CIAO DATE: 11/04

The State of the European Union

Ferdinando Nelli Feroci
Director General for European Integration, Ministry of Foreign Affairs of Italy

Occasional Paper Series No. 54

February 17, 2004

European Union Studies Center

I thank the City University of New York, I thank Professor Kaufman and the Department of European Studies and I thank the Consulate General of Italy for the opportunity that I have been offered to address such an authoritative American audience on the subject of the European Union, of its problems and its perspectives.

I have accepted with enthusiasm your invitation first of all for the pleasure of being back in New York after so many years, but also because I am convinced that there is a need for better understanding between Europe and the United States, that there is a need to overcome prejudice and misjudgements and to reinforce mutual knowledge and mutual support.

I will try, in the short time available, to provide you with some information on the current state of affairs in the process of European integration. I will try to give you an idea of our efforts to become more politically united even in the prospect of an important enlargement, more economically competitive in a difficult international conjuncture, more credible in international scene despite persistent divergences and differences among ourselves.

Maybe before looking at the present situation in the European Union it may be useful to remind briefly, in a historical perspective, what we have been able to achieve since the beginning of the fifties in a continent which had been characterized, for the first half of the century, by two world wars, by continuous tensions among States, in the context of a weak and unstable balance of power.

Thanks to the imaginative inspiration of our funding fathers, a relatively small group of enlightened politicians, a major innovation was introduced in the history of the old continent with the project of the European Community: a project built around the combination of a custom union and an internal integrated market together later on a monetary union and a cohesion policy with a series of common policies and the creation of supranational institutions, driven by the idea that economic integration would have inevitably lead, at some stage, towards political integration.

The success of the experiment has been proven in the first instance by the successive enlargements of the European Community and later on of the European Union. Many countries, practically all European countries, that at first had decided to remain outside the adventure, sceptics about the prospects of its success, or countries that could not be part of the project because of the nature of their political systems, or because of their geo-political collocation, have requested to accede and are now members of the Union.

But, what probably counts more, the process of European integration has granted the old continent half a century of peace, stability, respect of the rule of law and of fundamental rights, economic growth and development together with social development. It has transformed a region which had so far been famous for its frequent recourse to inter-state wars and for its instability, into an area where economic interdependence has created the conditions for political integration.

Successive enlargements have shown that the European Community has been willing and able to expand its membership to take into account the new realities that were emerging in Europe. But also the successive Treaty reforms, from the Treaty of Rome to the Single European Act, to the Maastricht Treaty, to the Treaty of Amsterdam and to the Treaty of Nice are the confirmation of the flexibility of the European construction and of its ability to adapt its objectives and rules of functioning to the new challenges and to the new realities.

The creation of a monetary, which has proven to be a success as the Euro’s performances have confirmed in the recent past, and the establishment of an area of free circulation for European citizens, the Schengen system, are the best examples of the E.U. ability to update its objectives.

Enlargement

If we now look at the present situation, if we concentrate on the priority issues for the year 2004 in our agenda, I would first of all start with a reference to the last enlargement, the accession to the Union of 10 new Member States which will become effective as of May 1st this year.

I think it’s important to stress that even though this enlargement is the fifth of a series of previous expansions in the membership of the Union, its characteristics are such that they tend to stress the element of solution of continuity with respect to the previous enlargements.

First of all for the number of countries involved. Never in the past so many countries together became member at the same time of the Union.

But what probably counts more for the nature of these countries. If you in fact exclude Cyprus and Malta, the other eight new member states were until 1998 either part of the former Soviet Union or members of a military alliance with the Soviet Union (the Warsaw Pact) and of a trade and cooperation agreement with the Soviet Union (the COMECON).

They were countries that not only belonged to a different sphere of influence in Europe, but were also ruled according to the traditional socialist model: the economies were centrally planned, means of production were state owned, market did not function, prices were centrally determined and political regimes were based on the principle of the single ruling party and fundamental freedoms were severely restricted.

If I have mentioned these facts, which are certainly well known, about the situation prevailing in Eastern and Central Europe at the end of the eighties, it is only to stress the enormous work that these countries have accomplished in their endeavour to meet the European standards both in the area of full respect of democracy, pluralism, protection of fundamental rights, as well as in the area of economic reform and liberalization towards to objective of functioning market economies.

In this respect this enlargement is unique not only for the nature and characteristics of the acceding states, but also because it implies the definitive reunification of Europe. As of May 1st the division of Europe into two blocks will definitely belong to the past.

Our choice to expand our membership to such a significant number of new members was not without risks and uncertainties. But we consciously made the decision that time had come for the wealthy and peaceful Western Europe to provide the "other" Europe with the same conditions of peace, stability, economic and social development and respect of fundamental rights by authentic democracies, that we have enjoyed for more than forty years.

We look with optimism at the prospect of full accession of the new member States. There will certainly be advantages for all as the consequences of the enlargement of the internal market: new opportunities for trade, new opportunities for investment, more interdependence for our economies driven by common rules and standards, more transparency and a shared decision making process. A positive impact on our overall economic performance should also derive from the presence in the European Union of countries that are generally characterized by a higher rate of economic development, measured in particular by the GNP rates of increase of the new Members.

This phase of enlargement will only be completed when also Bulgaria and Romania will become members of the Union in 2007. We are entering the final stage of the accession negotiations with these two countries that we consider as an integral part of this process of enlargement. They have not been able to conclude their accession negotiation in December 2003, because their internal conditions were objectively more backwards, and, as a consequence, their process of adaptation to the European standards has proven to be more complex. But we now have a fully agreed a road map that should lead also these two countries towards full accession by January 2007.

Turkey is also a candidate for membership to the European Union. Its original request dates back to more than twenty years ago. The Union for many years has been reluctant to accept the idea that Turkey could become a member. Only in December ’99 we decided to formalize Turkey’s candidature and to start the process of the so called pre accession strategy, which include both technical and financial assistance and a close monitoring of progress achieved by the candidate country in order to meet the European standard. These are necessary pre-conditions for accession.

In these recent years Turkey has made spectacular progress in particular in the area of political and institutional reforms. Respect for the rule of law, respect of fundamental rights, freedom of the press, protection of minorities, restrictions to the role of the military and respect of fundamental rights, are areas where the Turkish Government and the Turkish Parliament have introduced very significant reforms. By the end of the year we will have to decide on the actual opening of accession negotiations with Ankara. It will not be an easy decision. We know that in some components of our public opinion there are still reluctances and reservations over the idea of a muslim country becoming member of the Union.

We think that, in a strategic prospect, it’s in the interest of Europe and more generally of the Western world to have Turkey firmly anchored in the European context. It is as well in our interest to provide all the necessary political support to the only functioning democracy in a muslim country. We are aware that the process will not be an easy one and that it will take a long period of time, but we think it’s essential to provide Turkey with a clear European perspective. A positive solution of the problem of the division of Cyprus, which is not in itself a condition for the opening of accession negotiations, will certainly help to create the right atmosphere for a positive decision over Turkey’s candidature by the European Council next December. We are very encouraged in this respect by the latest developments in the talks between the two.

But the enlargement will also increase the complexities of the European construction, and together with new opportunities will certainly bring about new challenges.

I would like to concentrate in particular on three categories of challenges: a) the impact of enlargement on the structure of EU budget, on its financial perspectives and as a consequence on the reform of the major common policies; b) the impact of enlargement on the functioning or European Union’s institutions and on its decision making processes; c) and finally the impact of enlargement on the international dimension of the Union, on its ability to project an image of protagonist on the international scene, to build stronger relations with its new neighbours, to develop a strategic partnership with an old friend and ally like the United States of America.

Financial Perspectives

Discussion over the new financial perspective of the enlarged Union have only started a few days ago with the presentation by the Commission of an overall proposal that aims at defining the structure, the articulation and the size of the European Union budget for the period 2007-2013.

I would only limit my remarks over this subject to few observations, first because we are still in a very preliminary stage, and second because this is a problem that concerns more member States and public opinions within the Union than an audience in the United States. But it is also a significant example of the increasing complexities of the decision making process in an enlarged Union.

The overall size of the EU budget is relatively modest. Overall EU expenditure cannot go beyond 1.24% of the overall aggregate Community GNP corresponding to a projection of about 120 billion Euros in 2006 in terms of appropriation for commitments (114 for payments). In actual terms over the last years, actual EU expenditures have not gone beyond an average of 1% of Community GNP. This implies that the redistributing role of the EU budget between member States is relatively modest. Furthermore so far EU expenditures have mainly been concentrated in two areas: the common agricultural policy and the cohesion and regional policy, which together amounted to something like 80% of the EU budget.

We are now entering a new phase of the life of the Union with the accession of the new member States. This will imply more beneficiaries of our common policies with relatively less financial resources available, as a consequence of the relative minor wealth and therefore reduced contribution to the EU budget of the new member States.

Given the fact that the level of expenditure for the common agricultural policy is more or less decided and will not probably be modifiable, our main challenge will be to redefine the functioning of the European Union’s cohesion policy and of the so called structural funds, in order to accommodate the expectations of the new member States. They in fact consider themselves as full beneficiaries of financial assistance aimed at reducing gaps in per capita income and at reducing excessive disparities in the level of welfare in the various regions of the Union. But we should be able to realize such an objective without creating excessive disappointments, and consequent social tensions, in regions that have so far been beneficiaries of the interventions of the structural funds.

Traditionally EU policies have been centred on the agricultural sector on cohesion, on the creation of an integrated common market and on the achievement of macro economic stability. In those areas we have had a great success, and it would be a mistake to disengage from those fields where our common policies have already been adjusted to address new needs.

But since enlargement will have an asymmetric impact on the Unions budget – increasing expenditure more than revenues – even the simple preservation of the "acquis" would imply an intensification of financial efforts.

It will therefore be important to orient the EU budget also towards new policy areas like in particular: a) support for competitiveness of European economies so as to promote higher growth with more and better employment; but also b) actions aimed at giving substance to the concept of a European citizenship with the completion of an area of freedom, justice, security and access to basic public goods; and finally c) interventions and measures necessary to allow the European Union to project in the international scene a coherent role of global partner capable of contributing to strategic security and to assume regional responsibilities.

How to redistribute the limited available financial resources between this set of priority objectives; and in particular how to redefine the modalities of functioning of the cohesion policies, and the interventions of the structural funds that are meant to affect directly and substantially national interest in individual member States, is one of the major challenges ahead of us in the new enlarged Union.

Institutional reforms and the new Treaty

As I have mentioned before enlargement has made it urgent and unavoidable a further reform of the treaty. In Nice we had only been able to reach unsatisfactory compromises on the main institutional issues and we had therefore decided that a new reform of the Treaty was unavoidable.

To this end we have inaugurated with the Convention for the Future of Europe, a new methodology which has drastically innovated with respect to the previous experiences of Treaty revisions. For the first time the task of drafting proposals for Treaty revisions has been entrusted to a body composed of representatives of governments of member States, of national parliaments, of the European Parliament and of the Commission. Old and new member States were represented on an equal footing. Transparency and openness of the debate has been the rule; the objective was to mobilize effectively public opinions around Europe, on the question of the shape and content of the new treaty, and to reduce and contain the phenomena of growing disaffection of our public opinion towards the European institutions.

The Convention has worked for eighteen months under the guidance of its President Mr. Giscard d’Estaing. Its proceedings have actually mobilized public attention and stimulated a widespread public debate that we had never witnessed before on the occasion of previous Treaty revisions, so far negotiated behind closed doors with the traditional methodology of more or less secret diplomacy.

At the end of its work, in May last year, the Convention has produced an impressive result: a draft of a completely new Constitutional Treaty meant to substitute the existing two Treaties, the one establishing the European Community and the other relative to the European Union.

The draft Constitutional Treaty produced by the Convention, and approved by acclamation despite some reservation, is an extraordinary result whose characteristics I’d like to briefly mention here:

1) it contains in a single instrument provisions that are at present spread in the two Treaties and in a number of other instruments with a positive impact in the term of transparency and clarity;

2) it contains the recognition of the international personality of the Union;

3) it contains a more detailed description of the principle of subsidiarity and strengthens the role of national parliaments over its application;

4) it goes beyond the old separation between the three pillars deriving from the Maastrich Treaty, even though maintaining a separate decision making process for the area of foreign and security policy;

5) it includes as an integral part of the Treaty the Charter of Fundamental Rights;

6) it provides a drastic simplification of the Unions acts;

7) it contains significant progress in the area of defence;

8) it increases the number of decisions to be taken by qualified majority voting instead of unanimity.

According to the existing rules nevertheless only the Governments of member states are entitled to adopt either amendments to the old Treaties or a completely new treaty therefore in any case after the Convention on IGC was necessary. But as a matter of fact the work produced by the Convention had been recognized as an excellent basis for future deliberations by national government. Therefore in Thessaloniki we decided last June that this draft Treaty should have constituted the basis for the proceeding of the Intergovernmental Conference to be conducted under the Italian Presidency.

When we opened the work of the IGC at the beginning of October we could count on the fact that a very significant part of the draft Treaty was agreeable to all member States and as a consequence we could also count on the agreement to discuss only those parts of the draft Treaty that were not recognized as subject of agreement.

During the two and half months available, in fact a very short period of time, we were able to achieve significant progress on a number of issues among which I would quote in particular:

1) the definition of the role of the Foreign Minister of the Union;

2) a new system of rotation of the Presidency;

3) the concept of structured cooperation in the field of defence and the clause on mutual assistance.

But in the Brussels Summit of mid December we were forced to register the fact that an agreement was not possible on three main institutional issues:

1) the composition of the Commission;

2) the extension of qualified majority voting;

3) the system of qualified majority voting.

All these three issues have to do either with the problem of the balance of power among member States (like for the question of the system of majority voting and the composition of the Commission) or with the question of the degree of willingness of member States to transfer portions of their national sovereignty. Because of the very politically sensitive nature of the three problems, and also because of the little time available, we were not able to find suitable compromises.

We will resume negotiations soon after March under the Irish Presidency. Dublin is consulting on a bilateral basis the various member States on the prospect of the negotiations after the failure in Brussels. We are confident that rationality will prevail and that soon we will be able to conclude with an agreement on a new Treaty, which we consider an essential instrument to allow the enlarged Union to function more effectively, in a more transparent manner and with a better democratic legitimacy.

The prospect of another failure would be disastrous in particular because it will encourage the temptation by some member States to go ahead outside the institutional frame. Italy is worried by such perspective, and has voiced its preoccupation in particular at the announcement on the intention by Germany, the UK and France to increase their cooperation and consultation on a systematic basis. We consider that, in particular as far as the new Treaty is concerned, the resumption of negotiations should be the result of an open and transparent participation by all member States.

We do not exclude that more limited group of countries may proceed with specific forms of cooperation, as it has been in the past the case for the single currency or for the free circulation of persons. But we consider it essential that such cooperation between smaller and more homogeneous group of countries must take place in a context of transparency and agreed rules, and should also be opened to the successive participation of all concerned.

The external projection of the European Union

The enlarged European Union will also have to redefine its relations with its partners outside the Union.

The first priority attention will have to be devoted to the new neighbours.

With countries of the region of the Western Balkans we have already defined a strategy which is meant to promote their progressive integration in the European structure, while at the same time contributing to their economic development, political stability and regional cooperation. Their respective situation is quite diversified. Croatia has filed an application for membership and the relative advise by the Commission will be available by next June. Bosnia is still in the process of the complex implementation of the Dayton agreements. Serbia and Montenegro is an entity which still has to prove its ability to succeed as a united country. And Albania despite the encouraging progresses realized in the process of reform and stabilisation still has a long way to go before meeting European standards.

Towards East the Union has to define a strategic relationship with the Russian Federation. We have a road map for the creation of four common spaces (in the area of economic integration, in the area of foreign and security policy, in the field of justice and home affairs, and in the area of culture and education). But the concrete results so far have been unsatisfactory; and there are many areas where we still have problems in defining a common ground (from Chechnya, to the Kyoto Protocol, from the question of freedom of press and the functioning of democratic institutions to the conditions for Russia accession to WTO).

Ukraine is a country that suffers from its geographic position in the middle between the enlarged European Union and the Russian Federation. We should encourage its choice for a progressive integration in the European structure and increase our level of cooperation. But for the time being the prospect of Ukraine accession seems remote and unlikely.

Finally, as a consequence of enlargement we should also be able to redefine our relations with the countries of the Southern border of the Mediterranean. Building on the results, not particularly brilliant, achieved in the context in the Euro-Mediterranean partnership, we should be able to improve our political dialogue, increase the level of interdependence of our economies and foster dialogue between our cultures and civilizations. Despite recurrent frustration, that are only partly generated by the lack of progress in the Middle East peace process, there are enormous common challenges, like in particular the management of migratory flows, we should be able to face together with our Mediterranean partners.

Relations with the U.S.A.

Finally, I would like to conclude with some remarks on the delicate question of relations between European Union and United States of America.

All along the history of European integration we have had the impression that the American attitude towards this process was twofold. There has certainly been a strong political support for an initiative, which was rightly interpreted since the beginning as instrumental to the objective of ensuring conditions of freedom, stability, peace and prosperity in the old continent. But at the same time we have also felt cyclical reservations and scepticism over the perspective that the European construction may assume a political connotation, that a more united Europe may actually become a protagonist in the international scene.

The American attitude towards Europe has changed over the years, according to the circumstances and also according to the sensitivities of the individual administrations and of the sentiments prevailing in the American foreign policy community. We have sometimes been felt as a trade block contrary to the American trade and economic interest. On other occasions our decisions aimed at providing the European Union with military capabilities have been interpreted as initiatives aimed at undermining NATO’s credibility and strength.

But on other occasions we have been encouraged to proceed steadily with our programs, like in particular on the occasion of the most recent enlargement, in the clear awareness that our strategic interests were fully compatible and convergent. The common fight against international terrorism has been another area where Europe and the United States have been able and willing to work successfully together. The same applies for our joint efforts to prevent proliferation of weapons of mass destruction.

I think it is in our common interest to stress what we have in common, our shared values and the need to work together to contribute to an international peaceful and stable environment. It is not an easy task for reasons that are well known. We have from time to time different perceptions and we tend to adopt different prescriptions to afford similar problems. And difficulties tend sometime to be instrumentally overemphasized as it is demonstrate by the abundant literature on the subject, which has been published during last year.

But, as an example, the work that we have done during the Italian Presidency may be a good test case of our capabilities to produce positive results if there is a well determined political will.

I will take two subjects to confirm my assumption. The first one is Iraq. If you compare the situation that existed between Europe and the USA, and within Europe, at the eve of the military intervention in Iraq, with the situation that prevails now, with the clear shared will by all sides to work for a rapid transition to a fully legitimate Iraqi administration, you can measure the amount of progress that we have been able to produce in our efforts to reduce the gap of understanding and re-establish a climate of dialogue and cooperation. There remain to be defined a non minor aspects and details but the climate was definitely changed.

And a similar remark applies for the highly controversial question of European defence. We have never conceived our limited capabilities to intervene with common military means in the management of crisis situation as a cryptic attempt to undermine the Atlantic Alliance. On the contrary we have always assumed that a military stronger Europe would have been a better partner for the United States of America, provided we were able to establish in common the rules of the game, and to distribute responsibility and respective roles on the basis of a mutual understanding.

As a result of the Iraqi crisis and related tensions, some countries in Europe have been tempted by the idea of proceeding on their own in the area of defence. We have always thought that this was a terrible mistake and that everything had to be done to bring back all initiatives aimed at strengthening the European military dimension in a context of consistency and compatibility with our commitments in NATO. The results that we have achieved by the end of last year have proven that our position was correct and I think that now we can look with some more optimism to the prospect of a European defence, for the time being with very limited means available, that will operate according to a scheme of distribution of responsibilities with NATO and in full agreement with NATO.

And apart from the exceptionally high level of independence in a climate of less tense relations and more cooperative attitude between the two borders of the Atlantic it is also much easier to solve other contentious problems that tend to arise periodically in our relations. We have therefore registered recently with satisfaction the agreement on safety of containers, an agreement on the transmission of personal data of passengers, encouraging progresses in our negotiations for an agreement of open skies and significant progress towards and agreement between our two systems of satellite navigation, the American GSM and the European Galileo.

We still have a number of open issues in particular in the area of trade: sanctions have been adopted by the European Union, with the agreement of WTO, against the effects of the American law on Foreign Sales Corporations; there still is a need to find a common ground on limitations to trade and distribution of genetically modified organisms.

But always in the area of trade we also have an encouraging convergence of positions in the context of the negotiations in the so called Doha rounds for further liberalization of international trade. And we have a number of encouraging prospects in the context of the so called positive agenda: from cooperation in the area of research for hydrogen applications, to the idea of a specialized dialogue on competitiveness on economic growth.

The existence of recurrent disputes and tensions both at the political level and on economic and trade issues must not make us forget that we share fundamental common values and objectives. We do need to build on these shared values and objectives because it is in our common interest to underline convergence instead of highlight divergences.