A Larger and Stronger European Union
An Analysis of Recent Developments

Ambassador Eva Nowotny

 This is the full text of a speech by Ambassador Nowotny given at the European Union Center at the University of Michigan, Ann Arbor, on October 14, 2004.

Since my arrival in the United States I have occasionally been surprised and dismayed by the lack of knowledge about the European Union (EU), which is after all one of, if not the most important partner of the United States.

The European Union and the United States are the two largest economies in the world. Together they account for about half of the entire world economy. The EU and the U.S. have the biggest bilateral trading and investment relationship. Transatlantic flows of trade and investment amount to around 1 billion Euros a day, and jointly, our global trade accounts for almost 40% of world trade. In fact, our economies are intertwined to such a degree that some economists have recently suggested that we should look at Europe and the U.S. as one economic region. We share the same deep and unfailing commitment to parliamentary democracy, to human rights and personal freedom; we share the same concept of the individual and his or her fulfillment in an open and just society. It is only by working together that the United States and the European Union can effectively promote their common goals and interests in the world.

On the other hand, there is much in the special construction of the EU - a construction sui generis and without precedence in political history - which, I find Americans have difficulty in understanding.

We, Europeans, are in a political, economic and monetary union, but in a union still composed of independent sovereign states. We have a semi-constitutional state, with legislative, executive and judicial powers, but we do not yet have a proper constitution. We have common political organs, to which we have conceded sovereignty and competences in some central areas. We have a directly elected European Parliament, the legislative power of which is limited and narrowly circumscribed. The real legislative power is concentrated in the European Council composed of ministers or heads of government of the member states and in the European Commission, which at the same time also functions as an executive branch.

It is thus no wonder that American politicians and Americans in general are often confused and bewildered when they look at the European Union, because they are used to the clarity and transparency of their own political system.

Then again, the European Union is not yet a finished product. It is work in progress, and it functions in spite of occasional administrative tangles. Progressive enlargement of the Union, combined with and supplemented by progress towards greater clarity, transparency, cohesion and efficiency is a goal to which all member states of the Union subscribe.

Let us look at some of the recent developments. One cannot but be aware of the significance of Europe’s reunification for the European map. Who doesn’t remember the school atlases years ago depicting Europe divided into two different colored zones? Having disappeared from the atlases some fourteen years ago, this divide has finally been overcome, by admitting ten new members into the European Union. Already in 1990, at the time of his well received book, "Barbarian Sentiments," the American journalist and writer, William Pfaff, living in Paris, had asserted that the communist regime and the Soviet political control over the countries in Central Europe was only ‘an historical parentheses which closed itself in 1989’. No fundamental or permanent change occurred because of it. It was virtually self-understood that these countries would think back to their roots after their liberation, and turn toward the political region with which they have been intimately connected throughout the centuries, a region to whose history, political development and cultural identity they have contributed immeasurably.

But also the European Union was aware of the responsibility of overcoming the continent’s divide and that, by quickly opening up the perspective of membership, this "window of opportunity" could be used to unite the continent.

This is how the present chapter on EU enlargement began, in the beginning of the 90s. It was concluded with an official celebration on May 1, 2004, in Athens and, contrary to the criticism that still can occasionally be heard, founded upon an absolutely clear and logical concept from the very start.

A first step was the establishment of the European Bank for Reconstruction and Development, based in London, which massively and successfully supported and accompanied the process of economic transformation in Central- and Eastern Europe. The next step was the adoption of the socalled Copenhagen Criteria at the European Council of Copenhagen in 1993, in which the political, economic and also institutional prerequisites were codified that were to make EU membership possible, including all the future candidates. A comprehensive and very generous system of assistance leading up to membership was established to help the candidate countries quickly fulfill these criteria. At the European Council of Luxembourg in December 1997, the first group of six membership candidates were identified - Estonia, Poland, the Czech Republic, Hungary, Slovenia and Cyprus - and in November 1998, under the Austrian EU Presidency and contrary to the continued misgivings of many other members, the first substantial negotiations with these countries took place. In December 1999, at the European Council of Helsinki, the decision was made to take up negotiations on admitting six additional countries, namely Lithuania and Latvia, Slovakia, Bulgaria, Romania and Malta. And now in 2004, admission has become reality for ten of these countries. Romania and Bulgaria will follow in 2007.

As to the process of negotiation itself, the European Union today is not only a political, economic and monetary community, but also a community of laws, which can only function when the same body of laws are shared and maintained by all of its members. Therefore, the fundamental principle of all negotiations regarding membership is the adoption of the socalled, "acquis communautaire," containing the European Union’s body of laws that currently comprises about 85,000 pages of legal texts that must be adopted and credibly implemented by all membership candidates. The "acquis," itself, is not negotiable; negotiable are solely the requirements of candidates to conform and, at best, the time limits and regulations governing periods of transition. The negotiations are divided into thirty-one chapters, which are again organized into numerous subchapters. A common position was worked out by the ‘fifteen’ initial member states for each item, which had to be represented by the Presidency and Commission. Moreover, the Commission had the task of regularly presenting progress reports on the negotiations, on the developments taking place in the individual candidate countries and, above all, on the verifiable implementation of the Union’s laws. Thus, during the negotiations a very dense net of agreements, concessions and obligations was woven together, and the accusation that everything was moving too fast and dealt with too superficially, was unfounded.

We in Austria have a historically, culturally, politically and economically close relationship with our neighboring countries of Central- and Eastern Europe. This relationship, which was perhaps scaled down during the fifty years of communist rule in these countries, was, however, never fully severed. The end of the communist dictatorship offered Austria a unique opportunity to redefine its position within Europe. Now with the completion of European enlargement, Austria has moved definitively from the periphery of the West, bordering directly on the Iron Curtain, to the center of a unified Europe.

It is indisputable that Austria is one of the greatest winners of European enlargement, materially as well as immaterially. With a frontier 807 miles long, Austria is the only member of the Union that borders on four of the new member states. We are now surrounded by countries which belong to the same community, which confess the same values and principles, which share with us the rights and obligations of membership in the Union and with which new perspectives of political cooperation are given. It is self-understood that this means an enormous growth of political stability and security, both within and beyond its borders. The opening up of the borders also offered the Austrian economy great opportunities, which it quickly recognized and took advantage of, and our relations in all areas, from cultural cooperation to joint undertakings in science and technology, have grown exponentially.

Initially I spoke of only one phase of EU enlargement, however extensive it was. The Union has always avoided giving itself a geographic definition, and the question as to its possible "finality" has not been answered. On the contrary, one has tried to circumvent this decision through the socalled Copenhagen Criteria, previously mentioned. It is, therefore, not surprising that the pressure for admission into the EU, for membership in a region of security and prosperity, remains undiminished. Croatia and Macedonia have already presented their application for membership and stand at the threshold of being admitted in the future. And the question concerning other countries in Southeastern Europe - Serbia-Montenegro, Bosnia-Herzegovina, and Albania - whose interests lie, both for them and the EU, in the political and economic stability of this region, will arise in the future. Moreover, the fundamental, difficult and very controversial decision in Europe whether Turkey should be admitted to negotiations on membership must be met in December of this year. As you have perhaps read, the EU Commission recommended some few days ago opening up negotiations on membership. However, there are still serious doubts and reservations among a number of the member states.

This issue has, for obvious reasons, received much attention, not only in the American press, but also at the political level. Given the American strategic interest in the Middle East, it is not surprising that Washington would like to see Turkey firmly anchored not only in the framework of NATO but also in the European Union, a community of Western nations sharing democratic values, stability and mutual prosperity. This is certainly an argument that weighs heavily in the debate within the European Union; moreover, there is also in Europe a strategic interest in having Turkey firmly integrated.

On the other hand, there are also substantial problems, and probably more so than with any other country’s membership. The sheer size of the country, its predicted demographic development, its large and unproductive agricultural sector and the serious imbalances in regional development - all have to be taken into account. Likewise, there remains the question whether the Union is equipped to cope with an outside border to Syria, Iran, Iraq and the Caucasian states. These are issues that cannot be taken lightly. On December 17, heads of government will have to present their answer.

This leads us, likewise, to the question as to how the Union will deal with its future neighbors, neighbors which, undoubtedly, have a European orientation but still fail to meet the requirements for membership - for the usual reasons, such as the Ukraine, Moldova, but also the southern Mediterranean countries. Austria was the first country to have articulated these questions during its EU Presidency - receiving at that time, however, very little resonance. Today it is on the agenda of the Council of Foreign Ministries, and each one is aware of the need for serious thought and creative, political action. As an example, I would like to mention that Austria, without waiting to hear the outcome of this discussion, has developed within the socalled Danube cooperation process, including countries like the Ukraine and Moldova but also Serbia-Montenegro and Bosnia-Herzegovina, an initiative bringing these countries into a strengthened cooperation with EU members.

The British political scientist and expert on Central Europe, Timothy Garton Ash, recently posed the rhetorical question: Will Europe stop being Europe because it is becoming Europe? At first glance, that might sound like a sophism, but there are, nonetheless, very serious concerns hidden beneath the surface. How will the Union, itself, cope with more growth? How will its institutions be able to work with this large number of members, institutions that were originally conceived for six and have functioned more for the worse than for the better as fifteen? How will we conduct fundamental debates and be able to make decisions? Will it be necessary to introduce a new system of languages? Can we continue to work with a system whereby the Union is represented to the outside world every six months by another member? Is it possible to keep the principle of consensus on important questions with twenty-five or more members, or must we eventually resort to decisions made by the majority? How will the Union be able to maintain the trust of its citizens?

These were some of the questions that were dealt with in the draft of the new EU Constitution. We in Austria are convinced that through an unprecedented interaction of governmental officials, national and European parliamentarians, with the involvement of interest groups, youth organizations and representatives from civil society, a new concept was developed. Its aim was to strengthen and render the European Union more capable of action, while at the same time tailoring its internal structure into something more democratic and transparent, and encouraging more citizen involvement. Member states signed the Constitutional Treaty on October 29, 2004. Subsequently, the Treaty has to be ratified by all member states according to their constitutional requirements. Only then can the Constitution will come into force. So far twelve member states have announced to hold referenda: Ireland, Denmark, Great Britain, France, Luxembourg, the Netherlands, Spain, Poland, the Czech Republic, Portugal, Estonia and Latvia. As for Austria, we will ratify the Treaty only by a two-thirds decision by the Austrian Parliament. Given the positive acclaim the Constitutional Treaty has found in our country, ratification is already assured. Especially with a referendum it is always possible that people fail to answer the questions asked, and instead, attempt to settle all sorts of open issues with their government. This presents a problem for which there is currently no real and convincing answer, and there is only one parachute for safety: If not all member states have ratified the Constitutional Treaty within two years of signing in the fall of 2006, the European Council will convene a special session in order to consider the situation and propose creative remedies.

Vis vis the present status quo, there are a number of approvals, to which we attach great importance

This is only the gist of a very comprehensive and reform-driven Constitutional Treaty. We hope and expect that this Treaty will be ratified as quickly as possible in all of the member states, because without a dramatic reform of this sort, we may face the danger that the enlargement will exhaust itself and turn the Union into a large domestic market, while the great ideal of European integration is being sacrificed in the process.

A question that is related to this and currently very timely is the question of the Union’s capability of acting on foreign- and security policies. The dispute with the U.S. over the war in Iraq has again made it clear to what extent the EU has difficulties in taking a common position, in formulating a common policy and representing itself as united on the outside.

Certainly, there is progress towards the establishment of a European Security- and Defence identity aimed at giving the Union more profile in international politics, crisis management and the maintenance of international peace and security. A stand-by force of 60,000 men is currently being established, special arrangements for close cooperation with NATO have been concluded, the EU has successfully taken over military operations in the Balkans, has conducted its own mission in Africa, and is deeply involved in Afghanistan. Establishing a Common Security- and Defence policy must, however, go hand in hand with a common foreign policy - the one without the other is not possible. The problem is one of great urgency and a solution must be found quickly.

Following recent enlargement, the European Union consists of more than 450 million people. It is the strongest trading power in the world, the largest donator of development aid and humanitarian support, it commands a strong, common currency, and stands for a European model of society and social policy that can serve as a role model worldwide. Based upon its economic and financial strength, it must seize the opportunity to create instruments for taking over political responsibility within a worldwide framework and be able to achieve a new partnership and allocation of roles with the United States.

When we talk of a larger and stronger European Union, we cannot bypass the recent developments in economics and finance. Against many gloom-and-doom predictions, the transition to the single currency at the beginning of 2003 went smoothly and without major mishaps or disturbances. Twelve member states of the Union, that is approximately 300 million people, are now using the EURO. National denominations have disappeared from circulation, and they have submitted themselves to the strict fiscal regime established through the Stability Pact and the European Central Bank. You will have noticed that there is currently discussion as to whether the Stability Pact is not too tight a jacket and does not allow governments to respond adequately to economic slow down - this is still an open issue. Other members in the EURO zone will follow soon, and the EURO is already widely in circulation in Central Europe as well as in the Balkans. Today, the EURO zone accounts for roughly 20% of world GDP and for more than 18% of world trade, and is thus a major factor in the global economy and financial system.

In addition, the EURO zone has witnessed a period of moderate inflation and low long-term interest rates. In almost all member countries, market interest rates have been at their lowest level since World War II. Nevertheless, neither the unified single market, which abolished a plethora of trade-restricting regulations and barriers and opened the doors for European-wide competition, nor the single currency has given the expected boost to the European economy. Growth on the average has remained sluggish except in some of the European countries, such as the Scandinavian countries, which have done remarkably well, and it is not surprising that the World Economic Forum last year rated Finland as the world’s most competitive economy. Unemployment and job creation remains a core problem - throughout the Union unemployment averages about 9% of the workforce - and in all opinion polls, jobs are the number one concern of the Europeans. In both aspects, growth as well as job creation, Austria has done a little better than the European average. Our economic growth has been stimulated by our intense economic involvement in Central-, Eastern- and Southeastern Europe, and we have been successful in keeping our unemployment rates way below the European average. But for Europe as a whole the ambitious goal laid down in the socalled Lisbon Declaration - the goal to make the European economy the most efficient, competitive, science-based economy within ten years - is still quite a way off.

In addition, the Union faces a serious problem: Demographic change involving an aging population with less and less people actually in the productive work force and a precipitous decline in fertility rates clearly under the replacement threshold (U.S. 2:1 and Europe 1:3). This has drastic consequences not only for the labor market, but also for the maintenance and sustainability of what we so proudly define as the "European Social Model" - social security, health care and pension systems.

This development, which will become tangible from 2010 onwards, affects the entire Union, and it is interesting to note that the EU enlargement to the East has not brought about increased immigration to the "old" EU member states and a rejuvenation of the work force, but has increased the elderly population of the Union as a whole.

What will be needed is a clever and well-balanced policy mix of targeted immigration, extension of the retirement age, better childcare and parental leave policies. This may be politically costly, as various political forces will seek to utilize also in the future the specter of increased immigration for political populist purposes. In addition, the search for highly skilled migrants to meet the projected labor needs will open up new scenarios of competition between the U.S. and Europe, as well as among the European countries themselves. On a more positive note, one might say that at least it has been identified as a core problem of the coming years and that it is receiving serious attention.

To conclude, when I received the invitation to speak about a larger and stronger European Union, I debated with myself whether it would be appropriate to put a question mark to the title. I am glad not to have done it. Historical evidence shows that each enlargement has made the Union not only larger, but has also deepened the European integration and thus made it stronger at the same time - widening and deepening have never been in conflict with each other but have worked in parallel fashion. Certainly, there are problems now, and there will be new problems in the future, but with experience, determination and creativity we should be able to handle them. As Jean Monnet has written in his memoirs: "The historical evolution of United Europe is unpredictable, because nobody can say which new bold changes will be triggered tomorrow by the effects of today’s changes."