Revitalizing the European Union: Strengthening Unity, Security, and Prosperity for the Future

As you know, it all started with economics, to bring peace, democracy and prosperity to the Continent.

In 1957 with the signature of the Treaty of Rome, the six heads of state, of Belgium, France, Germany, Italy, the Netherlands, and Luxembourg, created the EEC to « preserve and strengthen peace and liberty ». In the same Treaty they called upon other peoples of Europe who share their ideal to join in their efforts ». Since then, 21 countries have responded to this call.

Membership of the EEC and then EU has been open to all European countries “whose system of government is founded on the principles of democracy” provided they accept the conditions for membership.

Membership has been enabling and consolidating democracy in the joining countries. Membership has been a symbol of economic and strategic change. Membership has proven to be a change of mind-set, towards working together. Of course, European support schemes helped the transition to a new economic and social market model, to be made as painlessly as possible. But joining the EU meant a lot more than that: a symbol, breaking away from a difficult past and locking into a world of freedom and rights. We do not know what the European Continent would look like today, if these countries had not joined the Union.

Turning away from nationalism, and with its model, its solidarity values, the European Union went from 167 millions citizens building peace to 450 millions living today in a free, liberal and benevolent community.

In 2012 the Norwegian Nobel Committee awarded the EU the Nobel Prize for peace to, I quote, « call to mind what the European Union means for peace in Europe ».

Today, the European Union has unmatched economic potential: the EU is one of the largest economies in the world with a GDP per head of 40k euros for its 450 million consumers. It is the world’s largest trading area. It ranks first in the world in both inbound and outbound investment. The EU is the top trading partner for 80 countries, the US for a little over 20 countries.

The EU has been relying on trade for prosperity: internally, with the construction of the internal market, with the adoption of the euro, and externally with the establishment of a common trade policy. It has been a success: it has offered EU citizens access to world goods and services at moderate prices, it has helped progress along the value chain thanks to competition, and European firms have been granted access to the rest of the world.

For this, the EU has been leveraging on a predictable, and constantly developing, international economic rules-based order. The EU has thrived on a rules-based global order.

But this rules-based global order is being threatened. Peace is being threatened on the EU borders. Democracy is being threatened within our borders.

What has gone wrong ?

The first crack was the financial and euro zone sovereign crisis. To protect itself, the EU displayed solidarity, created the ESM, rescued banks to safeguard people’s savings. The EU regulated banks and financial institutions. Tightened fiscal rules. Engaged in QE and a banking union.

But since then, the productivity gap with the US has widened. Structural and macro policies partly explain why. In the wake of the financial crisis, the policy-mix has been tighter in Europe than in the EU. Fiscal policy was pro-cyclical. Promises of financial integration have not been fulfilled, markets remain fragmented.

The EU successfully protected its citizens from the consequences of the Covid pandemic. With vaccines, of course, and also by letting fiscal rules go, temporarily, to allow public coffers to protect jobs and firms. But the EU was slow to stop this temporary support and adjust its fiscal framework post Covid.

The EU responded rapidly to protect its citizens from the consequences of Russia’s aggression of Ukraine, with a special solidarity scheme for ensure the supply of energy.

And, the EU decided quickly to provide ammunitions and support to Ukraine, leveraging on its existing instruments and policies, but within its existing constraints. Hence, it was not EU defence equipment, but handing over part of national defence equipment stocks to Ukraine. And the EU budget space being limited only fewer billions out of the EU budget have been redirected to support Ukraine than had been directed to green transition.

The recent European actions have been significant in spirit but they are falling short of what we need in practice.

Recent crises exposed that if the EU can react quickly to emergencies, EU Member States are less impressive at anticipating. Under investment in defence for decades, partly owing to a « naïve » belief that trade would ensure peace. Under investment in the EU energy market with over reliance on a limited number of suppliers, not all trustworthy. This has costs: energy is 2 to 3 times more expensive in the EU than in the US and China, undermining our competitiveness, as energy will be the strategic asset for digital developments.

The same applies to the recent fiscal framework reform. Fiscal rules had been suspended during Covid. But the new fiscal framework is failing to take into account the new challenges raised by the geopolitical environment.

Russia’s aggression against Ukraine has exposed that the EU needs to rearm itself from a geopolitical, military and economic angle.

Our current EU economic governance framework is outdated. The EU budget has been mostly dedicated to agriculture and cohesion policy, with the idea of promoting gradual convergence across countries. While most of the financing for defence, energy transition, energy security, and green industrial policy remains national, ignoring the value added created by EU intervention of common interest.

This was designed for the world of the nineties: it is not fit for today’s purpose. The gap between reality and words can only mean we are deceiving our citizens.

What should be our priorities

We need to have a political discussion about the EU. Externally, our current model is outdated because others have moved away from the rules-based global order. Internally, because national leaders are questioning the benefits we get from being united. They fear that if we increase the benefits for the Union as a whole, other Member States may benefit relatively more than themselves. As a result, they prefer to stick to individual decisions with less benefits than with joint ones, rather than seeing others benefiting relatively more from common undertakings.

History will wipe us out of the prosperity and peace map if we continue acting like this. We have three crucial priorities that will require joint undertakings.

The first priority will be to accelerate the growth of our production capacities of defense equipment. A European Defence has long been the subject of failed attempts. We are struggling to provide Ukraine with the weapons and ammunition it needs, European production is insufficient and unsuitable. We need to give visibility to defense companies with military programming laws in all countries of the European Union; make our companies work together to respond to orders, equip our armies in a coordinated manner and prepare ourselves to respond better and faster, including to hybrid attacks.

The second priority is competitiveness. It is an understatement to say it is urgent. China has had an aggressive industrial policy for decades. It subsidizes its businesses while moderating wages and the evolution of its currency to benefit from competitive advantages in defiance of all the rules of international trade. And it also invests massively in research to lead the race in many areas, including the crucial one for Europe in the energy transition. It dominates the production chain of renewable energies and that of electric vehicles.

The United States reacted with the Inflation Reduction Act, this program which aims to protect the production of clean technologies, particularly in automobiles, on American soil.

We need a European industrial strategy. This must rest on three pillars. To complete the single energy market to guarantee a carbon-free offer at competitive prices. To protect the European single market, without falling into isolationism. To strengthen investments in infrastructure and R&D and release private financing to European companies.

Finally, the question of the reforms necessary for future enlargement to take place in the best possible conditions . Let's not be naive, reaching out to neighboring countries means expanding stability on the Continent. This security has a price: compared to the current EU budget and European governance, with unchanged policies, this price will be high. This is why we must change the budget and the governance of the European Union.

We will not do with 35 countries what we do, sometimes with difficulty, with 27. The single market must remain the common foundation. The British counter-example clearly shows that harmonized rules for European trade form the simplest and most supportive framework for our businesses and the jobs that go with them. The reforms advocated in the Draghi and Letta reports will help improve it. But once again, we will not do everything with 35. We could envisage subgroups or circles for some issues (eg defence, quantum or social convergence), open to everyone as when the EEC was created.

The European financial pockets have to evolve to match EU ambitions, from the reconstruction of Ukraine to the deployment of low-carbon energies, including a real industrial policy and investments in artificial intelligence, but redirecting funds will unlikely be sufficient. We have three levers for to increase the financing available for our priorities: a larger budget, with increased Union resources (thanks to a digital tax, customs duties on products not meeting our standards), private financing (better regulation and more pension funds), private-public cooperation (with or without European public guarantee systems).

Conclusion

We sometimes forget our long and impressive journey to consolidate the foundations of peace, prosperity, and democracy in Europe, which stands in stark contrast to our past.

Old, large, democracies like my country sometimes do not put a high enough price on freedom, peace, the benefits of the EU and our socio-economic market economy model, unlike countries closer to the Russian border and living in the EU for only 30 years.

Geography, history, politics compel us to react, which we can do. I do hope EU leaders will think strongly about the needed policies, leadership and governance for our common destiny.

« Coming together is a beginning, staying together is progress, and working together is success. » (H. Ford)

This article is based on the speech I delivered upon receiving the Kiel Prize on June 23, 2024.