogue have not fundamentally changed the behavior of regimes like Iran, Iraq and Libya, we would like to think that a common effort on economic pressure is preferable to avoid the necessity to resort to force.

We recognize the limits of unilateral policy, but Europe has to see the risks attached to the failure to be firm in facing these threats. I don
,t need to restate our concern about investment in Iran, which directly finances activities that promote instability in a volatile region. In geographic terms, this poses a more direct threat to Europe than it does to the United States, though ultimately it threatens all of us. Khatami's speech offers promise, but we are well advised to calibrate changes in our own policies based on Iran's actions rather than its words. We welcome the decision of EU senior officials to engage in a collective dialogue with the U.S. on the risks and opportunities presented by Iran, and hope that this can lead to a more coordinated response in the future.

At the same time we oppose terrorism, we need to encourage and respond to moderation where we see it. The expansion of the EU is an internal European concern, but we hope the EU will provide Turkey with a workable pre-accession strategy. We agree this will require Ankara to improve its human rights record, but that goal is compatible with ensuring that Turkey remains anchored to Europe. An integrated Turkey is a step toward stability in a dangerous neighborhood.

The coming year offers an opportunity to bridge gulfs between the EU and the United States. The UK has a double responsibility and opportunity this year, presiding over both the EU-15 and the Birmingham Summit, and we look forward to a productive six months ahead. We could not agree more with the sentiment expressed by Prime Minister Blair: "strong in Europe, strong with the U.S. There is no choice between the two. Stronger with one means stronger with the other." When he visits here in two weeks, we look forward to exploring specific steps that will reinforce US-EU relations.

There will always be new challenges before the Euro-Atlantic Community, and nerves will fray now and again. But our mutual respect and mutual interests will ensure that we weather the inevitable storms. The partnership we built fifty years ago is durable and offers enormous promise in addressing the global issues we face as we enter the 21st century.

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