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Address by Mr. Siim Kallas, future Member of the European Commission, at the Delegation of the European Commission in Berlin

04.03.2004

Europe Stands at the Crossroads

We live in a strange era. We are still trying to safeguard our national interests in the context of the EU accession, and yet we are already expected to be able to see ourselves as part of Europe and to embrace European interests as our own.

Europe is engaged in heated disputes over the rules and principles of governing the future Union. The focus is on the Draft EU Constitutional Treaty. The central question is whether a Union of 25 or more members could be governed according to the same model as the Union with 15 members. According to the prevailing view, the governing and decision-making mechanism as it is now does not meet the needs of the new era. At the same time, the Draft EU Constitutional Treaty does not envisage any great number of important changes in the governing of the Union. Special requests by member states have been taken into account, which means that there will be very few amendments at all, and in many paragraphs the decision-making process seems to become even more complex and confusing. This does not make the process more comprehensible to EU citizens, nor does it encourage them to get more readily involved.

One of the hotly debated issues is the number of voting European Commission members. It is widely believed that the present model, giving the small countries one and the big countries two voting members in the Commission, ceases to be functional when the number of voting members reaches 31. Because of this it has been proposed (a proposal supported by the press) that the number of voting Commission members should be smaller, around 12-15. However, there still is no clear idea as to how these voting seats should be distributed among the member states. On the rotation principle? Wouldn't this lead to a situation where, one day, Malta, Estonia and Cyprus all have a voting Commissioner and Germany, France and Great Britain a silent one?

In my opinion, this is a pointless and minor problem with hardly more than a symbolic value. In order to find a solution that grants only some states a voting member, we would have to pay a huge political price, wage some extremely painful wars in national parliaments - and even all this does not guarantee a positive end result. The advantages of running a smaller Commission are not worth the political price of achieving it. The final solution is far from being perfect. Furthermore - the less political decision-makers, in this case voting members of the European Commission there are, the higher is the power of officials, EU Directorates-General and other structural units. Is that the desired outcome?

There is little to back up the claim that directing a Commission with more than 25 members is impossible. It all depends on how it is done. If the agendas are sketchy and everyone who wants to is allowed to give their full opinion on every issue, the meetings of the government will indeed be painful and the decision-making process difficult. The last three Estonian governments have all used quick and rational decision-making procedures. There is no place for dilly-dallying or irresolute conclusions in government meetings. This functionality is built on directional and meticulous preparatory work, as well as on agreements and negotiations between cabinet ministers, made much easier thanks to the electronic information network, our pride and joy - the e-government. A rationally organised European Commission will function and make decisions efficiently, with 31 members as well as with 15. The size of the Commission is not a strategic issue in the development of Europe.

Strategically much more significant is the collision of two very different visions in discussions over the future governing strategy of Europe. One is the dream of the EU becoming a great political power; the other is the conviction that the EU is above all an advanced form of cooperation between states, which has already achieved a lot and where economic integration has gone far (albeit not to the very end), and that it is this economic and organisational framework that the Union should continue developing in. The vision of the EU as a super-state in the future is shining through all the plans of establishing supra-national decision-making institutions and legislative bodies.

Great political power is ideally endowed on a great state. For those dreaming about great political power, the unification of Europe into one state can be an objective to strive towards. It is of no importance whether such a state would be unitary one or a federation.

In order to become a super-state, the European Union needs integrated political administration - one parliament, a European government, court, police, and above all - an army. We should ask ourselves - is this an attainable goal? And is it a sensible and gratifying road to take? Should the EU start forming its own army, it would inevitably create a contraposition with the existing defence system of the Western world - the Transatlantic Alliance, NATO. A country like Estonia, painfully aware of its recent history, has all the reasons to be apprehensive. Building up a defence system complete with satellites, navy, radar network and overseas bases seems quite an impossible undertaking. If NATO falls apart because of Europe's ambitions, what will replace it?

At the same time, the formation of a super-state does not seem realistic. France, Great Britain and Germany have always been great political powers, much more so than the EU as a whole. Firstly, there is no reason to expect this to change in the near future. A common EU foreign minister would be a shapeless figure when compared to the foreign ministers of the above-mentioned countries, simply because he has to base his work on common EU opinions that can hardly be very clearly defined. And secondly, why couldn't the present situation continue as it is? Why shouldn't the United States, Great Britain, France and Germany in cooperation remain the pillars of the Western defence policy, even though there may appear occasional differences in opinion?

In my opinion, the formation of the EU government and decision-making mechanism has to exclude any inclination towards the EU as a super-state. This simply is neither judicious nor practical. The mechanism must be based on the principle of cooperation between the governments of the member states. There are many ways for improving it, but always with the enhanced efficiency of inter-governmental cooperation in mind, all the while trying to find more flexible structures.

Even though the status of the EU as a great political power is somewhat vague, there is no denying the fact that the EU is a great economic power in today's world. The EU is the biggest importer and exporter. Its economic policy influences the economy of the entire world, in good as well as in bad. When the EU puts up economic barriers in defence of its internal market, this affects the financial situation of entire continents. The rules and customs followed on the European market (especially those concerning competition, as well as the quality and safety of products) form guidelines for the whole world.

The EU is the biggest foreign investor and receiver of foreign investments. In 2002, 37.8 % of the world's net direct investments were placed in the European Union, 19.5 % in the United States. Of all the net direct investments outside the investing country, 50.2 % was of European origin and 22% American.
These numbers indicate that the EU has for a long time been the main global net investor. More funds have left the Union as investments than have been brought in. Although the gap between the two numbers has narrowed down in recent years – the negative total in 2002 was 64 billion euros, against 260 billion in 2000 – the sum has remained enormous.

There is no need to over-simplify the rules that govern the global movement of investments. A more mobile capital plays a key role in advancing global division of work. Having said that, does it still not give us cause to analyse the European investment environment and to ask the investors why do they prefer to create new production facilities in China and the United States instead of the EU member states? The answer to this query will undoubtedly include criticism about the EU: high taxes, inflexible labour market, lack of qualified work force.

Investment policy holds the key to the European development. The low investment level (investments in relation to the GNP) was mentioned in the European Commission report at the spring Council. Significant, however, is the fact that new member states draw in relatively more investments. In old member states the investment level is low and less than satisfactory.

The subject of investments is closely related to what European leaders have been discussing for a while now.

The EU as a great economic power is starting to fall behind another great economic power – the United States. We are facing economic stagnation. Europe is at the crossroads of existential choices.

An attempt at finding answers to the existential questions of further economic development strategy of the EU was made with the compiling of a document called the Lisbon Strategy. This includes many excellent and useful ideas, which have not, however, been especially successfully put into practice, as the abovementioned Commission report states. In the world press, certain radical critics have even proclaimed the failure of the Lisbon strategy. I don't agree with this judgement. It's still early days. I am sure that important steps forward will be taken and that many projects of the Lisbon strategy will be carried out.

All in all, the Lisbon Strategy does not seem to be very radical. Metaphorically speaking, it is like repairing an old engine instead of constructing a new one. It includes few fundamental ideas for speeding up the development of the European economy.

I paid much attention to investments because these form one of the most important indicators of the economic environment. Research and development that occupy a very prominent position in the Lisbon Strategy only form a part of the investment policy. Investments are most directly related to creating jobs. If more money is taken out than brought in, the wealth of Europe will crumble and unemployment figures rise.

The EU needs an attractive economic policy, special features to appeal to companies. Undeniably, one of the most attractive features is a favourable tax policy. Lowering the taxation of companies is a necessary step these days, but it is becoming more and more difficult in the context of globalisation. Taxation of enterprises is being lowered in the United States, in Germany. Europe, however, could advance more radically. It is a question whether it should be done as radically as in Estonia, where tax has been completely lifted from reinvested profit, but at least in the same lines.

Another important but problematic strategic field is the labour market. The average unemployment figures are higher in Europe than in the United States, the ratio of employed population compared to the total population in economically active age is lower. This is viewed in numerous critical articles as a hindrance to the economic growth in Europe. Sensitive political decisions need to be taken in order to carry through a significant reform. More flexibility is needed in the rules regulating the hiring and releasing from employment, while the burden of obligatory non-salary related expenses imposed on employers has to be relieved. One of the latest negative developments in this area is the decision, adopted by most member states, to set up barriers for the free movement of workers inside the EU.

The third area to receive criticism from international press and leaders of European countries alike is the higher education. Its inferior quality compared to the American education has been widely recognised. Again, the reason can be found in the sensitive political attitudes of the member states. Statistical data shows that in the United States the private sector plays a much more prominent role in financing the higher education. At the same time, competition between universities is much more intense, which means that the education is much more flexible and corresponds to today's needs.


The EU is a great, rich and powerful economic force. It will remain so for a long time. The situation is far from critical. Even if there is no progress, the situation will remain good for a long time. But that is not enough for us nor anyone following what's happening with our main competitors, the United States. And I am sure that we all want our grandchildren to live in a union of countries forming the best developed and the most advanced economic area in the world.

This is not the first time for Estonia to participate in international political institutions. Vahur Made has written a book called "A Guest in World Politics" about our activities in the League of Nations. In that particular institution, Estonia chose invisibility. It wasn't among the countries condemning the Italian aggression against Ethiopia. It didn't support Finland in the fight against the Soviet aggression. As a result, nobody noticed Estonia when it in turn desperately needed international support. There isn't much to say about Estonia's activities in the League of Nations. This is something that must not be repeated.

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