The tragedy and triumph of Europe

"I wish to speak to you about the tragedy of Europe." Those are the words with which Winston Churchill began his famous speech in Zurich, sixty years ago tomorrow. Churchill was speaking of, and to, a shattered continent. "Bewildered Europeans" he said, "gape at the ruins of their cities and homes, and scan the dark horizons for some new peril".

We have come a long way since those dark days. And we know how we have done it. Churchill’s speech contained the vision of the political idea that has defined post-war Europe. And it stands as a dramatic testimony to Europe’s six decades of reconstruction and reconciliation.

It is easy to forget how unlikely his vision of Europe must have seemed then. "The recreation of the European family must be a partnership between France and Germany" he told his audience. "There can be no revival of Europe without a spiritually great Germany".

This was 1946. France was barely a year liberated from German military occupation. Germany itself was a field of ruins, soon to be divided by the Cold War. Anyone of my age listening to Churchill that day would have lived through two world wars. The idea of German partnership with France must have seemed to be bordering on fantasy. Yet after 60 years of patient co-operation, the renewal and reunification of Germany and the effectiveness delivered by a "Franco-German motor", we can contemplate the quiet triumph of Europe.

A world of change

Churchill imagined a European Union that would be Europe’s defence against fratricidal war. In 2006 we take that peace dividend almost entirely for granted. We do so partly because we have forgotten what continental war was like and partly because many of the challenges we now face are less on the European than the global scale.

I want today to talk about those challenges. About the role of the EU in a globalising world - and as a major part of our answer to globalisation.

The changes in the global economic and political order taking place today are as significant as the end of the Cold War. One was symbolised by the fall of the Berlin Wall. The other, I suspect, will have as its icon the skylines of Shanghai, Mumbai and Kuala Lumpur.

We have known global economic integration before. We have seen economies transformed into giant global export machines - Britain, Germany, the US. But this change is different in its pace, depth and breadth. And its potential to shape politics, societies and our environment is entirely new.

In the last decade and a half, a group of emerging economies, particularly China and India but also Brazil and others, have taken dramatic steps. Twenty years ago we traded almost nothing with China - literally statistically negligible amounts. Today it is our biggest supplier of manufactured goods.

The change we are seeing is reshaping global trade. European companies are outsourcing increasingly complex production and services, creating lengthening global supply chains. The argument that a European product is a product made in Europe is no longer self-evidently true. We hear much about cheap exports from China: but the fact is that the majority of those exports come from non-Chinese firms or their partners and subsidiaries operating in China. They are then imported by European companies, are sold by European companies to European consumers.

This global economic change is, above all, an opportunity. It is an opportunity to grow the world economy and drive development amongst poorer countries, thus creating new markets in the process. It has already lifted hundreds of millions of people out of poverty in the developing world. It has saved Europeans hundreds of billions of euros in cheaper goods, cheaper inputs for industry, lower inflation rates and money saved for investment elsewhere in the economy. As a result more jobs have been created, including in Europe, than destroyed.

But it is also increasing competition for markets and raw materials. It is putting global resources, not least our climate, under extreme pressure. And it is placing pressure on traditional industries and livelihoods, particularly in Europe’s low-cost manufacturing sector.

Above all, change is arousing fear and anxiety. Fear of change is probably the defining feature of modern European politics. It underlies every major debate, whether about immigration, trade or social reform. And the political temptation to indulge that fear of change is on the rise. The openness which underpins our economies, our societies and our values, is under pressure. We face an increasingly sharp debate between openness and isolation, engagement and retreat, optimism and pessimism.

The answer is not to close ourselves off. We cannot pull the blanket over our heads and wait for the storm to pass. We need strong, open economies to preserve the fiscal base to pay for social models that are integral to European life. In this global economy, strong economies are open, competitive economies. And competitive economies are built on trade.

The only viable strategy is to set out a positive agenda. To look for the balance between economic growth and a sustainable approach to the environment. To take globalisation back from the control of pessimists and build a positive political language of globalisation, that says that we do not merely have to be buffeted by change, but we can benefit from it - and, through our common action, shape it.

European Union as a response to globalisation

Europe already has an effective instrument for shaping that response: the European Union. The central achievement of Europe’s single market - the worlds largest at 450 million - has been to help European companies prepare for, and compete in, the global market place. That is why we need to strengthen, not undermine the single market, partly through further integration and partly through further enlargement.

Europe is the world’s biggest exporter of manufactures and services. Germany, with its diversified mittelstande structure and investment in innovation and high-value added production is the biggest exporter in Europe. Europe remains, in many sectors, synonymous with innovation, style and design excellence.

But that does not mean all is well in our Union. Our institutions have coped well with enlargement. But they are better suited to the decade behind us than the decade ahead. The machinery for managing a Union of twelve is not designed for a Union of twenty five, soon to be twenty seven. The need to find a new institutional settlement cannot be divorced from the wider challenges facing Europe. We need to be better equipped with an improved rule book. The German Presidency of the EU next year will have an important role in moving this debate forward.

Just as institutions are important, so, economically, the foundations of our success must be renewed. We are not investing enough in research and development or in education. We are losing ground in the highest technology products. Internationally, our businesses perform strongly in countries where demand is static. But in rapidly growing regions, particularly in Asia, we are underperforming.

We know the answers. We know Europe faces a race not to the bottom, but to the top. That means diversifying; specialising; innovating, investing in education and research. It means making sure our internal rules take better account of the international challenges we face. It means, as I have said, a stronger internal market. It means reflecting our priorities better in the way we, as a Union, spend our money and the job of the Commission is to give leadership and provide ideas in all these respects.

It also means renewing European social systems - adapting them to more flexible, varied and longer working lives. And we must support those who lose out from global competition through modern systems of social support and education and training. In a continent with strong traditions of social protection, this is not only necessary for social justice, but the only way of winning the political argument for change. But our response must be to protect workers, not to shelter individual jobs or companies or delay inevitable change. That is the road to stagnation.

The WTO and Doha

There is both an internal and an external dimension of this process. Just as we reform in Europe, we must also engage abroad to shape the forces driving change. Reform and rejection of protectionism at home must be accompanied by activism in preserving an open and fair trading system around the world.

The single most important tool for shaping an equitable globalisation is the multilateral trading system, and the Doha Trade Round. The multilateral system is the most effective and just way of expanding and managing trade. It gives a stronger voice to the weak, putting trade at the service of development. Its global rules simplify life for business and multiply economic gains. It provides the foundations for every bilateral trade relationship Europe maintains.

There will be no European retreat from multilateralism. That is why we have been prepared to pay a lot - and more than others - in order to reach an agreement in the current Round. And it is why I am so concerned by the suspension of negotiations in July.

Concerned because this is not only a lost opportunity for global growth and for development. That is serious enough. But it also carries the risk that, unless we get the talks back on track soon, a key pillar of the multilateral system will be critically undermined.

The European Union has been central to the progress we have made in the talks. We have shown a unity and flexibility which has been unmatched. We have taken the lead in making the compromises needed to keep discussion alive at difficult moments.

Despite this, we face an impasse. Of course, there are many pieces to a final deal. But it is the United States which at this juncture holds the crucial piece. That missing piece is a commitment by the United States to substantial reform of the 2002 Farm Bill to match the nature and scope of reform that Europe has been putting in place since 2003. I recognise the political constraints of the United States and their concerns about what others are giving. The EU and US have huge shared interests in this Round. Nobody expects a complete reversal or re-write of the Farm Bill. But a real start has to be agreed if the negotiation is to survive.

And of course, alongside the US, and what the rest of us are prepared to do in agriculture, we will need the G20 countries to make a more ambitious offer to reduce industrial tariffs, to give real new market access to others' exporting industries. We need to engage with each other constructively on these issues. We need to help each other to move forward - in a spirit of shared enterprise.

The key challenges for Europe

But to meet our objectives for growth and jobs at home and optimise economic change for the good of all, we can build further on the platform of the WTO to tackle the plethora of 21st century barriers to trade. That means renewing our commitment to the prosperity and capacity building through current and improved programmes, as well as deepening our engagement with rising economic power. In this way we will address the global competitiveness agenda of the future, not the past.

The major emerging economies are each following their own path. Each faces their own challenges. But they all embody the potential for progress based on rapid integration into the international trading system. And they are reaching a stage in their development where expectations of them are - rightly - growing.

China is probably the single biggest challenge and opportunity of economic globalisation facing Europe; the source of a major proportion of global growth; source too of many of the competitive pressures we face. China faces huge domestic challenges in maintaining its rate of growth, in addressing its pressing social problems and meeting the world's growing expectations. We must support China in tackling these challenges and integrating fully into the global economy. To do otherwise would be an historic failure.

But we can only do so on the basis of mutual benefit. For us to sustain the political case for openness, China must be seen to be playing its part: removing barriers to trade and steadily opening up to others. Improving protection for intellectual property. Resisting pressure for China-first economic nationalism. And strengthening governance, accountability, transparency and respect for human rights. The picture today is mixed. The European Commission will have more to say about this in a China strategy it is bringing forward before the end of October.

So Europe must strengthen its engagement with China and other emerging economies. We need to create opportunities for European business and to help maintain the dynamic of global trade liberalisation. We need to support reformers in emerging economies who want to use external trade pressure to maintain positive change in their countries. And we need to do so, frankly, because Europeans will expect to see our own openness reciprocated by those with whom we trade.

That openness is no longer simply a question of tariffs. Increasingly the most serious obstacles to European trade are behind borders. Poor protection of intellectual property right and patents. Closed markets for services and investment. Unfair state intervention which distorts prices and fair competition. Public procurement markets that remain closed to fair competition, unlike those in Europe.

We also need to look at our tools for countering unfair trade. To reinforce support for free trade, we must always address unfair trade. But shifting global economic patterns are posing some difficult questions in dealing with trade distortions. To maintain jobs and competitiveness, many European producers are outsourcing production. Manufacturers within the Union are competing increasingly with European distributors who produce outside it. To be able to respond to these changing circumstances, we need to be sure that our trade defence instruments and our use of them take account of the new realities of globalisation.

My experience in recent months suggests that Europe could become immobilised between competing interests if we do not find a way to re-establish consensus in the use of these necessary instruments.

The external competitiveness agenda

Because trade is the conveyer belt of economic change, our trade policies today stand at the crossroads of our domestic and external policies. And as globalisation removes the distinction between what we do at home and what we do abroad, we must adapt the tools of EU trade policy to new challenges, to contribute to the creation of jobs and opportunity, to secure the reciprocal opening we rightly demand from those who would also benefit from it.

In early October, I will put forward proposals to the European Commission, and to Member States and the European Parliament, to re-model our external competitiveness strategy in the face of this changing global economy. What do we mean by external aspects of competitiveness? We mean ensuring that competitive European companies, supported by the right internal policies, must be enabled to gain access to, and to operate securely in, world markets. That is our agenda. You have to have both the competitive edge and the markets to sell to.

We must keep the WTO as the fundamental platform on which to build global liberalisation. This will remain at the heart of our strategy. But we should also go beyond the EU's existing bilateral free trade agreements, by setting out the case for new free trade agreements designed to deliver more open markets and fairer trading conditions in new areas of growth, particularly in Asia.

In the months ahead we will set out how we will adapt and renew our tools for securing more open markets, sharpening our ability to identify and remove new barriers to trade in key markets and sectors whether in relation to fair competition, public procurement, IPR or restrictions in trade in energy goods, we will also do so with climate security in mind, for no course of growth will be sustainable without addressing the growing crises of climate change.

Alongside this new economic globalisation agenda, we must ensure that our most fundamental trade relationship and cornerstone of the global economy - the EU/US relationship - is strengthened by growing regulatory convergence. We must maintain our commitment to stabilising the European continent by strengthening our trade relations with our near neighbours, in particular Russia and Ukraine. And, above all, we must ensure trade continues to serve development, whether through progress on the development dimension of the Doha talks or through Economic Partnership Agreements between the EU and African, Caribbean and Pacific countries. This is the way to make globalisation work well and fairly in the long term.

This is an ambitious agenda. It will require close co-operation between the Commission, Member States, European business and civil society. We will not achieve it all. But we need to set our course with a clearer and useable compass that our Member States, and every European citizen, feel is serving them and tackling fears about the changing global economic landscape.

Conclusion

And so I return to the point at which I started. Today I have talked about some of the major challenges Europe faces. But I have also argued that we have many of the tools to address those challenges. Above all we have something Winston Churchill could only imagine - the European Union.

As a convinced European - convinced by instinct and by experience - I believe every diagnosis of the state of Europe is worth weighing against the vision of September 1946. Our Union is our great good fortune - and one of the strongest reasons for confidence in our common future.

The task we face today is to take Churchill's vision of a common European future and to renew it for a global age, to put Europe successfully on the changing world stage. It is what our citizens demand of us. And it is what - together - we must deliver.