Europe: Quiet, frightened, worse functioning 0

Interview with Robert Cottrell, Central Europe Correspondent of The Economist

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What has changed in the European Union (EU) in past year since the Central and Eastern Europe has become part of it?

My guess would be there is the feeling in the new members that not much has changed. There was a lot of expectation that after May 1st life would be different. Of course, it’s not very different. It goes on, getting better a little by little the same way it did before May 1st last year. In the old member states unfortunately there has been something of an uncomfortable reaction to enlargement. There has been some round of worries that the new member states are going to divert investment away from the old member states and send workers who will compete at lower wages into the labor market of Western Europe. That produced a round of reaction against enlargement, not only against this recent enlargement but against future enlargement. There is now much greater public consciousness of the prospect that Turkey might join the EU in perhaps ten years time and much greater public opposition, particularly in France.

Does that demonstrative “no” to the EU Constitution in France and Netherlands mean that old Europe actually doesn’t want Eastern Europe to be part of the EU?

It’s more fear of Turkey than of the Eastern European countries as such. French are afraid of Turkey joining the EU, partly because it’s such a different country, obviously it is Muslim country, even if it’s political institutions are secular. That makes it seem a much more difficult prospect to integrate. The Dutch also are worried by very slow processes of integration of their present Muslim minority. There are worries also about the Balkans because of their instability. But unfortunately that spills over into reluctance to enlarge at all. That reluctance is catching up with Eastern Europe. Primarily now I am talking about Ukraine, Moldova, Belarus. We had the orange revolution in Ukraine in December, and I wish that Europe had greeted that as warmly as America did. For America it was the greatest thing in Europe since the fall of Berlin wall and the revolt of the Baltic States against the Soviet Union. America thought it was wonderful. The Europeans at first thought it was inconvenient. They thought it would disturb relations with Russia and would produce another candidate for the EU membership at the time European Union was getting reluctant to enlarge further. So they felt awkward about it. Luckily for Europe Poland was there helped by Lithuania. They intervened to say: “Let’s rerun this election, let’s have a fair election.” The Poles got it right and the rest of Europe followed. That was clear example of how most of Europe had lost its enthusiasm for continuing enlargement into Eastern Europe. The Europeans are not doing nearly as much to help Georgia as they might. They are making the right noises about Moldova but they are not doing very much in practice, they certainly don’t offer clear perspective of membership. The propaganda battle to persuade the people of Belarus to change their own regime is being left to Americans. The Europeans are very quiet. It’s not so much that the EU is trying to drive Eastern Europeans away, but it’s just not doing nearly enough to encourage them to choose the West.

Does division between old and new Europe exist in terms of thinking, everyday life of the EU, organisations of the EU?

I think it most certainly does. That’s also why the expression of Donald Rumsfeld has lasted. We still think in these terms because it’s very useful division. Broadly speaking countries of Europe share the same values, they are functioning democracies and market economies. But once you said that you have clear divisions which very roughly approximate to the members before 2005 (EU-15) and Central European members. Let’s leave out at this occasion Malta and Cyprus because they are different for all sorts of reasons. Central European members through no fault of their own but because they economies were racked by communism are much poorer than Western European countries. That means they need different, more flexible economic policies. They need 10 or 20 years of very high growth. The surest way to get high growth is through low taxes, small government and very strong work ethic. Whereas Western European countries are more preoccupied with redistributing the wealth that they have through large government and advanced social systems. Central Europeans need to be more preoccupied with creating wealth through small government and low taxation. That’s on economic side. On foreign policy side geopolitics still matters a lot. Central Europeans physically are much closer to Russia than Western Europeans and experience of communism is there within living memory. You are going to have in some new members, particularly in the Baltic States and Poland, a much keener awareness of the potential threat from Russia as historically expansionist power. Therefore a much keener desire to be close bilateral partners of the United States and also to make sure the NATO goes on working well as an active regional defence organisation. Both of those values are present in Western Europe too but they are much stronger in Central Europe. You put those economic and political factors together and, yes, I think, you do have community of interest among many of the Central European countries. I hope they can work together more effectively in the year to come to advance they common interest. It seems to me they actually haven’t worked together particularly well past year. All of the Central European countries worked together quite well to get into the EU. A lot of that has disappeared in the last year as each one has tried to fit in the EU in it’s own way and has looked for new alliances. For example, you have re-emerging alliance of old Habsburg countries, with close interests among Austria, Hungary, Slovenia and Czech Republic. They were all together recently in lobbying for admission of Croatia. Similarly the crises in Ukraine brought Poland and Lithuania very closely together in the way they had not been for many decades. The enlarged EU is going to be full of shifting alliances on different issues. That will be good if the new members keep their sense of solidarity so that they can lobby against tax harmonisation and for expansion of the Schengen area, for example.

Will the EU ever be able to come to terms with Turkey as the EU member state?

I don’t have any problems with Turkey as the EU member state. Things which make Turkey so difficult to bring into the EU also make it so essential to bring Turkey to the EU. It’s not possible to build a wall between Western liberal democracies and Islam. One of the great challenges in the world today is to show that Islam and democracy are compatible. They must be compatible if we want happy functional world. The Americans are going about that in one way by going to disfunctional country in the Middle East – Iraq - and trying to physically install democratic government there. The EU is doing it in different way by saying Turkey: “You have created more or less the bases of functional democracy. Let’s see if we can perfect that and bring you into the EU and anchor the democracy that way.” Plus Turkey is geographically and strategically very important. It has potentially a very big economy, it can bring valuable skills and workforce to the EU. But you can’t ignore the fact that a lot of people, in Western Europe particularly, are frighten of Islam. They are frighten of wage competition, of this big and distant country. You have to find a way to deal with this fear. My own personal suggestion is that we should consider restricted category of membership to future members. We should say, well, you can join the EU, but you mustn’t expect ever to join Schengen, you must not expect ever to have free movement of labour and we will not give you veto in council of ministers. If you would accept those restrictions, then welcome. You get everything else: institutional membership, access to the single market.

What would be the most appropriate solution now to do with the EU Constitution?

I wish whole thing never begun in the first place. To me Constitution is deeply unsatisfactory document. It’s very difficult to read, it doesn’t communicate anything very clearly to the public at large. It’s a document produced by very large group of specialists in Brussels for another large group of specialists in Brussels and national capitals. It’s a pointless exercise which adds nothing useful to the good functioning of the Union. Instead it just costs the Union very dearly through its failure. Nonetheless we have got to where we are. I suppose we have to look on bright side, which is that at least it has provoked debate. It has forced people to look at sort of commitments that they have made to the EU and to review those commitments and decide what sort of Europe they want in the future. At the moment things are very confused because the French in particularly are still dealing with the national domestic consequences of their referendum. My guess is that when dust settles we will have in place a looser and more pragmatic Union in which we no longer talk at all about political Union as an objective. Instead we look at the EU as the collection of functions, primarily the single market, the euro, Schengen, competition policy, trade and we take pretty open-minded approach to those. We say what are the good functions and how we can go ahead with improving them and what are the bad functions and how we can get rid of them. My candidate for obviously bad function to get rid of would be the common agricultural policy. It would be very good thing if the Constitutional fiasco produces a clearer, less utopian, more functionalist of the EU. I think it would be very worrying if it turns out to have set off a process of disagreements which undermines whole functioning of the Union. I am afraid this pessimistic scenario, that we are moving now towards generally weaker and worse functional Union, is a real possibility.

There have been speculations in media after referendums in France and Netherlands that the euro project could fail. What do you thing about that?

I am sorry to say you that for the first time in the history of the euro you have to think about that. The Italians have started to talk openly about withdrawing from the euro. It’s not a policy statement by the government, it’s just part of political discourse. But it has to be taken seriously if country starts talking like that. The idea gets into the market, into political debate and it starts spreading. The euro is special because it depends on external confidence. If people start talking currency down, then you can very easily spread worry and make euro unstable and weak. If it becomes unstable and weak then countries that are taking part in it will wonder if it is really good for them. I think we are still 95% confident that the euro will ride this out. But it’s not the 100% confidence that we had a year ago. That is a very bad trend. And once you have had a minor crises of confidence in the currency you just can’t go away and say it will never happen again. This is really a warning to take a good, hard look at the euro and to think what you can do to protect against further crises of confidence.

When speaking of Lisbon strategy some people call it “Lisbon tragedy”. In your opinion what chances has this plan?

Not at all. It’s a series of pronouncements which governments made in a spirit of hypocritical optimism five years ago which by and large they had no serious intention of keeping. They have even less intention in keeping it now. The economic weakness of France and Germany coupled with the dominant positions of those countries in the EU policy making means that Europe right now is retreating from object of Lisbon strategy. The Lisbon strategy was a mess to begin because it pretends that you can have at the same time very expensive social model and very fast growing economies. Well, possibly you can but nobody has found a way of reconciling those two objectives over the long term. And you need incredibly well coordinated, well resourced and effective government which you don’t have at the European level. The Lisbon strategy is sort of science fiction, it’s what might have been. Now it’s simply embarrassment. Five year ago proposition was that Europe would create the most competitive economy in the world. In reality you have euro zone which is growing by less than 2% this year. Germany’s economy has grown by less than 2% in the past three years put together. What we can see is that unsustainably expensive social models have dragged down growth in Europe to unacceptable levels. Until very recently it looked as we are getting into a vicious circle there. Bad economic performance, particularly in Germany, was producing even worse, more populistic economic policies. Now there is a glimmer of hope. Very possibly next elections will be won by Christian Democrats. I hope they will come with the better set of economic policies and Germany turns the corner. Germany is the biggest economy in Europe, it could help the whole of Europe.

That was harsh.

Yes, it’s harsh. But let me put a word for the new members who also offer a reason for optimism, particularly the Baltic countries. You have much smaller government, lower taxes, less extravagant social safety net and much higher growth. If you have Baltic countries inside the EU growing between 5 and 8% on the base of this economic model and if you have Slovakia inside the EU attracting record amounts of foreign investment on the bases of very bold economic reforms and flat taxes then you have example which even the richer, fatter, lazier Western European countries can’t ignore.

I recently read article by American economist Jeremy Rifkin. He asserted that actually European social model gets more influential in the world opposite to American one. Europe just would need to integrate their internal market and it will become the world’s economic superpower. What would be your comment on that?

I think his vision is wonderful, the idea that we should put happiness, culture and conscience above materialism and short-term growth. That is sort of world in which I would like to live in. But I say that and yet I find myself working 60 or 70 hours a week, I put my work before my family. I pursue the American model, if you like, of long, hard working hours and materialism before spiritual satisfaction. I do that and it seems to me a lot of countries do that. As long as some countries do that they are going to produce competitive pressure which will force other countries to do that. So I think it’s very difficult to pursue Jeremy Rifkin’s model in a globalised world. If you want to have a society which works less and therefore earns little bit less in material terms then you have to protect that society against economic competition from other societies. My worry is that you are going to lock yourself into economic decline, eventually you end up making yourself unhappy. You say, why we are getting poorer and poorer when other countries are getting richer and richer. I have to say that’s not Rifkin’s vision at all. He really believes that you can combine this richer, more leisure, more intellectual society with high economic growth and material prosperity. He also believes that nature of work is going to change, technology will play a much larger role in production and the role of physical labour is going to shrink. If we organise society cleverly enough then we can indeed work less and get richer. My worry there is that it’s asking too much from government. If you have a factory which is 97% technology and 3% workforce then it’s going to pay very few wages and make very big profits. Somehow you have to redistribute those profits to the rest of society. We are looking in effect at socialist model and my fear is that socialism has never lived up to it’s promises anywhere else in the world. Although I admire Jeremy Rifkin’s arguments and I think his model of society is wonderful, I would love to live in it, I just don’t have a confidence that any government could cope with responsibility of delivering that model.

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