First of all, thank you for being here on a Sunday morning and secondly, let me make a couple of preliminary observations. J.K. Galbraith, the famous economist who died in Boston during the week, once made the comment that the Irish are the only race in the world who have never produced a decent economist. You may well conclude that he was correct. Secondly, there was a British Prime Minister called Sir Alec Douglas Hume, who’s largely forgotten, who once made the remark when he went into government that he had two problems: He said the economic ones were incomprehensible and the political ones were insoluble. And the issue today really is whether Europe – the Europe we’re addressing – whether Europe has answers or whether it is part of the problem. And I want to focus a little bit initially before coming to the question on the subject I have been asked to address “How can Europe succeed economically in the face of global competition?”. I would add to that and maintain its values, because I think it’s all part of the same problem.

But I would like to say something first about attitudinal change by referring back to a quotation of Hans-Dietrich Genscher in Davos in January 1982. He said economic constraints are not a uniting force, rather they are pulling us apart, leading us with the dead end of short-sighted national egotism. He went on to say that the EC, as it then was, is running the risk of forfeiting the support of its citizens. All this means we must either breathe new life into the European idea – the idea of European integration, the great goal of political union, the European Union – or else it would fail. Henning mentioned the earlier period of great optimism – optimism during the 1992 programme – when we set out an objective of free movement of goods, persons, capital and services and achieved a lot of it. Above all, the collapse of the Iron Curtain. And it was at that time that I went into the role that I had briefly in GATT and the WTO and I think that the WTO was in a sense a beneficiary of the positivism of that time, where we seemed to have one world, generally agreed that market economy system was the best and where we had a sense of some optimism about the future. And that optimism drove us positively and constructively for a period of time. It is very easy to be a pessimist about the future and I liked Henning’s tone in this context, because he spoke with a degree of optimism about the future. Let me start by saying that if we’re not optimistic, we’re definitely going nowhere, because it’s very easy to look at the downside and see the glass half empty, rather than half full. Somebody once said that a cynic is not merely one who reads bitter lessons from the past, he is one who is prematurely disappointed in the future. And how many pessimists actually end up desiring the thing they fear in order to prove that they’re right?

Well, that period of optimism was replaced by a reversion to what Hans-Dietrich Genscher was talking about. And I want to confess at the outset that I am a passionate European integrationalist. I recognise that it is not good enough to say that, it’s a question of what do you mean by it. And what I mean by it and what I think is crucial to the answer to the economic issue, which is this morning’s debate, is an issue about institutions. Institutions may be boring, but they are essential for the development of coherent policies. And it is institutions in a lot of ways that have been bearing the brunt of an atmosphere of fear – almost paranoia – referred to by both the eminent speakers who preceded me in terms of current attitudes.

Nationalism has always scared me. I have seen a lot of the excess of nationalism and every country in Europe has experienced it. It’s something to which people cling, particularly at times of uncertainty and times of rapid change. And it’s this reversion to nationalism in Europe that is very worrying. Let’s go back for a second to the French Referendum. The French Referendum and the Dutch Referendum, they both sent a message, perhaps often the wrong message, I don’t think that they were about rejecting Europe at all. The podiums on which the “anti-Europeans” addressed the French were festooned with European flags. Their speeches were more an expression of fear, fear of China, fear of Turkey, fear of enlargement, fear of the Polish plumber than an attack on the EU. They were an expression of fear of change, they were an expression, too, of an absence of leadership. And perhaps a rejection of leadership, which some might say, was with good cause. Of course, one aspect was their fear of the “Anglo-Saxon” model. (It seems rather peculiar that the only people that Tony Blair convinced that the European Constitution was an Anglo-Saxon production were the French. He certainly didn’t convince the British of the same thing). So what we ended up with was a rolling disaster which sent shock waves through the political system and which created yet more agonies and angst about the institutions, who were now conveniently once again blamed for bringing us to this pass.

It may be boring to speak well of the European Commission. I think that the European Commission and the European Parliament for that matter are vitally important for our future. Turning them into convenient whipping posts at every opportunity by national politicians has become a game which is having a peculiarly terrible cost. They get no credit for what goes right and they’re blamed for what goes wrong. John Maynard Keynes once said that the crucial importance of economic policy was that people should tell the truth about current conditions. Well, the European Commission sometimes has to deliver blunt messages. It criticises those who water down or tear up agreements. In that context let me say, many of us in Europe were disappointed with the way the Growth and Stability Pact was dealt with. We have had a period of years where the great achievements of our institutions largely created a single economic area, free movement of goods. This is an achievement massively in favour of Germany, as was pointed out by Mr. Wuermeling. I remember when Spain joined the European Union. There was a great deal of talk at that time in Germany about how this was going to result in a huge migration of German industry to Spain. There was going to be a disaster! And the first Seat I’m sure that rolled down the tracks in Barcelona or wherever it was, was taken perhaps as evidence of this, but if anyone looked at the figures, the trade figures between Germany and Spain as is evidenced in the current enlargement also, constantly increased the surplus of trade enjoyed by Germany. So for me at least, I start with the proposition that our institutions are vital. I don’t like hearing the Chancellor of Austria as President of the European Council criticising the European Court. And maybe the European Court from time to time deserves a little criticism. And I’m not saying that the European Commission shouldn’t be from time to time criticised also, but let’s not undermine institutions that are essential to our integration. And let’s not go back to intergovernmentalism, as a result of our own failure to develop our economic policies as they should have developed.

Now, I say all of this because we are living through a paroxysm of nationalism, whether it is banks, in Poland or in Italy, or steel companies in Luxembourg, wherever it is, or energy companies all over the place. In fact I’m never quite sure where some countries, I won’t mention them, are on the subject of energy integration. It depends on what their most powerful industry seems to be saying at the time. It’s a rather pathetic situation. Because if we don’t start to integrate our economy in the areas that remain unintegrated, our prospects of dealing with globalisation are significantly reduced.

Let me make a couple of points about what our actual problems are. First of all, let’s not say that Europe has a disease. Parts of Europe have a disease. Other parts of Europe are doing remarkably well, thank you. And they’re doing remarkably well notwithstanding the fact that there’s been limited growth in the central part of the European Union. How would the Swedish, Finnish, Irish, Spanish, Greek – how would their growth rates have been influenced, had the growth rates in the core Euro-zone countries been running at double the current level of growth over the last five or six years? These peripheral economies are doing remarkably well, notwithstanding. And some of them are operating on a social model which is very different – it should be said – from the Anglo-Saxon economic model. They may share certain facets, greater flexibility, for an example, in dealing with the labour market issue, but they’re very different in terms of the amount of tax take that governments of those countries take and some of them are producing stellar growth rates. Modesty forbids me from mentioning the most startling examples of those countries.

But in any event, what are the dimensions of our problem? Well, they’ve all been outlined earlier. We’re producing GDP growth over the periods since 2000 which is a little bit over 1%. Last year, the third year in a row, Japan which is meant to be in a terminal condition or in a very poor condition beat us. Per capita income is now 30% lower than that of the United States. Why? Sometimes we console ourselves by saying that we worked less hours, which we certainly do, 15 to 20% less hours. We said that we had a lower labour participation rate, much less women work and we retire earlier, and of course, the biggest problem of all – and it’s not to be ignored – the demographic problem, we weren’t producing and aren’t producing enough young people to generate the growth that we need. But leaving that aside, and some of those – one could say – are legitimate societal choices. Maybe the price for those choices is not apparent, but they could be argued to be legitimate societal choices. The Delors Report in 1989 said that, if we were to have a single currency that worked, we needed competition policy that truly worked. We have just given you a number of examples of where it is not working today in Europe, we needed macro-economic policy coordination, which is singularly absent and which has been undermined, I think, in terms of creating a European macro-economic policy coordination by the failure of the constitution, which I hope is not dead, but may well be in its current format. We need common policies for structural change and regional development. When one sees the squabbling over the 1% or thereabouts of GDP, which is the total amount of the budget of the European Union, one looks back with nostalgia at the generosity of Germany and Helmut Kohl when the doubling of the structural funds took place at the end of the 80s. When Jacques Delors once told me that he walked around the table at the end of a European council and he said to Helmut Kohl: “Helmut, for Europe, Germany has to pay.” and Helmut did pay and provided a great deal of leadership at a crucially important moment for the European endeavour. But now we squabble over point one of 1% of GDP in our recent debate.

In the Euro barometer polls that came out last week we find that the negativism towards European integration is at its highest level in one of the countries, which have just acceded to membership – Latvia – and is high in a number of others – including the Czech Republic and increasingly in Poland. One begins to wonder about whether we have been as reasonable in our response to the difficulties of their integration in Europe, as they might have expected. We lock their workers out from our societies. (Incidentally in my own little country where we had a 17% unemployment rate in 1991, we now today have a 4.2% unemployment rate and 5% of our total working force, and this is from a standing start three years ago, are immigrants. That’s the best thing that has happened in my country). So, we have problems and the problems that we have are linked to the European endeavour. The only hope that we have for not merely taking on the issues of competition, but actually winning them, as I believe we can, is true European integration. And European integration demands leadership. And leadership demands difficult decisions. It demands difficult decisions in applying the Growth and Stability Pact. It demands difficult decisions in permitting the adoption, for example, of the Take-over Directive, which was disrupted and destroyed in a way which I think was unhelpful largely by German lobbying, and the Services Directive. (Over 70% of our total economy today is dependent on services and we ultimately emasculate the Services Directive). Now, it’s easy for me to say these things, it is not so easy for a politician to do it, because it is popular often and understandably popular at a time of fear to protect rather than open but it is not the correct answer.

But really, what the rest of Europe says to Germany – I hope, certainly what I would say to Germany – is that our future largely depends on German leadership. We can all see how difficult it is. But I remember years ago meeting Chancellor Kohl, when I was seeking for his support to bring the Uruguay Round to an end, because of a rather typical issue which was protectionism in the agricultural sector largely being led by France at the time. He said to me that he went into politics for four reasons, one of which had been achieved, German unification, and the other three, as I recall, he said were European unification based on the Franco-German alliance, secondly, free trade, which he believes is good for Germany, and thirdly, maintaining the US-German relationship in a constructive way. But he couldn’t sacrifice the first of those, he said, for the others, so what he could do, would be to influence behind closed doors. And I understood that, because all Europeans recognize that if there is to be a motor for the ongoing process of European integration, it has to involve Germany, but it can’t be Germany alone. And however difficult that is, we need this badly. We need leadership and we need political leadership. And we need to recognize, finally, that our security and prospects can only be achieved through common policies that are not written in national chancelleries. Intergovernmentalism doesn’t work.

The Commission, on the other hand, has constantly worked – sometimes right, sometimes wrong – but it has worked with the European Parliament to try and create common policies at the common interest and to talk the truth. The Lisbon Agenda is a startling example of the failure of intergovernmentalism. That’s when we ask national leaders to live up to their own promises. They set them out in the Lisbon Agenda and they have failed to fulfil them.

So that’s what we need to do. We need to move forward with a positivism that belies the cynicism, which will destroy the project. And the vehicle, that we have chosen and which we must now use to do that, is the vehicle of economic integration. The failure of Europe to recognize that opening markets rather than defensiveness is the way forward will be the destruction of the European idea. Thank you very much.

I think my message may well have been a little simplistic. What I meant to say in terms of Brussels was that the competences which Brussels has, which are not in every area and shouldn’t be in every area, have to be allowed to work properly. Competition policy is one, living by the rules of the currency is two, to take two examples, having a common energy policy is three, having an integrated energy market being part of the last that I mentioned, all of those are signals of a need in those areas for common policies that are developed in the common interest and which should not become the fighting ground for national protectionism and squabbling. Otherwise we will undermine our single currency and we will destroy our economic growth.

Other areas are and will remain and have to remain the competence of the national authorities, and for as far as I can see, will continue to be matters for national competence. The only point that I tried to make about those areas for national competence is that there are countries in Europe demonstrating at least four different social economic models, which have been able to deliver falling unemployment, growing confidence and significantly higher growth. Now, their problems are different, but nonetheless it can and has been done – and is being done.

The final point I would make is that the real problem here is: Difficult political choices can be made at a time when there is national confidence and buoyancy. Then politicians can take risks. And there’s a chicken-and-egg situation here, because the main economies in the core of Europe, one with a very difficult problem that is not going to be soluble anytime soon – Italy -, and then France and Germany being the other two, have this chicken-and-egg situation. How do they take the difficult political choices, while there is still something of a malaise in public opinion, a lack of confidence and a certain pessimism. It is very easy today in my country to take somehow difficult political decisions, because everybody thinks that they are doing extremely well. The real problem – and this is a problem of politics, but it is the question that has to be answered – Germany has to lead and with the growing confidence that at least we seem to see from opinion polls about what is happening in Germany in the sense of confidence, many of us – and this is not flattery – many of us look to Germany to lead, to lead for Europe and to lead for Germany in this time.

Well, first of all, all of the evidence – and there is new evidence available within the last couple of weeks, both from the European Commission and the OECD – all proving that the facts are that the enlargement has been beneficial for both sides, as it has always been in the past. I regret that the enlargement took place before the adoption of the constitution. It should have been the other way round. And it has been one reason why the European Constitution was derailed, I hope only temporarily. I’m also worried about it, because we sometimes in the past have made promises in regard to enlargement, which we have not been ready to fulfil and which the promisee is often not ready to play by the rules of the game. I’m not going to comment about Romania and Bulgaria, which are coming up, other than to say that there are those in various parts of Europe who, for future applicants, would enlarge at any cost and thereby to so dilute the essence of the European Union that it will destroy it. And that is not what those countries are seeking to join – a destroyed European Union.

So, I think we have to be rigorous in the future in determining when and how we will enlarge and we have to be satisfied that the country that is joining can play by the rules. Because if it cannot play by the rules, then it will destroy the efficacy of the rules themselves. Hallstein, one of the two great presidents of the European Commission, once said that the European idea does not have divisions in the sense of armies. All it has is the Rule of Law and that is why we have to be very careful about this process. And I’m uncomfortable, I must tell you frankly, I know that this will not be popular everywhere in Europe, perhaps even here, I’m uncomfortable with full membership of the European Union and a denial of an essential right of that membership, namely the right to move freely between countries. I can understand the political reasons behind it, but I’m uncomfortable with it and I think it has been proven the other way that in reality, we have to become more sophisticated about our approach to bringing people into Europe. We’re going to need them anyway and it has not proved to be detrimental, as I said earlier, it just proved to be positive in various parts of Europe.

So I come back to what I started and conclude by saying enlargement is a moral right to those who have been denied their membership in the European family to no fault of theirs, but it should be under rules that they have to be able to comply with, and they should be on a path to enlargement until they can comply with them, and they should be given such degrees of access to the markets and so on, as well as accessory, to help them reach that level. I think that there is a line which will be drawn as to the limits of enlargement. I personally would not draw that line on the basis of nationality, on the basis of religion or historic reasons. I’m talking, of course, about Turkey. I would take the decision on the basis of whether the country at the time complies with the basic rules of human rights and common heritage that we all accept as being part of our inheritance as civilised human beings and whether they can comply with the economic disciplines, and comply with the market economy system in a way that doesn’t destroy it. Those are the issues for me and the boundaries of Europe are the physical boundaries of Europe, but I can never see it being possible in the foreseeable future to take major enlargement steps within the next ten years with one of the major countries, such as Turkey or even more unlikely in my opinion, Ukraine. I think that these are steps too far, but they are not steps that are to be denied ab initio on some definition of Jewish-Christian heritage, but merely on the basis that the countries themselves cannot comply currently with the requirements of the Union.

Well, the simple answer to your question is: You won’t have a strong Europe, if you have weak member states – particularly the most powerful of them in providing an impetus and a drive of greater leadership. What I was really talking about in terms of intergovernmentalism, which worries me a great deal, is exemplified by foreign policy and defence.

Eurobarometer polls have consistently shown that in two areas which are purely intergovernmental at the moment – terrorism, dealing with terrorism, and so on, and foreign policy and defence – there is a belief that there should be a greater European input. Now, the current foreign policy and defence area is entirely in the Council, rather than the Commission, it’s entirely organised intergovernmentally. I don’t think that will ever work effectively, it brings us back to the 19^th century of grand alliances between countries and chancelleries discussing things together, rather than producing policies in the common interest. Now, I have no illusion about the fact that at the end of the day no decision will be taken for quite some considerable period on defence related issues by some sort of majority voting or some community method that removes the sovereignty of the nation states. We need more time. But at least we can begin to put together a formulation of policies in the common interest, rather than discussing simply between capitals about how they’re going to deal with Iran, Iraq or anywhere else. If we had had proper dialogue and debate before the Iraq war within the European Union – which we didn’t have – I think it was possible that we could have reached a common position, that in turn might have massively influenced the Americans before the decisions, the vital decisions were taken. I think that it was everybody standing back and sitting in their own chancelleries of Europe that created part of this problem. I’m not answering your question, of course, but I’m giving you an example of what we’re talking about. Because had that dialogue taken place, had it taken place properly within Europe and had people been prepared to reach a common position on very vast or difficult issue such as that within the Community framework, we might not have ended up in the mess that we’re in today. And I think that that’s a serious issue and it’s an example of what is needed. Not in the economic sphere, I accept.

But also, even in areas like subsidy policy and so on, we always accepted in the Commission that we were going to have difficulties with member states. Germany was not the most positive and during 1989, I remember West Germany, the figures for 1988 of West Germany, countered all of the impressions that I had that it had the highest subsidies per capita everywhere in the European Union, far higher than some of the countries you might have thought would be worse, like Italy and France or whatever. All countries will have difficulty sometimes with political decisions taken on competition grounds, for an example, in Brussels, but actually it serves a purpose. Because if you didn’t have the driving force from Brussels, it would be difficult to overcome political resistance, even though in the end of the day, everybody turns round and says: “Well actually, they were right, but we won’t shout it from the roof tops, but they were right in Brussels in the first place.” And that’s why sometimes leadership from Brussels even on difficult things can be a good thing. It can take politicians off the hook.

I would conclude by saying that European integration, the process of European integration, is the most noble political movement of the last millennium. Europe, a cockpit of conflict for generations, within a short period of time has voluntarily agreed to share sovereignty with neighbours from whom we were long estranged. That to me is noble. And if we blow it up by our failure politically to move forward, we will be condemned by history.

The second point I would make is that one of the strong areas of impetus for maintaining integration is the external world in which we now live. Very rapidly, those countries that still harbour delusions of past grandeur, will recognize that they are delusions. But if they are to live in the globalising world of today and deal constructively, not defensively, with the challenges that that world presents, whether it be in Asia or on the other side of the Atlantic, we share so much that we have to do it together or else we will become a tourist resort for visiting Asian tourists.

The last point I would make is this: I heard President Clinton very recently make the point, that the most noble political movement in European history has been European integration. And he said anybody who believed that it would be possible to make a further advance with a referendum in every one of 25 countries, needed to be committed to a home. Because there’s no price for saying “no”. It’s easy to thumb your nose at your own government. You can then create the illusion that you can stop the world and get off in some way. It’s ridiculous. Where does that leave us with the Constitution? I think we have to recognize that there is a price for saying “no” and that we have to organize the next stage of reactivating either the entirety or a part of the constitution by – and many people will disagree with this in other parts of Europe – by saying: “A number of us will go ahead with an Open Door Policy and if you don’t want to come, that’s your affair, but we’re going ahead.” I’m afraid that that is going to be necessary. I don’t mean that it means a denial of what already exists, that will continue to exist. And I recognise that there are huge difficulties in this. Because some will say, if we format around the only group that could make logical sense, the Euro-zone, and then they say: well, what do we agree within that Euro-zone should be the core competences? There will be a number, who I won’t name outside, who will be shooting bullets into this idea the whole time. And some within it will say, for an example: “We want harmonized taxation.” Out of the question, because a number of others will say: “Under no circumstances.” But surely it should be possible to move forward together and to present the challenge to those who do not want to do so, of being outside it or being inside it. It’s the only conclusion I can come up with, but I come back to what I’ve started with: We live with a noble idea which we’ve an obligation to persist with and develop.

This is the text of a speech delivered by Peter Sutherland at The Allianz Lecture