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The Czech Republic, NATO and European Union Enlargement

English Pages, 10. 11. 1997

It is a pleasure and honor to be here and to have the opportunity to tell you about how I see my country, NATO and European Union. The Czech Republic has been in the past eight years undergoing the most rapid political, social and economic transformation and despite all existing and inevitable problems and difficulties has achieved the position where we can - with sufficient confidence - apply for membership both in the European Union and NATO.

In the political sphere, the Czech Republic has already achieved a very high degree of political pluralism and a very strong parliamentary system with six - clearly and transparently defined - political parties that are represented in the parliament. The political system is very European, with all well-known pluses and minuses connected with the proportional election system and with coalition governments. The current government has - after 1996 elections - many problems in coexisting with a deeply divided parliament, but the current political leaders have been in charge of the country without interruption since the fall of communism, which is very unique, not only in the post-communist world.

Economically, rapid liberalization, deregulation and privatization together with unprecedented speed and scale in opening the economy to the rest of the world created a totally different economic system which - in most of its aspects - resembles the economic systems of Western Europe and North America. Until very recently, we supposed that we can smoothly continue our transformation and economic development but we should have known that any economy - especially the economy after four decades of communism - is very vulnerable to all kinds of economic shocks and disturbances. As a result, we have been going through a very turbulent year of 1997.

When discussing our recent developments, I have to mention something that has not been sufficiently stressed or understood. The communist system in my country and elsewhere collapsed, it was not defeated. It collapsed because it already was in an advanced stage of decomposition, because it gradually lost its two strongest constitutive elements - the fear on one hand and the faith on the other. In its final days, the communist system became both soft and unconvincing and such a state of affairs was not sufficient for safeguarding its further continuation. It is an irony of history that communism - sort of - melted down.

We inherited weak and therefore not efficient markets and - similarly - a weak and not efficient democracy. Both the economic and political mechanisms were shallow, the political and economic agents (players of the game) were not properly defined and established, some of them were new, all of them were weak and fragile and the outcomes of their interplay were less efficient than in a full-grown free society as you know it from countries which have never experienced communism. It was not possible to overcome such a state of affairs by introducing a ready-made, imported, from outside delivered system. We had to undergo a difficult transformation process.

At the same time, it was not possible to wait for textbook conditions, to wait for a sufficient degree of market efficiency. The quick abolition of old institutions was a sine qua non for success because it was the only way how to minimize the non-negligible transition costs.

We hope that the basic changes have already been made. Revolution is over, evolution goes ahead. This evolution has its very important external side which I want to discuss now, especially our willingness and readiness to join both NATO and the European Union.

We consider the recent invitation to join NATO and the inclusion of our country among those which will start negotiations with EU about full membership soon, as a confirmation of our internal transformation achievements.

First, I would like to say a few words about our understanding of NATO in the postcommunist era which is impossible without putting the meaning and role of NATO into broader historical and geopolitical perspective. To believe that the collapse of communism and its probable definitive end is a final victory, the „end of history“, as some suggest, would be very costly. I see around us new dangers, new blind alleys, new threats, new conflicts, new attempts to create “brave new worlds” based on wrong ambitions and false assumptions as in any moment in the past. I hope that we all are aware of those new dangers and that we all know that geographical distance does not have much importance anymore. Because of that, we need international cooperation, we need transatlantic cooperation, and we need an American presence in Europe.
The idea of transatlantic cooperation between Europe and North America was born at the end of World War II. The tragic experience of our fathers and grandfathers with fascist dictatorship, with communism and with the devastating World War, as well as their resolution not to go through the same development again led to many post-war activities and to the formation of several important international organizations, including NATO. The Czechs (and Slovaks) were among the founding fathers of U.N., IMF, World Bank and GATT but the iron curtain did not allow us to be present at the birth of NATO. We regretted it deeply and paid for it dearly.

The transatlantic cooperation was - for the past decades - kept together by the imminent communist threat and many of us, consciously or subconsciously, accepted the notion that NATO is an anticommunist block, nothing else. With the end of communism the visible and tangible enemy disappeared and some of us seemed to be at a loss what to fight for. I do not have such a problem.

For me, the transatlantic community was never connected solely with one past enemy. It had deeper roots and a stronger basis. The transatlantic community was and is based on ideas, not on enemies. It is connected with the European and American tradition of freedom, democracy and market economy. This tradition is based on our common cultural and civilization heritage which - I suppose - we are obliged to keep alive for future generations on both sides of the Atlantic ocean. John O’Sullivan, editor of National Review and founder of New Atlantic Initiative, put it recently in a similar way: „The alliance is the military expression of Western civilization - in fact the only institution that encompasses all the West“. I strongly believe that exactly for that reason we all need NATO now, and we will need it in the future as well.

As regards the enlargement of NATO, there is no doubt that the three invited countries belong to the same community of nations. I know that the invitation issued for three Central European countries, created new questions, if not tensions, both inside and outside NATO, in non-invited countries and among the opponents of enlargement. It is not my aspiration to discuss the criteria used for the selection of the three chosen countries because I am supposed to be biased in this respect. I would always accept the fact that the decision of one or another prestigious Washington tennis club to offer me a membership is, and should be, its own decision, not mine. However, taking into account the rapid progress in establishing free society, based on pluralistic parliamentary democracy and on market economy, achieved in the three invited countries, I would dare to argue that the choice was rational and „just“.

It is evident that the enlargement of NATO has non-zero costs and that there must not be any free riding. I can assure you that we are aware of it and are prepared to bear the necessary costs. That is what I wrote in the official Letter of Intent I sent to the NATO Secretary General last week. I believe that the NATO members are ready to cover their part of the costs as well, but it seems to me that this is something which must be explicitly stated. I hope it will be done soon.

Talking about Europe and about European Union, I will concentrate on two issues, one connected with the widening and one with the deepening of the European Union.

I consider the enlargement of EU to the East an enormous and at the same time unrepeatable European chance and challenge. I strongly believe that the genuine and gradual enlargement of EU will be a positive contribution to European stability and prosperity.

Speaking for my country, we are aware of the fact that as future EU members we have to be true partners to the existing members and that it is our task to prepare ourselves to be able to play that role.

We have to discuss, however, the willingness and preparedness of EU itself to accept and receive new members. I appreciate the well-known positive declarations and political statements welcoming EU enlargement to the East but I hear many opposite statements as well. There is no doubt that - ceteris paribus - the new Union, enlarged by countries with lower GDP per capita, will cost more, not less. Accepting this fact is something that we are still waiting for.

Recently I came accross an article written by former EU Commissioner Claude Cheysson in which he says: „Whether we like it or not, there is not going to be much scope in an enlarged Union for funding the same depth of integration as with a smaller EU made-up of wealthier members“. If this statement expresses disagreement with the existing excessive and too generous fundings of various welfare state policies, it is very promising to all liberal and conservative politicians (and their voters). If it is, however, a warning, that enlargement is not possible, it suggests a problem. Last month one EU prime minister even said in an interview in Die Presse that the enlargement will be the most unpopular project in Europe in the coming years.

As regards „deepening“, the boldest project - with the exception of the Common Agricultural Policy - is undoubtedly the European Monetary Union. It will happen and I do not intend to guess now how many countries will participate at the beginning. The criteria are given and I cannot speculate how much they will be loosened to let all those who want to enter to do it.

My arguments aim at something else. They aim at possible consequences of monetary unification. The well-known Maastricht criteria are macroeconomic in nature whereas the economic theory of optimum currency areas is defined in microeconomic terms, which is something quite different. The size of budget deficits or of government debt has no connection whatsoever to the degree of wage rigidity or labour mobility or with the occurance of the so-called assymetric shocks.

There is one missing link or one possible connecting link between the two perspectives, and this is fiscal policy. I agree with those who argue that „a monetary union requires fiscal federalism to operate efficiently“ (Barry Eichengreen) and that „currency domain should not be bigger than fiscal domain“ (Peter B. Kenen). All human endeavors have costs and benefits. As we all know, the main costs of a monetary union are connected with the giving up monetary autonomy which provides the freedom to conduct an independent monetary policy and to use the nominal exchange rate as a policy instrument.

For covering the costs, we need, I believe, fiscal policy to enter the stage. But fiscal policy is at the core of national sovereignty. Hence, it seems to me that the debate about European Monetary Union should be accompanyied by the debate about European Fiscal Union, and if I am not wrong such a debate has yet to start, at least in a serious way.

My aprioristic theoretical convictions have been strengthened by my recent practical political experience. Former Czechoslovakia was - even if it was not interpreted that way - a monetary union and as we realized to our great regret several years ago, it was already too large to be an optimum currency area.

As the last minister of finance of that currency area, I know that:

- without the help of a nominal exchange rate between Czech and Slovak parts of the republic, and
- without my willingness to disintegrate fiscal policy

we had to send money, which meant to make fiscal transfers to minimize arising economic (and income) differentials and disparities. I cannot imagine doing this without a political union. When it broke down, monetary union lasted only six additional weeks.

Another useful comparison can be made with your country. To say that it would make no sense if each American state had its own currency is only one side of looking at the problem. The other side is more relevant: how would the United States make out with no president, no Congress, no federal budget, and almost no federal institutions apart from the Federal Reserve System plus a powerful central bureaucracy? The issue is, therefore, not only in saving on transaction costs with single currency, but in developing new political processes and appropriate institutions. And it is in this area where I see the real challenge.

Václav Klaus, Draft of a speech at Georgetown University, Washington, D. C., November 10, 1997.