Speech at the Samsung Economic Research Institute (SERI) about the economic and financial crisis
Séoul, May 25th 2010
Thank you very much for your warm welcome. I am very happy and proud to be here. Thank you to His Excellency the Ambassador; I would like to express my sincere gratitude to the Spanish Ambassador – Spain is currently
holding the rotating presidency of the EU – the Belgian Ambassador and, for sure, the European Ambassador, Mr Mac Donald, who gave you a precise account of the first measures and decisions made by the European institutions in order to face the crisis, and answered your questions.
I would like first to make a few observations in order to launch the debate, which will be useful with these prominent Korean specialists of the EU. Please excuse my freedom of speech; I think that this debate will be more interesting if it is rather lively. To this question, “is the EU ready to face the crisis?”, my answer is definitely yes. Three remarks will allow me to explain why:
I know that it is difficult to understand how the EU functions, even for some Europeans. But I also know, and this is my second remark, how difficult it is to understand and evaluate how the EU performs in times of crisis. We can maybe discuss together a third question: how is the EU dealing with these new challenges? Most people know how the EU works, but sometimes we do not realize what the day-to-day difficulties to make decisions are. These difficulties are due to the fact that decisions will bind all the Member States for a long time, for much longer than what is generally the case for traditional international agreements.
We must not forget that the European Union is a voluntary Union of nation states and that explains the apparent difficulties we encounter when making a decision. However, our decision-making system has reached a degree of transparency that is unique in the world. It is true that we have complex mechanisms and very complicated procedures. The rotating presidency is one of them, but it has many advantages, such as giving one Member State the opportunity to represent the EU and its interest and ensure the continuity of EU policies, while all the other Members States defend their national interests. Every six months, it can be difficult to really appreciate the extent of this responsibility but in fact, the Spanish presidency right now and the Belgian one after it have to take into account all the European “package” and policies and defend the interests of the EU. This explains why a 6-month presidency is sometimes too short a period of time to make new decisions and implement new policies. These presidencies are also permanent opportunities to learn because running 27 members states with strong identities, long histories and different economic situations and defending common European interests is a tough task, that requires learning and practice; it is in fact very useful for the European Union as a whole.
As you know, this dual system of, on the one hand, powers transferred to the federal level, which are actually limited to 5 or 6 fields such as competition and agriculture, and, on the other hand, powers that are permanently shared with the Members states, is a mixed blessing. This system makes cooperation necessary to decide on laws, regulations, treaties, practices or procedures that need to be adopted. This process has some important negative aspects: we take sometimes far too long to make the right decision. For example, during the Greek crisis, we could have made the decision that Ambassador Mac Donald has just explained to you far more quickly; we could have taken efficient measures in January or February and the crisis would have cost less to the EU if it had acted as soon as the crisis emerged. However, this system also has positive aspects. Let me explain: sure, we have shown a lack of reactivity when dealing with the Greek crisis because of the difficulties to reach an agreement. Germany was not really enthusiastic about helping the Greek government because it had lacked rigour in managing public spending and the budget and in respecting its obligations under the Treaty. It was also evident that France had anticipated the outcomes of the internal European discussions – the fact that solidarity with another member of the Euro zone was indispensable – faster than others. However, by using European rules and practices, we did reach an agreement three months later.
External observers often think that the EU can be a disadvantage and that the negative aspects of the European construction are a huge burden; however, we cannot forget where we come from, where we are now and where we want to go. Sixty years after the EU started, as Ambassador Jena reminded us, it is quite a miracle to gather 27 nations around the same table, to gather 16 nations around the euro zone table and to reach an agreement which involves such a huge amount of money and financial commitments. So, yes, we do lack reactivity and in the future, the same difficulties may arise again, but other aspects are much more positive: every time the EU faces a crisis, the answer to it is more integration.
Since the beginning of the Union in 1950, Europeans have never reacted otherwise to a crisis than by fostering integration. The EU integration process is moving forward on a day-to-day basis with new regulations, new directives and new decisions of the European Commission. Sometimes, we go faster, sometimes, we go slower, but we never went back on European integration; every time we had an existential question about European politics, we chose to go further and to take a new step towards further integration. This system is quite amazing and has never been seen anywhere else; in fact, it is based on the European magic invention of Jean Monet and Robert Schuman, the “méthode communautaire” (community method) that the Belgian Ambassador reminded us of. In fact, we have so many common interests that we do not really have the choice: we have to choose the “European way” to deal with this crisis. The EU integration has in fact, as ambassador McDonald said, made a lot of progress with this crisis. For example, the idea of a financial solidarity system, a kind of EMF - European Monetary Fund – was launched. Politically, the procedure is very similar to that of the IMF: it would be possible for a Member State, under particular conditions including strong budget monitoring, discipline and maybe sanctions, to obtain subsidies and temporary financial support. This idea is totally new and it is not in the Treaties; it is because we face a crisis that we have to invent these kinds of procedures. Moreover, as Ambassador McDonald said, for the first time since the beginning of the European construction, the Member States were ready to authorize the European Commission to go to the market and make money by emitting bonds. We might see one day the European Central Bank doing the same. Well, it is actually doing the same right now, as it is buying bonds from some of the Member States – Greece for example – in order to guarantee national public debts despite the “no bailout” clause that is in the Treaty.
Consequently, one of the specificities of the European Union is the constant fostering and progress of integration. The EU is a specific case that has never been seen anywhere else in the world and in history. In fact, the solidarity, the attachment to procedures and the rule of law within the European Union are so strong that there is no other way to act for the Member states, with respect to their national competence, national prerogative, national sovereignty and national Parliaments too. It is the reason why I am quite optimistic in spite of the comments in the newspaper and the appreciation of rating agencies. They cannot understand this particular political link between our member states and why their interests are so intertwined. This is the reason why, on the market, we need better communication and to be more reactive. We act generally like a tanker and not like a speedboat, like an elephant rather than an Asian tiger, but this is Europe. We have to remember what we are: a union of sovereign Member States. Personally, I am in favour of a federal European state. It is a work in progress and there is a long way to go before we achieve it, but we have to achieve it in the future.
Second remark: how is the EU performing? You know that the EU as a whole is the first world economic power as it represents 22% of the world GDP and 70 % of the total world exports. For the non specialists, I can give an image – no precise mathematics figures – but an image that will enable you to understand what is exactly meant by the “Common Market” that the Belgian Ambassador described. With 500 million inhabitants, it is the biggest market in the world, where people consume the most and which concentrates 40 % of the world trade due to the internal trade. It is convenient to say, in order to better explain the dynamism of the internal market and even if it cannot be considered an economic figure, that 40 % of the total world trade are concentrated in Europe. I know however that the European Union has a low growth rate; things are evolving very quickly but at the time being, this is the reality. If we are the first market, we also are the first foreign investor in the world, including here in South Korea. In the list of ten countries with highest GDP, there are five European states including Belgium, Luxembourg and some others.
As a result, economically, the EU is a real success but today, it is questioned from the political point of view. The EU is mostly an economic achievement with seven main Treaties, its own law and its own internal regulations. However, at the time being, we all know that challenges are outside the EU. It is the reason why the first question that the EU has to answer is: what is its role on the international scene? What is its place? We know that it is the first world economy, but what role does it want to play? Once again, we do not agree among ourselves and we have strong debates. If you ask France and I am French, the answer is that we want to be a new superpower. If you ask Germany or the United Kingdom however, they do not want to be a new superpower and they do not want to abandon part of their sovereignty. These are the issues at stake for political reasons, but at the same time, integration is moving forward. This paradox leads the EU to be more and more economically powerful and to develop more and more integration in the fields of civil law, criminal law, armies, defence policies… We are doing so step by step, maybe with the help of the Schuman and Monet “procédure communautaire” (community procedure), but without any official recognition by our politicians, our parliaments and by our own people that we are building something different and new.
All the difficulties of the EU today, in my opinion, come from this political deficit. And when the markets want to test the European Union, they do so because they know that politically, it is very difficult to obtain a fast answer. They try to take advantage of it by speculating or by other means. However, everybody knows that the Eurozone and the EU are the richest areas in the world and that they have many assets, not only their workforce and highly educated people, but also with regard to their financial systems. Everybody knows that German banks are very active in Asia, especially in South Korea; we can also mention the French banking system, and all the technologies that Europe develops in the fields of space, telecommunication, chip cards… Every credit card has a chip card that was invented in France, not in the United States, in California. The example of Airbus shows that when Europeans put together their knowledge, they can be the world leaders. It is the same for the space industry as we developed the first rocket and satellite launchers in the world.
We have many assets, but we also have some specific habits and behaviours, especially as far as social policies are concerned. We have built in Europe a socio-economic model which provides assistance and protection in the form of huge social transfers to the poor and a very comfortable system of medical care. With regard to the workforce, you have very strong unions in South Korea; we also have such strong unions in Europe and overall, Europeans are very proud of their social model. This model is actually the principal reason of our public deficit and our debt.
Discipline is necessary to decrease our public deficits; therefore, the new measures that our finance ministers decided to implement three days ago will certainly help. The problem of public debts raises the question of the monitoring of national budgets; Ambassador Mac Donald explained to you what decisions the Finance Ministers have made in order to better monitor national budgets and to put pressure on governments to reduce this huge debt. However, our public debt is comparable to that of other countries in the world. The Japanese government is more indebted than us – maybe two or three times more than Greece! The Japanese debt represents more than 225 % of Japanese GDP, but it is owned by the Japanese citizens and not by foreign debtors. It is the reason why we put this mechanism into place in order to support the Greeks and enable them to pay back their debt. If you compare the private total debt of the EU countries to that of the United States, our situation is not that worrying and we even do better than them.
At the end of the day, this constant paradox between the desire to act together and the need to protect our national specificities, rules and constitutions is a weakness. However, it is a model that other parts of the world want to imitate, for example Asia and Eurasia, Africa, South Africa with the SADC organisation, South America… It is a very modern but difficult model, because it is not easy to make it work on a day-to-day basis, to cooperate with our neighbours at the regional level and at the same time to respect the tax payers – the people who vote for national parliaments. The EU is a work in progress which lacks politicization and enthusiasm from the people at certain periods of time. Sometimes however, people also push the case for more integration; 82% of French people, according to a survey we conducted, want a European Army. Our French military – the second military in Europe – wants better cooperation with other European countries. When we participate in peacekeeping operations in Africa, in Bosnia or in the Balkans, our military asks for more European cooperation. Until now, we have conducted twenty-four external military operations under the banner of the European Common Foreign and Security Policy.
As a result, economic actors, public administrations, the military, judges, policemen… all ask for better European cooperation. In the end, the question is thus: what do we want to build? Do we want to build a superpower, a federal state? Or do we want to avoid changes and stay the way we are? National governments, when asked, generally answer that they do not want to change anything. It is actually the cause of this current crisis; but in fact, the circumstances and their own interests urge them to take new steps towards a more integrated Europe, a kind of superpower but, first, a more powerful Europe.
To conclude, I would like to make a few comments regarding European views on global issues. You know that we are very involved in the fight against climate change and that the EU has implemented very ambitious and aggressive regulations to try to change the way we produce and manage our economy. For political reasons and because of the political paradox I mentioned, the United Nations Climate Change Conference in Copenhagen was a failure as we did not succeed in imposing European views. However, since South Korea is about to welcome the G20, we could find agreements on certain issues. The new views of the Obama administration would also make such agreements possible, especially with regard to the need for more international financial market regulations. We need more transparency in the financial system; in other words, we must improve capital and liquidity ratios, maybe change accounting procedures, but also better monitor non-state actors’ behaviour in the financial market, public spending and private debts. For South Korea and France, with President Nicolas Sarkozy, it is important to take into account that, in my opinion, the main challenge we face today is the imbalance between the surpluses of some countries such as China, Brazil, or maybe South Korea, and the deficits of others, such as the United State and, to a lesser extent, the EU. These economic imbalances will lead the world economy into a new crisis if we do not try to reduce them by putting the European – and French – proposals into practice. They advocate for a better international regulation system based on a new international organization, like those that were created after the Second World War such as the United Nations, the International Monetary Fund, the World Bank, etc. The G20, which was invented by Europe and, in fact, imposed by Europe on the United States, could be a new opportunity to develop bilateral relations between South Korea and the European Union.
These are the points I wanted to make in order to launch the debate. I am now ready to answer your questions.
