EPC President Herman Van Rompuy delivered the following speech at the EPC Annual Conference on 6 November 2019 in Brussels:
"I'm usually someone who looks at the bright side of life. With regard to the EU, I remember how hopeful we were after President Macron's Sorbonne speech when a Franco-German initiative to relaunch the European project seemed possible. We are less hopeful today.
I will deal with three themes that are important for the coming years: unity, sovereignty and the future of our socio-economic models in the light of the growth of populism.
Unity
The European elections did not result in the dreaded great leap forward of the extreme right (after Brexit, that group will be severely weakened, by the way), but their strong presence in the larger countries of the Union still weighs on policies and society. The European institutions are functioning normally, but for how much longer? I add that those three major institutions have to cooperate much more to make the Union function effectively instead of arguing. The deepening and widening of the Union and the euro area are stagnating. “If we want everything to remain as it is, everything must change.” (Giuseppe Tomasi di Lampedusa’s “The Leopard”).
Of course, the EU-27 remained united in the negotiations with the two British governments, both of which failed to get the House of Commons to support the draft divorce agreement. Unity is always to be welcomed, even if it is about a sad event like Brexit.
After Brexit, we will have to negotiate the future relationship with the UK. It will be a complex negotiation for both sides. The British can hardly deviate from our norms and standards for goods and services, and on the EU-27 side, we will have to reconcile conflicting national trade and other interests. However, the Commission is used to doing this job, simply because it has negotiated so many times with other third countries. The Commission will be guided by EU principles and interests. The Union will not sacrifice the acquis to accommodate a country having left the Union.
A second concern stems from another incomprehensible decision, namely the trade war. It is incomprehensible because this tariff war goes against American economic interests as Brexit goes against the British interest. Employment in the manufacturing industry, mostly in states with traditional sectors, has shrunk in recent years. Because this is finally getting through to the President, he is looking for an interim agreement with China. However, the policy is so incalculable that further restrictions on trade with the EU cannot be ruled out. The European car industry is a potential victim, not least because American companies are in trouble. Earlier this year the US agreed to delay tariffs on EU vehicles until November 13th while negotiations take place. Wait and see.
After all, the core of populism and nationalism is that it needs an enemy – an internal or external one. What is striking, again, is the EU's fairly united stance in its response both to the US and to the problems that we have with China. The fact that the Commission has the necessary powers, as well as its assertive attitude, are the reasons for this. If we speak with one voice, we are relevant.
Although there is more unity in the Union's actions than is often said, the overall lack of unity in political foreign policy is striking. The unanimity rule is becoming a real obstacle. One or more countries must not render the Union geopolitically powerless.
Let me now turn to European sovereignty or autonomy. Attaining absolute sovereignty in today's world of interdependence is, of course, nonsense. It is about avoiding over-dependence on other global actors. Ultimately, it is about security.
European sovereignty is not the opposite of multilateralism. On an international level, choices have to be made. It remains strange that it is the USA that is questioning the multilateral framework. But other global actors too often pay only lip service to this framework. Saving multilateralism is one of the main priorities for the coming years. It is a choice between ‘order or chaos’. I continue to hope that the overriding interest that will eventually coincide with self-interest will prevail. Europe should take the lead in this battle. We remain a strong supporter of free and fair trade. The FTAs we concluded in the midst of rising protectionism, are proof of this.
Fortunately, the French and the Germans are beginning to realise that our lagging behind in the new economy is endangering our competitiveness and thus our sovereignty/autonomy. The two go hand in hand, by the way. Moreover, the current stagnation/recession has brought the structural handicaps of the EU economies to the surface, certainly in Germany. Not one of the 15 largest digital companies in the world is European. Even our much-vaunted car industry no longer has a structural advantage in terms of e-vehicles and certainly not in terms of sustainable batteries, the most competitive element of all. We are also trailing in the area of AI. The American and Chinese challenges can only be met by more European cooperation, including in the area of business. Scale matters. Size matters in this new world. The Galileo project is a good example. If a breakthrough cannot be achieved in the euro area and in macro-economic policy, I hope that it will be achieved in the area of micro-economy. It is a question of survival.
America’s control of dollar transactions, and of US subsidiaries of foreign businesses, gives it significant power. America’s use of the dollar clearing system (which facilitates cross-border transactions in dollars) to enforce sanctions on states, has encouraged some countries to reduce their dependence on the dollar. The euro makes the EU more autonomous. But we have to do more. The euro is the currency of 340 million people and the second one most used in the world with a share of 35.7 % of global payments.
Our sovereignty in terms of energy, certainly with regard to Russia, has increased too, but micro-interests are still too much at odds with this objective. I need only pronounce the word North Stream 2.
I hope that the Commission will be able to build a consensus on what is perhaps the most crucial issue of the coming period: climate change. It is a matter of ‘life and death’. Securing the Green Deal should be the most important task of the new Commission. At the same time, the choice for renewable energy will make us less energy-dependent on Russia and others and therefore more sovereign or more autonomous. We will be successful in cutting down greenhouse gas emissions by 23% by 2020, but more must be done if we are to achieve the 2030 targets (-40%). The implementation of all measures planned for the coming years could bring this figure to up to 36%. But to get us on the road to climate neutrality in 2050, a real transformation of our economy is needed. There is internal resistance from part of the population and from parts of the business community, despite the growing awareness, especially among young people and among very large companies. A crucial question is: who pays for climate policy? Fair distribution of the burden is crucial for the climate issue. The dramatic deterioration of the climate will have to be translated into an accelerated change of policy and mentality. Are our societies prepared to do this? Is there sufficient political courage to do so? Let us not forget that we have 11 minority governments in the Union and that populism sets the agenda for even more governments.
Populism is the opposite of political courage. It opposes any kind of change, economically and ecologically. We need to be aware of this. After all, a populist wants to be popular! As simple as that. Financial crises trigger a surge in support for populist parties; you can see it in election data going back to 1870. The 2008 crisis was no exception. The difference with the past is that you can now find populism on all continents. Parallel to this, there is the globalisation of nationalism.
European cooperation is also necessary in the military field. The blatant disloyalty of the US in northern Syria proves once again that a European pillar in NATO is overdue. More money is needed from the European side, and it needs to be spent better, jointly. Even though forms of American neo-isolationism will continue after Trump, we cannot or must not take over the interventionist role of the US. But we must think about what is important for European interests. It is precisely for this reason that we will have to rely much more on our own strength. Personally, I have little hope of close military cooperation with the UK. When it comes down to it, they will choose the US. Nevertheless, we can’t give up the transatlantic relationship and the very idea of the West, this forgotten concept.
Migration is also a matter of sovereignty. We must be able to decide for ourselves who has access to our territory. Migration remains the bread and butter of populism. That was already the case before the refugee crisis of 2015-2016, but all the more so after that. This fear exists both in the East and in the West. It also divides the North and the South. It is also a major theme in Anglo-Saxon countries. Legal migration, especially of skilled people, is inevitable given the negative population growth, but there will only be societal support for it if massive irregular migration is kept under control.
Strengthening the Schengen area is very difficult. Even the goal of a European Border Guard with a 10,000-strong standing corps is progressing painfully slow. With regard to the common asylum and migration policy, only a few countries are prepared to take steps forward. The situation in a number of countries bordering the Mediterranean remains precarious. Combined with the population explosion in Africa (up to 4 billion people by the end of the century) this should be sufficient reason to move forward.
Let us not forget the human aspect, either. Just one aspect of this dimension: as the EU, we must avoid a humanitarian crisis on the Greek islands in the coming months. It would be another disgrace if this happened. In fact, it is already happening.
For Central and Eastern Europe, emigration is just as big a problem. The demographic decline and emigration are a dampener on potentially higher economic growth.
What is the impact of all this on our economic and social models?
I hope that with the adoption of the latest version of the Withdrawal Agreement – and thus a soft Brexit – and a comprehensive American-Chinese agreement, we can avoid a recession. The cause of the current economic problems and especially of the confidence shock among national and international investors was political. The solution must also be political. Any stagnation or recession could push countries back towards the 3% deficit in government budgets. The question is whether countries are prepared to pursue a pro-cyclical austerity policy, moreover, with populists waiting in the wings. It is very striking that in the UK and the US, austerity has been thrown overboard – in the US not even in the name of investment. On the other hand, fiscal surpluses are equally pro-cyclical. What is good for one country is therefore not good for the euro area as a whole. The EMU is more than the sum of its parts. In general, EU economies suffer from under-investment in the private and public sectors. The savings surplus is also evidence of this, with lower interest rates as a result.
Another challenge is harmonising monetary and fiscal policies. Both must work in the same direction.
The euro area and the banking sector have become more solid, but progress on EMU reform and the banking union, in particular, is 'incremental', although the reports of the four and five presidents show the way forward. Many proposals come up against the fear of more 'solidarity'.
In the US, the euro area and China, non-financial businesses are running higher levels of debt today than they were ten years ago. It has the potential to develop into a global financial crisis. The euro area is not yet strong enough to cope with this.
In the Union, we need to pay more attention to the impact of policies on income and wealth distribution. While inequality is much lower than in the US and the UK, the number of people at risk of poverty is also increasing in the EU-27, as is the group of the working poor. Together with migration, purchasing power for all is a central social and therefore political issue. The unrest in the middle class is increasing. Digitisation is causing jobs to disappear at this and perhaps also at a later stage, especially among the lower and moderately educated. There is a palpable social malaise, even though eleven million jobs have been created in the eurozone since the end of the crisis, six years ago now. 40% of the jobs are non-standard, which leads to uncertainty among young and old. The economic growth feels far less positive than the GDP figures suggest. The gap between the highly skilled and those with lower qualifications is one of the major social issues of the coming period. It also helps to explain the polarisation in society in many areas. More so than the tension between cities and the countryside or between old and young.
A fully-fledged EU budget for the period 2021-2027 should focus on the major objectives of climate, innovation and migration, the major challenges of our time. The previous Commission's draft contained this strategy. Unfortunately, the debate threatens to focus on 0.1% of EU GDP. The MFF is the first political test for the new leadership in the three European institutions.
How can the Union be strong if the member states are politically weak internally? I refer once again to the number of minority governments and those that have been weakened, according to opinion polls. Many people are convinced that only a European approach can provide a response to the demand for better protection against, e.g. climate disasters, massive irregular migration, financial instability, trade restrictions, excessive flexibility on the labour market, international tax evasion, etc. On the other hand, however, there is often too little support for the additional transfer of powers to the European level — a schizophrenic position. The deep social malaise, translated into election results, also requires national policies that inspire confidence. If the member states become stronger, so will the Union.
A lack of respect for the fundamental rules of our political democracy can be found in various countries in the EU. Leaving the Union is not an option for the 27 remainers, but it should not be a free pass to do anything internally. If not, the Union is merely an economic project, the result of a cost-benefit calculation. We would then be a long way from the 'Union of Values'. That will be one of the tasks of the future Commission and even more on the European Court of Justice.
However, we should not wait for the further deepening of the Union to happen before the Western Balkans are better anchored in the Union. We are in danger of handing that region over to other global actors, despite the fact that the economies of the region are, and will continue to be, largely focused on their neighbours in the Union. A lack of empathy can lead to wrong strategic choices. Geopolitics starts within the borders of our continent.
The new institutions are therefore faced with a very difficult task. It is true that the European Council was not influenced by the European elections, and continues to determine the overall direction of the Union – as it should. The strategic agenda of the European Council and the new Commission is very convergent. All institutions are serving the same purpose. Failure would lead to an ungovernable Union within five years. They, therefore, have no right to fail.
People may not be happy with the EU, but they are increasingly happy in the EU. Leaving is not the wish of the overwhelming majority of the citizens of the EU-27. Support for EU membership is now at its highest in 27 years. The European voters turned out in record numbers in May. We cannot afford to disappoint our fellow citizens."