Romano Prodi: "Enlargement Is a Necessity" (extended)

The EC chief says EU expansion, by knitting countries together, stands as a bulwark against the European temptation of totalitarianism

Romano Prodi, President of the European Commission, has been pushing a united Europe since taking office in late 1999. He has been instrumental in helping reform a vast and often unaccountable bureaucracy -- even though he has little effective power compared to the Continent's heads of government. His plain-speaking style has also landed him in hot water, most recently on Oct. 17 when he described the eurozone's Growth & Stability Pact as "stupid." Although this caused an initial firestorm of criticism, it helped open up a debate about how European budgetary problems can be better managed.

In early November, he discussed the new EU and other issues with BusinessWeek European Regional Editor John Rossant. The following is an edited version of their conversation:

Q: What are the most important political and economic consequences of EU enlargement?

A: First of all, this is a huge political priority. If you want to talk about economic impact, one is certainly not to have wars any longer at the gate of your house. The cost of the Balkan conflicts, for example, is much higher than the cost of enlargement. But enlargement is also a necessity because of globalization. It's a way to better confront the huge productive capacity of China, a way to confront the U.S. economically. Being a unified continent means we will have a great capacity to have an active presence.

And although the net gain to the overall European economy with enlargement will not be high -- about 5% -- we're gaining a 20% population increase and a 25% increase in the number of technically trained people, thanks to the Soviet stress on engineering, etc. The potential for increased growth is very high. We're looking at 0.2% increase in GDP per year, which is not negligible. And it will be more for border states like Germany and Austria. So there are positive gains which will balance out the initial costs of enlargement.

Secondly, this is not the end of the [enlargement] process. We have other countries on the list, apart from the 10. Like Bulgaria and Romania, and also Turkey, which is a candidate country according to the Helsinki criteria. And then, there are the Balkan states. [Membership] will happen when it happens for them, and it will be one country at a time.

But the real conclusion of EU enlargement in my mind is the inclusion of what I call friendly countries in a relationship of integration. Russia, Ukraine, the countries on the southern shore of the Mediterranean, and Israel. Countries with whom we will share everything but institutions. So we're talking about technical harmonization, trade, everything but actually having them in the European Parliament and other EU institutions.

As for the costs of enlargement, it's a real misunderstanding to compare this with the reunification of Germany, where you had the almost-immediate absorption, the immediate raising of incomes in the east. With enlargement, we have all resources budgeted already until 2007.

Q: European growth is extremely weak. The Commission is being attacked from many quarters, first for your statements on the Stability Pact, then for the legal reversals of Mario Monti. And some say it may be unwise to embark on such a big project as enlargement without first having undergone the necessary EU structural reforms to ensure a more dynamic economy. What do you say to that?

A: I strongly deny this is a moment of weakness in Europe. We're dealing at the same time with the euro introduction, enlargement, and a constitutional convention [a group formed to come up with EU institutional reforms]. That's a lot. Should I have been silent about the Stability Pact? First there was criticism, but now a few days later, people are saying [the European Commission does] need greater authority [over financial policy].

Clearly, this is a difficult moment in the economic cycle, but good times will come back. Don't forget: We've decided on enlargement, but it won't take place until 2004. Things will be different then. But anyway, if we wait for the right moment of the economic cycle, you would never do anything.

An expanded Europe is going to mean higher wages but also higher productivity. It's going to allow companies to restructure their whole supply chain. It will be a great opportunity for investors if you consider the variety we have. Look at U.S. investment coming to Europe: A sophisticated investment bank will go to London, tech companies, like GE, may want to set up shop in Hungary. Investors can choose among different sets of technological capabilities and skills, different relative costs. NAFTA [the North American Free Trade Agreement] is similar but not as important.

Q: How worried are you about the drift in transatlantic relations? There seems to be a serious and growing gap between the U.S. and Europe on a wide variety of issues.

A: Yes, this is really the first time I've seen a serious divergence between the U.S. and Europe, and I'm worried. Until about a year and a half ago, we were largely focusing on trade disputes, but those things are normal. Now, we have much more serious problems touching deep political sensitivities on both sides. The dispute over the International Criminal Court is one matter which goes to the soul of both the U.S. and Europe. Iraq is another area of divergence, where there's a real asymmetry between the two sides.

One thing is for sure: There will be no peace in the world if there's no strong relationship and friendship between Europe and the U.S. We can only go forward hand-in-hand. But this implies a profound intellectual recognition of what our differences are. And I think what we have now in the U.S. is no recognition of Europe at all. It has always been said that Europe has a big mouth because it's powerless, and there's something to that. But we find no recognition, no appreciation in America that we're making this huge effort to build a completely new Europe and abandon the past.

All the roots which fed dictatorship and totalitarianism in the last century were the consequence of deep nationalist attitudes. We have finished with that now. And we want this to be recognized by the U.S. I don't underestimate our weaknesses and our mistakes. But we're going ahead with enlargement because this signifies the true end of the European tragedy, and there's no recognition at all on the American side of this. There's a real lack of understanding.

And only shallow minds can think we have real anti-Americanism of the old type here in Europe. We have criticism, just as there's debate and criticism within the U.S. This is normal. But there's no spread of anti-Americanism.

Q: But the Iraq problem shows how little the Europeans coordinate their policy.

A: It's not true to say there's no coordination of European positions. In many fields, there is. On Iraq, for example, the position of putting the U.N. at the center of the process is shared by everyone in Europe.

And there's a lot we can offer. Look at our relationships with the Middle East. This is a very delicate border for us. We're close, we have a knowledge of the area, we have large aid programs. There should be a recognition of the European role in the Middle East. Again, we find that this political and ethical strategy is not fully recognized or appreciated in the U.S. You cannot have simply a military approach.

On other hand, there are still so many thousands and thousands of European leaders who have studied in the U.S., and there's such a deep exchange at so many levels. Barring a major mistake, I'm confident that profound similarities of our societies will mean our relationship can continue to be strong.

Q: What do you expect to come out of the so-called Constitutional Convention? Giscard d'Estaing's recent recommendation that Europeans have the right to European citizenship in addition to their own has unleashed a lot of criticisms that Europe is headed for a super-state.

A: We need a constitution which people can identify with. But this is not like the U.S.: We're not creating a super-state. The European effort is to create what we call a Europe of peoples and nations. European citizens have multiple allegiances. A person can be faithful to his nation, to Europe, to his state, to his city. So we're really going back to the situation we had before the rise of the nation-state, where people did have multiple allegiances, to their city or commune, to their archduke. It's a great guarantee against totalitarianism, against the European [authoritarian] temptation.

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