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Questions Concerning Europe's Future

English Pages, 8. 7. 2006

1. Thanks for the invitation to be here with all of you and, as a value added, to be in this beautiful place. We should always try to use our comparative advantages. My comparative advantage in this group is not in deep and profound empirical or theoretical analysis, but in looking at Europe from a different perspective than most of you. It may, of course, be both an advantage and a disadvantage. My perspective is based on my participation in European summits and on frequent discussing European issues with leading European politicians. Yesterday in Rome with President Napolitano and Prime Minister Prodi.

2. I would like, first, to say a few words about the European economy. The European economy is very sluggish even if it is now in the year 2006 in its best shape since the beginning of this century. The European rate of growth is much slower than in other relevant parts of the world (the average annual rate of growth of the Eurozone in the last six years is only 1,3 % as compared to 3,5 % in the USA and 2,7 % in Japan, not to speak about Asia). Not only the cross-country comparison is important. The rate of growth in Europe is slower in this decade than in all other decades after the Second World War.

3. This is not an accidental or temporary development. It reflects the very low potential rate of growth of the European economy, at least in the „old Europe“. There are estimates that this year's, relatively low rate of growth is higher than the potential rate which may bring about various tensions and pressures and rising inflation. In the year 2007 the rate of growth is expected to slow down.

4. This state of affairs is caused by systemic defects of the European economy (and society). The problem is that this is not the way how European politicians see it. The recent EU summit in Brussels was a clear demonstration of that. The European „soziale Marktwirtschaft“ remains to be sacred. To touch it is not possible. (President Chirac reacted to my talking about it by saying that I want to bring poverty into Europe.)

5. This is a very frustrating situation. It reminds me of the old communist days when Leonid Breznev wanted to save communism by launching the „scientific and technological revolution“ as a substitute for a systemic change. The recent idea of the European Technological Institute belongs to the same category.

6. Specific role in the current European economic malaise is played by the European common currency. The existence of the Euro is part of the European problem, not part of its solution. It increased the rigidity of European economy and created new problems for its member countries. The costs of the common currency in a non-optimal currency area are evidently bigger than its benefits. There are other examples of unnecessary and unproductive harmonization of various economic and non-economic parameters in contemporary Europe but the common currency is the most important one.

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It may seem easier to discuss the political side of Europe. It would, however, require to accept the results of the last year's referenda in France and the Netherlands and to interpret them as a victory of reason and rational thinking against utopian and, therefore, mistaken supranationalist project repeatedly proposed and promoted by the European political and intellectual elites.

As I see it, there are two possible futures of Europe. One future is the continuation of this failed integrationist project, realized either by creeping unification (without explicit acceptance of it from the European public as it was the case in the last two decades) or by agreed-upon acceleration of the European unification process (as was the case of the rejected Constitutional Treaty).

The second future is the return to the old, good intergovernmental Europe with states as the basic entities of organizing political democracy and public administration in Europe. We should know that anything which is above states is an addition, an appendix, an extra, not the basis. The European institutions and policies are useful only in one field – in solving the indisputable and undeniable continental-wide externalities. The economists assembled here are well aware of the meaning of externalities but we know as well that the world is not dominated by them. To assume that is probably what all kinds of non economists, environmentalists and integrationists do.

Europe will either find a new group of political leaders who will be able to formulate an alternative vision for our future or we will continue our today's muddling through. Our task is to follow the first path, but my fear is that we will stay with the second one.

Václav Klaus, 4th Annual Roundtable Conference on Global Money, Santa Colomba, Siena, Italy, July, 8, 2006