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Fox: The European Union - Where Now?

Speech to the Heritage Foundation in Washington D.C.

"The events of last week's European summit pose as many questions as they do answers. The key question everyone asks in the UK is whether the proposed Constitution is dead or not. Given the rejection of the Constitution in the referendum results in France and the Netherlands, it might be thought that the answer was obviously yes. But that is to under-estimate the tenacity of Europe's political elite. The Constitution probably is dead, but many of Europe's leaders are not quite willing to say so out loud. In my previous profession as a doctor, a corpse was easy to identify - in the politics of Brussels, it is a more complex affair.

The Prime Minister of Belgium, Guy Verhofstadt, even likened the decision by the Council of Minister to suspend the process of ratifying the Constitution to the process of cryogenics. He said "We are doing like in the US, putting the dead in the fridge in the hope of resuscitating them later." In my view, we are as unlikely to resuscitate the EU Constitution as we are the cryogenically-frozen.

Why We Opposed the Constitution

The Constitution may be dead but there is a real danger that its authors may seek to introduce elements of it by the back door. There are 3 elements that we particularly oppose.

We do not want the EU to acquire the trappings of statehood. A President, a foreign minister, and its own diplomatic service are the precursors of an integrated state that we do not want to see. Likewise the EU's ability to sign treaties, such as those for extradition, which would then be binding on nation states is unacceptable.

We also oppose the extension of QMV into areas such as criminal justice and the incorporation of the Charter of Fundamental Rights which would give the highly-political judges of the ECJ more scope to interfere in our domestic law.

Iain Murray, a senior fellow in the International Policy Group at the Competitive Enterprise Institute, made some interesting comparisons between the Charter and the US Bill of Rights. He wrote "As we all know, the American Bill of Rights is couched mostly in negative terms, forbidding government from certain action. The European charter, however, is couched in positive terms, bestowing rights upon citizens by the grace of its actions."

He went on "The EU constitution is in many ways the complete opposite of the U.S. Constitution. It protects institutions' powers and enumerates rights. It limits its member states' freedoms while accruing powers based on one political worldview to the centre"

Security & Prosperity

But it is one thing to enumerate what we are against. It is no use fighting the battles of the past against a United States of Europe that will now never be. Britain must take a lead in shaping an EU along the lines we Conservatives have been arguing for.

We need a Europe which promotes both security and prosperity. To that end, reform must be both internal, and external. The EU must change the way it does things, but also change the way it sees the world. European leaders need to forge a closer partnership with the United States. We need to turn away from President Chirac's view of Europe in a multi-polar world - creating a Europe apart from and rivalling the US.

I hope that in five or ten years time, we will look back on the current structure of the European Union and find it unrecognisable. We need a reformed Europe. Of course, such a platitude is the easy bit. No-one could disagree with the need to reform. But unless we identify the purpose for which we are reforming European institutions, the debate remains bogged down. We need more than just abstract concepts.

Too many people still see the EU from the point of view of the early post-war years. They see only optimism and idealism, and believe that that is all that matters. But we have to realise that the EU of today is a different creature. Europe as a continent has changed and the world in which it exists has changed.

The Europe of 1945 is certainly not the Europe of today. A ravaged continent with massive food shortages and huge transfers of populations has, indeed, been transformed into a continent where people travel freely and where living standards are high. In Britain today, we can fly to cities in Eastern Europe for the cost of a couple of CDs.

The Europe of 1955, even, is not the Europe of today. We no longer rely on heavy and extractive industry for our national wealth, so we have no need for vertical economic integration. There is certainly no longer a Communist threat from a Soviet Union. The colonial powers have divested themselves of their empires - though we have yet to divest ourselves of Africa's problems.

But even the Europe of 1995 is no longer the Europe of today. There is tentative peace and stability in the Balkans. One part of the former Yugoslavia, Slovenia, has already joined the European Union. A further 9 countries from East Central Europe, the Baltics and the Mediterranean have also joined the organisation. Tens of thousands of young people have travelled from countries such as Poland and the Czech Republic to live and work in London, for example. The latest 'fashionable' area for British people to buy foreign property is apparently Transylvania, in Romania.

This expansion of the EU has also fundamentally changed the nature of the European Union, not least in making English the lingua franca of Brussels rather than French. Certainly I suspect Donald Rumsfeld never guessed that his 'old Europe' versus 'new Europe' model would become so quickly entrenched in political parlance.

Europe has changed, but then so has the way in which the US has viewed Europe. At American war cemeteries such as those at Colleville-sur-Mer or Fere-en-Tardenoise you can see row upon row of white crosses which pay tribute to the scale of American sacrifice on the European continent in two world wars. The alliance to defend freedom, forged in the heat of battle, lasts to this day, as is demonstrated by the co-operation between President Bush and Prime Minister Blair to promote the cause of freedom in Iraq.

But the European Union has seen change in more ways than just the creation of Franco-German amity. What is crucial now is for the United States to understand the breadth of these changes, and encourage the European Union to undertake internal reform. This is not just for our benefit, it is for the benefit of the US too. Many Americans fail to appreciate the depth of anti-Americanism within the European political elite. Refreshing the continent's political representatives will do wonders for trans-Atlantic relations.

It will also help stabilise NATO. Abandoning plans for defence co-operation within Europe will actually enhance peace and security across the continent. The US will no longer have to carry the bulk of the military burden.

The US is also beginning to realise that the Euro is no panacea, and no guarantee of the economic stability that the US looks for from Europe. Already a supermarket in Tuscany made a PR splash by announcing it would accept old-style lira for one weekend earlier this month.

Economic Reform & why it is needed

In case there should be any doubt about the importance of creating an outward-looking EU, let us look at the world around us. Too many European leaders have a Eurocentric view of the world that is a generation out of date. While the EU gazes inwards, China, south Asia and the Americas continue to take an increased share of the world's market, eroding what would have been European prosperity and influence. It is not a coincidence that many more jobs have been created in the United States than in the EU, or that the United States has actually been increasing its share of world trade. Social democratic policies are making Europe less competitive in an ever-more competitive global economic environment. On a rapidly ageing continent the omens do not look good. By 2010 the EU's working age population will have begun a permanent decline. Over the next 40 years the working age populations of Germany, Italy and Spain will all fall by a third. This will have a major impact on the European economy.

The EU's own projections suggest that economic growth in Europe will be only half of that of America, between now and 2050. Projected forward, the EU's share of global gross domestic product will slump from 18 per cent now to just 10 per cent by the middle of the century, while America's share rises from 23 per cent to 26 per cent. You may think this sounds good for the US, but it is not necessarily so. Economic under-performance leads to mass unemployment and a taste for politically extreme solutions. Europe has already been down that path once in the 1930s.

The problems are exacerbated by the willingness of too many European leaders to blame someone else for their economic woes. There is no point in either the French or German governments blaming external factors for the dreadful performance of their economies. Unless France and Germany have the courage and commitment to introduce the sort of supply-side economic reforms which Britain undertook under the Conservatives in the 1980s, then they will consign yet another generation of their young people to structural unemployment. This cannot be an acceptable price to pay to keep the political classes inside their comfort zone.

Nineteen Million Unemployed

Increased economic flexibility will help refashion the European economy. It will help build the liberal, free-market based economies which can succeed and flourish. There are nineteen million unemployed people within the European Union's borders. This is not just wasteful of human talent and enterprise, but it is also profoundly dangerous. It makes welfare states increasingly difficult to sustain financially. And it has the potential to act as a breeding ground, once again, for political extremism.

Already, it is the adaptive economies which are leaping ahead. Estonia is just one accession state which is pioneering a flat tax, for example. Slovakia has become the new Detroit as the leading centre of automotive production in the EU. More and more EU Member States recognise that jobs and prosperity flow from a flexible labour market and a light-touch approach to regulation. Those countries know that free trade and competition is the best route to sustained economic growth. Estonia is predicting 6% GDP growth this year and Slovakia 4%. These nations have no wish to be stifled by the centralising dead-hand of Brussels, no craving for the French and German social model. The Anglo-Saxon model of economic liberalism is the one they are attracted to.

This may seem something of a 'no-brainer' to you. How could anyone possibly not want to move Europe in such a direction? Why would an economically dynamic Europe not be preferable? This is to underestimate the power of the European elites. They are still wedded to an out-of-date notion of a 'social Europe' which requires a vast bureaucracy. It is the last refuge of the interventionist instinct.

This comes with high costs - both economic and social. It costs more to hire people, as well as to make them redundant. The welfare bill is huge, and so personal taxation tends to be higher as well. Neither encourages a spirit of entrepreneurial activity. Unemployment in Germany is 11.8%, in France 10.2% but in Britain only 4.7%. Bizarrely, our own government is now trying to silt up our own economy by slowly adopting much of the French and German social model.

The picture from around the 'social Europe' is grim. Suburbs composed of grim tower blocks surround Paris like a ring of concrete. Massive unemployment has made them breeding grounds for Islamic extremist organisations who can easily recruit disaffected youth. French unemployment has hovered between 8 and 10% for over twenty years, and shows no signs of a downward trend. Their new Prime Minister has explicitly rejected supply-side reforms of any meaning.

Unemployment is over five million in Germany, with the unemployment rate running at 20% in the old east. DaimlerChrysler, Volkswagen, Deutsche Bank, Karstadt and many other major employers have been cutting thousands of jobs. According to The Economist (7 May 2005), "the top 24 industrial companies in Germany reduced their investment in Germany by 20% and worldwide by 10%" last year.

There are success stories. Substantial investment is turning Dresden once more into the Florence of the Elbe as glorious structures such as the Frauenkirche are rebuilt after wartime devastation. But for every Dresden there are many smaller towns and cities where populations have plummeted by up to a third since reunification as the working population has fled west. Left behind are the old and economically inactive - a recipe for a broken society.

These examples demonstrate that a 'social Europe' economic model is not only bad for the countries which suffer under it, but also bad for the world economy - and thus the US.

Guy Verhofstadt, the Belgian prime minister, said in 2004 that "Growth in Europe last year was 0.8%, in the United States it was over 3%, in China it was over 10%...If we don't change things, we risk turning Europe into a social and economic museum."

Democracy & Free Trade need champions

It is fashionable amongst the European elite to blame the Anglo-Saxon model for the current economic predicament of many European countries. An economic straightjacket of a single currency and an inflexible social model are the real perpetrators. But for the elite to admit that is to disavow half a century of inexorable progress to 'ever closer union'. We have to ditch that. The British-US partnership can lead the way economically.

This is no time for the French and Germans to shoot the Anglo-Saxon model. We cannot allow them to do that. Now, more than ever, democracy and free trade need champions. The UK and the US have always been at the forefront of battles to defend these principles and this economic model, and they must do so once again. Together we can guide the continent of Europe back on to path that leads towards peace and prosperity.

We will hear much at the G8 summit about poverty, debt relief and aid. What we also need to hear about is good governance and free trade. Our two nations have been robust in the pursuit of democracy and the war against terrorism. We must show the same resolve when it comes to making the case for free trade- that greater economic interdependence makes conflict less likely and offers sustainable income to the poorest countries. It is a win-win policy if we have the courage to confront the protectionist instincts of vested interests at home.

There is a great prize within our grasp. All we require is the self-belief and the courage to make it happen."

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