Design for a New Europe
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Good afternoon and welcome to the Cato Institute. My name is Marian Tupin. I'm the Assistant Director of the Project on Global Economic Liberty here at the Cato Institute. Today we come to talk about the European Union, and I will begin with a quote from the book Design for a New Europe by Professor John Gillingham. The author is, of course, with us here today. As Gillingham writes, the EU's problems today...

run deeper than most experts realize. They are not merely a matter of inefficiency and waste, or even of bad policy, but of design. The malfunctioning Brussels institutions are now out of control. Much like a slow-moving juggernaut, they continue to reduce economic growth, usurp authority from the member states, misdirect resources on a grand scale, set conflicting priorities, and generate unrealistic policies.

The EU even strangles in its own red tape, undermining the very purposes it was meant to serve. As a result, Europe cannot cope with today's challenges. Failure to repair or to replace the EU institution machinery will bring the integration process to a halt, or worse, if no B plan exists.

Professor John Gillingham is one of the leading authorities on the European Union in the United States and around the world. A few years ago, he published a very highly regarded book, European Integration 1950-2003, and Design for New Europe is a sequel to that.

Professor Gillingham is, as he likes to call himself, a friendly critic of the European Union. His desire in the works that he has produced is to make the European Union, or to suggest ways in which the European Union could be made work better. And he is here today to discuss his new book. Professor Gillingham...

got his Bachelor of Arts degree from University of California, Berkeley in 1965 in history. He then received his Master's degree also in Berkeley and his PhD in 1973. He became Assistant Professor at the University of Missouri St. Louis in 1975. He then became Professor in 1986 in

Aside from design for a new Europe and European integration, he has written a number of very highly regarded books, including Call, Steel and Rebirth of Europe, 1945 to 1955, The Germans and French, From Rural Conflict to Economic Community, another book called Industry and Politics in the Third Reich, Ruhr, Call, Hitler and Europe, and Belgian Business in the Nazi New Order.

I am very thrilled to welcome John Gillingham to the Cato Institute today, and the floor is yours. Thank you very, very much. Can you hear me? Oh, yes, I will. Save your applause until afterwards, please, if you feel like it. Anyway, let me have a pencil. Can you hear me all right? Do I need this at all? I do. Okay. Thank you very much. Thank you.

I'd like to be as brief as possible because I've seen the roster of attendees and I'm sure that many of you know more about these issues than I do or certainly have a great deal about them to say. So I'll try to be short, raise questions that Mr. Bruton can comfortably field and try to allow as much time as possible for the question and answer period.

Let me begin by asking what conclusions might one reasonably draw now that we are well into year two of the period of reflection inaugurated by Commission President José Manuel Barroso in the aftermath of the notorious double whammy, that is, the rejection of the proposed European constitution by the electorates of France and the Netherlands?

Well, one might begin by surmising that we've seen the end of the last in a series of wildly speculative, grossly misleading studies, mainly of American origin, which appeared over the year 2005 and 2006 by authors like Jeremy Rifkin.

T.R. Reid, Stephen Hosler, and Mark Leonard, a British commentator, which purported to explain, to cite the title from Leonard's book, why Europe will rule in the 21st century. It has now become glaringly apparent that Europe will certainly not sit in the driving seat for the next hundred years.

and that the United States will have to share a seat with China, India, Russia, Japan, as well as other fast-moving economies like Korea, not to mention what remains of the political and economic structure known as the European Union.

We are fast moving from a unipolar world to a multivalent, polycentric world in which power is going to be redistributed and all important players in this game must contend with that fact. The idea that the EU and the US can share power in some manner among themselves and run the world is now history. There is a new consensus developing in Europe about the future of the EU and somewhat more slowly in the United States.

It is that since the referendum, its authority has deteriorated seriously. Some have gone so far as to call into question the future existence of the EU. This is going too far. You're all from Washington. You know that bureaucracies never die. The EU may become an empty husk. And I don't know what the chances of this are, but I would simply remind you that the League of Nations completed its new headquarters in Geneva in 1940.

Not only Euro-skeptics, Euro-heretics, well-minded Euro-critics and others, whose voices have often been overshadowed by Europhilic commentators, not only these groups now recognize that the European Union has problems. In a speech a couple of weeks ago on the 29th of August to a gathering of French ambassadors, the French minister on Europe, Catherine Collonna, declared that the EU, and I'll quote,

suffers from an illness of apathy, from general fatigue. In a similar vein, the German Foreign Minister, Frank-Walter Steinmeier, admitted a couple of weeks ago, quote, we all recognize that public reservations concerning the European Union continue to mount, and that, quote again, most people are uncomfortable about the interventions of a distant Brussels into the daily affairs of people's lives. This is

As close, Steinmeier's statement is as close to anyone, any official spokesman is likely to come to a fact that I think most German polls bear out and most Germans believe, that if a referendum had been held on the Constitution in Germany, it would have failed.

The statements of spokespersons like Colonna and Steinmeier betoken a new official recognition that anti-EU sentiment is real. It can no longer be dismissed merely as sort of due to sheer public cussedness, extreme europhobia, and that the Brussels institutions are part of the problem and presumably will have to be part of the solution. To solve it, however, both

and Kelowna, and today echoed almost predictably by the chairman of Eurofin, Jean-Claude Juncker, the former prime minister of Luxembourg, these spokesmen for the official position all call

not for reconstructing European institutions or reconsidering the integration process, but for more Europe. Colonna, in the same speech in which she decried the slow-moving and often very strange policymaking process in Brussels, also went on to add, I should say, to call explicitly for a European industrial policy, projects of a global dimension,

massive investment in research development in the future, not to mention a more frequent and deeper foreign intervention in places like the Middle East. If this sort of thing sounds familiar, it's because it echoes basic traditional themes in French foreign policy towards the EU.

One might call this into question, particularly as regards, I should say, the Middle East, if recent experience is any guide. Last week, the Economist's Brussels commentator, Charlemagne, suggested that perhaps EU-Middle Eastern policy had been scripted for or by the Three Stooges, one of them presumably being the...

the foreign affairs panjandrum of the EU, Mr. Solano, another being the unofficial spokesman for the European position, President Chirac, and the third being the Finnish council president who appears to have been the man hitting the head with a frying pan. My only additional comment on this issue is to paraphrase an anonymous Washington authority.

that going into battle without a French ally is like stalking deer without accordion accompaniment. But the superpower pretensions of the European Union, which I can't delve into further, do not really get to the heart of the problems facing the European Union. They are perhaps a reflection of them, but little more.

As Dr. Toope emphasized, these problems are structural in character. The EU is dysfunctional. Its institutions defeat the very ends they were meant to serve. Overloading them could cause breakdown. The EU needs, in fact, a thorough overhaul.

The integration process cannot advance significantly unless in the future it rests upon democratic consent. This surely is the bottom line. This is the verdict of the referenda. This presents a real problem. The European integration movement began necessarily as an elitist affair at a time when hostilities between the French and the Germans, legacies of mistrust, could only have been solved from above.

Things have since changed, and EU institutions were not designed to cope with the strains that they now face. That is the demand from the publics of the member states for democratic representation. If these demands are to be met, it will require a revolution in thinking in Brussels. To gain the legitimacy now lost, the European Union...

must provide tangible public benefits. To do that, it must adopt new methods. And before thinking about that, it must concentrate on those things that it does best. The ambitious campaign of Jacques Delors

launched in the late 80s and the 90s to build a new Europe centrally and administratively from the top down has now failed definitively. That is a second lesson that we can draw from the rejection of the Constitution. Sadly enough, however, this failure has brought in its train another one.

Sadly, the one that President Václav Klaus calls the liberalization agenda, it too has become a casualty of the last 10 years of EU history. Can this mission be revived? Can it become the central purpose in the development, I should say, guiding the development of the EU? I have my doubts. Because as globalization advances,

the importance of a regional economic bloc like the EU necessarily diminishes. The EU must rediscover what I think is its fundamental purpose, and that is to promote democracy both within Europe and along its expanding borders. This is a noble aim and one that all Europeans, one would hope, should applaud.

The need for this is, in fact, the main thesis in design for a new Europe. Let me, before getting further into the matter, say, just simply enumerate a number of books that the point, a number of points that the book tries to elucidate, not necessarily in the order of importance or prominence.

First, I argue that to depict the European Union as a form of government analogous to that of a democratic sovereign state, though on a larger level, is misplaced. The starting point of most political scientific analysis or inquiry into the EU indeed sees it as an effort to balance of power politics. If that is true...

James Madison would spin in his grave. The EU has been variously and never satisfactorily defined as an institution. I'm not sure that I can do a whole lot better, but let me give you some examples of things that are being said currently about it. One, again to quote from Foreign Minister Steinmeier, likened the European Union to the Holy Roman Empire. Apparently,

forgetting or overlooking the fact that it was neither holy nor Roman nor an empire. The great biographer of John Maynard Keynes, Professor Robert Skidelsky, comes closer to the nub of the matter in defining the European Union as an experiment without a name. In fact, the EU is an almost indescribable mess institutionally. Grossly inefficient, operationally opaque,

to an unknown extent, though considerable extent, and lacking in the feedback mechanisms, particularly of public supervision and control, needed for self-correction. Here I will spare you the unpleasant details of policy and institutional operation, merely to say that, excuse me,

The two main policies of the EU, which together consume roughly, depending on the year in question, three-quarters of its budget, are the utterly indefensible common agricultural policy, which is not only immensely wasteful, costly to the third world, et cetera, et cetera, but more germane to our point.

is a stumbling block, the chief stumbling block towards reform of EU institutions. Until the European, the common agricultural policy can be phased out or eliminated altogether, European, I should say reform of the European Union will be an uphill battle. The second villain in this piece is the regional funds, which are usually consume about a quarter of the budget and are supposed to

even out the playing field between the wealthier and less wealthy members, states of the union.

This has become a political boondoggle. It involves the well-known Washington phenomenon of log rolling and pork barrel. And, again, I can't get into specifics of it to say that. Though it is now in the first stage of reform, it pays disproportionate benefits to states that are well off and outright rich. Luxembourg, for instance, is a beneficiary of these payments.

Now, the elimination of these programs, as I say, is the first vital step towards reform. Another point that the book takes up is that for all practical purposes, what Klaus calls the economic liberalization agenda is dead. Much was made of the Lisbon agenda of 2000 for many years, a plan that called for the European Union to overtake the United States economically by the year 2010. This

was officially, all but I should say officially, declared dead mid-course in 2005 as it became apparent that the gap between the United States and the European Union in terms of both GDP productivity, GDP growth and productivity, was continuing to widen. The story is a sad one. The great opportunity that the EU had to reintroduce the liberalization agenda was

was associated with the person of a truly extraordinary commissioner, Frits Bolkestein, from the Netherlands. Bolkestein, as I think will stand out in history, is a uniquely gifted and determined commissioner, although not universally popular and often outspoken.

There were two real projects that he pressed for. Both of them now are effectively dead in the water, and one is largely forgotten, except in, let's say, by the public. That's the Financial Services Action Plan. This very technical-sounding measure had as its purpose the creation of an institutional counterpart to the euro.

Something necessary in order to give the euro the same or an equivalent kind of status as the dollar. This plan is now in tatters. The second of his two very important priorities was the better known and equally said services directive, which, as you may recall, featured prominently in the French referendum and which some blame for the no vote.

Bolkestein himself went to defend this before the French electorate and found himself pilloried as a Frankenstein. The project was a Frankenstein. And although the services directive continues to, I should say, enjoy a kind of half-life and hasn't reached its definitive bill yet, it resembles a large piece of Swiss cheese more than anything that Bolkestein envisioned in championing it.

One further point, a very sad one, is that the liberalization agenda did have a chance, a real chance. And in this respect, the failure of the British presidency in the six months of last year may loom as a tragic event in the future. I don't want to get into the details of this. It would consume the time I have.

But the British ended up capitulating to the French on the issue, and many standing, I should say, under there behind them, including, sadly, the Poles.

on the cap, which will actually grow in the next budgetary cycles in importance. And further got badly hammered on the so-called British clawback or special British rebate. We won't go into all of that. But this was the chance when the council presidency was in the hands of a major power, the major power most strongly committed to economic liberalization, and it slipped.

Even more troubling is something that I would be happy to discuss in greater detail in the Q&A or in response to queries from Mr. Bruton, and that is the rise of protectionism in various guises and as well as anti-immigration sentiment in much of the community. This is going to make it extremely difficult for the friends of economic liberalization to form coherent blocks

to pursue their agenda. Another point that my book, Design for a New Europe, discusses, and one that I don't want to go into in much detail here, is the hope cherished by many of the most progressive thinkers within what we can say the broad EU establishment, that the EU can discover a new mission as champion of European research and development. This is an idea that sounds plausible and desirable.

but is not. In the history of the EU sponsorship of research and development, inquiry, that is, the search for scientific truth, has been conflated with the political aggrandizement of Brussels.

Brussels, in this scenario, has set the agenda for scientific inquiry as opposed to scholars themselves, scientists themselves. And the results of this have been unfortunate. Again, the big programs that the EU has supported in research and development in the last year, the last couple of decades, the so-called framework programs, now going into their seventh incarnation, have failed repeatedly.

ceased, I should say, and have not produced anything like the desirable results that were promised. They have been a waste of money. And much of this has to do with setting wrong priorities, or trying to set priorities for scientific inquiry. Some of it has to do with the inefficiency, the administrative inefficiency of the program.

Some of it has to do with the principle of juste retour, which means that every nation or every participant gets the same cut of the pie, and also provisions that require the integration of scientific personnel, making it very difficult to mount programs. And there are other clouds on the scientific horizon that suggest to me that...

that science, research and development is a bad place to place the funds, the money of European taxpayers. One, we've seen the beginnings of a real catastrophe in the

A380, the Airbus 380 project. And I would point out to you that the British now are selling out. In today's paper, they're selling out at half what they initially hoped to get for their share in EADS, which is the company that has designed the Airbus 380. What we've heard so far is that the 380 is behind in its schedules and there are some technical problems. The big problem is going to become once it becomes a

that no one can afford this thing and no one who really is serious about flying and has to make stops wants it. It's going to be a catastrophe. A second issue, which I discuss at greater length in the book, is the Galileo system. Again, a priority project for European Union technology policy. Galileo is a GPS system by another name that Europeans assigned a priority importance to

especially in the aftermath of the Afghanistan and Iraq affairs, at which time it became obvious that they are a critical part of the infrastructure in a new way of fighting war. Galileo, in other words, although this is officially denied, has something with both civilian and military application. Unfortunately, it seems that it can be knocked out of the sky very easily.

And also that it has no commercial applicability. GPS, the American GPS system, performs essentially the same services already that Galileo wants to charge for. So we're looking here at another vast area of probable misinvestment.

Finally, without going into detail, the book has got a whole section on this. The European Union, over the last several years, has earned much of the blame for the severe deterioration and in parts the disappearance of the European biotech industry. This, if you want, is partly due to the resort to a demagogic appeal of European fears,

Understandable, perhaps, in the aftermath of the mad cow disease that biologically modified organisms are a threat to health, something never proven.

The result of this disinvestment in European biotech will be that Europeans, far from being at the spearhead of technological breakthrough in this most fast-moving of new fields, will once again, as largely in the case of the IT revolution, be bystanders to developments that are taking place elsewhere. Another point that I make in the book, and I can only try to illustrate it here briefly because it is a transcendent point,

That is that the effort to solve the problems facing the European Union by ever more grandiose plans are counterproductive. And one can point here to perhaps the most contested of these episodes. That is the creation of the European Monetary Union, which I argue, and I think most economists agree, is a drag on European growth.

further, a source of demoralization within the union itself because of the cheating problem, and thirdly, an undesirable obstacle, new obstacle, to the exercise of responsible self-government since it removes...

part of fiscal and monetary policy from the purview of the states and assigns it to a board of bankers, which, however well-meaning and intelligent, answer to no one but themselves, ultimately. My final point in the book is an expressed hope, which is unfortunately leading, I think, to disappointment and disillusionment, and that is that

Europe stands to benefit not only economically and politically by enlarging to include Turkey and Ukraine, but historically and culturally. I hope that this would happen, and I'm afraid that we will not see this in the near future. I don't want to get into the specifics of what has happened in Ukraine over the past summer. It is depressing. I think it's also saddening that the Turks, having tried so hard

to become acceptable to the EU seem to be giving up the effort. These are, from my standpoint, also great problems facing the EU. So what am I saying here? What kind of design is there that I can point to that will get the EU out of its problems? I can't do more than talk about the basic elements in it. There has to be a drastic downsizing of EU institutions. This is a reality that must be faced.

They must be rebuilt on the basis of popular consent, registered nationally. The EU must, in the future, concentrate on what it does best and reach understandings, treaties, and create institutions that provide tangible benefits. The Forum...

Let's just say the shape of the European future of the European Union is not going to be worked out over the next six months, the next year, the next four or five presidencies, and may be indistinct 10 years down the line. It's unclear whether Europe needs a constitution.

The options should not be foreclosed. Perhaps what one needs now is an ongoing discussion about the kind of constitution that really suits Europe's capacities, its needs, and the desires of its public. If the picture that I painted seems bleak or unremittingly pessimistic, I would like to conclude by reminding you something that's obvious.

that the EU, the European Union, and the integration process over time has developed in fits and starts. Although we can agree, I think, that the overall trend has been positive, there have been whole periods where nothing has happened, periods of Euro-pessimism, Euro-skepticism, periods when failure has predicted. And somehow the organization, by reinventing itself or a large part of itself,

has managed to rebound and raise, if you want, the integration process to a new level. I think this can happen again, but as I say, it will require that European states, be they in Brussels or in the capitals of the member states, rethink what integration is about.

and move appropriately. Let me make one final comment, and that is that in these episodes that have led to change, impetus has come not only from Europe, but from changes in the world at large, from exogenous shocks, if one wants. You can see some of these, some of them, I think the most prominent and perhaps example of this,

is the decision to form some sort of a monetary union, taken in the 70s and above all in the early 80s, which was a response to American fiscal irresponsibility. This was a sound and necessary step. Where it will come from, I don't know. But I do draw encouragement from the fact, at least that...

that the configuration of world power is changing radically, and there will be plenty of opportunities for Europe to step up to the plate and meet the challenge. Thank you. Thank you, John, and thank you very much for a very interesting presentation. I'm sure that our next speaker, the respondent to John Gillingham's speech, will have much to say, and I'm particularly thrilled to welcome to the Cato Institute

Thank you very much.

He was a Minister of Finance between 1981 and 1982, and again between 1986 and 1987. He was Minister for Industry and Energy between 1982 and 1983, Minister for Trade, Commerce and Tourism between 1983 and 1986. He became a leader of Finagale.

in 1990 and then of course Prime Minister between 1994 and 1997. Among the

of his government's accomplishments was very controversial but I think now generally accepted legalization of divorce but more importantly from an economic perspective his government was the first government in 20 years to produce a budget surplus in Ireland and coincided with a period of unprecedented prosperity and growth in the Irish Republic so Ambassador Bruton welcome to the Gator Institute and the floor is yours

I'm glad to have this opportunity of responding and I'm glad to signal our recognition of the interest that many American scholars are taking in the development of the European Union, which is a truly unique international institution without precedent in the world. It is the world's only multinational democracy. There is no other multinational organisation

where the people are allowed directly to elect the people who make the laws governing that collection of countries. In the case of the World Trade Organization, its negotiations take place in private.

amongst diplomats and there's no public oversight and no democratic assembly, no parliament of the World Trade Organisation. There is a parliament of the European Union and that's what makes the European Union truly unique. It is the world's only multinational democracy which recognises the fact that in the modern globalised world problems don't start and stop at borders. What happens in one country

others in another country. And in the globalised world, we need institutions for governing what happens, governing global issues.

I have, for example, been in Congress this morning and I was listening to a debate where members are proposing to ban the export of horse meat from the United States to Europe on humanitarian grounds, that while people have no problem seeing cattle slaughtered, they have a problem seeing horses slaughtered and they want to stop the trade. Now this is a classic example.

of an issue where moral concerns, and people have some moral view about horses that they don't have about cattle, that moral issues enter something that involves trade. Now, who's going to make that sort of decision? Should the decision concerning the moral implications of interstate commerce be left to diplomats, as Professor Gillingham would have it, or should it be governed democratically by the European Parliament,

in the case of the European Union, an institution which Professor Gilligan proposes to abolish. He says he's in favour of popular sovereignty, and yet he proposes in his book to abolish the only multinational democratic institution in the world, the European Parliament. I think there is an inconsistency here, frankly, and I think it's a lack of recognition of the reality that this is a unique institution, the European Union.

However, I would like to quote with approval some of the things that Professor Gilligan says. He says, spreading democracy is the European Union's greatest challenge and could be its crowning glory. And he goes on to quote with approval to Dutch economists who said that while accession to the European Union will raise Turkey's gross domestic product by 0.8%,

gains of 5.6% would result from the improvements in Turkey's national institutions from the accession process itself. This shows the value of the European Union. The European Union has been an institution which attracts countries which aspire to be democratic, rule-based, property-respecting, and the respect for the right of property is one of the key things in the European Charter of Human Rights.

We attract countries that want to have that guarantee about the way they internally govern themselves. And that's why joining the European Union is so much of a goal for Turkey. That's why there's such a long line of countries wanting to join our union.

There isn't a long line of states applying to join this union in which I speak. But there is a long line of countries applying to join our union. Why is it that there are states applying to join the European Union but not American states applying to join the United States of America? There must be something good about the European Union that is not characteristic of other institutions. And what that is, is that we allow...

compatibility of a significant measure of freedom. Countries are allowed to apply their own health policies, their own social welfare policies, but there are certain basic rules which they must also apply. One, free movement of people, free movement of goods, freedom to supply services. They must respect property, they must protect

respect free speech they must respect democratic institutions and human rights and the reason that countries want to join the European Union is that they want to get that seal of approval that says that they are all of those things and that they apply all of those principles internally

being accepted as even a candidate to join the European Union is a hugely beneficial thing for many countries. The reason Macedonia is so pleased with itself that unlike Montenegro, unlike Serbia, unlike other countries in the Balkans, it's been accepted as a candidate is that even being accepted merely as a candidate to join

makes people confident that they can invest their money safely in that country. That that country is not going to revert to being a dictatorship. That that country has to by dint of its having to apply all these 80,000 pages of legislation which a country has to put into force if it is a member of the European Union, that by virtue of doing that the country will be a place in which it will be safe to put your money or to send your daughter to work.

And that's what's important about our union. It is that guarantor. I would also like to quote another point from the professor's book, where he says on page 125, the European Union's new register of genetically modified imports has introduced an element of predictability into the grain trade. As he acknowledged in his address, there was, as a result of the mad cow disease, a lot of concern in Europe.

and a lot of concern in particular in individual countries in Europe about anything that was genetically modified, about any mixing of things that the consumer didn't completely understand. And that was a real risk of a complete shutdown in trade. But the European Union, recognising the politics of the situation, worked gradually around to a situation where we would accept, case by case, on the basis of a register,

where there was an acceptable genetic modification that had been checked for its safety for consumption or for cross-fertilisation with other crops in a manner that could be damaging, and that we could one by one release those. Now, supposing the European Union didn't exist, and you had to have each one of the 27 countries of the European Union individually

individually, in the exercise of their sovereignty, this marvellous thing, individually having to check all these products. How much longer would it take for American products to get onto the EU market? At least now. If you want to export your genetically modified corn to Malta, you don't have to go to Valletta. And then if you want to do it in Slovenia, you have to go to Ljubljana. You can go to Brussels and you will get an approval.

and approval that will have the command and support of the people of Europe because it has been done by a democratic institution. The European Union is a democratic institution with its own democratic parliament. And that's why the European Union can make some of these difficult decisions.

about whether it's okay to export horses, or whether it's okay to export cattle live, or whether it's okay to export genetically modified products from one country to another. Because the European Union isn't just a diplomatic organisation like the WTO, or isn't just an interstate arrangement like NAFTA, but has its own parliament, is its own democracy, commands a measure of allegiance from people,

as part of a political project and not just a commercial instrument, that it can make decisions that the WTO simply can't make. And we can make them by majority vote in many cases. Whereas the WTO, as an organisation gathering sovereign states together, has to make all its decisions by unanimity.

Why is it that the EU can make decisions that the WTO can't? Because the EU is a democracy and the EU in many areas of its work cannot operate by majority, whereas the WTO is not a democracy and has to operate by unanimity. So if we want to govern globalization, I believe that we need not to dismantle the existing European Union, but we need more unions in the world like the European Union.

Maybe we need a union of this kind for Latin America. Maybe we need an Africa to develop in the same direction. Maybe ASEAN needs to develop in the same direction. And it's interesting that those global blocs are in fact imitating the European Union more so than they are imitating this union as a model as to how they would put states together. And one of the other reasons, I suppose, is that a state can't secede from the European Union. A state can't secede from the United States.

as the people of South Carolina discovered in 1961. It is possible to secede from the European Union. And if the democracies of Europe, who've now had 50 years' experience being in the European Union, if they were finding it all as burdensome as Professor Gilliam's book would have thought, you might make you think it is, to be in the European Union, you'd have expected that at least one of them would have contemplated it.

not a single European Union country has at any stage even seriously debated withdrawing from the European Union, even though they're free to do so. The European Union exists on the basis of trust. It exists on the basis of an international treaty. As we know, under the world international law, treaties can be denounced, a country can leave. Any country could leave the European Union if it wants to. Britain could have left the European Union if it wanted to, but it doesn't, and it didn't, and it won't.

Because the European Union is far too valuable to be in. Now, of course, the European Union, because people take it for granted, and because very often they don't make the right decisions at national level, whether it be in reforming their labour market or liberalising their banking sector, and there are many examples in Europe of national governments not doing their job, when the results aren't great, well, the European Union is a good example.

Because very often it doesn't answer back. But I'm glad to say as the ambassador for the European Union here in the United States, I'm more than willing to answer back on behalf of the European Union. Professor Gillingham says that the euro has reduced the annual growth rate of the European Union by a whole percentage point.

I have no idea where he gets that calculation. No source, although he quotes many sources in his book for many of his statements, and it's a very scholarly book. Interestingly, he makes no quotes, gives no source for that quote, which is wrong. The quote, it is not the case that the euro has reduced growth rates in Europe by one percentage point. Not at all.

He also says there has been no price convergence within the euro. Yes, in some of the protected sectors that's true, but there has been a tremendous degree of price convergence within the euro as far as air tickets are concerned, as far as telecommunications are concerned, as far as car prices are concerned. So where the European Union has achieved its objective of internal liberalisation, yes, there is price convergence. Where the European Union has yet to achieve its full objectives, and he's right to be critical of us for not doing all we should have done on services, perhaps we haven't yet done it.

He says, and he said it again here, that the Financial Services Action Plan has been dropped by the Barroso Commission. Well, the Financial Services Action Plan was adopted as a plan in 1999, and it contained 42 measures. I'm doubt to be able to tell you that 41 of those 42 measures are in force. That's not a bad record for a programme that's been dropped.

It hasn't, of course, been dropped. It has been implemented, apart from one or two things. We have also adopted the services directive. Professor Gillingham criticises the Common Agricultural Policy. Well, one can criticise the Common Agricultural Policy. The professor is based in Missouri, in the heart of the Corn Belt.

Well, I think you can see that the US Farm Bill isn't exactly a glowing example of free trade principles and open markets and absence of feather bedding in the world. Our common agricultural policy does have room for improvement, but so too do the agricultural policies of every developed country in the world, bar none. He says that we should abolish the regional funds.

Well, I think if we're going to take in countries to become members of the European Union, countries like Ukraine, where the average income per head is about one twentieth of the average income per head in Luxembourg, I don't think it's at all unfair. If the Luxembourgers are to be told that they can export their financial services freely to Kiev and to all the banking consumers of Ukraine,

that the Luxembourgers should pay some money through the regional funds to help build up the infrastructure of Ukraine, or of Latvia, or of Lithuania, or of Poland. I wouldn't say we should abolish the regional funds. I'd say we should increase the regional, because the regional funds represent an acceptance that the European Union is a political project, that it's trying to create allegiance towards itself so that we can make difficult sacrifices in difficult times where people can...

the short-term for the long-term good of the collective, that within that collective there should be some transfer of resources, just as there is transfer of resources within a family from those who earn money from those who don't earn money. The European Union is a family of nations, and there is nothing wrong, in my view, with transfers within the family.

We are family. Perhaps we're not as strong a family. Perhaps our family values could be improved rather a little. But we are still family within the European Union. And I think it's not at all wrong that we should have transfers. Professor Gilliam says on page 220 that the European Union will not advance unless it has a popular mandate. I could not agree more.

But I just don't understand why he wants then to abolish the European Parliament, which is a popular parliament. I would go further. I would say that not only should we keep the European Parliament, unlike Professor Gilliam's view, but we should directly elect the President of the Commission. Why? If the Chief Executive of the United States is elected by the people, pretty well directly to an electoral college, usually the elected person has a majority of the popular vote as well,

Why shouldn't the president of the European Commission be directly elected by the people of Europe? That would really make people feel that they were family in Europe. Because just as whenever there's a row in the family, everybody knows about it who's in the house, and that creates eventually when the row is settled, a sense of unity and community in the family, that we've solved that thing together. I see no reason why we shouldn't be having the same debate in a cafe in Palermo

or in a bar in Gdansk, or in a pub in Skibbereen, about the relative merits of John Gillingham or John Bruton to be President of the European Commission. Why not? I think it would be very entertaining. I think neither of us would be elected, I must admit, but I think perhaps Ségolène Royal might have a better chance with the mail vote anyway. But I think that we need to have... We need to give Europe personality.

This is a family. It needs to have personality. People need to feel more than they do, and here I agree with John. People need more than they do that they can put their hand on somebody's shoulder and say, you're going to represent me in the European Union and I want you to look after my interests. They have that feeling at the moment, at least insofar as their member of the European Parliament is concerned.

which I would prefer to keep and John would not prefer to keep, but I would keep them. And I would also say, well, we're also going to allow you to select the president of the European Commission just as the Americans select their president. The European Union is a political project. It's a political project that grew out of the ashes of the Second World War. Countries who joined the European Union in its founding years were prepared to make sacrifices so that there never would be a war again.

That willingness to make sacrifices is what has enabled us to create a single market. There would have been protectionism if there wasn't that political commitment. And the political commitment is as strong as ever. I think it's a pity that the Constitution wasn't accepted by the Dutch and the French. There are a number of good proposals in it that are not coming into effect just yet. But it's not a big deal. This is a

This is a democracy. Democracies are about arguments. They're about making mistakes and putting them right again. The European Union is a robust institution. It's an institution that will overcome gradually through the habit of talking together and ministers meeting every week, maybe more than once a week, and talking together about the same problems. That habit of coordination, that habit of conciliation, I think will enable us to

Look after our interests. And may I reassure this audience, in conclusion, that we have no ambitions in the world of becoming a supermarket. We just want to look after Europe and look after it well. I believe that's what we're doing. Thank you, Ambassador. We have much to talk about. What I want to do, for starters, is to ask John Gillingham to take three minutes or so just to respond, and then we'll go back to you, Mr. Ambassador, and then we'll open it up to questions and answers.

I'll try to be as brief as I can, even within the limits of three minutes. I think where Ambassador Bruton and I disagree most directly is on whether it's appropriate to call the European Union a democracy. I dispute that. Its institutions, although they give the appearance, have some of the trappings of a democracy, such as direct election of the Parliament, which is actually a fairly recent history.

The European Parliament lacks the sovereign powers of a parliament. It can't tax. The basic financial issues are settled between agreements between the states and negotiated between by their representatives in various UE fora. There are very grave limits to what the European Parliament can accomplish and greater questions as to what can be expected to accomplish in the future. It does not rest on trust, but on what is technically called or has been technically called

permissive consensus. That is the belief in the public that because European integration, the process is basically a good thing, something I don't certainly deny, that it should be given an opportunity to fail. This permissive consensus has been badly frayed and may not even exist. The kind of lowest common denominator of concern about the European Union is that it

be given new powers. I think that Ambassador Bruton is indisputably correct in saying that in no single nation

is there a powerful movement afoot to withdraw from the Union? And one could even extend this remark to the British Tory party, which in fact has division on the issue. And if you read the so-called Eurosceptic newsletters, blogs and press and so on and so forth, there are big issues as to where this should continue to be the case, and there are also alternative scenarios abroad in the discourse that are important.

that are being discussed as serious options of policy. The public opinion polls tell us that in spite of British Euroscepticism, a majority of the public prefers to stand pat. What majorities throughout the Union oppose is the assignment of further powers to the European Union without adequate control machinery.

So it may become a democracy, but it certainly isn't one yet. I really don't want to get into the details of the structural problems of the European Union, except to say that the notion of sovereignty...

is difficult to reconcile with the mission of the European Commission, which is to serve as the vanguard of Europe, to set the European agenda. That's what the public is supposed to do in a functional democracy. I agree that one of the problems with the union is the fact that the executive is unelected and only in a kind of remote way responsible even to the parliament. The

This perhaps in a future Europe should be different. It's going to be a long time before the necessary preliminaries reforms can be adopted that will make this desirable.

Okay. Let me point out where we strongly agree, and that is, and I appreciate the passion with which Ambassador Bruton brings to this issue, that the EU not only has a legitimate mission, it has a mission of crowning importance in doing what he said about extending the area of good government under law as broadly as possible. This is not only a matter of morality, it's a matter of common sense.

because in the long run, even for economic liberals, open markets and strong functional democracies go hand in hand. It is true that the accession process is important in and of itself. It's providing a kind of beacon of hope for countries like Turkey and Ukraine. What I sorrowfully must state, though,

is that it's going to be very difficult, not only for internal EU reasons, but for other reasons, which I can talk about, including, above all, the rise of Russian power to make all of this work. Okay.

I don't want to belabor the points on science except to say that, as in many of these cases, there are all kinds of ways to solve problems other than those that are strictly internal to the national state, and by no means are they always the worst. The EU itself recognizes the principle of subsidiarity, that is, that decisions should be taken at the lowest common denominator of political authority feasible. The problem is that this principle is not respected.

On the contrary, since its adoption, the centralization has grown apace with more pieces of legislation passed in the last ten years of EU history than in its entire previous history. So things in this respect are moving the wrong way. Okay, as far as the euro goes in the EMU,

What I say, I mean, you can hear it echoed in the financial press whenever these matters are editorialized on, you know, the beginning of the Financial Times, The Economist, and so on and so forth. All right. I'll leave it at that. One final thing I did want to say about the regional funds, because I think it's important to clear up an error that I may be responsible for, and that is the regional funds are moving in the right direction.

This essentially has been, as I say, a pork barrel and log rolling program. And to make it politically possible, there have been very complicated formulas for distributing them. But they don't by any means go to the poorest nations until next year. Most of the funds have gone to Spain, which at the time of its entrance was a poor nation and now is about average in the per capita income within the EU.

the biggest recipient will be Poland in the future, which is a powerful glue, political glue, to bond the Polish loyalty to the European Union. This is a step in the right direction. What I'm saying is that they should gradually be reduced.

and that they should be used for purposes that are specific to EU accession, rather than left kind of an open sesame in parts of the world where corruption is a very serious problem. I think I'll leave it there at that point. Ambassador, would you like a few minutes? My thesis is that the European Union is a democracy. It may not be a perfect democracy, but it is a democracy.

And let me say why. It's a democracy because all of the EU single market legislation, all the legislation governing interstate commerce in the European Union, has to be approved by two bodies. By the Council of Ministers, who are ministers representing countries, all of whom in their turn have been democratically elected in those countries. They must make the decisions. And also by the European Parliament, every one of whose members is directly elected.

So all of that legislation is democratically approved by elected people. That, I think, makes the European Union a democracy. As far as the selection of the Commission is concerned, as you know, I favour personally the direct election of the President of the Commission. But the President of the Commission, to be appointed, has to be approved by the directly elected European Parliament.

The commissioners that he appoints have to be approved by the directly elected European Parliament, and you'll be aware of the case of Rocco Bertiglione, who ran into difficulty and wasn't approved or had to withdraw because of resistance in the European Parliament. Now, one can agree or disagree with the European Parliament's position on that matter. I personally don't agree with it. But it was a democratic example of power being exercised democratically.

And I think therefore the European Union is a democracy. The Secretary General of the UN, he doesn't have to be approved by any parliament of the countries of the world, directly elected by the people of the world. The Chief Executive of the WTO, he or she doesn't have to be approved by any democratic parliament representing the peoples in the WTO who are affected by its decisions. What makes the European Union a democracy is that the President of the Commission does.

All right. Let's move to question and answers. I would like to ask you to state your name and your affiliation and please keep your questions as short as possible. I'll courtesy to others who may want to ask questions as well. First question over here. Thanks. Nigel Ashford, Institute for Humane Studies, George Mason University. Could you, Professor Gillingham, you were described as a friendly critic. Can you explain your conception of European integration?

Amazingly, most of the literature on the EU doesn't actually explain what they mean by integration. Implicit in much of that debate, discussion, is that integration means the centralization of power to the EU institutions. Is that your conception of integration, or do you have an alternative, and I hope better, understanding of what integration involves?

I'll try to be brief. You're quite right that the term is ambiguous and it's often used carelessly in two different ways, to describe an outcome or a product and to describe a process. And to complicate matters, and this is something that I try to define more carefully in not this book but in the previous one, to complicate matters is the fact that you have 25 different national perspectives. So European integration means something different in every country. In Germany, to take one extreme, it's considered basically a political process.

In other places, in the U.K., its economic, let us say, side is much more pronounced. In order to tell you how I think it should be defined, I have to use some slightly technical words. The process is also mutable. It's changed over time.

I describe it as the outcome of two different principles of organization, the state and the market, whose relationship varies from time to time, has varied from time to time over a 50-year period, and

This competition takes place at three levels. I call it a three-level interdependence game, and I've alluded to part of this issue. It's due partly to developments at the level of EU institutions, partly to internal developments within the European countries, and partly to global change. And what it is at any given time

depends on when you look at it historically. And it's very difficult to disentangle, if you want, the prescriptive from the actual...

One really doesn't know. It's a moving target that one has to try to hit. And I don't mean to be too wordy. But in a sense, an exercise like this, which I enjoy and for which I want to thank my co-partner in crime over here, Mr. Bruton, is essential to the development of the European Union, exchanging ideas and to come up to some better definition of what this thing is actually about. So that's, I think, an elaborate way of saying that your question is about the most germane one one could ask, and it's also the most difficult.

Wayne Murray. Wayne Murray, the American Foreign Policy Council. A question for Ambassador Bruton. The EU Association Agreement with Russia expires next year, and some of the initial proposals for its renewal from the western, older states, particularly Germany, are encountering some adverse reaction from some of the newer states, particularly Poland.

And given the centrality of energy and the almost certainty that the EU energy convention, which has not been ratified now for 12 years and the Duma never will be, what do you see are the likely parameters of a future EU association agreement with Russia, which has changed so much politically, culturally and economically since the last association agreement was formulated?

I think part of the problem that we're facing here is that the European Union doesn't have an internal energy policy. The European Union has 25 different energy markets. Even though we have the principle of having open markets in most sectors, we haven't managed that in energy yet. And we have then individual countries such as Germany...

through their entities doing business with individual Russian suppliers of energy and arranging to bypass other places in between Russia and Germany in the matter of pipelines and so on. And that has created a measure of distrust and concern in other countries that are also depending on Russian energy and the fear that European Union countries may be affected

acting to the disadvantage of one another in their dealings with Russia rather than acting collectively. So I see this difference that's growing about the renewal of the agreement as a symptom of a wider debate within the European Union about energy policy.

I hope we can manage to create a common energy policy, but prices diverge enormously, both as far as electricity and gas is concerned within the European Union. And in a common policy, some countries would probably find that they would be paying a lot more than they're paying at the moment for their energy if that energy could be sold freely into a neighbouring country where the price is much higher.

So it's not going to be an easy negotiation. But this is the sort of thing that we specialize in dealing with in the European Union. We very often don't come up with clear and simple answers. We come up with partial answers and we sort of move forward crab-like, but we eventually do get there. May I add just a note to this? It is possible.

that the increasing dependence of Western Europe on Russian and Russian-controlled sources of gas and, secondly, petroleum could provide one of these exogenous shocks that leads to a new level of organization. One can't draw much hope from that about that possibility from the...

the crisis that unfolded in January. But I think it should be added that this was the first shot. And as Ambassador Bruton quite correctly points out, it was something unanticipated. Basically, energy policy up to that point meant what we would call antitrust policy or competition policy on the one hand and meeting the Kyoto Protocols on the other. And little thought had been given to this immense potential threat of dependence upon Soviet sources of gas. But I

I for one hope that this can serve as a kind of galvanizing event that stimulates a kind of cooperation that really is in the collective interest of Europe. Do we have any other questions? I'm Bob Goulder. I'm a tax attorney.

There's some successful countries in Europe that don't seem interested in joining the European Union, namely Norway and Switzerland. They both, I think last time I checked, had a very high per capita GDP. I was just wondering the panelists' comments on why they don't seem interested in joining the club. Well, Norway did apply to join, and its government and its political parties wanted most of them to join. But there was a referendum yesterday,

and the majority of people voted against joining at that time, partly, I suppose, because they had very substantial oil and gas reserves and felt that perhaps they could live on their own more easily than countries that didn't have those substantial oil and gas reserves.

In the case of Switzerland, I hesitate now to speak about individual countries, but I think it may be somewhat to do with the particular internal constitutional structure that they have in Switzerland. Switzerland requires for major decisions, not only for...

Thank you very much.

the women the right to vote, which they didn't get until quite late, or to join an international institution such as the United Nations, which they didn't do for years and years and years, and eventually to join the European Union, which they may well do at some stage in the future, but because of their highly democratic system, they find it quite difficult to make decisions. They don't enjoy majority voting internally in Switzerland in the way that we enjoy it internally in the European Union.

Yes, I would generally agree that great wealth creates all kinds of possibilities, and that the EU doesn't have a great deal to offer these very privileged countries. There's a special problem in the case of Norway, and that's fisheries. I mean, the history of Norway is so closely associated with fishing and shipping that they're reluctant to...

to relinquish that power to any common authority. And that's a special electoral problem. I would point out, though, two things. And that is that these countries enjoy the economic benefits of a close affiliation with the European Union and pay for it. Norway ties itself for, in effect, the benefits that it has agreed by treaty with

that it derives from being treated as if it were inside the common customs area. I find this a very intelligent solution. I don't see it as a crisis or an emergency. It works, and it works for both sides. And therefore, once again, I think there's a consensus of agreement in Norway that this is the way to go. I would say, too, that when you take a look at the European Union, one of the kind of complicating factors is that you have sort of different –

if you want, circles of membership. And there are members of the Union which are not members of the Eurozone, Britain, Denmark, and Sweden. This too works. I think it introduces a desirable element of flexibility into the overall relationships of the Union, and it should be encouraged.

Just to add, of course, what Professor Gillingham says is absolutely right about Switzerland and Norway paying towards some of our regional and foreign aid work in return for getting access to our markets. But they don't have any say in the rules governing those markets.

whereas individual EU member states do through their representation in the European Parliament and their representation in the Council of Ministers. There's no Norwegian or Swiss person sitting in either of those institutions to defend their interests when decisions affecting them are made. Well, you know, the problem there is that – and it is a real problem –

As the membership grows, small countries' representation diminishes, and that argument for representation becomes harder and harder to make. I think myself that small countries do very well out of the European Union, and I think that they get disproportionate voice and vote within the European Union, to be honest. I think small countries have been very well treated by the big countries, particularly by Germany.

has been very generous. Much to the happiness of the German taxpayer, I'm sure. No, the intelligent self-interest of Germans. Germany realised, after having been involved in the commencement of three major European wars, that it needed to realise its dignity as a nation and to realise its identity and to develop itself in a context which would not put it in conflict with its neighbours.

So Germany has been one of the most remarkable examples in my view of self-knowledge and wisdom anchored itself and anchored German democracy in a European Union which enabled Germany to realize its own goals in a manner that was consistent with the goals and interests of its neighbors.

I don't think there would have been a European Union anywhere like as successful as the one that it has been were it not for Germany and for the particular historical circumstances that led to that remarkable generosity on behalf of German democracy. With that, I would like to invite you upstairs for sandwiches and I would like to thank our speakers and also to you for coming to the Cato Institute today. Thank you. Thank you.