Title: "European Political Union & its implications for US/EU and US/UK relations"

Extract from remarks made by Rt Hon Michael Portillo to the New Atlantic Initiative Conference in Istanbul 2 May 1998

Speaker Gingrich was not the first, but he is the most recent, to point out that Europe’s headlong rush to monetary union looks perilous. Processes that took more than a century in the development of the United States are being squeezed into a few brief years. In America a nation was created, with much discussion of what should be the balance of powers between states and union. In Europe we have reversed the logical order of nation building, and the visionaries are trying to create a European state by creating first the attributes of a state, such as a single currency, long before the balancing competences of Europe and its member states have been defined.

As Mr Gingrich has pointed out, a single currency where we do not have a single labour market brings particular dangers. Europe contains many different economies, with different cycles and varying speeds. Any one of them is prone to recession, but in a Europe where there are different currencies, any state can, by adjusting its currency and interest rates, provide itself with a natural stabiliser. The idea of applying a single exchange rate and a single interest rate to such diverse economies is economic madness.

But there is a simple explanation. The justification for the single currency has almost nothing to do with economics. It is the essential foundation for a new European state. In fourteen member states that logic and that ambition are openly avowed and applauded. Only in Britain, where the idea of a single European state is viewed with widespread public hostility, do politicians pretend that the single currency is about completing the European single market, with virtually no political implications at all.

Fortunately, Dr Helmut Hesse, a member of the directorate of the Bundesbank is more honest and tells us straightforwardly that "monetary union is the last step in a process of integration that began only a few years after the second world war in order to bring peace and prosperity to Europe." Of course it is, and that is why any querying of the pace of monetary union or the validity of the convergence process strikes Britain’s European partners as mere pedantry and obscurantism. Our partners are on their way to their federal destiny and nothing can stop them.

You have to take seriously their visionary idealism. Nationalism, they argue, caused the wars of the past in which millions of Europeans and thousands of Americans have died. Abolish the nation states and you have eradicated the cause of conflict. You have to take it seriously, but you are not obliged to agree with it.

It is true that extremist nationalism has been a root cause of past wars. But there is no reason to believe that abolishing the nation states, by creating a European state to replace them, will do away with nationalism. Yugoslavia and the Soviet Union should sufficiently tell us that. In any case past wars had complex causes. They were started by tyrants who capitalised upon a sense of national grievance - some piece of territory or some population that yearned to be reunited with the motherland.

One of the worries about the single currency is precisely that it will lead to less democracy and new causes of grievance. The central European Bank will make decisions on interest rates for all countries participating in EMU. As Dr Tietmeyer, the Bundesbank President has candidly remarked, it is an illusion to think that member countries could then retain national autonomy over taxation and labour market issues. So the political decisions most critical to the economic life of people in the member states, decisions affecting their wealth and the rate of unemployment, will be in the hands of the ECB. But of course that body is not democratically accountable. No one will vote for it, and it will not be under governmental or parliamentary control in the way that national central banks normally are.

Imagine what might be the impact, once we have a single currency, on people in a part of Europe suffering from recession. The substantial barriers to free movement of labour prevent them from seeking work elsewhere in Europe. They cannot vote to change the policies that have made them jobless, because those policies are made above the level of national government and beyond democratic control. They will be able to see that other countries are faring better, and that whilst the single exchange rate and interest rate may suit their neighbours, it is crippling job opportunities at home. That will produce a sense of grievance, a source of bitterness between peoples in Europe, and a sharp reduction in democracy.

Of course, in theory the democratic deficit can be filled by boosting the status and power of the European parliament. In my view that will not do. Democracy has to operate within a society of shared values and experience, otherwise people will not feel that the parliament for which they vote is representative of their interests. The United States, despite its size and ethnic diversity, thanks to its historical experience has such a shared set of values, and they are regularly articulated by politicians and by the people. Europeans evidently do not share a set of values, and you will not be able simultaneously to convince Greeks and Irish and Swedes that they are adequately represented in a body drawn from such politically diverse places.

Some of the differences show up in the very dissimilar national approaches to foreign policy. To the frustration of America, European nations have disagreed sharply on most critical issues in recent years: the Falklands War, South African apartheid, the Gulf War, subsequent policy towards Iraq, Bosnia and the Great Lakes area of Africa. Now it is proposed that Europe should have a common foreign and security policy, and one can imagine a cheer going up in Washington at the prospect of at last hearing Europe speak with one voice.

That might be the wrong reaction. America needs to consider what such a common policy might look like, and all the evidence so far is that it would not be pro-American, and indeed might be anti.

For those intent on building the new European state, the creation of a common foreign and security policy is essential. Along with EMU and a common border, it represents a critical attribute of a sovereign state. Given the diversity of actual views in Europe, common positions could only be arrived at by majority voting. So far only actions in pursuit of positions already arrived at by consensus are to be subject to majority voting. But it is the clear intention to move further.

Those European countries offering support to the United States in recent times, over Libya or Iraq for example, have been in a small minority. Under a common foreign policy decided by majority voting, they could be outvoted, and they would have surrendered the option of adopting an independent national position.

For the United Kingdom, and maybe others, that is a dismal prospect. The UK has a long history of joint work and action with the US in diplomacy and military action. We share many values in common and agree on foreign policy stances much more often than not. Demonstrably, we have agreed rather less with our close European neighbours. It would seem to me foolhardy to abandon our very long-established alliance with America, in the visionary hope that Europeans can find a satisfactory common outlook which has eluded them until now.

Frequently, the only policy position on which it might be possible to achieve a majority in Europe, would be inaction. The policy paralysis that has gripped Europe in the past would be institutionalised, and America would lose any European voice of support in its global role of combating tyranny.

Bad though that seems, things could actually be worse. Those who look forward to European political union tend to favour the prospect of a European political bloc which follows policies which are distinctive from America’s. Some of those who promote the idea of a common European foreign and security policy undoubtedly wish to see a reduction in American influence in Europe. That has been a recurring theme in the decades following the last war. There have been calls to replace NATO or reduce American influence within it. The more America has been needed, the more that dependency has been resented.

Those who dream of a Europe free from American influence and rid of US forces also look forward to the emergence of Europe as a new power in world affairs that can be a counter-balance to America. For those reasons I would expect a common European policy to veer between being un-American and anti-American.

I fear that there are those building the European state who hope also that it can offer an alternative economic model to the Anglo-Saxon world. There is much talk of social Europe. It is a code for maintaining much higher levels of public spending and a much bigger role for the state than has become the norm in today’s world. European governments tend to be much more statist and corporatist, and they feel unable to adjust to a competitive world which tends to place more emphasis on the encouragement of enterprise and a reduced role for government in the economy.

They cherish the hope of building a Europe big enough to resist the competitive pressures of the outside world.

In Britain, and a number of countries in Europe, large parts of public opinion are unconvinced by the arguments for political union. But a lethargy is undermining them. The most effective argument which is wearing down their resistance is that European political integration is inevitable, and cannot and should not be resisted.

What is needed is an alternative. We must explain that countries need not travel down the route to the extinction of the nation states of Europe. People in Europe are being led to believe that the only alternative to political union is isolation. This is absurd in a world where the nations of the world are increasingly united in their approaches, with an ever-larger number of liberal democracies, an increasing acceptance of liberal economics and with technology linking our peoples ever close together.