Year XL, 1998, Number 3 - Page 190
The New Challenges for Europe After the Monetary Union
The path leading to the euro has been an unbelievable success for Europe and its peoples. The euro itself is the key to the future.
The three issues I wish to address this evening are: Europe’s inner structure, Europe’s relationship to the rest of the world and its constitutional resolve.
The key feature of the convergence process that led to the euro is the strengthening of national policy which effectively opened up the way for indispensable savings and cuts, reforms and adjustments. The most striking example of this is the situation in Italy, which has already changed its political structure in the run-up to the euro and is now also anchoring this result in its Constitution. Accordingly, the path to the euro does much to shed light on how Europe functions: its peoples set themselves a common goal the realization of which remains a matter of national responsibility but which can only be implemented via a supranational — in other words European — commitment to this goal. So Europe boosts the effectiveness of national policy or even restores it. Europe strengthens, rather than weakens, the nation states, albeit only when they act in unison and consent to the associated limitation of their authority to act alone. In actual fact, bearing in mind the reality of the supranational situation, this authority has become nothing more than an empty shell in key areas anyway.
Economic and Monetary Union (EMU) is a modernization and recovery programme for Europe’s economic, social and political system because it represents a clean break with the sins of the past, when we covered up our weaknesses with borrowed money. Instead, it heads us in the direction of painful, but salutary, reforms.
The financial markets, which give their “daily vote” on the economies and policies of all countries around the world, impressively reflect the confidence regained in Europe and its peoples. Where would Europe and its peoples be today without the process triggered off in Maastricht? “Asia glances enviously at Europe’s dynamism” was a headline I read recently.
From a fundamentally institutional viewpoint, the euro will create a new type of federal system.
One element of national policy — monetary policy — is Europeanized. The structure of the Maastricht Treaty makes it the key element of economic policy. This approach is based on a certain economic philosophy. Meanwhile, however, the rest of economic policy remains a national responsibility. Incidentally, at this juncture I should reiterate that economic policy includes not just the economic system underlying society but also its social order, and must be complementary to the European Central Bank s monetary policy. The truly innovative aspect of this federal system is not just the way in which powers are divided up between the federal level and the member states, but also the absence of transfer payments, which would be comparable in scale to those made, for example, in the Federal Republic of Germany’s federal system via the financial equalization between the Länder (federal states) or through the central budget. What this means is that equality and justice will be created in Europe not primarily via transfers, but through competition. (As such, it can be predicted that this system will substantially boost calls to change Germany’s system of fiscal equalization between the Länder and hence the country’s entire federal constitutional framework).
In a nutshell, Europe’s federal system is innovative because it seeks to strike a new balance between: a) the Union and the nation states, b) freedom and equality, c) unity and diversity and d) solidarity and competition. Establishing such a balance in the long term is the Union’s first major challenge.
The instruments for coordinating and harmonizing economic policy are the Euro-11 group and the Ecofin Council. Of course, from time to time the European Council will also have to address questions of principle. At times, the Germans have given the impression that they did not consider this to be at all necessary, as if economic policy flows automatically from the monetary policy decisions of the ECB and the Stability Pact. At the same time, however, they are lobbying forcefully in, say, the fight against harmful tax competition (“you are the driving force”, as the relevant member of the Commission told me, referring to the pressure exerted by Germany for greater harmonization). Incidentally, what is more, contrary to our regulative credo, we often push everywhere for the harmonization of tariffs and standards to the German — i.e. highest — level. We Germans should be just as aware of these contradictions as we are of the fact that in EMU, even without bail-out, we all accept responsibility for each other and we must all show solidarity with each other, because we all vouch for the mistakes made by any individual member state, e.g. in the form of higher interest rates. As Hans Tietmeyer says, monetary union is indeed a community sharing a common destiny, which forces us to think in terms of solidarity, i.e. along European lines.
The focus of the necessary, and certainly also controversial, debate about economic policy is the “European model”. In other words, the task is to link a liberal, globally competitive economic system with a socially just and stable social system based on solidarity. This is the second challenge, and it is inextricably linked with the first. Of course, at the same time we should be clear about the fact that economic activity is not an end in itself. In other words, we do not live to work, we work to live. But we must also clearly recognize that neither our previous way of working, nor our previous way of living, e.g. our social security systems, can escape the change. Reform is inevitable, but the motto is “adaptation, not subjugation”. No doubt we will be forced to admit that today we have a clearer idea of what we are no longer allowed to do than of what we must do if we are to achieve both of the stated objectives, namely the establishment of a just economic and social system. But we can learn from each other, especially from those countries which have already progressed furthest along the path of reform. And we can learn both from their successes and from their failures, from, say, the Dutch or the British, the Danes, or even the Spanish and Portuguese — now who would have imagined that! Europe must become a community of learning if it wants to become anything at all. This means we must be open with each other. Openness is the precondition for unity. “Bench-marking” is the technical term used to describe the EU’s internal development towards the goal of European unity.
The success of the social market economy, of “capitalisme rhénan”, was the reason why our partners accepted the Maastricht Treaty being moulded in the image of German ideas, even though it went very much against the traditions of a number of countries. However, even this German model is undergoing something of a crisis, and it can only evolve into a European model if the Germans succeed in adapting it, in other words in developing it further. Only when this model is also successful in a modified context will our partners be as convinced of it in future as they have been in the past. This success is more important than any institutional measures for the legitimacy of the path set out the Maastricht Treaty. Since Germany provided the model, and because it very much defined the preconditions for shaping the Economic and Monetary Union, and also because it accounts for the largest proportion of the Union’s overall economy, Germany has a special responsibility for the success of this comprehensive undertaking aimed at guaranteeing Europe’s modernization and recovery and hence economic, social and political order. Germany must become more aware of this. In the Economic and Monetary Union, European policy means not just institutional policy, but also most definitely economic policy which, though conducted under countries’ sole responsibility, also impact on, and involve, their partners.
The Economic and Monetary Union also has an impact on the CFSP.
Vouching for one another, which monetary union will force us to do, also means taking responsibility for the consequences facing a member state that had been a victim of military aggression or become involved in a military conflict. Thank goodness, for the time being that is a highly theoretical danger, but it could quickly become a very real threat in an age of long-range weapons systems and explosive tensions in our immediate vicinity. Any nations sharing the same economic destiny cannot have a different fate in the context of security policy.
Besides this basic consideration, a very specific consequence of monetary union is forcing us to take a further common step in one particular area of foreign policy, namely foreign trade policy.
It is inconceivable for the members of a monetary union to represent different points of view in the International Monetary Fund, and the same naturally applies to the World Bank and the G7/G8 meetings. Through monetary union, the European Union will become more of a “global player”, albeit only in the economic sphere. This will only exacerbate Europe’s lop-sidedness, being an economic giant one the one hand and a political midget on the other. This imbalance can only lead to trouble and discord, above all with America. This is why Europe must become a more capable player in the foreign and security policy arena. Overcoming this conflict between our aspirations and real capabilities is the third major challenge facing the European Union.
This, in turn, involves our self-image, which we are constantly developing, particularly in our relations with other powers, but it also involves solidarity between them and us, as well as delineation.
Inevitably, we are talking here about our relationship with America. After all, we encounter the United States whichever way we turn: the USA is both inside and outside, both European and non-European. It is either openly or covertly represented at every European table, acting as both Europe’s partner and a hegemonistic nation. It has strongly supported Europe and European unity, but does not want to lose control. Europe is part of the global American system. The USA is part of the European system.
So the relationship between the two entities is complicated, difficult, and — as we find ourselves feeling almost every day — urgently in need of revamping. This is because the two of us together form the West, that part of humanity which has until now defined the world order, but which is growing smaller every day and is being challenged. I am convinced that Europe and America must face this challenge together, because the challenges apply to both of us and our vital interests are the same. However, other interests they have diverge just as frequently as their ideas about how to solve problems differ. Their outlook with regard to the future world order has been insufficiently coordinated. Europe can only assert its specific interests, ideas and outlook if it speaks with one voice. Unless it has an equal partner, America will both lose its balance and feel out of its depth. What Europe and America need today is not less cooperation, but more. Both the mission and structure of the alliance between the two, i.e. NATO, must be transformed into an alliance between America and Europe as a unit capable of taking effective action, an alliance able to meet global challenges. Viewed in this kind of light, European unity attains a global historical dimension as the cornerstone of a future world order. The USA is clamouring more and more for us Europeans to accept more responsibility along these lines. But the rest of the world is also waiting impatiently for a partner with whom it can cooperate without any hegemonistic overtones. The NATO anniversary summit due to be held in Washington in May 1999 is the occasion at which Europe must lay its first card on the table.
The European Union will never regard itself as a rock solid Union or broad community sharing a common destiny, nor will its citizens ever be able to give it their full stamp of approval, if the EU does not also become responsible for external security in all its various forms. Foreign policy is a central issue when it comes to Europe’s identity.
The enlargement of the European Union is also about how Europe sees itself and about solidarity between the “old” and future EU member states. Enlargement is its second major challenge. Of course, one aspect of this is the level of cohesion between the old member states and the cohesion of the future Union in its entirety, since the differences between the old and new members are more striking this time around than in any previous phase of enlargement — economically, politically, and but not least psychologically. The task facing us is correspondingly difficult. There are three things at issue here: firstly, not just the European Union’s capacity to integrate new members, but also its geopolitical boundaries; secondly, the EU’s relationship with the new neighbours it will acquire through enlargement, above all Ukraine, a country in whose existence we have a tremendous interest, but whose future and affiliations remain unclear; and thirdly, the relationship with Russia, which will become the EU’s direct neighbour in an extremely sensitive region when the Baltic countries join. The way in which the EU sees itself will for all these reasons, but also because its principles are involved, namely, the historic promise which free Europe gave in 1958 in Rome to its neighbours living under Soviet rule.
The process of enlargement must be completed as fast as possible, without overtaxing the countries acceding to the Union, the current members of the EU or the Union as a whole. The modernization trend set in motion by the Economic and Monetary Union is vitally important in terms of internal consolidation and overcoming fears of enlargement. If the Union is to remain capable of acting effectively after enlargement, it must at least first reform the weighting of votes in the Council, the composition and structure of the Commission, and the decision-making process.
However, I am becoming increasingly convinced that these issues can only be satisfactorily resolved if we place them within a fundamental framework — the same context as that applying to the three topics I have already discussed, namely the question of how we see ourselves as Europeans: Who are we? What do we want? How do we envisage the internal order within our societies and their interrelationships? What role should Europe play in the world? Finally, where does Europe end? If we don’t know where we end, we cannot know where we begin either.
Taken together, the discussion of these questions, which started long ago, forms the basic elements of a debate which in conventional terminology would be dubbed a “constitutional debate”. However, to avoid any needless dispute as to what a “constitution” is, I prefer to say: Europe must hold a major debate about a constitutional treaty, a so-called Verfassungs-Vertrag or contrat constitutionnel.
With the Economic and Monetary Union, Europe’s hitherto gradual development has reached a stage requiring — but also enabling — us to answer the question of what the actual goal of the process of European unification is. Only when we have answered this basic question can we also answer the core institutional question: “Who does what?” — both at and between the relevant levels. Clarifying this is an essential prerequisite for casting Europe in the democratic mould it so urgently requires. Moreover, a clear text, which is more readily understandable for Europe’s citizens and in which Europe’s common values are written large — a text that is adopted by the citizens in a public debate and in a common act would propel Europe’s democratic credentials to a new level.
The discussion going on at many places in Europe about the Commission’s power and the lack of democratic control over it also make a fundamental settlement imperative. In my view, however, the German debate about structural policy, fuelled mainly by the various Länder is not about subsidiarity, i.e. the question of “who does what?”, but rather about “what may and may not be done” to avoid distorting competition. Yet here again we are dealing with a fundamental question, namely how much uniformity is necessary and how much diversity is possible? At any rate, all those who are complaining, whether rightly or wrongly, about excessive centralism on the part of Brussels, will have to be told that it is not the principle of subsidiarity per se, but only its transposition into a clear distribution of responsibilities that can end this trend towards greater centralism.
Those who argue that such a document would create a European “super state” (regardless of what it was actually called), should first understand that legislation adopted in Brussels and rulings by the European Court of Justice already require immediate legal compliance by every single citizen of the Union. Surely, above all, instead of posturing with rash polemical clichés we must explain what statehood actually still means today, now that the territorial principle of power, and thus the core of any statehood, has become a thing of the past. Europe is the response by Europeans to the question of how political power can be organized today, given today’s supranational reality. In this respect, the goal is not to create a “super state”, but rather a “supra state”, and it is an institutional project moving one stage beyond time-honoured statehood, an institution designed to rescue politics.
In my opinion, we also need such a major debate about what Europe actually is because we must overcome the increasingly narrow focus of the debate about Europe, which is jeopardizing all three of the goals I have mentioned, above all that of enlargement. Following the old motto that everyone should start off by putting their own house in order, I would like to make a few comments on the discussion in Germany.
In my country, it has been in vogue for some time now to call for Germany to finally assert its national interests in Europe! Many people even seem to take delight in rediscovering an outmoded concept. Yet I can hardly believe my ears. After all, what has Germany been doing all this time? And haven’t we done it so effectively that many of our partners sometimes already feel that we have been too successful and are now once again too powerful? This is especially the case since reunification, which was undoubtedly a “national interest” that could only be realized in the European context. Bearing this in mind, must they not secretly fear that the Germans might want something fundamentally different in future, under the guise of this term? Except for marginal figures in German politics, this is of course not the case. So is it all just hot air? Mostly yes. In most cases what is meant is that individual German interests have not been asserted as forcefully as possible. That may be true in individual cases, but generally it certainly does not apply. Surely, the manner in which German interests have been looked after has been extraordinarily successful, despite the fact that neither the term “interests” nor the term “national interests” has cropped up that often. The national approach adopted Germany has been and remains suited to the new European system. An American who has extraordinary insight into German affairs and is a tremendously good friend of our country once told me that the key issue for him is whether, in future, Germany will still be capable of doing what it has so remarkably achieved in the past, namely putting its short-term interests behind its long-term ones, as witnessed, for example, in connection with the payments made by Germany towards the EU budget. No greater compliment can be paid to a country’s policy. In the interests of both Germany and Europe, this attitude — which was admittedly initially born of necessity, but was subsequently pretty much adopted because it proved so successful — must not be lost. It has given Germany not only respect, but also influence. Who would have thought that 50 years after the military, economic, political, and above all moral catastrophe, the German system of economic and social order would serve as a model for the project of European Economic and Monetary Union?
To be sure, after 1945 all of Germany’s partners recognized the need for their interests no longer to be pursued in hostile confrontation, but rather in a cooperative joint effort. But after 1945, not only was Germany’s interest in a new, integrated European system even stronger than that of its partners, being the only path to the country’s rehabilitation, but it always remained so, because the prospect of an end to Europe’s division would restore Germany’s conflict-ridden position in the centre of the continent. In 1990, this prospect became a reality. Today, the new, previously Western European system faces its greatest challenge, a real acid test, and Germany has everything to gain by rising to the occasion. However, antagonism between national interests cannot be eliminated through cooperation on a merely ad hoc basis, but only by creating a binding system of rules, in other words, via integration. Consequently, integration is not just a means of achieving an end, but actually an end in itself. And Germany’s policy is not becoming more British, but is remaining German, especially at a time when British policy, thank goodness, is becoming more European.
Germany’s position on the question of the future organization of the EU’s finances must also be guided by this basic observation. There is one consideration that induces even me to suggest that the payments made by Germany are too high compared with those of its partners, namely the Union’s internal balance. To me, this balance is upset when a single one of the 15 member states carries a share of the burden of solidarity burden corresponding to double its proportion of the EU’s gross domestic product. Such an imbalance in a community centred around solidarity immediately raises the suspicion that there is something wrong with its pattern of expenditure, and it is generally believed that this also applies to the European Union. For this reason, all items of expenditure in the EU budget must be scrutinized, especially since from the economic standpoint their usefulness is debatable, to put it mildly. The justified German demand for an easing of its burden must be based on solid arguments. It is not very convincing only to call for savings to be made where others would inevitably suffer as a result. This is all the more true insofar as all the forthcoming tasks catalogued in the Agenda 2000 will have to be examined together before the EU proceeds with enlargement. Germany must bear in mind that our partners are aware that all the candidate member states — just like Russia as well, incidentally — realize half of their foreign trade with Germany, and that Germany emerges with a surplus. Even though our partners are increasingly coming to understand that enlargement is in all their interests, they also see that Germany would be more greatly affected than they, not just economically but also politically, if we were to fail to integrate our Central European neighbours into a stable European system. Granted, this is an one-sided and short-term view, but it is not entirely wide of the mark and after all, a reality. The far-sightedness attributed to the Germany of the past by the American I mentioned earlier must also define our policy in the future. This will serve both Germany and Europe, for their vital interests are identical. Only when Germany is guided by this attitude can it also demand of its partners that they show solidarity with the countries acceding to the Union, ensuring that Spain, for example, does not act according to the motto “What we have, we will hang on to, come what may”.
One complaint frequently voiced is that Europe no longer has any vision. I do not understand this grumble, because everything I have talked about is a vision. However, it is also, thank goodness, a hard-and-fast concept that is on the way to being realized. Naturally, the path we are taking is arduous and at times difficult to follow. This is why we sometimes lose sight of the goal, which is to create:
a) a Europe that is developing a new, forward-looking political balance of power and democratic control within the reality of a supranational framework;
b) a new form of diversity and unity, which can therefore serve as a model for other nations, but a Europe that also sets an example to the extent that, under the same conditions of globalization, it creates an internal structure that gives a new lease of life to its old ideals of liberty, equality and fraternity;
c) a Europe that is America’s equal — but not identical — partner in representing the common values and interests of the West; but also
d) a partner of the rest of the world, and one that need not be feared even though it is capable of defending itself;
e) a union of peoples that is capable of maintaining the balance between being open to and closed off from the rest of the world by virtue of its renewal and consolidation.
In recent decades, Europe has made unbelievable progress along this path of self-discovery, self-assurance and self-assertion. And today, its destiny lies less in the hands of its past than in the promise of the future.