Current challenges for the European Union

Speech by Timmermans made to students at Yale University

First of all, it is essential to understand that the EU is a different institution from what it was 15 or 20 years ago. The assumption was that when the Berlin Wall came down, the newly free countries of Europe would develop along the lines of the ‘old’ EU countries and that enlarging the Union would entail nothing more than inviting in countries that were essentially like France, Belgium, the Netherlands or Italy. What we failed to anticipate was that enlarging the EU changed both East and West. Indeed, many of the issues and problems we’re facing now in the old member states are about coming to terms with this fact.

Secondly, it was initially assumed that the new member states of the EU would more or less adopt the Anglo-Saxon economic model: a free, highly competitive market with limited social protection. Interestingly, almost all these countries, with the possible exception of the Baltic States, have developed much more along the lines of the old member states of the EU. We are seeing a convergence of economic, social and political models on a European scale. At the same time, though, societies are facing huge challenges. The biggest of these is demographics. This is especially the case in Western Europe, whose societies are ageing rapidly. Typically, societies with a high average age are less optimistic and less dynamic. These countries are having great difficulty reforming their societies and their economies to meet the challenges of today. The countries that most need reform are unwilling to take the necessary steps. France, in particular, is struggling at the moment, and Italy is a very sorry case for various reasons, both economically and politically. Italians are disenchanted with their government because it hasn’t done what it promised, but I’m not sure people see an alternative. There is widespread apathy in one of the most important countries in Europe.

One thing that really creates a problem for us as Europeans on the path to reform is the declining faith in progress. Many average Europeans believe that they and their children will be worse off in the future than they are today. Just imagine the psychological impact of this kind of thinking on a mass scale. The thought that you have very little to gain and everything to lose makes you extremely conservative. This is the sad reality in many European countries, and we urgently need to cultivate more optimism.

At the same time the dynamism of Europe is incredible. We have 500 million people living in one space, one common economic space, which is increasingly also a common monetary space. Within this space, we enjoy a very high level of consumer protection, a very high level of product safety, a very high level of food safety, etc. Years ago, people were saying that with that degree of regulation, we would not be able to compete with the rest of the world. But the opposite has proved to be true: the rest of the world needs to adapt to European standards. The American economy and American companies are adapting to higher standards, which are European standards. It makes sense: Europe is the biggest market, and if you can meet those standards, other markets in the world will usually also be open to your product. There is a comparative advantage in having the toughest market regulations, because they help enterprises adapt earlier and enable them to operate in several markets. So in that sense the doomsday scenarios we were hearing in the eighties and nineties about European regulation haven’t come true – quite the contrary.

Secondly, European conservatives on the right and on the left have argued for many years that the common market and the European Union are bad because they cause jobs to disappear to other countries. Even in the last 15 or 20 years we’ve actually seen a huge increase in jobs. There is an Italian economist who’s done some great work on this. Professor Boeri works in Milan, and if you’re interested in this subject you should read his work. The increase in jobs is not perceived as a good thing by many Europeans. Why? Because it was created on the basis of an increase in insecurity. The average worker feels he doesn’t have the same job security he had before. The fact that it is now much easier for the unemployed to get a job is not seen as a benefit. The only ones who seem to escape this pattern are the Scandinavians, especially Denmark and Sweden. There, people see the ability to switch jobs very quickly as a step forward. Then again, these countries have comprehensive welfare protection that requires specific social structure and broad acceptance of a very high tax burden. In most societies, even my own, a level of 70% taxation is unacceptable. So there is always a trade-off between social consensus and economic necessities.

Another economic problem we’re facing is that organised defenders of workers’ rights, mostly trade unions, increasingly tend to represent the insiders. Yet more flexibility on the job market means a greater number of outsiders, who do not depend on a fixed job or on the protection of a company or a trade union. As they become less representative, trade unions tend to focus on those who are already on the inside, to the detriment of the women and young people who want to become part of the system. These are some of the economic challenges we are facing.

Why am I optimistic? The world is undergoing huge economic changes. Of course, we in the West have to get used to being a minority in the world. More than six billion other people want a share of the wealth as well. The good news is they want to do this in cooperation with us; they don’t want to “bury us”, to quote Khrushchev. They want to be part of that world, and this is a great opportunity. Yet at the same time it also means a different balance of power. From now on, our values will have to fight for themselves in the global arena. We can no longer impose them on account of our economic dominance. If they are to be adopted, our values will have to be in the interest of different societies, which is a huge challenge to our international political system. This challenge demands stronger ties between the United States and Europe than is now the case.

One major change we have to contend with is high energy prices. We’d better get used to the levels we’re seeing now; they are not going to get much lower. And I don’t think that’s such a bad thing either. Energy prices have been too low for decades. High energy prices will help us adapt to a situation that is inevitable anyway, and they will re-regionalise parts of the world economy. As things now stand, we’re burdening the Earth by sending products back and forth all over the place when we could just as well manufacture them in our own neighbourhood. More regionalisation would be good for employment, good for the environment and good for our economic development. Energy has become a factor in the equation, and for the future of our planet, this is unquestionably a good thing. This puts Europe in a unique position. We have 500 million consumers, the highest average income in the world, and strong physical and intellectual infrastructure. The only thing we need to do is take care of our neighbourhood, and we are not doing this.

This has been a long-winded way of getting to the subject of Russia. But there are some issues we need to address as Europeans, and we are not doing enough as it is. We need to look at what Russia’s position is in Europe, and how we relate to that. We need to take a greater responsibility for developments in the Black Sea region and the Caucasus. We need to take greater responsibility for developments in the Maghreb and the Middle East. If Europe is able to provide a high level of development and security in those places, we will be in a unique position to profit from worldwide developments in the next century. But that’s a big ‘if’. Sometimes I wonder if we have enough political will to understand this problem and face it head on. We were all surprised in August by what happened in Georgia. I feel strongly that we need to have an investigation into how this conflict started. With all our historic baggage, we tend to jump to conclusions. Many in the West have portrayed the conflict as the big bad Russian bear lashing out at little, poor, independent Georgia. I think there is more to the story than that.

At the same time we need to look at the long term repercussions of what has happened. But one thing is for sure; Russia is not going anywhere. Perhaps from an American perspective, it pays to rekindle the sentiments of the Cold War and stoke popular fears, especially during an election year. But in Europe we see things differently. After all, we share a continent with this nation.

I lived in Russia in the years when the country was, to be frank, dirt poor. At the time the country was burdened by a huge sense of humiliation that we tend to underestimate. We never intended to humiliate them, but that’s how many people felt. And now they’re rich again, and they see that the rest of the world needs their energy. They see that people are listening to them again, and Russia wants to be heard. The fundamental mistake we’ve made – Americans and Europeans alike – in 15 or 20 years of dealing with Russia is being strong in language, soft on content. This is the wrong way round, in my analysis. Give them the respect they deserve as a great nation, but be very tough in the content of your message and the aims you want to achieve. That’s what they respect; that’s what they understand. But that’s not what we have been doing as Europeans and Americans over the last 20 years. We need to be very clear with Russia: on respecting international borders and on allowing countries to make a choice about their own future. We want to be partners, especially in the area of energy, though we tend to overestimate their capacities to control what we need. They are lagging behind in terms of investing in energy exploration. They urgently need to work with the West in order to find and develop new fields. If they don’t start making massive investments in the next couple of years, they will not be able to meet their contractual obligations with regard to delivery. They have always been very reliable suppliers, but if they can’t deliver, their clients will start looking for alternative sources, and that is going to hurt. Our relationship with Russia is by no means a one-way street; it is very much marked by interdependence. And I think we Europeans are not doing enough to work on that.

Now, that’s all very easy for me to say as a Dutchman. But what of the people of the Baltic States, who lived under Soviet oppression and suffered so greatly from the effects of social engineering and ethnic cleansing? Russia’s incursion into Georgia is seen as an existential threat. This is something we need to deal with as Europeans. Our Baltic friends and our Polish friends need to understand that while we take their security very seriously, we cannot be hostage to their ghosts in the future. And this is also a challenging issue for the EU. How do you convince the Baltic States and the Poles to look past NATO and realise that the EU is where their future lies. We are certainly not in competition with NATO, but if the Georgia conflict tells us one thing, it is that the economy is also extremely important in security matters. Look what has happened to the Russian stock market and Russian capital. Look what happened to Georgia economically. Millions of people were affected from one moment to the next, as economic actors fled the conflict zone.

We should also look at the Mediterranean, which is the other big challenge for the EU, alongside the East. In the EU those countries that border the Mediterranean tend to say we need to do more in the Mediterranean. While those countries on the eastern border say we need to concentrate on the Eastern challenges. A few countries – mine among them – have to contend with both challenges. Many people from Mediterranean countries now live in the Netherlands. We also have huge interests in the Mediterranean in terms of export, energy and strategic considerations.

So if we take care of our neighbours to the east but neglect the Mediterranean, we are in trouble. First and foremost, we need to make sure that Turkish accession to the EU will be a success. Securing public approval for a move of this magnitude will be a major challenge. Enlargement is not popular in most member states. It is very easy for us to argue that the macroeconomic successes have been huge, but macroeconomic successes don’t mean much to the man in the street. To the average Dutchman, a Polish truck driver is perceived as a threat: the Pole must have taken the job away from a Dutch truck driver. The reality is that we’re actually struggling to fill all the truck driving vacancies in the Netherlands. We have an overstretched labour market, but in the public imagination, newcomers are taking away jobs and fuelling insecurity. People love to blame others for their problems, and who are the easiest targets? Immigrants, of course. Look at what’s happening in Italy on this front. I think it’s shameful the way certain minorities are being treated there on the basis of these sentiments.

We have a great responsibility in the Mediterranean, which starts with Turkey. As I said, it’s going to be difficult to convince the public of the necessity of Turkish accession, but it is of such strategic interest that we need to try. First, we crossed the Rhine, in the late forties and early fifties, and then we bridged the Oder-Neisse boundary into Eastern Europe. Now we need to cross the Bosporus. This will also be a powerful signal to the Islamic world: a Muslim country that is a fully fledged democracy with a market economy, where people enjoy freedom of movement and action. That would be proof that being a Muslim does not mean living in a repressive dictatorship. Integrating Turkey into the EU is also necessary to build a bridge to the wider Middle East.

We need to face facts. The US is the main player in the Middle East peace process, but it can’t do everything on its own. The next administration will have to come to terms with the fact that this is not a unipolar world any more. It needs to work with its friends if a solution is to be found. I’m sure that Europe will want to take greater responsibility in this regard as well.

This brings me to the issue of climate change. In the European Council in December, we will have to take very tough decisions on our efforts to curb climate change. We need to talk about reducing CO2 emissions; we need to talk about the emission trading system; we need to talk about alternative sources of energy; we need to talk about the European energy policy. In an economic downturn, people instinctively want to slam on the brakes. But along with France, the UK, Sweden and some other member states, the Netherlands is fighting to maintain our highly ambitious goals. If Europe doesn’t stick to its guns now, it will be nearly impossible to reach an agreement at the 2009 Climate Summit in Copenhagen. We will now have to try and reach agreement on the concrete measures that need to be taken by each country if we are to achieve the goals we set in March of last year.

Are we going to get there? I’m afraid we’ll need to change a couple of things here and there in the system, but on the whole, I still believe there is an equilibrium between the measures so that everybody gets hurt equally. That’s the European way. Everybody is equally unhappy, that’s the best basis for agreement at European level. We need to do this so we can say to our partners, ‘Let’s conclude an ambitious global agreement by 2009.’ If Europe is ready to make a strong commitment by the end of the year, the next administration in Washington cannot drag its feet in setting its own goal for climate policy. All the people I’ve been talking to, whether Republican or Democrat, insist that the new president will take a very different view on climate change than the present administration. Europe needs to be ready to take up this challenge and to lead the way.

In conclusion, I’d like to return to the issue of our societies. Politicians in Europe have discovered that if you want to get elected, the best way of doing to is by exploiting the fears of the electorate. We have also seen these tactics many times throughout European history. If you look at the polls in my own country, the popular parties are those parties who exploit the fear of difference, the fear of minorities, the fear of Islam, the fear of newcomers. You see this throughout the continent and across the political spectrum. There are new conservative left-wing parties in my country, in Germany, elsewhere in Europe. In Italy, the obsession is the fear of Roma. In Austria, it is the fear of newcomers – Bulgarians, Romanians and Turks. In France, it’s the fear of the Polish plumber and the fear of globalisation. In Germany, it’s the fear of the loss of jobs. Exploiting fear is so seductive and so effective. Yet it’s also highly destructive. The only way we can overcome this is for the political classes to rediscover their responsibility and articulate a tough message that highlights Europe’s great potential rather than its problems.

This problem of fear-mongering is compounded by the changing base of traditional political parties in many European countries. In the past there were three countries in Europe – two in the West and one behind the Iron Curtain – which had strong communist parties with substantial public support: Italy, France and Russia. Of course, in Russia the state and the party coincided. Nevertheless, the Communist Party of the Soviet Union had significant popular support. The French and Italian communist parties had very strong roots in society. That is a thing of the past. Yet isn’t it interesting to see that all three countries are led by men who created their own political parties as instruments for their personal electoral campaigns? They did not join an existing party and work their way up the ranks. No, they created parties that would serve as marketing tools, instruments for winning elections. They change the names of the parties. They change the membership. Often they don’t even have any members. People vote for these charismatic leaders, who don’t represent any particular segment of society.

The political process has become disconnected from society. You don’t need to have strong grassroots support anymore. I think this is one of the biggest challenges we face. The political structures we have in Europe are in danger of being hijacked by highly ambitious people who don’t always have the best of intentions.

As long as we recognise this and work on this, I’m sure we can solve the problem. But make no mistake about it. I am optimistic about Europe’s opportunities. I am not blind to its challenges, but I think that if we tackle the issues I’ve been discussing, we have a wonderful century ahead of us in cooperation with our American friends.