SPEECH/98/171

The Rt Hon Sir Leon Brittan QC

Vice-President of the European Commission

The EU : Preparing for the 21st Century

Tenth Jean Monnet Memorial Lecture

London, 17 September 1998

Jean Monnet once memorably declared « Je ne suis ni optimiste, ni pessimiste, je suis déterminé ». Let me declare right away that I suffer from a surfeit of optimism. And when optimists make predictions about the future, it is perhaps wise to throw in a healthy pinch of salt. So you are warned, since I hope to set out this evening not only what I consider to have been the main developments in the EU during the last decade but also what I consider will be the main trends in the European Union as it enters into the next century. I will make efforts to restrain my optimism and base my comments on a pragmatic and realistic assessment of both what is possible and desirable in the European Union of the future.

Some of you may be aware that the European Business School asked me to deliver the first Jean Monnet Lecture in March 1989. I am deeply honoured to be invited to return to deliver this, the tenth Jean Monnet lecture. In my first lecture, I promoted the case for internal liberalisation and deregulation in the EU, by way of the full implementation of the Single Market Programme, and for further external liberalisation by way of a full commitment to the multilateral world trading system.

It is perhaps instructive to assess whether this promise of dynamism and economic liberalisation which I felt was within our grasp ten years ago has in fact been translated into reality.

It is, in my view, beyond any reasonable doubt that the European Union of 1998 is more dynamic, more outward looking, less hidebound by outdated economic practices and more liberal in instinct and reflex than the European Union of 1989.

The Single Market, which has now become an almost pedestrian fact of life, was painstakingly brought into existence on January 1st 1993 by virtue of an unprecedented bonfire of national regulations and obstacles to trade. Whilst much was made in the UK tabloid press about some of the isolated legislative excesses, it is as well to remember what an extraordinarily ambitious undertaking it was to draft, discuss and adopt the myriad of new laws which were necessary to safeguard the free movement of capital, goods and services which lies at the heart of the whole unifying project.

The precise economic benefits of the Single Market are difficult to estimate, and the calculations that are made often underestimate the true gains because they exclude the indirect gains which accrue from a vast market of 370 million consumers subject to a new spur of competition. But the political effects of the Single Market are perhaps easier to identify. Whilst ten years ago it was still possible, if a little eccentric, to argue in favour of heavy state control of the economy, the Single Market has simply made that impossible. Apart from all else, there has never been a Single Government with the power to exercise a unified state control over a unified Single Market of Europe. But even more important than that, the process of dismantling national controls created an atmosphere wholly inimical to the creation of a new layer of Government control at European level. In all countries of the European Union it is now accepted that in order to meet the competitive challenges of the internal market, the dead hand of state ownership should be reduced and industries obliged to undergo the sometimes painful process of restructuring and regeneration. The EU's disciplines in competition and state aids policy have ensured that the drug of public subsidy has been massively reduced compared to a decade ago.

Thus, Governments of all political complexions in Europe now broadly accept the tenets of deregulation, fiscal rectitude and private entrepreneurship. There is an emerging consensus today that the role of the state in managing an economy is less to do with ownership and dirigiste direction and more to do with maintaining the necessary physical, educational and regulatory infrastructure in which market economies can thrive. Is it too fanciful to suggest that this consensus would not have taken root in Europe without the experience of the Single Market ? I think not.

As far as external liberalisation is concerned, the record of the last decade is equally striking. In late 1993, after nearly a decade of gruelling international trade negotiations, the so called Uruguay Round was finally brought to a successful conclusion. For the first time, binding international trade rules were extended to cover agriculture, services, intellectual property and other areas traditionally excluded from multilateral trade disciplines. A new institution, the World Trade Organisation, was established to help police the new international trade regime, empowered to adjudicate on disputes and impose binding rulings on any member of the WTO held to have contravened its disciplines. Furthermore, remaining industrial tariffs were dramatically slashed to the very low international levels which we see today.

In short, the climate in which international trade, business and commerce operates has been transformed from a situation where much economic activity escaped multilateral disciplines and in which the institutions designed to oversee the respect for such disciplines were largely toothless to a situation where most international economic activity is now subject to agreed rules enforced by a new body with real teeth. This has provided an invaluable boost to the cause of open trade and economic liberalisation around the world. Nothing demonstrates more clearly the sea-change in attitudes than the way in which, so far at least, there has been no significant move towards greater protectionism in the world trading system in the face of the dramatic financial turmoil in Asia, Russia and Latin America. It would be a historical breakthrough indeed if the traditional retreat into protectionism in response to economic turbulence, seen most dramatically in Europe in the 1930s, should become a thing of the past.

And I believe it is no exaggeration to say that over the last decade it is Europe that has taken the pioneering role in building the new international trade regime. Even the sternest critics of the European Union no longer suggest that there is a « fortress Europe » cowering behind impenetrable trade defences. It was the EU which pushed hardest for the creation of the WTO, in the last two years it was the EU which took a lead in negotiating ground-breaking new international trade deals in financial services, telecommunications and information technology, and it is now the EU which is pushing hardest for a new round of multilateral trade negotiations, commonly known as the Millennium Round. A new round of trade talks would not only be able to polish off the important outstanding business left over from the Uruguay Round and advance further down the classic road of trade liberalisation. It would also enable members of the WTO to consider how to incorporate new key issues such as environmental protection, labour standards, transparency, competition policy and investment into the multilateral trading system.

There will, needless to say, be heated discussion about areas such as agriculture where the EU stands accused of not opening our market far and fast enough. But the general trend towards increased market openness and enhanced international trade liberalisation is clear.

Moreover, even in agriculture, the 1992 MacSharry reforms of the CAP represented a major step towards the reduction of support which was reinforced by the agricultural component in the Uruguay Round.

In short, the hopes for greater internal and external economic dynamism for Europe held out in the late 1980s have been met with greater success than was anticipated by the cynics and the pessimists alike.

The balance-sheet on the political development of the EU over the last decade is harder to assess. The result of the Danish referendum on the Maastricht Treaty on June 2nd 1992 sent shock-waves through the capitals of Europe that are still reverberating today. The Danish vote against the draft Treaty was a much needed wake-up call for a European political establishment that had become too complacent in assuming unquestioned popular support for each new European project, each new revised European Treaty.

It is now, I hope, clear to all observers of the EU that the high water mark of federalist, unifying aspirations has passed. The Amsterdam Treaty, a painfully negotiated successor to the Maastricht Treaty agreed in June 1997, was the clearest reflection of the shift in attitudes. Originally billed as the vehicle by which «political union » would be created to provide a counter-weight to Economic and Monetary Union, it resulted in a far more modest outcome than many of its federal minded sponsors had hoped. Whilst it instituted many overdue reforms, notably by strengthening co-operation in the fight against international crime and strengthening the EU's environmental policy, it did not lead to a dramatic relocation of decision-making authority from Member States to the European Union. Indeed, it was Chancellor's Kohl's wish to insulate the prerogatives and powers of Germany's Länder which led to a particularly cautious approach to further EU integration.

So much for developments in the past decade. What, then of the future? What can we reasonably expect and hope to see?

The caution about further political integration in the EU shown in the negotiation of the Amsterdam Treaty has one important consequence for the future : any changes to the European Union institutions will, in future, be driven by the practical exigencies of events, notably the need to modernise decision-making procedures as the EU enlarges to the East, rather than being driven by a quasi-ideological belief in the merits of political and institutional integration in its own right.

This is not to suggest that integration in the EU will not go further. It seems to me self-evident that as Economic and Monetary Union takes off and as the effect of the Single Market on national economic life deepens, there will be a natural tendency for EU economies to converge and become ever more intertwined. But this is largely an organic process operating as a direct consequence of decisions that have already been taken. I strongly doubt that there is either the need or demand in the years to come for new, major initiatives in this area on the scale of the Single Market and EMU.

More generally, it has been customary to talk of the future of the European Union in a vague but deterministic fashion. As Churchill famously declared in 1947 «Far off, on the skyline, we can see the peaks of the Delectable Mountains. But we cannot tell what lies between us and them. We know where we want to go, but we cannot foresee all the stages of the journey, nor can we plan our marches as in a military operation ».

In other words, forward we must go even if we do not know our final destination. This is more prosaically expressed in the familiar bicycle analogy : it must keep moving otherwise it will fall. But I believe, as I have often said before, that there is nothing inevitable about history. Indeed, this assumption can be dangerous. A bicycle that never stops eventually runs into a brick wall.

Thus, I see no virtue in calling for dramatic new steps forward in the development of the European Union for their own sake. As I have already suggested, the future of the European Union lies as much in making the far reaching changes necessary to accommodate major developments such as EMU and enlargement as in launching dramatic new steps in uncharted and unpredictable directions.

First and foremost, Economic and Monetary Union will have a number of consequences that are perhaps not clearly understood today. As so much political capital has been consumed in recent years to ensure that the Euro is successfully launched, it is perhaps inevitable that less attention has been given to the efforts to ensure that it becomes sustainable. The monetary discipline imposed by EMU and the requirement to respect stringent budgetary disciplines will inevitably mean that the European economy, and particularly labour markets, must become more flexible to adapt to changing circumstances. The merits of flexible labour markets was understood and acted upon in the early 1980s in the UK. It is now steadily if fitfully being understood and acted upon elsewhere in Europe, and the introduction of the Euro will be a powerful boost to ensure rapid movement in that direction. Indeed, it has always struck me as a particular irony in the shrill European debate in the Conservative Party that those who oppose the EU and all its works often overlook that it is by way of the EU, and particularly because of EMU, that other countries are following economic policies pioneered by Conservative Governments throughout the 1980s.

It is sometimes assumed that EMU will also inevitably lead to a far greater degree of harmonisation in tax and fiscal matters and that dramatic new mechanisms will need to be invented to redistribute fiscal resources from richer regions to poorer regions. It is often assumed that since there is less labour mobility in Europe than in the United States, the EU will inevitably have to redistribute fiscal resources to a far greater degree to accommodate the uneven effects of EMU.

I do not believe these predictions will be borne out. First of all, it is highly unlikely that there will be sufficient political support to demand such dramatic changes. Whilst there is a reasonable expectation that certain tax loopholes will need to be closed and that the existing resources dedicated to underprivileged regions will need to be continued, if in a more efficient and streamlined form, this does not amount to a call for a wholesale reinvention of the resources available to the EU or the powers of the EU to determine national tax regimes.

It should not be forgotten that the provisions of the existing treaties specify that any decisions taken concerning important taxation issues can only be adopted by unanimity. Also, it should not be overlooked that whilst EMU and the flanking Stability Pact imposes the obligation on Member States to maintain a high degree of fiscal rectitude, it does not stop national Governments from high spending programmes, as long as they are covered by a matching increase in taxation revenues.

Thus EMU allows Governments to spend high and tax high, or spend low and tax low. The constraint is simply that unsustainable deficits will not be allowed to develop. In these circumstances, it is misplaced to suggest that the responsibilities in fiscal policy in the EU are going to change as dramatically as is sometimes assumed.

Economic and Monetary Union will also, of course, entail external consequences which are similarly often overlooked today. The ongoing crisis in the financial markets of Asia, Russia and Latin America has dramatically illustrated how dependent the current international monetary environment is on the decisions and actions taken in Washington. The advent of a credible Euro should go some way to providing a more balanced picture in which the EU, and not only the US, will share the responsibility to decide what interventions in the international money markets are justified to provide international macroeconomic stability. I should stress that I do not share the view that the mere fact that the Euro may come to rival the US Dollar as an international reserve currency should be solely a source of pride. Performing the role of an international reserve currency carries burdens and responsibilities as well as privileges. It is right that Europe should assume these burdens and responsibilities, but it would smack of short-sighted machismo to pursue them deliberately merely to place the Euro on the same footing as the US Dollar.

The second major factor which will shape the European Union will, of course, be enlargement to include the countries of Central and Eastern Europe. It is often misleadingly assumed that enlargement only takes place on the day on which full accession for the candidate countries takes place. In reality, it is a more gradual process which has already been underway for many years. The plethora of new commercial, political, institutional, cultural and social ties which have been built up between the EU and Central and Eastern Europe since the fall of the Berlin Wall is a great manifestation of the energy which has gone into bridging the gap that existed for so long. The final entry of the candidate countries into the EU will be the culmination of this process as much as a beginning of a new relationship.

The main operational consequences of enlargement are fairly self-evident and familiar: decision-making procedures in the Council of Ministers, the Commission and the Parliament will be subject to a major overhaul in order to accommodate new members and ensure that decision-making gridlock is avoided. Enlargement will be the spur leading to changes which will make the EU institutions more streamlined and more efficient. The Common Agricultural Policy and other big spending policies will need to be revised to ensure that enlargement is both affordable and does not disrupt the continued flow of EU assistance to those regions with legitimate claims on such resources.

But the biggest change, and perhaps the change for which there has been the least preparation, is a wider political one: the assumption of leadership in the EU in a dramatically altered European context bereft of its traditional ideological and geographical frontiers after the collapse of the Cold War. Whilst so much work has been done to build existing links with the former satellite countries of the former Soviet Union, whilst so much rhetoric is expended on extolling the virtues of a new, wider Europe, for there to be a rapid and meaningful expansion of the EU it will be necessary to change the deep-seated attitude in parts of Western Europe which still perceives enlargement as a difficult obligation which must be met but at minimal cost to our own electorates.

In other words, for enlargement not only to take place as quickly and smoothly as possible, but also for enlargement to become more readily acceptable to Western European electorates, there is a need for EU politicians to explain the fundamental purpose of enlargement and the unavoidable obligation on us to overcome the Cold War trauma that divided our continent. The European Union developed from its origins in the mid 1950s in large part in response to the wider ideological conflict of the Cold War. In some ways, the EU was Europe's non-military response to Soviet Communism. That vocation is ingrained in its basic tenets of economic and political liberalism. Now, however, politicians must urgently be making the positive case for enlargement so that a renewed sense of popular enthusiasm, aimed at constructing a wider post Cold War European order, is generated. I am sure we will rise to this challenge. But to do so we have to fight creeping indifference and caution as the practical difficulties of enlargement become more pressing. If this were to lead to a lengthy deferral of enlargement, the EU would be ducking its greatest historical challenge. It must not do so.

I am confident, then, that Economic and Monetary Union will lead to greater internal dynamism and greater external responsibility for the European Union. I also hope that the groundwork already achieved towards enlargement will be maintained and pushed forward with greater political vigour. The countries of Central and Eastern Europe will bring a fresh, even raw, energy to the European Union which will help reinforce the tendency towards economic dynamism and liberalism that we have seen during the last decade.

Let me signal other areas which, whilst they are unlikely to bring about the structural changes resulting from EMU and enlargement, will nevertheless help shape the EU of the future.

First, the reform of the high-spending EU policies such as the Common Agricultural Policy and the Structural Funds will have a permanent and important effect. The changes presently proposed by the European Commission under the so called Agenda 2000 package will be adopted, in what I hope will not be too diluted a form, during the course of the next year. Many people, not least in the UK, will claim that the changes do not go far enough. But the important point is that the genie of reform will finally have escaped. Combined with the added pressures of budgetary discipline, enlargement and new international trade talks, the reforms will prove to be a first step towards a more rational and efficient use of EU public resources rather than a final settlement.

Second, transatlantic relations will continue to be the lynch-pin of the EU's international orientation. There has traditionally been a fairly marked distinction between those Member States who consider themselves Atlantacists and those who regard the EU as a buttress or even shield against American hegemonic power. De Gaulle's famous rejection of the UK's early bid for membership was perhaps the most telling expression of this difference. These differences have, however, significantly subsided in recent years. Perhaps paradoxically, the removal of the Cold War backcloth has exposed the value of fundamental transatlantic similarities rather than exacerbated the differences. Our common geostrategic interests will continue to unite both sides in a myriad of different ways. The fact that the European Commission has recently proposed an ambitious programme for the negotiation of a vast array of agreements with the US to reduce and, where possible, dismantle existing obstacles to trade between the two sides is a powerful pointer towards the future.

Third, I have already referred to the institutional changes we can expect to increase the effectiveness of the decision-making process ahead of enlargement. Those changes must also instil a greater sense of accountability and transparency in EU political debate. As Monnet declared "nous ne coalisons pas des Etats, nous unissons des hommes". The Danish referendum, as I have already indicated, signalled the end of the Europe of the elites. Now we are faced with the challenge of opening up the EU, not just symbolically, but in a manner which over time will help address the justified, if often exaggerated, perception that power in the EU is wielded unaccountably and decisions are taken without much transparency.

I do not intend to enter into the endless debates about which institutional model would be best to meet such a challenge. But I would like to stress two things: first, if national electorates are to feel more fully implicated in the EU decision making process it is necessary to incorporate national MPs more fully into the work of the EU. At present, there is a vicious circle in which national Governments negotiate in Brussels in a manner not wholly accountable to their own parliaments, national MPs consequently feel alienated from the process and thus feed the sceptical prejudices of both the media and the electorate at large. For this reason, I have long advocated a forum in which national MPs from all EU Member States could gather to examine EU legislation and exercise a degree of control over the Council of Ministers. Whilst the details would have to be worked out, such a forum would go a long way to bridging the gap that exists between EU level politics and discussion, and national political culture.

Second, the European Parliament is the only viable institution which can exert any form of accountability over the European Commission, an institution which has long been an extremely powerful motor for European integration. It is fashionable these days in many capitals in the EU to think that the Commission can be reduced to a kind of executive secretariat meekly putting into place the edicts of the European Summits of Heads of State. But the constitutional and very necessary role of the Commission is to act as a political catalyst for action at EU level. And this requires a greater degree of parliamentary oversight than is presently the case. It will take time, but I am convinced that the credibility of the European Parliament will grow over time as it becomes more forceful and effective in exerting its powers of oversight.

Thus, both MEPs and MPs will need to play a more active and committed role in restraining the powerful prerogatives of the Council of Ministers and the Commission. In this way, we can prevent the Danish referendum from being remembered as the start of a deepening political disillusionment amongst the electorate and enable it to be seen in retrospect as a helpful warning signal leading to significant changes in the EU's political culture.

Fourth, there will be increased co-operation in foreign affairs but this will remain an area where steps forwards are taken both cautiously and tentatively as Member States, most notably the UK and France, gingerly give up their exclusive right to determine their foreign policy without regard to their EU partners. Again, whilst I cannot now enter into the detailed debates about the precise mechanics of a future European Foreign Policy, I think it can safely be predicted that: it will not include a significant defence component for the foreseeable future; will remain dependent on NATO for its primary military needs; but that in areas of "soft" military activity such as peacekeeping and humanitarian operations Cupertino will increase steadily.

This will happen from the bottom up rather than by the formal abolition of the unanimity rule. Gradually, in practice, common foreign policy positions towards the developing world, Asia, Latin America and even the United States and the former Soviet Union will become a fact of life as the paramount need for the EU to have a united position on such issues will become increasingly apparent, even to those Member States who have hitherto been keenest to retain the right to go it alone.

Finally, one of the few areas where serious and far-reaching treaty changes were agreed at the Amsterdam Summit was of course the field of Cupertino in judicial and police matters. It has long seemed to me that the threat of international terrorism, money and drugs laundering, smuggling and so on is a straightforward incentive for greater EU integration which is not difficult to explain to most electorates. Indeed, I anticipate that it will be one of the most active policy areas in the EU in the coming years.

Finally, a word about Britain's in Europe. My own views on our role in Europe are, I suspect, by now fairly well known. I have certainly not been short of opportunities to express them! I have long argued that it is not possible to exert real leadership and long-term influence in the EU if the UK is reluctant to assume the central responsibilities that EU membership implies. And that includes Economic and Monetary Union. The history of the UK's role in Europe seems to repeat itself over and over again: new European initiatives are shunned by the British political and media establishment, a period of intense and often prolonged debate and scepticism ensues, only to be followed by late British participation once the ground rules have been set by others. We are the losers as a result.

This is a problem which clearly reaches beyond party boundaries. It is perhaps fair to conclude that there is something in the British political culture which has hitherto prevented a more wholehearted commitment to the European Union. The reasons of history, recent empire, victory in the last World War are all too familiar.

But is it too much to hope that over time the grip of these historical forces on the British political imagination will loosen and allow for an unprejudiced and clear-headed understanding of our role in Europe? Whilst some critics foolishly claim that the EU represents yesterday's thinking, those who say this ignore the huge changes that the EU has been able to accommodate and indeed bring about. I am increasingly convinced, therefore, that the EU is peculiarly well suited to the future. The exigencies of globalisation are such that national sovereignty is only meaningful if it can be expressed by way of our participation in a wider European Union which allows us to further our reach over the international forces of today in a way which would be impossible if we were acting alone. By committing ourselves full-heartedly, but not uncritically, to the European Union we do not weaken Britain, we strengthen Britain's ability to deal with the challenges that the 21st Century will bring.