This is a time of epochal change as globalisation tests developed countries’ ability to pay their way in the world.
So there could be few better places to talk about the future of Europe than here in Berlin. Germany is a globalisation success story. Others can learn lessons, Britons among them, from Germany’s policy choices: structural reforms, its sound public finances and its culture of excellence and enterprise have made Germany globally competitive. It is one of the great trading nations of the world. The previous British Government did not maintain sound public finances. It did not foster trade with the fastest growing economies. Our education system did not provide the skills we need to compete. This British Government’s task is to correct those great errors.
Clearly, there is no more important issue here than resolving the Eurozone crisis. We all want to see a sustainable solution as quickly as possible: because nothing would help our own economic recovery more than an end to the crisis, because the hopes and livelihoods of tens of millions of fellow Europeans depend on it and because broader political stability is at stake.
Today I want to look at the future of the EU from a wider perspective. As the Nobel Peace prize reminded us, the EU is about much more than just the Eurozone. I understand what the Euro means to its members but the EU’s greatest achievements, the things that have the most real good for the peoples of Europe, are the establishment of the Single Market and the enlargement of the European Union.
The European Union, alongside NATO, has been an instrument of peace and reconciliation. It has helped to spread and entrench democracy and the rule of law across Europe. It has helped make armed conflict between its members unthinkable. The Single Market has opened up prosperity and opportunity to hundreds of millions of people. We must ensure that the solutions we adopt for the current crisis do not jeopardise the integrity and achievements of the EU as a whole.
Globalisation and competition with hundreds of millions of highly skilled, hard working and determined people in the world marketplace mean that despite the huge new opportunities on offer equally developed nations cannot assume that the next generation will be better off than the present. The challenge for every European nation is how we earn our living and make our voices count in this new, more multipolar world. And the question for the European Union is how it helps us meet those two great challenges.
Many European economies are stagnant. Weak public finances, and a recovering financial system mean we cannot rely on increased public or consumer spending for growth. The only way our economies can grow is through trade, trade within the EU and outside it.
That means an expansion and deepening of the Single Market. The Single Market is one of the European Union’s greatest achievements, the largest market in the world, with more than 500 million consumers and 21 million companies. Both Germany and the UK had essential roles in establishing it. It is no coincidence that the crucial period was one when the Conservative Party, the CDU and the FDP were in Government.
The Single Market and its four freedoms have helped make today’s Britain. There are over 1,000 British companies in Germany, together employing more than 200,000 people. Total British Foreign Direct Investment in Germany currently amounts to nearly €40 billion. As one commentator has noted, someone in Britain can go through a day wholly dependent on it - a Pole, one of half a million living in our country, can leave their home, heated courtesy of a German company - EON, catch a bus owned by a French company - RATP, make a phone call, using a Franco-German provider - Orange on the latest Nokia phone from Finland and stop to get money from a Spanish bank - Santander. Others may preach Europe but Britain practises it.
We welcome the proposals on the Single Market Act II, which are absolutely in the right direction. But we need to be bolder. Europe started with Coal and Steel but the future lies in high value services, the digital economy, advanced engineering, nanotechnology and biotechnology. We need the collective will and ambition to deepen the Single Market in areas like the digital economy, services and energy.
We should also use to the full our collective weight as the world’s largest trading bloc. Germany is the largest exporter in Europe and ours is one of the world’s most open economies. In July, for the first time, British trade with the rest of the world outstripped our trade with the rest of the EU and we want to strengthen both. Stronger trade relations with emerging powers present huge opportunities. The EU has free trade negotiations with countries including Canada, Japan, Singapore and India. If we completed all trade deals currently under negotiation, EU GDP could be increased by up to €60bn a year. We should go further and try to achieve our ambition to conclude an EU-US free trade agreement. We are all looking for economic growth. That would be serious economic growth and there is no other way to provide it.
If we do not succeed in making our economies globally competitive and generating sustainable growth then whatever else we do, whatever treaties we sign, whatever structures we build, whatever declarations we sign, will all ultimately be irrelevant. There will be no Social Europe, there will just be an Excluded Europe. If Europe becomes a neighbourhood of economic decline we will not matter in the world and we will have betrayed the peoples of Europe. I know that Germany and Finland understand this clearly. This is a mission for the EU27 and the UK will be at the forefront of this effort.
Then there is the second challenge we all face: the global diffusion of power and wealth and the rise of many more centres of decision making than ever before.
The last few years have shown what European nations can achieve by working together: squeezing the Iranian nuclear programme and supporting democracy in Burma, offering help to emerging democracies in the Arab world, leading the way on climate change and tackling piracy off the Horn of Africa.
In all of these areas the UK has played a leading role in forging EU policy and will continue to do so.
It would be a grave mistake if we turned inward as a result of current economic difficulties. We should be confident and outward looking. As the Arab Spring proved again, our European values of freedom, democracy and the rule of law are universal values. Our open societies and open economies are the models for the future.
In the broader European Neighbourhood, the EU must still have a compelling offer for those who share our values and interests and continue with the mission of enlargement. It is profoundly in our collective strategic interest that Turkey continues on an EU track. And Moldova, Belarus and Ukraine are European nations. Their future lies with Europe. It is up to us to promote democracy and encourage them to embrace freedom fully.
We live in a world of networks. We can best attain our goals by exploiting all our networks flexibly and to the full. Each Member State in the EU should make the most of its own special links around the world, whether Britain with countries such as Canada and Australia, Spain with the vast Spanish speaking world and France with the Francophonie.
The EU’s most remarkable achievement is that its four freedoms have fostered vast and intense connections of the kind I have just mentioned, although the health of these networks need constant tending.
Co-operation within the EU on the great global issues has allowed us to advance our shared interests and values with effect. But that does not mean we should try to forge a single European position and voice on everything.
We want British, German and Finnish national diplomacy, and international institutions like NATO to thrive alongside coordinated action at the EU level. The EU is part of but far from all of the solution to the fundamental challenges we face.
Often important things will not be agreed or cannot be done through the EU. It would be neither right nor realistic to think that questions of war and peace could or should be decided by QMV. Indeed, just because some things work well in coordination with all of our European partners does not mean we should do everything at 27. A more effective EU does not have to mean a bigger, more expensive or more centralised EU.
There are three great problems of Europe’s future we need to solve if we are to ensure that a wider European Union has the flexibility, the legitimacy and the agility to succeed in the 21st century.
First, how we structure the EU when many countries want differing kinds of integration and still preserve the EU’s essential unity.
Second, how we deal with the problem of democratic legitimacy and accountability of decision-making in the EU, which is a growing concern in most Member States.
Third, how we get the right balance of what the EU does do or doesn’t do. These are not simple matters.
Clearly the Eurozone’s current structures are not working. We respect the democratic decision of the countries of the Eurozone to preserve it. That will require changes. We know the options. It is not for Britain to tell you what the exact remedy should be. The choices faced by Eurozone countries are not easy. Some proposals would severely curtail national democracy - issues like national budgets - forever. Others might mean decades of financial support from stronger economies to the weaker. How to find a way through these problems in a way that is fair and commands democratic consent is immensely difficult.
Britain wants you to succeed in your efforts to find a resolution of the crisis. Certain responsibilities go with a currency. It is our responsibility to ensure that balance is restored to our own public finances. We did not ask for others to contribute when we recapitalised our banks four years ago: it was our responsibility, even though thirty per cent of the money went to repairing the balance sheets of other European banks.
But while developing a governance of the Eurozone that really works we must equally ensure this leaves the Single Market coherent and intact. The debate on establishing a full banking union shows that this will be complex and sometimes difficult. There are obvious issues for countries not in the Eurozone, for whom it will never be acceptable to have a situation in which the Eurozone acts as a bloc in Single Market institutions in a way that determines the outcomes before the others have even met. This is not just an issue for Eurozone outs. The balance of power within the Eurozone, in particular between the more liberal economies and the more interventionist, will be different from the balance in the EU as a whole.
Part of the answer to the problem of legitimacy and democratic disconnect, must lie in giving national parliaments a much greater role in the EU. No other institutions compare to their lasting democratic authority. Germany’s Constitutional Court has insisted on decisions being taken by the Bundestag for that reason. We need a system that makes it easier for a citizen of one of our countries to know how they should vote at a national level and whom they should speak to, to get things changed. That is the essence of democracy.
We need to look afresh at some of the things the EU does. They have to make sense to our voters. That is why, over the next two years, the British government will be reviewing what the EU does and how it affects us in the United Kingdom: a constructive and serious British contribution to the public debate across Europe about how the EU can be reformed, modernised and improved. We are also looking at the right balance on Justice and Home Affairs given our distinct legal tradition.
Take the EU budget: we want one which adds value and is in touch with the real world. Britain is the second largest net contributor after Germany but we are having to reduce spending at home on every single area other than health and international development. In that context people simply do not understand why there should massive increases in the EU budget when all EU countries are trying to balance the books at home. EU Member States are €3.5 trillion more in debt now than when the last EU budget was negotiated. The EU budget has to reflect these changed facts.
In some cases, such as a wider Single Market or effective action on international problems, more European activity makes sense. But sometimes less is more; less is better. The EU would be stronger if it made more sense to people by only acting where there was clear justification for action at the European level. I do not understand, for instance, why junior doctors’ working hours should not be decided nationally. There is some commonality of view here with Germany: at last week’s European Council your Chancellor successfully and rightly pressed for the Commission to look at areas where the regulatory burden could be lightened.
The EU is already a diverse place and with further enlargement it will become more so: by the time all the Western Balkan nations join there will be more than thirty countries in it. Its peoples do and will want different things from the EU. Some will be in the Eurozone and some not. Some are comfortable with ideas of federalism, other are not. Some, like Britain, play an active part in foreign and security policy, others find its practice difficult. Some yearn to go further in opening up markets. Others find the idea threatening.
We should recognise and embrace that diversity - it would be a dangerous denial of reality to wish it away. We must respond to what our people and democratic institutions are saying - not just in Britain, but across Europe. We ignore them at our peril. Extremist parties have enjoyed no significant success in Britain or Germany but worryingly that is not true of every EU Member State.
This Coalition Government is committed to Britain playing a leading role in the EU but I must also be frank: public disillusionment with the EU in Britain is the deepest it has ever been. People feel that in too many ways the EU is something that is done to them, not something over which they have a say. The way in Britain Lisbon was ratified without any consultation of the voters has played a part in that. People feel that the EU is a one way process, a great machine that sucks up decision-making from national parliaments to the European level until everything is decided by the EU. That needs to change. If we cannot show that decision-making can flow back to national parliaments then the system will become democratically unsustainable. Subsidiarity must really mean something.
Those points may be felt most acutely in Britain but they are not felt only in Britain. We need to approach these hard and multi-faceted issues calmly, honestly and inclusively.
We respect the serious and methodical way in which Germany is tackling them. The British debate tends to be rough and raucous. After so long working together we should know enough to accept those differences. We must each avoid the trap of thinking we know the mind of the other without properly talking it through. We need to talk about Europe because both our perspectives matter to its future. That is why the Korber Foundation’s conference is so timely.
It is obviously in Britain’s interests for the EU to succeed in the tasks I have described and for Britain to play a leading role in it. The Eurozone countries must do what they must to resolve the crisis, but the way forward for the EU as a whole is not more centralisation and uniformity but of flexibility and variable geometry, that allows differing degrees of integration in different areas, done in ways that do not disadvantage those that do not wish to participate in everything, and preserves the things we all value.
It will not be easy to achieve but this would be a Europe that thrives on its diversity and allows all of its peoples to fulfil their aspirations. It would be a Europe built on sustainable democratic foundations. And it would be a Europe which kept pace with the rapid changes in the world and the developing interests of each of its members, a Europe adapted to the 21st century.