October 11, 2013

Europe and America: Our Common Crisis

Mr. President, Distinguished Guests, Ladies and Gentlemen,

Many thanks for the invitation to come to Hillsdale again, after long 13 years. Thank you for giving me the opportunity to address such a distinguished audience this evening. You may not be aware of it, but during these 13 years, I was, more or less, all the time in touch with your college. I had a permanent contact with you through your monthly journal Imprimis which I have always considered an obligatory reading. I was always looking forward to receiving the next copy. Thanks to Imprimis, I was able to follow your never-ending effort to promote liberty, free markets, rule of law and free speech, all of which are under attack – both here and in Europe now.

The title of my speech here, at Hillsdale, 13 years ago, in March 2000, was: “The Problems of Liberty in a Newly Born Democracy and Market Economy”. At that moment, it was different. Communism was over. The dismantling of its institutions proved to be faster than anyone expected, the resistance of the old regime and its representatives was relatively weak, and we were able to complete the radical transformation of our whole political, social and economic system in a – historically – very short period. This process of transformation was in my country, in the Czech Republic, probably smoother and with lower economic and social costs than in any other post-communist country.

In March 2000, when I was here, we still had the feeling that we were moving upwards. This feeling of ours, however, did not last long. The election victory of the social democrats in the Czech Republic, our approaching and finally entering the European Union (and adapting our institutions and our legislation to the EU requirements), and especially the subsequent Euro-American financial and economic crisis at the end of the last decade which started both the Eurozone debt crisis and, more importantly, the European stagnation which lasts till this day changed the general mood and atmosphere in Europe and in my country even more. I touched these topics in June 2011 in Berlin at a luncheon for Hillsdale representatives and supporters when they were trying – I suppose – to increase the insufficient aggregate consumer demand in Europe while cruising the Baltic Sea. They should come more often, this short trip did not help very much in this respect. It, hopefully, brought them some benefits.

My speech, which was republished in Imprimis in July/August 2011, was called rather non-dramatically “The Problems of the European Integration”. My feeling was at that time, however, already rather dramatic. Together with many Czechs and other Europeans, I came to the conclusion that Europe faced a serious structural (better to say systemic) problem which would not – by itself – wither away. Europe would not simply outgrow it, as many Europeans hope or believe even now. It needs a radical discontinuity with the current state, not passivity or cosmetic changes.
This existing systemic problem is the result of two interrelated phenomena, of the European integration process on the one hand and of the evolution of the European economic and social system on the other.

The Americans – as my experience tells me – are aware of the fallacies of the European economic and social system (and are convinced that their system is substantially better) but usually highly misunderstand the destructive logic of the European integration process. The Americans a priori consider it positive, progressive, and appropriate. They still want to get – like Henry Kissinger decades ago – one telephone number for Europe. They mostly accept the widely shared conventional wisdom of the current era that the weakening of nation states and the strengthening of supranational institutions is a movement in the right direction (for the rest of the world, not for themselves). I see it differently and am helped in it by being – together with tens of millions of other citizens of EU member states – the passive and often unhappy, if not frustrated object of an undemocratic decision-making in current Europe.

I have no illusions about the EU, which is the title of my recent book called “European integration without illusions”. The book was originally written and published in Czech, but it has its English, German, Spanish, Italian, Bulgarian and Danish versions now. The Russian and Polish editions are under preparation. It was published in English under the title “Europe, the Shattering of Illusions”[1] which is slightly misleading because I have never had any illusions about it.

To avoid a possible misunderstanding, it is necessary to make it clear that the problem to worry about is not Europe but the European Union, or better to say, the contemporary way of ruling the historically very diverse and heterogeneous continent. I am in fundamental disagreement with the European integration model which was built on the naive and excessively optimistic expectations concerning the economic benefits of territorial integration, unification and centralization of the whole continent (without paying attention to its inevitable costs) and on the inexcusable negligence and  underestimation of the undemocratic consequences arising from the long term undermining, if not liquidation of nation states and from the transfer of all kinds of decisions, even the smallest, to Brussels where they do not belong and have never belonged.

The main frustrating consequence of this development is not the current zero GDP growth in Europe, even though it is not a standard cyclical fluctuation, but the massive destruction of the old and traditional European values, habits, life-styles and institutions which made Europe in the past such a unique place to live in. What bothers us is that this is probably not only an exclusively European phenomenon. It is much more developed in Europe than elsewhere, but it is the problem of the whole West. I suppose you feel it as well.

What is fundamentally flawed is, without any doubt, the European economic and social system, which is not a system of free markets. Ours is the world of heavily distorted markets. It must be economically inefficient. The overregulated economy, additionally constrained by a heavy load of social and environmental requirements, operating in a paternalistic welfare state atmosphere, makes healthy economic growth in Europe impossible. This burden is too heavy and the incentives to a productive work too weak.

If Europe wants to grow, it has to transform itself, it has to undergo a systemic change, something we, in our part of Europe, went through 20 years ago. It was easier to do it there because our communist past was very frustrating and deprived us of all illusions to mastermind the society from above. It gave us many instructive and unforgettable lessons, which the current generations of West Europeans (and Americans) could not get. As a result of it we wanted to establish free markets, as I called it the “market economy without adjectives” (which was one of my widely quoted slogans at that time) but by joining the EU we got – as an entry welcome present – something fundamentally different. We got “die soziale Marktwirtschaft”, the debate about this adjective was absolutely crucial.

I am not sure it is possible to change it again soon, or in a foreseeable future. I don’t see any political grouping, any political party in Europe now ready to start radical depoliticizing, desocializing, deregulating, desubsidizing of the economy. As it is now, the economy becomes – and it reminds me the communist era – an instrument in the hands of politicians (and their fellow-travelers).

When we prepared this event, your president, I mean the president of Hillsdale, asked me to speak about the lessons for Americans which come from the European experience with both its integration and socio-economic models. I did not want to lecture the Americans and suggested, therefore, a different title: “Europe and America – Our Common Crisis”. When I look at it now, this title seems to me even less polite and more daring that the original one which was not my intention.

What I have in mind is the adjective “common” which is against the conventional wisdom which claims that America is exceptional, “a city upon a hill” as John Winthrop put it in 1630 (or “a shining city upon a hill” as Ronald Reagan used to call it). I am not sure about it. America is different. Its democratic instincts and pro-market stances are stronger than in Europe but I agree with many analysts and scholars who say that the current problems of both continents are of a similar order of magnitude and that the situation differs only in the degree.

I agree with this year´s issue of the CATO Journal (Spring/Summer 2013) which had a subtitle “Europe´s Crisis and the Welfare State: Lessons for America”. The articles – written by several authors from various countries – argue that “there are far more similarities than differences in the U.S. and European welfare states” (p. 190) and that – for both Europe and the United States “only fundamental reform can prevent further declines” (ibid, p. 191). Only radical change can prevent the danger of falling into the trap of a long-term stagnation.

I don´t want to make cheap parallels. The economic and social systems are still different in Europe and America, the mentality is different, but I agree with Michael Tanner that “the American economy becomes Europeanized” (p. 189) which is for us, the Europeans, an evident loss. And a danger. In the past, we were always able to use America as an example of a flourishing free market system but this argument becomes less convincing now. This is not only due to the current U.S. fiscal problem, although Michael Tanner correctly says that “the U.S. deficit was a larger proportion of the economy in 2011 than the deficits of any EU country except for Greece, Spain, and Ireland” (ibid, p. 214). The similarities are in the whole complex of institutions and legislation.

When we take a static snapshot and look at the current economic and social models, Europe still remains “the leader”, of course, in a negative sense. But when we look at the dynamics of it, it may be different. Europe has been “Americanized” for a long time as regards ideas, values, lifestyles, behavioral patterns and I am afraid that now even the ideas leading to the weakening of the market economy and to the strengthening of the welfare state – with all the inevitable consequences – come from this side of the Atlantic. The only question is where the resistance becomes stronger.

The U.S. has one other advantage. The American integration process which started more than two hundred years ago has been completed. You may have your justified or unjustified objections about the distribution of competences inside the U.S., but the issue has been in principle settled. No other Civil War is to be expected. It is different in Europe. Nothing is settled and the growing economic and financial problems shifted the competences radically upwards. It has led to further European centralization which is for us, especially for us who lived for decades in another form of undemocratic integration ruled from Moscow, unacceptable.

Before flying here, I had a press conference in Prague announcing the publication of a book written by me and by a group of authors from my recently founded institute with the title “Czech Republic at the Crossroads: Time to Make a Decision”.[2] The last chapter discusses the alternatives as regards the EU. We see only two of them: either to start, collectively, which means together with other countries, radically transforming the European Union or, individually, leaving it. Of course, by saying it openly, we touched the highest political taboo and we expect the reaction to be very aggressive. But someone had to say it loud.

This last point, I hope, allows me to stop. I have no other, comparably strong idea at my disposal tonight. As you can see, we take the situation in Europe very seriously. Thank you for your attention.
Václav Klaus, Hillsdale College, Hillsdale, Michigan, October 10, 2013.

[1] Klaus, V.: “Europe, the Shattering of Illusions”, Bloomsbury Publishing, London, 2012.
[2] Klaus V. et al.: „Česká republika na rozcestí – Čas rozhodnutí“, Fragment, Prague, October 2013 (in Czech).


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