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The State of the European Union: Challenges for the Future

December 8, 2015

Introduction

JOANNE MYERS: Good morning, everyone. I'm Joanne Myers, director of Public Affairs programs, and on behalf of the Carnegie Council, I would like to thank you all for joining us as we welcome José Manuel Barroso to this breakfast program.

From 2004 to 2014, Mr. Barroso served as the 11th president of the European Commission, which is the European Union's executive body representing the interests of the European Union as a whole. Today he will be speaking to us about the state of the European Union and the challenges for the future.

Over the course of many decades, the European project, which began more than 60 years ago, has sought to foster a peaceful, prosperous Europe through ever closer economic and social integration. This effort began with the formation of the Coal and Steel Community, continued with the creation of the Common Market in 1959, and the expansion of that market to include newly democratic nations in Southern Europe and former communist countries. Added to this initiative was the Schengen Agreement, which removed many border controls within the continent and created a common European currency, the euro. From the initial six countries, the EU now has a membership of 28.

As the EU evolved, the more or less explicit hope was that technical and economic integration would gradually foster psychological unification and eventually pave the way for a United States of Europe. For a long time, the project worked very well, as Europe did grow steadily more prosperous, peaceful, and free. Yet now, for the first time in decades, and in spite of great resilience, some of the fundamental achievements and values of the EU are under threat. While the European Union is still viewed as a cornerstone of European security, stability, and prosperity, the challenges of holding this vision together are multifold. This includes the refugee crisis, open borders, the threat of ISIS [Islamic State of Iraq and Syria], the single currency, Russia and Ukraine, and a possible "Brexit."

Given these recent setbacks, the question is whether Europe has the needed adaptability, flexibility, and political will to move forward. In addressing these challenges, can it become stronger and better prepared to face a new world order?

Having left the Commission about a year ago, I would be very surprised if former president Barroso hasn't been thinking about these issues, about Europe and its future. I am confident that we will learn a lot from his reflections. At this time, please join me in welcoming a man of unparalleled insight, experience, ability, and fortitude. We are delighted and honored to have you address us this morning. Thank you so much.

Remarks

JOSÉ MANUEL BARROSO: Thank you very much, Joanne, for your extremely kind words of introduction. And let me thank you for your invitation. It has been a pleasure to have the possibility to address such a distinguished audience. Let me recognize among those present my good friend, the ambassador of my country, the ambassador of Portugal, Alvaro Mendonça e Moura; also the ambassador of the European Union to the United Nations, another good friend of mine, Ambassador Joäo Vale de Almeida. I would like also to say hello to the ambassador of Lebanon, another distinguished member of the diplomatic community here in New York.

You have asked me to speak about the European Union and its challenges. A student of mine—I am now a visiting professor at Princeton—a student of mine in the Woodrow Wilson School told me some time ago that she has googled "European Union" and "crisis," and more than 1 million references appeared. So the European Union is about crisis. I know that. We know what is the conventional wisdom now about Europe—the crisis of Europe, decline of Europe, some say even the irrelevance of Europe.

This perception does not exist only on this side of the Atlantic. I'm afraid it exists also in Europe, where there is a predominance of what I have been calling "the intellectual glamour of pessimism." People want to show they are more intelligent, predicting the worst for the European continent.

I don't share that pessimism, I have to say. Since I left political office more than one year ago, as you said, I want to start by stating today to you that my sincerity is increasing day by day. So what I am going to tell you is indeed what I feel. I am not bound by any kind of political considerations. Based on the experience of leading the European Commission—that is indeed the executive body, the central institution in the European Union—I think I can give you an assessment, a frank, open assessment, of the difficulties, the challenges, which are huge—and I do not underestimate them—but also the extraordinary resilience and resources of the European Union.

We know what we say when we speak about the crisis of Europe: the financial crisis, the sovereign debt crisis, sometimes also called euro crisis; the possible "Grexit"— so far it did not materialize—the possible "Brexit," Britain leaving the European Union; the refugee crisis, the illegal migration crisis; the rise of populism and anti-European or euroskeptic parties; the demographic decline of Europe; the difficulty of European countries to define sometimes their current position on major international issues, like the Middle East; and so on and so forth. We know about that.

Now let's look at each one of these issues and see exactly where we are and ask ourselves if those difficulties, first of all, are specific to Europe or if they are not more general, and the way the European Union has been reacting to that.

First of all, the financial crisis. I have been living through that financial crisis since the beginning, because I was at that time in the Commission. I really believe that the so-called euro crisis or the existential crisis of Europe is behind us. The euro is one of the two most important currencies in the world, together with the U.S. dollar. Indeed, we have seen the euro area expanding. Indeed, Grexit did not materialize.

Let me just tell you this. In June 2012, I invited to the European Commission the chief economists of the most important banks operating in Europe, not only European banks, also American banks. I asked them two questions. It was a brainstorming that lasted more than three hours.

I asked them: How many of you believe that Greece will be with us by the end of this year as a member of the euro? We were in 2012. All of them except one said Greece will not be a member of the euro next year. And they were the chief economists. They were not the chairmen. They were the chief economists, so the real experts on the matter, on markets. They were wrong. And by God, it was not only the chief economists; it was the so-called common perception in markets, as you remember, in 2012: Greece would be out of Europe. Still they are with us.

My second question was: How many of you believe that the euro is going to survive the current crisis or it will be a fundamental change, the way it operates? It was 50/50, that question, 50/50. Half of those chief economists said the euro will not be able to survive the current crisis. It stands today. Basically, not only has the euro survived, but today you have a larger euro area than before. Today we have in the eurozone more countries than we had before in all the European Union the year I became president of the Commission, 2004. At that time we were 15 countries. Now in the euro area we have 19 countries.

I think that is an important question to ask ourselves: If an organization is declining, how is it that it keeps enlarging?

What happened, in fact, was that an unprecedented crisis, the financial and sovereign debt crisis, in fact did not start in Europe; it started here in the United States. That crisis puts a very important challenge to the European Union, namely the euro, because our economic and monetary union was not complete, and still is not complete.

So we had to create new ways for us that we had not before. We had to build the lifeboat in the middle of the storm, which, I think you agree, is not a very comfortable position to be in. In fact, we have created not only bailout programs, adjustment programs, for countries that needed it—for Ireland, Greece, Portugal, Spain also—for the banking sector.

And let's not forget that at that time the common perception, for instance, in Germany was that those bailouts were not possible, were not acceptable, according to the rules. But we have done it. Not only have we done it, we have created new instruments, like the European Stability Mechanism, a kind of European IMF [International Monetary Fund], that has the financial firepower of 700 billion euros. That was built from scratch.

We have made new regulation and supervision rules. More than 40 pieces of legislation were approved in record time. We have created new rules of governance for the euro area. I am not going go into now the jargon of the European Community to describe them. And we have created a banking union with a single resolution mechanism and a single supervisory mechanism—something that most people considered impossible before the crisis. But the crisis made it necessary.

Then we had something that is typical in European integration. It is the so-called spillover effect. The fact that you need some steps forward demands another step. I remember when I put the proposal on the table—as you know, in the European Union, the European Commission has the monopoly of the right of initiative. It is a commission that presents new legislation, but afterwards it has to be approved by the Council, where all the governments are represented, and most of them also by the European Parliament.

When I put forward the proposals for the banking union, some colleagues and heads of government told me, "Look, you cannot do it, because it's not in the treaty." I said, "Yes, you are right, it's not in the treaty. But to fulfill the goals of the treaty, we need a banking union." It is not complete, but we have the basic principles and the instruments of the banking union, with the powers of the European Central Bank of direct supervision of national banks. In some cases the European Central Bank has more competencies than the Federal Reserve of the United States.

For those who say that the European Union is disappearing, it is a little bit strange that more powers, more competence have been given to the European level—not only to the European Commission in the governance of the euro area, but also unprecedented powers and competence were given to the European Central Bank and also to the European Banking Authority.

My point is the following. Yes, we have been living through a very demanding crisis, but, in a typically frustrating, progressive, incremental, sometimes fragmented way—it is the way the European Union works—we have been responding. The European Union transforms itself by adaptation, successive adaptation.

Basically today I think we can say the euro crisis is behind us. Of course, we still have a problem with Greece, but the other countries successfully completed their programs. Ireland is one of the fastest-growing countries in Europe today; Spain as well; Portugal also, after the program. Cyprus—also they have a program—they are on track to fulfill their commitments.

The other issue we can discuss, and for me, that is a very challenging one—probably in the period of questions and answers—is Brexit. I think there is a possibility that the UK leaves the European Union. I think it will have devastating consequences. I hope it will not happen. But we have to be honest. The recent crisis of refugees and illegal migration has made it more probable than before. I believe we are going to solve it. I hope there will be wisdom on both sides, on the UK government side and the other countries. The other countries want Britain to remain, no doubts about it. But, of course, a referendum is always problematic. We don't know what the result is.

Many British citizens think about Europe, not in terms of yes or no; they think "yes, if" or "yes, but." But in a referendum there is not a "but" or an "if." It's yes or no. So let's see what happens.

But even in the case of Britain leaving—which, I repeat, I hope will not happen—in that case, the European Union will continue. We had the European Community before the UK was a member. It can continue without it. It will not be the same, but it can continue.

The refugee crisis. First of all, we should ask ourselves why the refugees come to Europe. People say the refugee crisis is in Europe. I'm sorry, the crisis is not in Europe. The crisis is in the Middle East and also in Africa. That's where the crisis is—not only a crisis, a drama.

When I was in the Commission, I visited not only Zaatari camp in Jordan, but I also visited Lampedusa, a small island in the south of Italy where I had an experience I will never forget—and frankly, I hope no one goes through it—to be in front of 300 coffins. Those were people who were drowning when they were coming to the coast of Italy, because they want to join Europe, because they want to live in Europe, because they know Europe is peace and Europe is prosperity.

It is true that this refugee and illegal migration crisis puts a lot of pressure on Europe. But once again, I believe that what is going to happen with this is exactly what happened with the euro area and with the financial crisis. For the first time, the governments of Europe are now discussing mutualization of the refugee policy that until now was simply national. Let's not forget that. According to the treaties, the refugee policy is a strictly national policy. The governments have the right to give or not refugee status. It is not the European Union. The European Commission has no competence on that.

But now, for the first time, the governments are discussing what they call burden-sharing and there is an attempt to come up with some common positions. Of course, there is resistance. It is easy to see what the reasons are. At the same time, we have the position of Germany, I think a very enlightened and courageous position of Chancellor Merkel. She is taking, by the way, the right position considering the German interests. But, of course, there is strong resistance to that.

I think this is the most challenging crisis we are facing today in Europe. It is more difficult than the financial crisis because it is not just about money; it is about political acceptance. What we have today in Europe, in some sectors of Europe, we have strong resistance to foreigners, to illegal migrants. That is the real issue.

If you look at the motives behind the UKIP [UK Independence Party], the party that is advocating Brexit in Britain, if you ask them, "Why do you vote?" the reason is they don't want foreigners. They say in their communications it is against Brussels, against bureaucracy in Brussels, but that is not the real issue. The real issue for them is that there are too many foreigners in Britain.

So xenophobic forces exist in Europe. When you know the history of Europe and old demons, I think we should be attentive to that. How to fight this xenophobia? How to be sure that we keep Europe open, at the same time that we are able to control our borders?

My question to you is the following: Do you think it is only a European problem there? Don't you have that problem here in the United States? When we see a leading candidate in the presidential race making the comments he made about Mexicans or just the position he took now against all Muslims?

So, my dear friends, we are living in a very difficult and complex world, where globalization is, in fact, feeding this kind of nationalistic, nativist, xenophobic, sometimes racist attitudes. This is a problem not only for Europe, for many of us who believe in ethics in international relations. We have to fight together against those negative sentiments that have a very deep history in some of our societies.

Yes, there is a problem in Europe, but it is not a specific problem to Europe. The solution, as we have seen now with the tragic events in San Bernardino, is not to close European borders. The United States is in full control of the borders. But it can happen to you. If you have suicide bombers, fanaticized, they can be anywhere, even if you close your borders.

So we have to see how deep this issue is and try to avoid simplistic, populist answers to very complex and difficult challenges. It is not by closing Schengen. On the contrary. It is by Schengen that we can fight, because terrorists don't respect borders. It is precisely by changing intelligence and information, putting together the national resources against terrorism, that we can succeed in the fight against this kind of violent jihadism that we have today as the major threat not only to Europe, but to the world and to our values.

Of course, this is, I have told you, a very difficult issue, populism and extremism in Europe. Just this weekend, we know what happened in France when an extreme right party, a xenophobic party, a real unacceptable party in terms of values came first in the regional elections.

As you know, in France there are two rounds in the elections. I hope they will not come first at the end, after the second round. But indeed they came first—not a very big margin—in the first round. That is a very serious challenge. They are benefiting precisely because of these developments in terms of refugees and illegal migration.

This is why I consider this the most important challenge of Europe, the political challenge: how to integrate migrants, avoiding a backlash in terms of the resurgence of populism or extremist parties. The irony is that Europe is in a demographic decline. There is in Europe what I have already been calling the demographic winter. In Europe we need more young people. We need more people from outside. The fertility rate of Europe is going down in most of our countries—not all; there are many important differences. We need more young people to work. But for cultural, sometimes religious reasons, there is a strong resistance in some quarters to this kind of integration.

Regarding the difficulties of Europe shaping common positions, frankly, once again I think they are exaggerated or they are not specific to Europe. Okay, the Middle East is not going well, but is it Europe's fault? The situation today in the Middle East is worse than 10, 20, or 50 years ago. I know that well. But everybody has tried to find a solution, and even those that have invested the most, like the United States, were not able to find a solution. That's reality. So probably the difficulty is not from Europe or from the United States. Probably the difficulty is there itself.

One thing I have learned from my political, diplomatic life is that you cannot impose peace against the commitments of the people who are on the ground. We can help. We can create better conditions. But if those who are there, themselves, do not make the most of it, it is not going to be imposed. We can impose war from the outside. We cannot impose peace from the outside. That is the important issue to understand.

I think that Europe has been quite united in the Middle East. If you look at the Iran issue, Europe has been more united than the United States. In Europe nobody wrote the president of Iran saying, "Don't trust our president." The level of coherence of the European policy, all countries agreeing on sanctions, was very important to create the conditions for negotiations. It afterwards was successful, with strong American leadership, but also a very important role for the European Union, as you know.

The same way with Russia. I was at that time leading the Commission when the other difficult issue was to have a common position regarding the Russia attitude towards Ukraine. Even if you have 28 countries in Europe with very different perceptions—and, by the way, different levels of engagement with Russia. Don't forget that in at least six of our countries, 100 percent of the gas that they receive is from Russia. But even those countries were able to agree on the sanctions to Russia.

I think, if you want to be honest, you cannot say that there is not an effort that you can level of trying to have coherent positions in international relations. You can see that there are 28 very different countries. I think we should recognize that as progress.

What I am trying to show to you is that the common conventional wisdom that Europe is completely out of business I think is really exaggerated. I want to ask you to have a more realistic position about Europe, recognizing the challenges and difficulties, yes, but also what we have been doing. In fact, Europe remains the most important economy in the world—looking at the last figures I have, from 2013, $17.96 trillion, a little bit above the United States with $10.77 trillion.

Anyhow, it's not important, because China will be the first. It is a question of time.

But the European Union, with only 500 million people, only compared to China, is still today the biggest trade bloc in the world, by far the biggest donor of development assistance. More than 50 percent of the development aid in the world coming through the OECD [Organisation for Economic Co-operation and Development] comes from the European Union and its Member States. It is around €56.5 billion. So I really believe that Europe matters in the world, not only in trade and economy, where it is still the biggest power, but also in the shaping of a new world order.

Indeed, coming back to my own experience—because that is where I think I can share with you some more interesting points—let's compare 2004 to 2014. In 2004 we were 15 countries in the European Union, at the end of my mandate, and today we have 28. We have almost doubled the membership of the European Union. Typically that does not happen in an organization in decline. Some people say before, this was the golden age, before, the European Union was great.

I like to ask, when? When was Europe better than today? During the Second World War? During the Shoah? Probably the most terrible time of mankind happened in Europe in the Shoah. Was this Europe's great moment?

Was it when the European Community started, with six countries? Six countries is very cozy. But it was not Europe. Was it when we were 12 countries? When my country joined, we were 12. I was foreign minister in 1992, for instance. I remember well, because at that time the foreign ministers were members of the European Council. Today it is only for the heads of government or heads of state. I was working with Delors, my predecessor, with Helmut Kohl, with Margaret Thatcher, with François Mitterrand.

Today people tend to idealize the past. At that time the European Community had not at all the same leverage that it has today. We were only 12 countries, part of Europe. Was Europe better when half of Europe was under totalitarian communism, or Poland, or the Czech Republic, Czechoslovakia at that time. The Baltic countries were members of the Soviet Union. Was Europe better then? Of course not. The enlarged Europe is much stronger and much more relevant than the Europe of 6, 9, 10, 12, or 15 countries. Today we have a continental nature.

So, indeed, I think we should be proud of what Europe has been doing, not only in terms of dimension, but in terms of values. That's why a moment I will never forget was when I had the honor, together with my colleague from the European Council, to receive the Nobel Peace Prize in 2012 in Oslo, Norway. A Nobel Peace Prize was given to us, the European Union, to recognize the contribution of Europe to these values of peace, because the European Union—and that is the original thing about Europe—is a political process for peace.

The leitmotif for the European Union was reconciliation of the former enemies like France and Germany. Afterwards, those two countries with four others, the three Benelux countries and Italy, were able to create this process that, in fact, had a continental nature by economic integration with the Common Market, but the goal is political.

If you look at our treaties, the most important part is the values—human dignity, human rights, freedom, justice, equality of rights between men and women, something that is important to states today more than ever, because there are parts of the world where people believe that women have not the same rights as men.

So I think we should be proud of Europe, recognizing the challenges and the difficulties. If you look also historically, where we are today and where we were 10, 20, 50 years before, we are certainly better today than before. And competitively also we are not so bad.

I remember some years ago that everybody was saying, "Emerging economies; this is great, Europe is dead." I was going to all those G20 meetings. By the way, we launched the G20. It was President Sarkozy and myself who came here to the United States to ask President George W. Bush to organize the first G20 at the heads-of-state level. We did it in 2008.

The G20—during many meetings, we had to receive lessons from everybody about how to save Europe from financial crisis. Okay, we can listen to President Obama speaking for five or seven minutes, the president of China, the prime minister of Japan, but it was more difficult, I have to tell you, to receive 45 minutes of lessons from President Kirchner of Argentina to tell us how to stop the debt crisis. But very modestly we have heard about how to deal—Argentina to Brazil, they were telling us how to deal with it. Okay. But now you see the situation.

I say it is really sad, because I am very close also from a family point of view to Brazil, the difficulties that Brazil is going through. How is Russia today, and other so-called emerging economies? They are in deep trouble, because, in fact, they have not yet the influence that we have—rule of law.

So we are not going to grow spectacularly, as China has been growing, in Europe. But I think Europe, in the medium to long term, is certainly a better bet for investment than many other parts of the world. By the way, the investors' mood is reflecting more or less this today regarding what is going to happen in some of the emerging economies.

My point is that we have these challenges, but we also have resilience. Europe is able to invent itself. As I told you before, I am now free from office. I am not here making any kind of propaganda. I am sharing my experience with you. We have been living in the last years in extremely difficult moments, sometimes very close to the abyss. But even in those moments, my position was that—there is in Europe what in French we call sometimes obligation de résultat, the obligation to come to a result.

It is different to explain how decisions are taken in Europe. They are fragmented, time-consuming, very energy-consuming. I can tell you, because the Commission has lived through all these moments, it's sometimes exasperating to bring all those countries together. But yet there is a result. The result is not perfect. Europe is incremental in nature. It is something that our American friends should understand better. Europe is not the United States, and it will not be a United States of Europe in the foreseeable future. We are not going to have a Pennsylvania moment in the near future.

It is going to be incremental, sui generis. It is something that is not a state. It is not a federal state, but it is not a common international organization. It is something in between. Difficult to understand, difficult to identify, but at the end, there is this capacity to create rules, to define positions, and supranational institutions.

That is something that is a contribution of Europe to the 21st century. I believe we need a global order for the 21st century. We are living in these very difficult times. That is why I want to conclude my remarks today with someone from New York, someone who unfortunately is no longer with us, Tony Judt, a professor at New York University. In his great book, Postwar: A History of Europe Since 1945, he said, and I am going to quote him:

The 20th century—America's century—had seen Europe plunge into the abyss. The old continent's recovery had been a slow and uncertain process. In some ways, it would never be complete: America would have the biggest army and China would make more, and cheaper, goods. But neither America nor China have a serviceable model to propose for universal emulation. In spite of the horrors of their recent past—and in large measure because of them—it was Europeans who were now uniquely placed to offer the world some modest advice on how to avoid repeating their own mistakes. Few would have predicted it 60 years before, but the 21st century might yet belong to Europe.

I believe Europe can also be the great contribution to our 21st century, if we stay loyal to our values, the values of human dignity, freedom, and peace.

I thank you for your attention.

QUESTION: My name is Peter Russell.

Could you speak a little bit more about the balance and the evolving nature of initiatives and powers between the Commission, the Council, and particularly the European Parliament's role?

JOSÉ MANUEL BARROSO: Basically, the European Union has a system where we have—it is a union of states. The treaty-making power is with the states. All the treaties have been negotiated, approved, and ratified by all the Member States. Unanimity is required in the decision-making of most important issues. But for legislation, it is the Commission, and only the Commission, that has the right to come with new legislation, but that legislation has to be approved by the so-called legislative authority, that is, the Council, where all the Member States are represented, and the European Parliament that is directly elected by European citizens every four years.

Most decisions now are taken by a qualified majority. There are rules of qualified majority. Some issues, like foreign policy or fiscal matters, require unanimity. That's why, afterwards, it is a little bit difficult to understand and to read the system. Once again, it is the price of democracy. If it was not a democracy, it would be probably easier. But we are 28 democracies, plus a complex democracy in the making that is the European Union itself. This is basically the way it works.

In the last year, there has been an evolution in favor of the European Council. Why? They also sit in government. The European Council is made with all the heads of state in government of the European countries, plus the president of the European Council who chairs the meeting and the president of the Commission, who is also a full member of the European Council. The high representative, the so-called foreign minister, of the European Union participates, not as a member, and sometimes you can invite also the president of the ECB, who is not a member, the European Central Bank.

But it is the European Council that gives strategic direction. There, in the European Council, the decisions are taken by consensus. That is why so many of these issues today, namely after the financial crisis—because we had to mobilize hundreds of billions of euros, something unprecedented—the Member States said, "We have now to come in," and the European Council got probably more influence in the system. It was unavoidable when you had to mobilize so many, let's say, new financial resources.

The European Parliament is increasing its powers as well, increasing its power after the Lisbon Treaty. The Lisbon Treaty is the last treaty we have.

By the way, another crisis we have had—I did not refer to all the crises—it was about the constitutional treaty. The constitution was not approved, because there were referenda that two countries, France and the Netherlands, rejected. By the way, most analysts said we were going to be blocked. But we could solve the issue through another treaty, called the Lisbon Treaty, because it was signed in Lisbon, that was basically with the same content, but with some symbolic changes. We do not have a foreign minister; we have a high representative. We don't call it constitutional; we call it a treaty. But basically the rules are the same.

So according to the Lisbon Treaty, the European Parliament has gained powers. For instance, there can be no treaty, no trade treaty, without the agreement of the European Parliament.

So all the institutions, in fact, are gaining more power, if you look at it, which shows a way of institutionalization of the European Union.

QUESTION: Allen Young.

There is a perception in this country among certain circles that the United States has withdrawn from its role as a major superpower. What is the sense in Europe about America's position in the world today?

JOSÉ MANUEL BARROSO: I'm afraid it is not only in the United States that there is that perception. I am an Atlanticist. Sometimes I am accused in Europe of being too much of an Atlanticist, but I am an Atlanticist. I believe we need a strong relationship between the European Union and the United States. One of the points I really regret—I think in the last years we have not always seen that, which is a pity.

If there is someone who is really popular in Europe, it is President Obama. I said it, by the way, several times when we had meetings. I told him about how popular he was. He said, "I'm sure I'm much more popular in Europe than the United States."And it's true. It's true.

But to be honest with you, I think that instinctive trans-Atlantic spirit that you had before is disappearing, probably because the trans-Atlantic spirit was much linked to the Cold War. But I think we should not have this trans-Atlantic spirit depend on the Cold War. It should positively come from common values, those of open societies and open economies. That's why, for instance, I was so proud to launch with President Obama the negotiations for the TTIP, the Transatlantic Trade and Investment Partnership. But the United States decided to give priority to the TPP [Trans-Pacific Partnership]. Great. We have nothing against the TPP. We believe it's good. But TTIP is much more important than TPP.

If we conclude a trans-Atlantic trade agreement with the United States, it will be by far the biggest trade agreement ever, because in spite of everything people say, the most important economic relation in the world is still, in trade and investment terms, the relationship between the United States and Europe.

So I am a pro-Atlanticist, you see.

My answer to you is that today there is a perception that the United States is somehow in retreat. That is the perception in Europe. You have asked my opinion. That is the perception. That happens, I think, for understandable reasons, because Iraq was considered to be a failure. I know well, because I was part of that decision, too. I was one of those prime ministers who supported the United States, going through a very important risk at home, because the United States was asking us—not only President Bush. The Republican and Democratic Parties were asking the allies to support the United States in Iraq. I received a letter also from Nancy Pelosi at that time, not only from President Bush. I was prime minister of my country.

After what happened in Iraq, there is a kind of inhibition, a kind of reluctance to project power for the United States. Basically, President Obama was elected on an anti-Bush platform. That is the point. And that is difficult today. The United States has been announcing, "We are going to withdraw from Afghanistan and Iraq." If we have understood that it was not good, what happened before with Iraq, certainly the United States going out is also not very good either. That is the problem today.

We are in this moment of transition, where, for instance, if you ask the Arab countries, the Gulf countries—and I have been in that region a lot—they are not completely sure what the American policy is. We may like or not Mr. Putin, but people know what the policy is. He wants to keep us out—or the regime. That is his policy. What is our policy, not only American, European policy? What is our policy? We have said we don't want Assad; Assad must go. But we do not really have an alternative. That is the reality.

This is the difficulty of the situation. It is not only an American difficulty; it is a Western difficulty in general.

So there is this perception. But I believe it can be temporary. I believe we can create the conditions for the United States, which is still the biggest power in the world—certainly the most important defense power, military power in the world, and technologically the number one in the world—to become more self-confident, and also for Europe to do more. I was answering your question, but Europe, in fact, should do much more in terms of defense. Europe is not committing enough resources to defense. I believe we need to be more serious about it. Not only in defense terms, but in political terms, if we want to count as a power in the world, we need to be also stronger in terms of defense.

QUESTION: James Starkman.

Let's just talk economic metrics for a minute around the world, as well as in the European Union. There were rules in 2006-2007 of debt to GDP and also deficit to GDP. I believe 3 percent was the allowable amount of a national deficit to GDP. United States debt has doubled since 2007. What is the progress report, particularly on the five countries, Portugal, Ireland, and Italy particularly, which I believe, along with Japan, has the largest amount of debt outstanding in the world—what is the progress report? Was this recovery built on breaking those prior rules or expanding them and creating a situation whereby any rise in global interest rates will effectively lead to Argentinean-type crises in Europe?

JOSÉ MANUEL BARROSO: As you rightly said, there is a problem of public debt, not only in Europe. Japan is higher. The debt ratio of Japan to GDP is higher than in Europe—much higher. Of course, most of that debt is internal. That is probably one of the reasons why there was not some turbulence against the Japan economy, as we had, for instance, against Europe. In the United States also the debt is going up. I personally believe it is a very negative development. I am on the side of those who are for fiscal prudence and fiscal rigor.

Basically, the rules were broken, as you said, even before 2004. It started with France and Germany not complying with the rules. The Commission launched, by the way, an infringement procedure against those two countries because they did not respect the Stability and Growth Pact rules. The Stability and Growth Pact rules basically established 2 percent as the maximum of national budget deficit compared to GDP, and 60 percent is the level of debt allowed by the rules.

The financial crisis put all this in question because of recession. Also the debt was coming up. The effort in Europe has been to change that. That is why Ireland, Portugal, Spain, and Italy made huge efforts of controlling the deficit, successfully. Now the public debt in those countries has already peaked and is expected to go down. That's where we are.

But the financial crisis, of course, by its unprecedented dimension, created in fact more debt. When the growth is slower, or even negative growth, if I may say so, of course the debt increases in relative terms.

But basically today in the European Union all the countries are making an effort in terms of fiscal prudence—a different pace, but that debt lesson, I think, was basically understood.

QUESTION: Warren Hoge, International Peace Institute.

You mentioned the alarming success of the National Front in France last weekend. There are parties all across Europe, as you know, that are anti-immigrant parties, and they are doing quite well. Even in places like Sweden, the most generous country with refugees in the entire European Union, there is a rising anti-immigrant party. Anti-immigrant parties tend to be anti-EU parties also. What can the EU do to combat what appears to be growing disillusionment among Europeans with the EU?

JOSÉ MANUEL BARROSO: That is exactly the issue. How can we win that argument? That is very difficult. The populist vote in France sometimes we call the grand simplificateur, those who make oversimplifications. They make the equation: "Foreigners, it's danger." Now we have this. These issues about terrorism and jihadism are really a concern, because people make an identification—"we don't want so many foreigners." Because unemployment is higher, there is more resistance. And it is across all countries.

It is not always new. These movements sometimes were brought even before the last crisis. In the Netherlands we had some years ago this movement. Before Mr. Wilders, there was the Pim Fortuyn movement. We had it in Austria as well. We had it in Switzerland, when—by the way, it is not a European Union country—there was a referendum against more foreigners in the country. But Switzerland already—more than 20 percent of the population of workers there are not Swiss nationals. There are many differences across Europe.

That is why we need the governments of Europe, what we call the mainstream parties, to be able to explain and to win the hearts and minds of all citizens. That is the difficulty. So far it has proven difficult.

But to be honest, until now, not a single extreme right party was able to win election at the national level. We have some concerns about the quality of democracy in Hungary, but Viktor Orbán is, I can tell you, a moderate compared with the real extreme right Jobbik in that country.

But so far in all the other countries—there was an extreme left government. It was the Syriza in Greece. By the way, they had to adapt and now they are basically implementing, let's say, the consensus, European consensus, on economic policy. They have to change completely. It was not the Syriza that changed Europe; it was Europe that changed Syriza, which once again shows the strength of the European Union model and system.

Having said that, if one day an extreme right party comes to rule one of our countries, then we may have a difficulty. It could be a disaster if that happens in France. I hope it will not happen. We will see that in the second round. But for a presidential election in France, basically it is the president. If the president has the majority of the parliament—I mean basically France is a very presidential system, completely different from Germany and most of the other countries.

I hope it will not happen. But there is a concern. That's why I was very honest with you and very open. There is a concern. I think the missing variable here in this equation is leadership. We cannot assume this course of the extreme right. For instance, Chancellor Merkel was right taking that position. When I think of Tempelhof—Tempelhof was the airport built by Speer, the airport of Adolf Hitler. Now that airport is used to receive Syrian refugees. I think it is something very important that is going on.

She is, of course, under extreme pressure from some people in her own party or the coalition party, the CSU in Bavaria [Christian Social Union], but basically she is right. And she is right not only in moral terms. She is right in economic terms because for Germany, the option is, either they import labor or they export the companies. That is the basic issue for Germany. They need more workers. And the Mittelstand, the middle-sized companies in Germany, differently from the big names, they don't like to go to China or to Asia. They want to stay in Germany. So they need more workers.

So basically the business community in Germany supports Merkel. They understand. But, of course, the people who are unemployed are not happy to see more refugees coming.

This is the difficulty of the debate in Europe. Who is going to win? We don't know. I hope and I am confident that in the end, the moderate forces will win that debate.

QUESTION: Thank you, Monsieur Président.

Given the challenges that we face in Europe, do you think we are, to a certain point, victims of our success, and therefore more difficult to govern?

The second question is about austerity. Do you think in certain cases maybe we have gone a little too far to try to impose austerity measures, for instance, on small Greek pensioners? What would be the political retombée there?

JOSÉ MANUEL BARROSO: You are right, I think, on both questions.

First, it's true that today Europeans take [things] for granted. I tell my my sons, when I was a young man, by the way, my country was not a democracy. It was only when we were 18 years old. My generation, and it was the same generation in Spain or in Greece. Why are we so pro-European? Because for us Europe was democracy. It was progress. That is why instinctively we wanted to join. As soon as there was democracy in our country, we wanted to become a member of the European Union.

A condition to be a member of the European Union is to be a democracy. That condition did not apply to NATO. Portugal was a founding member of NATO. Turkey is a member of NATO. But the European Union is only for European democratic countries. My generation in Portugal is the same in Spain or in Greece, because it was more or less at the same time, 1974-75, that our countries became democracies.

Afterwards, what happened in Central and Eastern Europe, from Poland to Slovenia, to former Balkan countries, to the Baltic countries? They all wanted to join NATO and the European Union for democracy.

Now people take it for granted. For my generation to go to Spain, we could go. There was freedom of movement to go to another country. It was not like in the communist countries. But nevertheless, there were a lot of controls and passports and visas. Today it is no longer. There is no border between—you can go all over Europe without a passport if you want, or in the Schengen area. I think that is great civilizational progress.

But young people—I see my kids. They do it and they don't give the value to it, because they have it.

So, yes, it is true, your question. To some extent, because of the success of Europe, people don't give it value. But probably if one day they lose it, they will give it value. I believe that if there is a real attempt to put restrictions on freedom of movement, we will see the young people of Europe rebelling against it. I believe it. There is a silent revolution in Europe, Erasmus. In Lisbon now, you go to Catholic University. It is a private university. The language is English. Most students there, apart from Portuguese, are German.

It is this freedom of circulation. What is going to happen to universities in Europe is amazing. By the way, with English as the European and global language, the lingua franca—this generation is living it, but they don't attribute it to Europe. But if there is an attempt to put it in question, I believe they will fight to keep freedom of movement.

The austerity: I think it was necessary to have this front load of the budget correction at that time. The markets, I was living that day and night, I can tell you. I know that there are people who think otherwise, including in the United States. But, look, at that moment, the situation of Ireland, Portugal, Greece was so great. But it was not only—Spain and Italy. It really was close to disaster. In the G20 summit in 2011, November, in Cannes, France, we were very close to a full disaster, because there was an attempt to put Italy under direct supervision of the IMF. I believe it would bring a disaster, because the markets, if they see—Italy is one of the biggest economies in the world. It is, I think, the seventh laregest economy in the world.

So I think it was important at the time to make the front load of the fiscal adjustment. If not, the markets would not believe that we would be able to control it.

Having said that, also when I was in office I said there are some limits to this austerity policy, political and social limits. In fact, the evidence that we have crossed the threshold was what happened in Greece, as you said. A complete anti-establishment party was elected on an anti-austerity platform. Afterwards they had to change. So probably, in terms of fine-tuning, we went over what was acceptable.

But you have to understand what happened. The other governments, the Commission plus the ECB and IMF—when we have designed our adjustment programs, we have to be based on the so-called Debt Sustainability Analysis, the famous DSA, made from the IMF, and also on the money that the other countries were ready to lend to the vulnerable country. We had a package. That is why the curbs of the adjustment were probably too difficult to manage. That is the reality.

But we are here still, and Greece, by the way, is still a member. In spite of all the sacrifices, an overwhelming majority of the Greek citizens want Greece to remain in Europe, once again showing what I believe is a remarkable resilience of Europe as a project.

JOANNE MYERS: Thank you so much. This was absolutely wonderful. It was a privilege to have you.

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