European Integration: What Future Prospects?

What I am going to do is talk about the European Union (EU), its last two decades of change, and use that as a backdrop for where it is going in the future.

First of all, the most notable feature about the EU is that it is very predictable. It works in a very distinctive but also very conditioned manner in that it tends to set up a blueprint and then pursue it. This is essentially the story of the EU over the last two decades. The focus has been on realizing some large projects in key areas such as economic and monetary union (i.e., the introduction of the euro, which is now in force in 12 countries and will be used in newly joining countries). A leading document in this area is the Maastricht Treaty that was negotiated in the early 1990s and came into force in 1993.

A second key area is foreign and security policy. The EU has been engaged in foreign policy since the very early 1970s, but they have really become serious about collective foreign policy since the end of the Cold War. The framework for this policy was established in the Maastricht Treaty. Essentially, they have moved from a fairly weak collective foreign policy to one in which they now have a much stronger, albeit imperfect, foreign policy.

A third key area that the EU member states have been focusing on is justice and home affairs. These are questions of internal security and are the flipside to removing barriers to economic activity in Europe, resulting in the requirement to deal with the internal security of the EU and to strengthen its external borders. This project has been quite slow to develop but is taking on more momentum and has its origins, again, in the early 1990s.

Another area in which the EU has been completing the blueprint is connecting with the citizen. Arguably the EU's most important challenge at this moment in time is to determine how to gain the interest of the individual citizens of the EU. Again, in the Maastricht Treaty, there was the creation of EU citizenship, with voting rights for elections across the EU as well as changes in consular representation. This has caused a shift in the language with which the EU has been contemplated in that it has essentially moved from the economic and diplomatic front to something that is much better cast and thought about in terms of politics and political science.

The last area is enlargement. Over the last decade, the EU has been enlarged twice, in 1995 and 2004. At the same time, the EU has been developing a body of law, and it seems that the EU never stops creating new law and new regulations.

In terms of becoming a member of the EU, first of all, a country has to satisfy the Copenhagen criteria: stable institutions guaranteeing democracy and the rule of law, human rights, protection of minorities; a functioning market economy that can cope with the competitive pressures of being part of a market that includes more developed economies (i.e., the existing EU member states); and the ability to take in the existing EU body of law.

The significance of the newly joined member countries on the EU has been the addition of more small countries. This means the expansion of the consumer market is not as sizeable, while bringing with it complications in terms of communications (use of 20 different languages). The real challenge in most of the new poorer member states is to raise the level of their gross domestic product (GDP) toward the EU average, which has implications for the way the EU chooses to spend its money in the future as well as for the characteristics of the EU marketplace.

The striking fact about EU enlargement is that the structures through which the EU takes decisions have remained the same, in essence, since the 1950s. An attempt to address that was the Constitutional Treaty. With the new enlargement, 10 more sources of influence are introduced into the decision-making process, creating potential for different coalitions of interest.

As the current main activity of the EU, enlargement has been the EU's "project without end." The enlargement last year was the fifth since the 1970s. Going forward, the question is about the limits to the EU's enlargement. This is one area in which the EU does not have a blueprint. One issue that will arise is that enlargement as an idea will become more contested in the future, with countries seeking to join the EU being subject to much more extensive scrutiny than in the past, as was the case with the last two enlargements.

The second key project in progress - and many would argue that this is a failing project - is building an effective system of economic governance and making the EU more competitive. The macroeconomic policy in the euro zone and other member states of the EU is supposed to be conditioned by the Stability and Growth Pact (SPG) which sets benchmarks for things such as government debt and budget deficits. The SPG is still in operation, but it only exists for lack of an alternative. The essential problem at the moment is that the three largest continental European economies (France, Germany, and Italy) are in breach of the provisions of the SPG, which has dented their leadership credibility.

Another problem is the EU's attempt to get to grips with the objective of the Lisbon Agenda to become the world's most competitive economy by 2010. This will simply not be realized. There are profound problems associated with reform on the supply side, especially in the larger European economies. While there are hotspots in terms of technological success, there are also a significant number of economies that will have difficulty dealing with the competitive pressures presented by China. In this respect, the euro as a tool for Europeans has been one that has suffered from benign neglect in terms of its exchange rate and use outside of Europe.

The third project underway is the EU's common foreign and security policy. The news in this area is slightly better. Europeans have managed to progress in terms of building up policy and making significant departures from past practice. Their set of foreign policy instruments includes Javier Solana as a public face, in addition to money (giving it or putting sanctions in place). A security policy has been set in place and Europeans are now thinking in terms of geopolitics. Furthermore, Europeans have now collectively engaged in and are developing more capacity for military operations both outside and within Europe, separate from the North Atlantic Treaty Organisation (NATO). The European Defense Agency has been created separately to manage procurement of military equipment, and this will take on more significance in the future.

The last project and the topic of the moment is the EU Constitutional Treaty. It is an extremely difficult document to explain. It has been over three years in the making and the process by which it was made was supposed to be one that involved and connected the citizens of the EU to the document. It then passed through the washing machine of governments before becoming the so-called Constitutional Treaty. It is not a constitution. It is a treaty in the sense that it is an agreement forged by governments, but it has constitutional-type functions.

What it intends to do is to simplify and streamline the way in which the EU makes decisions (voting, appointment of member states to the European Commission, new positions, etc.), as well as streamline some of its institutions by turning the EU's four founding treaties into one document. In some areas, in fact, it has pushed forward EU policy, but not as profoundly as earlier agreements. In terms of connecting the citizens to the EU, it has given individuals more rights through the Charter of Fundamental Rights as well as a greater role to national parliaments in the EU decision-making process.

The problem that has arisen with the document has been the ratification process. Ten countries have ratified this document so far, with only one involving a referendum process. There have now been two countries (France and the Netherlands), however, which have had referendums whose publics have rejected the treaty. In both cases, the public debate surrounding the referendum was less about the treaty itself and more about previous things that the EU has done, as well as unhappiness with the governments in office in both of those countries. These involve the euro as a cause of price inflation, anxiety about the consequences of EU enlargement ("social dumping"), and uncertainty about the kind of economic model to follow.

The question is where to go from here. This is not a crisis for the EU at the moment, but it has the potential to be part of a weather system that could turn into the perfect storm. There are a number of choices: They can, although this is the least likely, either forget this document or press on with ratification. One government with the second scenario in mind is the UK government, which has decided to suspend its ratification process - not to halt it entirely but suspend it, pending clarification on the position of other governments. There is a real possibility of a split emerging, with some governments deciding not to press on with ratification while other governments do. A third, less attractive scenario is for the member states to come up with another document with even higher expectations placed on it.

What is most likely to happen is some attempt to re-energize the ratification process with the focus on France and the Netherlands. Essentially, both countries will have to make a decision whether to re-introduce the treaty in some way or other.

To conclude with where the EU is going to be going in the next few years based on this, first, the EU will undoubtedly be larger. Romania and Bulgaria have signed their accession treaties and will almost certainly join. However, the big question is Turkey. Membership negotiations are due to open with Turkey in the autumn under the UK presidency of the EU that starts on July 1. As things stand, those negotiations will open but will not advance very far because Turkey was such an important issue within the referendums. Another difficult case is Croatia in that the Croatian government is not yet thought to have done enough to comply with the work of the Hague Tribunal in turning over war criminals. These are indications of how issues will work in the future. There will be a lot more, closer, and tougher conditions placed upon states before they even get to the negotiation process. The worst scenario is that enlargement stalls and this has unfortunate consequences for the politics of southeastern Europe, where the EU has used the appeal of EU accession as a powerful tool to modify government behavior.

Second, with or without the Constitutional Treaty, EU decision-making will get far more complicated. At the moment, it takes nearly an hour just to hear introductions from every foreign minister. That affects the efficiency and effectiveness of decision-making and may lead to a tendency for backroom and corridor deals that then get brought forward. Making big deals will become difficult since, going forward, it is not certain where the leadership will come from given that in almost all of the big EU member states, the leaders are up for elections and will be preoccupied domestically.

Third, with regard to the competitiveness of Europe, it is going to be much more difficult for Europeans to sort out their economy. As was seen in the French referendum debate, it is going to be very difficult for the French government to pursue a liberalizing agenda. That will have implications at the European level. The great tragedy for the EU is that 75% of its GDP comes from services, which is the least liberalized sector of the EU market. That is a very significant problem for the future.

Lastly, on being more globally active, Europeans are going to be more engaged collectively on the international stage, both multilaterally and in terms of region-to-region relations, and in relations between the EU and third-party countries. The China arms embargo fiasco is an indication of the way in which the Europeans are feeling that they are involving themselves in other regions further away from home. They already have strong economic relationships with other regions. They are now starting to cast them in political terms. Whether they are ready to do that is another matter.

Commentator: HATTORI Takashi, Deputy Director, Europe, Middle East and Africa Division, Trade Policy Bureau, METI

With the enlargement and the Constitutional Treaty proceeding in a parallel way, it makes things more complicated for the EU. Referendums in two countries have rejected the constitution, which demonstrates the distance felt by the citizens from their governments, not due the contents of the constitution but due to other unrelated factors such as high unemployment and other issues. However, one important factor that was highlighted can be seen in the difficulty in the decision-making process in the EU. In terms of the budgetary discussion in the EU, such as the points raised by the UK, the older 15 members have to adjust to the new dynamic situation that includes the new members. How the enlarged EU membership affects the decision-making process in forming directives, for example, is important to consider in the future.

As for Japan-EU relations, there were trade disputes in the 1980s but cooperative relations have continued since the 1990s. In recent years, the cooperation has been more institutionalized with the adoption of Japan-EU Action Plan of 2001 and follow-up thereafter. How much the expanded EU will affect the bilateral relations is the key question.

On the implications of the EU for Asia, with respect to the Association of Southeast Asian Nations (ASEAN) process and the idea of the East Asian Community, it is not clear that the EU model can be directly applied to Asia in terms of leadership and goal-setting, for example, when we compare Japan-China relations with the French-German Axis and the UK.

Q: Could you introduce briefly the most up-to-date argument on transatlantic relations, especially with regard to the controversial paper written by Robert Kagan? More specifically, what is the talk between the two continents on preemption or anticipatory self-defense?

A: Europeans are very slowly working on the way that they want to behave collectively internationally and the kinds of relationships that they want to cast with other international actors. It is a period of transition that started with the end of the Cold War. Enlarging to the new member states is part of that transition, and now they can get on with talking about an EU that is credibly Europe, rather than half the continent, as used to be the case.

However, this also complicates the relationship with other international actors. The relationship with the U.S. is one of the most complicated of these. Even if the question of the Iraq war is set aside, the EU is becoming the preeminent military actor in Europe. Whatever else NATO is doing, in Afghanistan for example, it is becoming a different kind of organization. It is becoming a sort of Organization for Security and Cooperation in Europe that binds together NATO member and non-member states in much more structured relationships in terms of defense diplomacy. The EU is gradually doing things militarily, but there is going to come a point at which it will matter to the U.S. in a way that it does not matter at the moment. There are only hints of that now. On Kagan's idea of the Europeans and the Americans coming from completely different places, I think we are about to see them come into contact with each other.

This has implications for the EU relationship with Japan and Asia in general as well. Europeans have traditionally been very loath to think geopolitically. They are slowly (and badly) starting to think geopolitically and they are involving themselves in regions that they did not in the past.

What they will have to consider a lot harder is the interconnections. It is one thing to have a robust trade relationship, but it is quite another to think about the political alliances that you want to have with states. The EU security strategy, which lists both Japan and China as strategic partners, is a good starting point for that. Whether the EU can transition some of its relationships, for example, the trade relationship with Japan from one which is cast primarily in terms of economics to one in which big political questions can be discussed credibly will be an interesting test in the next few years. The problem the Europeans have at the moment is that there is a great interest in studying the significance of China for Europe, to the relative neglect of other kinds of relationships. It will be important on the part of third parties to really make themselves much more demanding of Europeans because they are going to be distracted internally, but also they are being pulled externally toward certain directions that require a counterforce to shift their attention.

Q: On the Copenhagen Treaty, what are the criteria for judging whether a country is democratic?

A: It is one thing to have written criteria that say a country should have a liberal democratic political system, but if you look at the EU of 25, the systems of government and politics are very different. Indeed, there are problems in some member states, old and new alike, of political corruption. In terms of successive, freely fought democratic elections, they are present. However, for example, Romania is a state which has had a difficult political transition. The decision to allow any state into the EU is ultimately a political decision but it is most important for prospective members to have a strong advocate or group of advocates within the EU because you are taking these countries on trust. Even among the original EU countries, I would point out Italy as an example of being of questionable eligibility.

On this criterion, Turkey is the key test because democracy is of utmost importance when Turkey's application is being considered. Turkey will be allowed no room for doubt on questions of democracy and rights, not least because the European Parliament has to approve any state's admission to the EU. In that respect, it matters how badly countries on the inside want a state to become a member. They wanted the Central and Eastern European countries to become members but the case is not the same for Turkey.

Q: Could you comment on the possibility of the pound being merged into the euro zone?

A: The only circumstance that I could imagine where there may be an attraction for the UK government to enter the euro zone is if there is divergent performance between the UK economy and the euro zone economy. At the moment there is no constituency within the UK pressing for euro membership. Business is opposed to the euro over excessive regulations and the fact that the UK economy is performing better than some of the large economies in the euro zone. There would have to be a turnaround of the current situation before it would become attractive in the UK.

One of the two other factors is the political calculation. Prime Minister Blair was intuitively in favor of joining the euro. Chancellor Brown, if he becomes prime minister, does not have the same view and has been one of the most skeptical politicians on this question within the government. The other is public opinion. It would have been tremendously difficult for a UK government to win a referendum on the Constitutional Treaty, but even more difficult to win a referendum on the euro. Both the current government and the main opposition party (the Conservatives) have promised referendums. There is quite a formidable set of hurdles that would have to be overcome before the UK signed up to the euro.

Q: Could you give us some ideas on how economic governance in Europe could be made more stable?

A: The Europeans are at the moment hoping that something will turn up because the stimulus from supply side measures that is needed appears unlikely to happen. It is not going to happen in France before 2007. Also, I am not sure that in the upcoming German elections, the opposition party's call for more efficient reform of the German economy is necessarily going to win. Almost nobody in the EU is advocating a much stronger Stability and Growth Pact, so at the moment, there is a sort of conspiracy to leave things as they are and not to enhance what we have. The most problematic actor in all of this is the European Commission, which has been severely damaged by the inefficiency of the last two commissions that were in office and is not strong enough to animate some of the discussion that should take place.

Q: Recently, there was some trade tension with the U.S. and Europe wanting to impose a quota on Chinese textiles. How do you see this fierce competition or invasion by the Chinese of the European market?

A: It will be very interesting to see what happens on the trade front with China. The trade relationship between Europe and Japan in the 1980s was one of managed trade. The challenge within the EU is that the markets are very diverse, so that China feels very different depending on where you are in terms of sector, as well as among the various member states. What Europeans are going to have to do is move higher up the value chain and I am not sure whether that is going to be easy across the EU. Some countries, for example, Italy, may find that the level of Chinese imports endangers its industries. As for difficult moments, as was the case with textiles, they were overcome after a fairly short time and normal trade and investment were resumed. European governments have invested a lot of time and energy in their visits to China to secure their investments and make space for more investments.

Just to add to the question of decision-making, the debate over the EU budget illustrates some of the crosscutting differences within the EU. There are those who pay into the budget who do not want to pay anymore; there are those who just joined in order to get further assistance; and there are those who were beneficiaries of structural and cohesion funds in the past who see that disappearing. That makes for tension on this budget question. There is not a great deal of goodwill around on the EU budget question. The summit which will take place next week will focus on sorting out the budget question. Added to this - the question of the Constitutional Treaty as well as other issues - one can imagine that the political climate within the EU is going to be fairly difficult for a while. This is terrible news for the UK government because it will find, when it takes over the EU presidency in July, that all its plans for deregulation and liberalization will have to be abandoned and it will be left with sweeping up a lot of problems that it is itself involved in. It is going to be a test for the UK of whether it can run a good presidency, not by advancing its own interests, but by being a good problem solver and by being assiduously neutral.