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Václav Klaus
President, Czech Republic
When I was last in San Francisco - it was some six or seven years ago - my country was still in the first decade of its post-communist era. We were deeply involved in our so-called transformation process. The title of the speech I delivered here then was "The Political Economy of Transition: The Czech Lesson." I discussed the basic structure of this unique historical maneuver - of the move from communism to a free society. I tried to describe the basic pillars of the whole process - liberalization and deregulation of the administered and centrally planned and centrally controlled economy; privatization of an economy which was fully in state hands; restrictive macroeconomic policy (after decades of repressed inflation); building of democracy and market-friendly institutional infrastructure, as well as our attempts to organize this maneuver in a way which would minimize the inevitable transformation costs connected with such a deep and radical systemic change. I also stressed something I considered important at that moment, that the transition was done in a real world, not in a laboratory controlled by an omnipotent philosopher-king, by an enlightened president or prime minister. This message was crucial because there were many would-be advisers telling us what to do. As I always say, the transformation of the country was not a controlled experiment in applied economics. It was a game played with millions of Czechs and Slovaks at a time. It was not done in a laboratory.
I tried therefore to explain, "I do not believe in the possibility of a smooth and stable transition path in the politically and socially difficult, but highly democratic, pluralistic and open societies (and economies) of Central and Eastern Europe. We are not in a brave new world of perfect markets or perfect governments." It was real life, with everything that real life brings.
That historical task - the transition - is over. The Czech Republic has become already - structurally - a standard, which means normal, European country, and as a result of this it has typical European problems, if not to say European diseases. They cannot be solved by means of another revolution, because we are already in the middle of the process of a spontaneous evolution of basic social structures. This evolutionary era, of course, is less radical, less dramatic, less headlines-creating, but - paradoxically - more controversial and even more ideological. This era is also connected with the ongoing European integration process (something which, in my opinion, is not sufficiently understood in this part of the world) and with our entry into the European Union on May 1, 2004.
Our entry into the European Union has been planned and prepared for a long time. Already in November 1989, hundreds of thousands of us - almost subconsciously and thus completely spontaneously - came up with the slogan "Back to Europe." This slogan, in its simplicity, became one of the most important symbols of that historic occasion - it was written on all the streets and buildings of the country - and of our further development. By saying that, we wanted to indicate that we intend:
- to overcome the isolation of our country that lasted almost half a century;
- to overcome our unnatural and one-sided orientation towards the East;
- to end our disrespect for the basic values of the political, economic and social systems functioning successfully west of us;
- to end our non-involvement, non-participation in the activities of those European institutions that had been founded during our absence from the democratic developments of the free part of the European continent between February 1948 and November 1989 and that shaped the face of today's Europe.
The problems with our entry into the European Union are logical and inevitable. As it is usual in the lives of individuals as well as of the whole society, we have gained something by becoming an EU member, but at the same time there is something we have lost. One never gets anything for free, as the well-known saying goes; there are no free lunches. (I must say I had a free dinner last night with the author of that saying, Milton Friedman. So there are no free lunches but there are free dinners.) It is our obligation to do everything to make sure the proportion of gains and losses is favorable, which certainly is not, and will not be, automatic. We must learn how to remain ourselves, not only as individuals but as a Czech nation which is more than the sum of individuals and of individual interests. These wider interests do exist and they should not be labeled as nationalism, as is common in Europe these days. We are obliged to our predecessors to preserve Czech statehood. Americans understand patriotism well, much more than contemporary Europeans, who consider it something politically incorrect.
Looking at the European integration process from the broader perspective, the year 2004 will be remembered for two important events in Europe: the biggest EU enlargement and the birth of the EU Constitution, which represents a radical step on the way to a - at least nominally - unified Europe and to the gradual disappearance of national states on the European continent.
When we speak about enlargement, there is no doubt that the new members, Central and East European countries, gained an important political recognition, that their membership in the EU means an end of the post-communist transformation, as well as an end of the Cold War division of Europe. This is very important. But these effects are more symbolic than real.
The real problem is different. The new member countries - economically less developed countries - need catching up. They need real convergence. The question is whether the nominal convergence, which means the acceptance of EU legislation, standards, rules, policies, will accelerate the expected real convergence, or will block it. The results depend very much on the existence or non-existence of huge financial transfers, because without them the nominal convergence creates costs that are higher than the benefits. This problem is serious and should be taken seriously because, otherwise, we will be confronted with a huge disappointment of citizens in the new member countries. The case of East Germany is well known; the case of nominal and real convergence in Italy between the north and the south as well. So we don't want to create in Central and Eastern Europe, by nominal convergence, a new Mezzogiorno, to use the Italian term.
Enlargement means a bigger EU and, as a result of it, the transaction costs of EU functioning will go up. On the one hand, the governing in a bigger and more diversified entity will be more complicated: the costs of collecting, using and evaluating the necessary information; the costs of making decisions in a multidimensional, very complicated structure; the costs of implementing and controlling decisions. When we increase the number of countries, keep the scope of policies constant, the governing will be either more costly or less efficient and/or less democratic. To escape such an unpleasant arithmetic is not possible. At the same time, there will be non-zero costs for individual EU countries connected with their obligatory application of uniform EU decisions and standards.
All of this is amplified by the appearance of the new EU Constitution, signed eight days ago in Rome, which is a radical document with huge implications for efficiency, democracy and national sovereignty. It aims at eliminating the legal autonomy of individual European countries; it introduces EU legal personality; and, in terms of international law, it transforms the EU into a state. Those are radical changes. I'm not sure that all Europeans want them to happen.
It can bring about some increase in the operational efficiency of governing, but at the price of:
- the strengthening of the so-called democratic deficit, widely discussed in Europe;
- the shift in decision-making procedures - less of a democratic type, more of a hierarchical type;
- more majority voting than unanimity;
- the further depersonification of the EU and growth of anonymity in decision-making;
- the growing loss of national sovereignty;
- the increasing power of the EU "core."
I think such a document, the European Constitution, will not help us very much. We should take a different route. We should not Europeanize issues but fight for the preservation of basic civil, political and economic liberties, as well as for a minimal state. We need an institutional framework which makes it possible. We need unregulated markets. We need states to guarantee and safeguard the rule of law. We should know that the alternative is a non-state, post-democracy and administered society.
So I mention those two basic issues of Europe: on the one hand, how far to go as regards to widening and broadening the institution; and on the other hand, how deep to go. In this respect the European Constitution is probably the final move from intergovernmentalism to supranationalism, from having an institution in Europe which is, however defined, a conglomerate of states to creating one state. This is the basic issue in Europe these days. And this is the topic which, at least in our country - the Czech Republic - will be ratified or not ratified with the help of a referendum, not just in the national parliament.
We really need a New Europe - but a Europe without Europeanism. We need Europe of economic freedom, Europe of small and non-expanding government, Europe without state paternalism, Europe without pseudo-moralizing political correctness, Europe without intellectual snobbism and elitism, Europe without supranational, all-continental ambitions. (When I say we need a "New Europe" - if somebody across the ocean labels this kind of Europe "New Europe," it would only be good; but that was not the meaning used in this country 20 months ago.) We are still very far from such a New Europe, but nevertheless speaking about Euro-pessimism or Euro-optimism, I always reject being labeled a Euro-skeptic or Euro-pessimist. I always suggest to others two labels: Euro-realists and Euro-naivists. I definitely prefer to be a Euro-realist, not a Euro-naivist. But speaking about the chance to transform European society to a New Europe, this is simply the challenge we have to fight for, and in this respect I am optimistic.
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