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The Serious Challenges Faced by the EU

English Pages, 22. 9. 2011

Mr. President, distinguished faculty members, students,

Thank you for inviting me to Guelph, to the University of Guelph, to Canada where – to my great regret – I have not been for seven years. In the past, I was here on an official visit, several times I attended various conferences, but my only other speech at a Canadian university was in February 1997 at the University of Toronto.

I greatly appreciate the opportunity to be here and address this audience. My previous, virtual connection with your University was through one person, Professor Ross McKitrick, a well-known economist, statistician and econometrician who has made an extremely important contribution to the global warming debate, which is a topic I have been trying to discuss as well. His contribution was enormous because he was the first statistician and econometrician who entered the debate of climatologists and various fellow-travelers and criticized the very doubtful nature of statistical analysis and of computer modeling which is at the heart of the global warming doctrine.

I myself wrote a book about this subject several years ago – with the title “Blue Planet in Green Shackles” which has been already published in 17 languages, including English and French. But I will not talk about it here today, because I am sure Professor McKittrick has already demonstrated the irrationality of this doctrine (which is an ideology, if not a religion) here sufficiently. My position is indicated in the subtitle of my book where I ask “What is endangered: Freedom or Climate?” My answer is resolute: climate is o.k., freedom is endangered.

I was originally asked to speak here about privatization in the Czech Republic, which is – I must confess – not an interesting, stimulating or relevant topic now. In the communist era, our economy was almost fully in the hands of the state, we had to privatize – as soon as possible – the whole economy, not individual firms. It was a revolutionary process, but it was done in the first half of the 1990s and today it is a non-issue. The role and share of private property in the Czech Republic is comparable to Canada now. Radical privatization is a history for us – looking at it in September 2011.

After its radical transformation, the Czech Republic has become a normal European country, based on parliamentary democracy and market economy and since May 2004 a member of the European Union. Because the membership in the EU means much more than the membership in NAFTA, let me say a few words about it.

The people in Canada, as well as the people on other continents, do not have a proper understanding of the European integration process, of its effects and consequences. It is partly because they – rationally – do not care, partly because they accepted the idea that a regional integration is – regardless of its form, style, methods and ambitions – an exclusively positive, progressive, these days also politically correct project. They also very often accept the widely shared view that the weakening of nation states and the strengthening of supranational institutions is a movement in the right direction.

A positive evaluation of the developments in Europe can be explained only as an underestimation of what has been going on there in the last 50 years. In the 1950s, the leading idea behind European integration was to liberalize, to open-up, to remove all kinds of barriers which existed at the borders of individual countries, to enable free movement of not only goods and services but also of people and ideas across the European continent. This was a step forward and it helped Europe significantly.

It took a different course during the 1980s and the decisive breakthrough came with the Maastricht Treaty in December 1991. Political interests to unify Europe and to create a new superpower out of it started to dominate. Integration had turned into unification, liberalization into centralization of decision making, into harmonization of rules and legislation, into the strengthening of European institutions at the expense of institutions in the member states, into the enormous growth of democratic deficit, into post-democracy. Europe’s constituting elements, the states, have been consistently, systematically and to my great regret “successfully” undermined. It was forgotten that “the state” is the only institution where real democracy is possible.

Many of us in Europe are convinced that we cannot escape from making a tough and unpleasant decision: Shall we continue ignoring the deepness and the non-accidental nature of the current European crisis (I do not mean the Eurozone debt crisis, which is only the tip of a much bigger iceberg) or shall we take, finally, and with an inexcusable delay, the European situation seriously?

I am in favor of the latter approach. The European situation deserves to be taken seriously, which is, however, not the case. The undergoing European discussions – and I am a frequent participant in many of them – continue to be based on the dangerously self-satisfying presumption that the past developments have been positive, that the problems we face are not serious and that we could go ahead with our old, only marginally modified policies.

The current prevailing European “wisdom”, the continuation of policies aiming at centralization of the EU augmented by better governance, continues to be officially supported and promoted. Any disagreement with this way of thinking is called euroscepticism (in a better case), or anti-europeism (in a worse and a more frequent case). Criticism of this “wisdom” is a priori rejected as extremism, as nationalism, as an obsolete and reactionary attitude.

The real situation in Europe forces us to look at it differently, on condition we want to overcome long-lasting European economic stagnation and unproductiveness, on condition we want to get rid of the European debt crisis as well as of our propensity to live with debts, and especially on condition we want to return to democracy. The last “condition” is absolutely crucial for me.

Unfortunately, all this cannot be achieved by better governance or by better leadership. Asking for better governance and better leadership means asking for the continuation of the existing system, which is protected by strong vested interests, by rent-seeking European bureaucratic “class”, by all kinds of rigidities and inertias and, last but not least, by a misleading and outdated belief in the positive effects of ever-closer Europe.

The currently most visible and most pressing European problem is the fate (or the future) of the European Monetary Union. The first ten years of the EMU have not succeeded in delivering the positive effects that had been expected from it. It was promised that it would help to accelerate economic growth, reduce inflation and, in particular, protect the member states against all kinds of external economic disruptions (the so-called exogenous shocks).

This has not materialized. After the establishment of the Eurozone, the economic growth of its member states had slowed down compared to the previous decades, thus increasing the gap between the rate of growth in the Eurozone countries and that in other major economies. The internal disequilibria – such as trade imbalances or state budget imbalances – became bigger, not smaller. The introduction of common currency has not led to any measurable homogenization of its member states’ economies.

People like me have always known that the idea of the European single currency is a wrong one, that it would create huge economic problems and would inevitably lead to an undemocratic centralization of the continent. To my great regret, this is exactly what has been happening. The Eurozone, which comprises of 17 European countries, is not an “optimum currency area” as defined by the economic theory. In such a situation, it is inevitable that the costs of establishing and maintaining it exceed its benefits.

It is difficult to speculate about the future. My estimate is that the euro will not collapse, because huge amount of political capital have been invested in its existence. It will continue to exist, but at a very high price which will be seen in large-scale fiscal transfers, which is, of course, a non-solution, and in the low long-term rates of economic growth, which is not a good result either. To defend the euro at all costs will be detrimental to all of us.

My position is well-known: the “escaping” from the European crisis needs a fundamental, systemic change. This change means at least two things:

- the substantial transformation of the European social and economic system, and
- the restructuring of the European institutional or political arrangement (in another terminology, of the form of European integration).

What does it mean?

1. We have to get rid of the sacred mantra of European politicians, which is the unproductive and paternalistic soziale Marktwirtschaft, “augmented” (which means further undermined) by the growing role of the green ideology.

2. We have to accept that the short-term economic adjustment processes take time and that the impatient politicians and governments usually make things worse. The European politicians have to give priority to the solution of problems caused by their own activities rather than try to mastermind the market and to micromanage the economy.

3. We have to prepare systemic preconditions for economic growth rather than try to accelerate growth by government stimuli and incentives.

4. We should – without any delay – prepare comprehensive reduction spending plans and forget flirting with solutions based on tax increases. Spending reductions must dominantly deal with mandatory expenditures, because discretionary spending cuts are – in the longer run – quantitatively more or less insignificant.

5. We should stop the creeping, but constantly expanding green legislation. We should stop the Greens from taking over much of our economy under the banner of such flawed ideas as the global warming doctrine.

6. We should stop the centralization, harmonization, standardization of the European continent and after half a century of such measures start decentralizing, deregulating, desubsidizing our society and economy.

To do it has, of course, political risks. But it is much more risky not to do it.

Václav Klaus, speech at the University of Guelph, Ontario, Canada, September 22, 2011. Previous versions of the speech were delivered at Heritage Foundation, Washington D.C., September 20, 2011, in Budapest, September 16, 2011, and Ambrosetti Forum in Italy, September 3, 2011