Liberal Idea for Europe

Krzysztof Iszkowski’s interview

Where does the main division of the European politics lie?

On the one hand, there are Eurosceptics, who appeal to the nationalist rhetoric and use a populist move, saying that the crisis is a sign that the European project is a misunderstanding and we need to return to the reliable nation states. On the other hand, we have new forces that admit that the crisis indeed revealed the weakness of the current leaders, but in answer to that, we must accelerate in order to turn Europe into what its founding fathers had in mind. Their – our – most convincing argument is the fact that makeshift integration cannot be maintained. Because a situation in which we have a common currency, but no common economic strategy, fiscal policy, and supervision of the banking sector is without precedent and cannot last. The history has recorded cases of a country without its currency, but not currency without a country. If, then, we want to rescue the euro, we must construct the missing structure. That will mean creating a real European government which would be based on the majority originating from election for the European Parliament and which would thus be subject to a greater democratic control. What’s more, we need one treasure, and common government bonds, which would allow for decreasing the costs of debt service; and we need a budget not to be trifled with – because when we look at the USA, the federal budget amounts to 24 per cent of GDP, and in the EU to only 1 per cent.

The expansion of European integration to further areas that you propose seems to be an answer to the question about the strategy, and less about what specifically is to be done to steer Europe out of the crisis. Saying that the present institution models are ineffective is of course true, but saying that we are going to have common European fiscal policy is not tantamount to determining its contents – let alone guaranteeing its efficacy.

The European crisis is of political nature mainly, so it requires a political solution. Besides, the answer to “How?” is also, at least in certain areas, the answer to the question about the “What?”. Take public debt for instance. In the Eurozone, it amounts to 92–93 per cent of the annual GDP, whereas in the United States it is 103 per cent, and in Japan – 226 per cent of GDP. But if we take a look at the percentage rates, it turns out that Europe has the highest ones. The only justification here is the policy and institutions. In both Japan and the USA there is a common budget, treasury and efficient government. In the Eurozone, there is the Central European Bank, whose reassuring announcements have one side effect in that they not only influence the markets, but also politicians. As a result, the latter consider that we have put the worst behind our backs and we’re going to get by without a comprehensive reform of the European institutions. And they are utterly wrong because without the reform, the economic depression can well last decades.

For the South European countries debt sharing would mean savings somewhere in the region of tens of billions of euros! Thanks to this, those economies could re-develop instead of continuing their devastating policy of belt-tightening. Lowering interest rates – not only of public, but also private debts – would yield less revenue to banks, but more money to small and medium-sized enterprises. Not to mention the fact that the slogan “More Europe” implies creating a common strategy of economic development, which is another attempt at achieving what we strived for in the unfortunate Lisbon Strategy – that is – boosting Europe’s capacity for innovation, so that it becomes the most competitive of all economies in the world. Like in business – the economies of scale are such that even without launching a new product on the market we can get returns.

I was going to ask you about the way billions of euros that were gained by the common emission of bonds were spent, but I gather, the answer would be along the lines of “Support for SMEs sector” or „recurring to the Lisbon Strategy” – instead of, let’s say, “armaments”, like in America, or “welfare state”, like in Europe of the ‘60s and the ’80s.

You have just mentioned another potentially lucrative area. We’re not doing great business now maintaining 27 separate armies. It turns out that when the need comes, we still turn to the USA for help. But creating conditions conducive to business development is indeed the best way to stimulate economic growth. And again – it’s not about government funds, cheaper money will do. A Greek businessman may have an absolutely brilliant idea, but the credit percentage rate for developing it will still be 10 per cent. This is a credit that a gangster could possibly manage – as organised crime has seen return rates of that kind – but not an average entrepreneur. And even if the business idea does catch on and the enterprise really manages such high interest rates, it still leaves less money for employers’ salaries. If they earn less, they spend less, so domestic demand decreases and the economy is shrinking. The current policy of Christian Democracy is connected with great sacrifices for thousands of ordinary people. No wonder that more and more of them start lending ear to the anti-European populist voices. Belt-tightening measures are counter-productive, but as long as the wealthy Northern countries are not in control of how their money is spent – that is until a common political union is established – it will be hard to come up with a strong incentive for the Southern economies.

It all comes together to form a classical liberal programme: „let people help themselves; let’s create environment for business to flourish spontaneously – most of all, the small business”. These views unite all European liberals. Sadly, the answer to the question that you, yourself, consider crucial to the European future does not have such uniting quality. British liberals form a part of the government which is on the verge of making the country step out of the Union.

But they are the most pro-European group!

…yet a group that either lacks the strength, or courage to stop Cameron’s decisions.

They are openly opposing his line on European matters, and Vince Cable, the liberal Minister of Business Innovation Skills heads the campaign whose slogan could be thus summarised: „We would be fools, if we stepped out of the Union now; even talking about it does harm to our economy”.

Still it’s hard to resist thinking that their own seat in parliament matters more to them than British membership in the Union.

That’s untrue. Looking at opinion polls prior to the European Parliament election, it is plain and obvious that it is the liberals that are the group pressing for closer integration. They are the ones perceived as a real alternative for the UK Independence Party (UKIP). Besides, even the conservatives rank politicians critical of Cameron’s policies and deeply believing in the European Union’s future.

What about the German liberals? Their entry into the second Merkel government – instead of social-democrats – has led to toughening the austerity measures and at the same time alienated the Southern countries. Obviously, the motivation behind it wasn’t to harm the Union, but one must realise such consequences.

I’ve always said that financial control and closer solidarity must go hand in hand. I am specifically referring to the sharing of the public debt, in the part exceeding 60 per cent of the country’s GDP. And as for German liberals, the FDP members in the European Parliament are more inclined to support this idea than their counterparts in Berlin.

This would suggest that the main division line, which we mentioned before, is drawn between the European Parliament and the nations’ political elites.

Not quite so. While among the liberal EU parliament members the majority is in favour of federalisation in the EU, the majorities in other political groups are against it. And when it comes to politicians on the national level, their myopia indeed is the fodder for Euro populists.

I’m afraid it is more than just short-sightedness. Stronger EU institutions will mean limited power for the national prime ministers and MPs. And since the essence of being in politics for some of them is acquiring power and later maintaining power, it leaves no room for delusions that they will relinquish it just because it would boost the economy. The more so because they can always say: „The whole Europe has been afflicted by the crisis, and there’s nothing we can do about it”.

We can either opt for closer integration, or we will remain in recession forever; or we can do away with the currency union and introduce customs duties and border controls back again. In the last option, the euro will shrink by 6 per cent. Next year Europeans will face a choice between these three scenarios. Unfortunately, as long as the “European” option is represented as the status quo, anti-European populists will have no trouble convincing voters that Europe is not functioning properly. How is it supposed to work properly, if its construction has been stopped half-way before the end? The unemployment rate  in the Eurozone has reached 13 per cent, and among the youngest working group even – 25 per cent. One would have to be blind to say that things are fine. But to maintain that the solution is returning to the pre-EU situation – excise duties, border controls, currency crises, devaluations – one would have to be a fool to that. Because this means that we would all experience what Greeks have in the past few years.

In an interview with Jean Quatremer, which was published together with “For Europe!” manifesto you describe yourself as a former neoliberal. What did the crisis change in your perception of economy?

Let us come back to the roots. In The Wealth of Nations Adam Smith writes that free market needs rules, because without them it becomes a lawless jungle which has nothing in common with economy. Our recent problems stem exactly from insufficient regulation. All food and industrial products need to comply with certain norms – but we did not require financial products to meet any standards. We cannot blindly trust that self-governance will solve all our problems.

How important in the regulation of financial markets is the financial transaction tax, FTT?

From my viewpoint, its main advantage would be substituting payments that member states make as a source of EU finances. I do not like the fact that the tax was agreed on, and later given to member states as an additional source of income. This brings me to the next, key limitation of European democracy: how are the people supposed to feel European citizens if they do not pay taxes for its functioning? FTT would be an excellent source of additional income, alongside the member states’ one.

According to the German Constitutional Tribunal the taxes which go directly to the EU are unacceptable because the Union is not democratic. How democratic is it if half a million of the Maltese are represented by six deputies to the European Parliament, while one German deputy represents 800 thousand German citizens?

The answer to this accusation of the lack of democracy is a new institutional structure. National interests should be represented in the senate, similar to that of the United States. America can serve as a good reference point, because it allows to discern the ridiculousness of European solutions. If the United States were governed like the EU is, instead of President Obama and his administration, we would have meetings of 50 governors convening in Washington every six years and striving to reach a unanimous decision in all essential for the USA matters. Suffice it to imagine such a debate on Iraq intervention or on the defence of the dollar! And yet this is how we are trying to govern the Union. 17 ministers of finance of the Eurozone or 27 prime ministers or presidents convene four or six times a year and make attempts to reach an agreement. This can’t possibly work.

What will the election change?

A positive outcome of the federation supporters will force Christian Democrats and socialists to be more decisive in their policy. I hope that the year 2015 will usher us into the sessions of a new convention that will prepare a project of the necessary institutional changes. Only this time the result of its work should be clear and comprehensible.

It’s worth providing beforehand for the fact that the result will not be to everybody’s liking. In America in 1789, as you have reminded together with Daniel Cohn-Bendit, four states originally did not intend to agree upon the new federation constitution, but in the end none of them stepped out of the USA.

Thus the idea of a double referendum, put forward for the first time by Mario Monti in 2005 after a resounding “no” in the French and Dutch referenda. After deciding on the shape of the new constitution, it would be put to the vote in all EU member states with the pre-condition that it will come into force if a certain qualified majority accepts it. If we were to stick to the American proportion (9 out of 13), that majority would be 22 out of 28 member states. Were the result of the first referendum negative, there would be a second voting session on whether a given country wants to remain in the EU all the same. Monti also said, also very aptly, that the preparation of the next revision of the founding treaties should commence from the end – that is from the decision on how they will be ratified.