March 13, 2007 6:56 pm

Why liberalism is the right future for a declining Europe

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The European Union has been an astonishing success. It has helped create prosperity and peace across a continent devastated by the two most destructive wars in human history and then divided by an iron curtain. Its challenge now is to adapt to the world of the 21st century.

On March 25 1957, the six original members (Belgium, France, Germany, Italy, Luxembourg, Netherlands) signed the treaties known as the treaties of Rome. Today, after successive enlargements, the EU has 27 members, with an aggregate population of 493m that generates 30 per cent of world gross product, at market prices. If imitation is the sincerest form of flattery, then enlargement is flattery’s apotheosis. Each wave of members has chosen to absorb not just the EU’s values, but its body of laws, the celebrated acquis communautaire , recently estimated at 170,000 pages of legislation.

The great achievement of the EU is to establish the co-operative “service state” as the norm across the continent. Such a state sees its purpose as serving its citizens, not dominating them, and as co-operating with other states, not dictating to them. The genius of the founders was to realise that a law-governed market economy was the means to this end. It would do so by binding the discretionary interventions of each, thereby creating predictability and stability for all.

These were liberal ideas (in its traditional European sense, not its strange American one) that drew heavily on the ideas of postwar German thinkers and policymakers, such as Ludwig Erhard. The EU’s great successes have been those of liberalism: the customs union; the competition policy; the single market; the abolition of exchange controls; and the creation of a single currency managed by an independent central bank. Nor is the market economy the only liberal idea embodied in the EU. So, too, is representative democracy.

Liberalism was not the only possible basis for Europe’s unification. But it was the only basis for voluntary unification. Unification through war, happily, failed. The intervention of the “Anglo-Saxons” in successive great European wars ensured that. These liberal powers finally defeated the continent’s army of poisonous anti-liberal ideas: ultra-nationalism; fascism; Nazism and communism.

This history puts in context one of the most common false propositions about the EU: that it has ensured peace. Europe neither created the conditions for the postwar peace nor preserved it. US power did both. Yet the prosperity created by European integration, under the US umbrella, made the free and democratic west an irresistible magnet to the east.

Europe in the world economy

The EU has bound Europe together in incomparably the most successful effort at rules-governed co-operation among states ever. But the continent that it has unified is also in relative decline. For almost half a millennium, the western promontory of the Eurasian landmass was the locus of the world’s intellectual, artistic and economic energy. It had all the good new ideas and all the bad ones. Now, happily, its better ideas have spread across much of the globe and European countries have lost not just their imperial sway, but also their economic dominance (see chart).

This relative decline is not just unavoidable but desirable, since it reflects the rising hopes for better lives elsewhere. What, however, does it mean for Europe’s future? An enormous amount of energy will go into debating the EU’s institutional structures. I can understand the arguments for streamlining decision-making. But I do not understand why a constitution should be a priority. Nothing is going to turn the EU into a United States of Europe. In the end, the EU will remain a structure for co-operation and competition among states embedded in a shared institutional framework.

So what are the priorities for the EU and, far more, its member states over the next half century? Let me stress the economic ones. I do so not because economics is all that matters. But if Europe does not create widely shared prosperity, it will fail.

First, create jobs. The European economy is now on an upswing. But many countries still suffer from high unemployment. This is particularly true for the young, the unskilled and ethnic minorities that are disproportionately young and unskilled. Liberalising jobs markets and making the welfare state employment-friendly is the priority.

Second, modernise welfare states. Europe’s economic modernisation emerged, painfully, from a feudal, agrarian past. The violent tensions this created were resolved only by commitments to state-provided welfare. This will not disappear. But structures must be changed, to support work, training and education over idleness.

Third, liberate enterprise. Regulations have proved an inevitable concomitant of the extension of the market economy. But if the price of further liberalisation, at the EU level, is ever more regulation, the game may cease being worth the candle.

Fourth, invest in the creation of ideas. Europe was the centre of the intellectual world. Now that centre is the US. The reason is the dominance of the latter’s great universities. Continental Europe’s show the disastrous effects of nationalisation: enforced equality; entrenched mediocrity; and lack of innovation. Without radical reform, Europe risks becoming an intellectual backwater.

Fifth, promote development. Europe is not a “hard” power. But it can be a “soft” one. It should willingly and enthusiastically open its market to developing countries and provide generous aid to those poor countries that show a capacity to use it well.

Sixth, curb carbon emissions efficiently. I am persuaded of the case for reducing the risks of climate change. But the policies chosen must achieve this at lowest possible cost.

Finally, embrace the future. Nothing short of a catastrophe will stop China, India and the rest from developing. Europeans must adapt. But if they do so, they will enjoy a host of exciting opportunities in a bigger world.

Many in Europe will condemn this programme as lacking in glamour. They want Europe to emerge as a great power, instead – a goal I believe neither feasible nor desirable. My ideal of Europe is different. It is of a zone of stability and co-operation that ultimately includes even Turkey. It is of a zone of freedom and the rule of law. It is of a living example of the proposition that the interests of states lie in co-operation, not in conflict.

This EU would be a model of civilised behaviour in a century bound to be as full of the opposite as the 20th. Europe is doomed to relative decline. Let it decline magnificently.

martin.wolf@ft.com

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