January 22, 2014

Václav Klaus: Remarks for the Wiener Com.Sult Congress: Europe Has to Change


Many thanks for bringing me back to Vienna and for giving me the pleasant opportunity to address this distinguished audience. In my previous talks at this congress I repeatedly criticized European politicians that they do not take the evident European problems seriously. Every January I return to Vienna to state sadly that nothing significant has changed in this respect. We continue marching in the same blind alley regardless the deteriorating economic data, the deepening of the democratic deficit, and the indisputable increase of frustration in society. The economic facts are easily measurable, the degree of the loss of democracy and of the degree of frustration not. They are, however, not less important.

The substance of my polemics with current European arrangements is based both on the disagreement with the ambitions to economically centralize and unify the whole European continent and on the disagreement with the underestimation of the undemocratic consequences of the suppression of nation-states in favour of pan-European governance. Both should concern all of us who live in Europe.

After the fall of communism my country, the Czech Republic, wanted to be a normal European country again. We have always been an integral part of Europe, understood as geographical and cultural entity. But the borders were closed. They are open now and it becomes normal for the Czechs to go for a coffee to Vienna. This is great but this is not all. More than 80% of our exports goes to the EU-countries now, but this region is not a flourishing economic area. This is a region which undergoes an already rather long economic stagnation and an acute sovereign debt crisis. Even keeping the Czech crown we cannot disconnect ourselves from the developments in the rest of Europe. The Czech Republic – as a textbook case of a small open economy – needs a healthy economic growth of its main trading partners to be able to grow. This is, regretfully, not the case, and we ask ourselves why.

The current European stagnation is not a historical inevitability. It is a human error. The present situation in Europe is not the consequence of a natural, spontaneous, evolutionary, which means unplanned and unorganized development. It is an outcome of a deliberately chosen and gradually constructed European economic and social system on the one hand and of the more and more centralistic and undemocratic European Union political institutional arrangements on the other. They both and especially they together form an unsurmountable obstacle to any further positive development. What we go through is not an accident or a misfortune. We should finally accept that we face a systemic problem.

I don´t claim to come here with new or revolutionary proposals. I have presented these ideas in many of my writings and lectures in the past, also here, at this congress. It is evident that the European overregulated economy, additionally constrained by a heavy load of social and environmental requirements, operating in a paternalistic welfare state atmosphere, cannot grow. This burden is too heavy. If Europe wants to start growing again, it has to undertake a far-reaching transformation of its economic and social system. This is my proposal No. 1.

Not less important is the fact that due to the excessive and unnatural centralization, harmonization, standardization and unification of the European continent a large and more and more visible democratic deficit has been created. We can´t speak about democracy, we already entered the post-democratic era. This may be in the long-run an even bigger problem than the current economic stagnation. To change it – which means to change the concept of the European integration, to get rid of the post-Maastricht development – is the task No. 2.

A few days ago, on January 1, 2014, Europe planned to celebrate the first 15 years of its common currency, but as far as I know almost nobody celebrated it. Euro evidently did not help us. On the contrary. It brought us new problems.

The elimination of one of the most important economic variables – of the exchange rate – led to the dangerous blindness of politicians, economists, bankers and other economic agents.  The consequences of this arrangement, especially for economically weaker European countries which were used to undergo unpleasant, but much needed and unavoidable, adjustment-bringing devaluations of their currencies repeatedly in the past, were well-known in advance. Greece and other similar countries were doomed to fail having been imprisoned in such a system. Not surprisingly.

Monetary union is a variant of a fixed exchange rate system. As an economist I have to argue that in the past all fixed exchange rate regimes needed exchange rates realignments sooner or later. To eliminate this adjustment mechanism was a naive attempt to stop history.

The benefits – promised as a result of introducing a common currency – never arrived. The promised increase in international trade and financial transaction was relatively insignificant and was more than offset by the heavy costs of this arrangement.

Against widespread expectations, the European economies have diverged, not converged since the introduction of the euro. The erroneous belief that a very heterogeneous European economy could be – in a relatively short period of time – made homogenous by means of monetary unification belongs to the category of wishful thinking.

I find it wrong when discussing the current European problems to see mainly the well-known defects of individual countries. We should know that these countries did not bring about the current European problems. They are the victims of the system of one currency. The system is a problem. Countries like Greece made just one tragic error – to enter the Eurozone. Everything else was their usual behavior, which I – and we all – don´t have a right to criticize.

To let such countries leave the Eurozone – in an organized way – would be the beginning of their long journey to a healthy economic future. Some of these countries already understood that “one size does not fit all” and I only wish the same would be understood by leading EU politicians. I don´t see it, however.

Their way of thinking is based on an idea many times rejected by history – that economic laws do not exist, and that politics may dictate economics. People like me were raised in an era when such a mode of thinking was dominant in Central and Eastern Europe. We saw and understood its shortcomings. We tried to get rid of them as soon as possible.

What we need are not more frequent summits in Brussels with attempts to introduce more of what has failed. We need a fundamental transformation of our thinking and of our behaviour. To do it needs serious, free and open political debates in individual EU countries. They must be generated by the people, by the “demos” of these countries. Not by vested interests of EU politicians. European elections in May may become one of the chances to start it.

Thank you for your attention.

Václav Klaus, 11th International Vienna Congress com.sult 2014, House of Industry, Vienna, 21 January 2014.

http://www.klaus.cz/clanky/3508

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