Grybauskaitė: Europe is an overgrown teenager

22.09.2010, 15:00

Europe has grown more quickly than the clothes it is wearing, Lithuanian President Dalia Grybauskaitė told EurActiv in an interview, stressing the need to redesign common policies and aim for more monetary and fiscal coordination. Grybauskaitė was speaking in Vilnius to EurActiv Managing Editor Daniela Vincenti-Mitchener of EurAtiv.com.

You left Brussels roughly a year ago to become president of Lithuania. Recent months have seen the EU go through major turmoil – not least the adoption and implementation of the Lisbon Treaty. Now that you are back on the national side of the European equation, do you sense that the EU is moving in the right direction and moving ahead?

Europe is always moving, sometimes faster, sometimes slower and also not always in the right direction, especially when we face global challenges in the financial sector, a slowdown in Europe and some serious problems in some countries in the euro zone.

This year was very turbulent in all member states and this, of course, slowed down all strategic discussions, including the Lisbon Treaty’s implementation, the creation of the [European] External [Action] Service [and] discussions on budgetary reform, which were practically postponed.

So, a lot of things have been on hold during this year. Of course, Europe has moved ahead but very, very slowly – sometimes with long stops to think.

Do you think this crisis can be considered as a step backwards in order to jump further forwards?

All crises give the chance to rethink the direction. Will Europe take everything as a lesson? It is not yet clear, but at least there is an understanding that when there are global problems, we need to have a global approach: when there are regional problems, we need a regional approach. Only a European approach, or member states’ approach, is not sufficient at all. A lot of our institutions need to be reformed and redesigned to face global challenges.

This understanding is coming, but it is not shaping institutions yet. We discuss possible future new institutions – supervisory, credit rating agencies, a new European fund – but it is only discussion.

We could miss this opportunity. If we don’t use this crisis to redesign our governance, time will be lost.

Let’s look at the picture in more detail. Last week EU leaders put together a rescue plan to prevent the collapse of the euro zone. There is general consent that this rescue package is big enough to buy Europe time to put its house in order. What do you think needs to be done to put Europe’s house in order?

You are right. We are buying time. If we don’t do anything during this time, the investment of the rescue package will be lost and misused.

It is not the problem of one country, Greece. It is the problem of the whole euro zone, as it is a problem of fiscal policy and how it is controlled and harmonised.

In Europe we have a common currency, but we have neither a monetary nor a fiscal policy. In reality, for that we used the Growth and Stability Pact with the Maastricht criteria, which were supposed to prevent fiscal populism or misbehaviour by member states.

But in 2005, member states themselves laundered this pact. It became a rubber pact where you can inflow as much as possible flexibility without responsibility. That happened just before the crisis.

I think it was mistake. Having a common currency and no mechanism strict enough to control and push member states to behave responsibly is a mistake. Sooner or later the problem would occur. It was sped up by the external global crisis, which brought to the surface all weaknesses and bottlenecks of the fiscal and monetary situation in Europe.

Here is a more general problem. It is not only the problem of Greece, but a generalised problem of the euro zone and also for future applicants to the European economic area, like Lithuania.

If one country is allowed to misbehave, to bluff with information, to avoid paying its full share to the European budget, to make uncoordinated moves in economic policy, the system collapses.

We did not back our common currency with common policies. That discrepancy could not last forever. A currency without a common monetary and fiscal policy is an artificial design.

Last week, the European Commission proposed a surveillance mechanism for national budget plans – with a sanction system of cutting regional aid for countries that infringe EU budget rules. Is this a first step towards better coordination and perhaps one day a common European monetary and fiscal policy?

The Commission proposed a warning mechanism to try to push member states themselves to be more responsible, but it is not coordinated efforts or harmonisation of fiscal policies.

It is only what the Commission can propose at this stage. The rest depends on the member states: on whether they want to coordinate, harmonise or even manage together fiscal policies. That is what is important.

Do you think control over national budgets compromises sovereignty?

It is a warning mechanism, rather than real control.

But European Central Bank executive board member Jürgen Stark has even proposed the establishment of an independent commission to check member states budgets.

That is just not possible, because the control of budgets in member states is the responsibility of parliaments. You cannot give this duty to anybody else. We are not a federal state yet.

IMF Managing Director Dominique Strauss-Kahn called last week for budgetary coordination and short-term fiscal transfers as a way of avoiding a repeat of the crisis that has shaken financial market. As a former commissioner for budget, what do you think of this?

Theoretically, there is a difference between a federalist state and a union like ours with 27 member states and 27 budget procedures, and really it is not possible to have automatic transfers without changing the EU Treaty. But I can’t really say, because I do not know the substance of his proposal.

Let’s go back to economic governance. The Reflection Group chaired by Felipe González just released its report, in which it calls for economic governance to be urgently strengthened to solve the problem of the co-existence of monetary union and the single market with divergent national economic policies. But for that you need leadership. Does Europe have such leadership?

It is not just about leadership in each member state. What you need is European leadership, and I stress ‘European’. You need unity and understanding that together we are stronger than separate.

What we need is real European leadership. Do we go into deeper integration or we grow more like a club of friends?

To be able to manage collectively global challenges, we need to be united and integrated more deeply. We need to speak with one voice on troubles that are affecting us all, whether in trade or in financial markets. But there is still a long way to go, because in the EU we only have two common policies: the rest is only gentlemen’s agreement.

Programmes, initiatives and directions we take together are not obligatory. Mechanisms are loose. The EU’s internal legal framework does not allow the European institutions to govern in that way without consulting governments.

Again, everything is based on and restricted by the EU Treaty.

You have been on both sides, as a European commissioner and now as president of Lithuania. Is there a way to get our act together and make the EU work better and be respected by the rest of the world? Last week, it took a call from US President Barack Obama to push Merkel and Sarkozy to come up with a consistent package. Isn’t that a slap in the face? The same happened in Copenhagen. How many slaps in the face will it take to make EU leaders act like leaders?

Europe would have made that move without the US president’s call, because the situation was deteriorating. The financial markets are more integrated than governments are. Markets are so global that the sickness of one market in Europe became a huge sickness for transatlantic markets – they are tightly interrelated. Some policies have already outgrown the European dress. They need to be global. This is why reforming our financial institutions – the World Bank, IMF, etc – is a necessity.

The call was not just to help Europe, but to help the United States’ markets. Let’s be open. It’s not because we did not have European leadership.

The rescue package was very much under preparation, but of course the problem was discussions taking place within each and every member state, where citizens were questioning why they had to pay for countries that misbehaved.

But you are right that by the Thursday and Friday, the crisis was overflowing Europe’s borders. That’s why the call came. Not because of a lack of European leadership.

There is increasing talk about a European monetary fund and an EU credit rating agency. Are these sound ideas or just a waste of time?

There is a desperate necessity to look at how to manage situations regionally and internationally. I am not sure that a European monetary fund or an EU credit rating agency is sufficient.

Precisely, your question regarding President’s Obama call shows that problems – especially on financial markets – are global, trade issues are global, monetary problems are global. Regional institutions can partly respond to the problem and I think we need to be realistic: without the United States, Canada, Australia and Japan, we cannot solve these problems.

Global markets are already a ‘federation’ and even more than that – they are so much united that we governments in different regions are running after them.

In Europe, our integration and decision-making process is still very slow. For us it is even more difficult to react.

But I am not sure that a European fund or any other European institution can be a total solution – maybe as a transitional element helping Europe itself to be more coordinated, but not to solve global problems.

Europe 2020, the Reflection Group report, a new strategy for the single market, the budget review. There are many proposals floating around the EU. Isn’t this rather a lot of noise? Would you say it is a symphony or a cacophony?

You know, I like Europe because it’s noisy. Because each noise is different, but finally we are turning somewhere, where we can understand one another. I think it is some kind of mix: cacophony and symphony.

It is always difficult, it is always under discussion, we always have different opinions, but this is why Europe is different from any other world political entity.

You are right to say that Europe 2020 is very general and is not a solution for all problems. It is mainly a roadmap, giving a sense of direction for the next 10 years. But it is clear that you cannot solve, with that kind of strategy, citizens’ everyday lives.

It is clear that it will be disrupted by reality and everyday changes. We will not exit from the crisis at the same time as we deal with the stimulus packages we introduced and the fiscal pressure we have created. That will take probably half of the strategy time for Europe.

It will also depend very much on how other areas outside Europe develop: China, India, Japan, and the United States.

Although it is right to push ourselves, see the vision and seek direction, for quantitative measures it is quite difficult to set a goal and expect that to be reached and we will be prosperous. It does not happen like that.

But as a general trend on how we want to see ourselves in 10, 15, 20 years, it is a good idea.

Of course, the quality and the ownership of the document – and all through its implementation – will always be under discussion. But this is good.

Any strategy needs to be open to change and adapt to reality, because life is changing fast and our documents too.

What do you think should be kept in Europe 2020 and what should be scrapped?

I am not very much upset with one part or the other. I’m just saying that if we want a strategy for 10 years, we cannot close our mind thinking that is the final project. Be open…if we need to, we’ll change it, and now just go ahead with what we have on the table.

You are basically repeating what you said in your budget review principles: let’s be flexible and learn from our mistakes …

Yes. Life will change our understanding and we need to change our papers.

Do you think Europe 2020 shows that we have learned from mistakes made with the Lisbon Strategy?

Not yet. The reason I say this is that in Europe 2020 we have fewer indicators. It is more structured, but a mechanism of control of member states’ commitment and ownership is still weak.

This is all we need: no matter what we write in the document.

A report released by former Internal Market Commissioner Mario Monti concluded that we need to refocus on the single market and complete our work. Have we sidelined the single market?

Partly, yes. Up to maybe 10 years ago, our discussions focused much on a confederative attitude towards governance, towards economics, towards the internal market.

We have now stopped a bit after enlargement. But an economic area without deeper integration and especially without a common currency in more than half of the countries is just not possible.

To integrate more economically, we also need to integrate in other areas – in financial sectors and services. This is why the single market is far from being finalised and we are far away.

But if we don’t have a completed single market, it is very difficult to talk about coordination of economic, monetary and fiscal policies. And if you don’t coordinate, you cannot speak with one voice, and cannot decide in one shot.

Again, that means that Europe will be the political entity that is too diverse, too difficult to talk to and [finds it] too difficult to make decisions.

Monti also calls for tax coordination as a way to even up the divide between Anglo-Saxon and social market economic models in Europe. Do you think the divide is preventing the EU from functioning properly?

It depends what you mean by that. We do have already some coordination on indirect taxation. We have already started discussion on coordinating the basis of taxation – how it is calculated and so on.

For example, some countries say they do not have corporate tax but in reality they do, as they introduce it at the second or third stage of corporate activity. It’s again [a question of] what you put in the definition. The best would be probably to have tax coordination on the basis but not the tariffs.

The measures you put in place to fight the economic crisis can be coordinated. It is not harmonisation, but coordination of policies.

Tax policy is already ideology and it is the reflection of economic policy and an economic basis – that means single market. If you do not have the single market, you cannot have the same single tax.

The less the area is integrated, the less you can have tax coordination. In areas of the single market where we are more integrated, we can have joint tax policy. You cannot have a top-down approach on taxation, it would be rejected.

Take for example the so-called European tax: everybody has a different definition for it. For some it is VAT, for others it is consumption tax, for others it is an energy consumption element. To have a real European tax, we need a fully integrated internal market. Taxes reflect the quality and level of integration: you cannot have artificial tax coordination.

Lithuania will assume the EU presidency for the first time in 2013. What will Europe look like then?

We will have a stable recovery by then. But we will still be recovering from huge stimulus packages and huge deficits in most countries. But the economy will be better off and growth will be on the rise.

For Europe, the key questions will be demographic pressure, innovation and deeper interconnection of economic policies. I believe the common control and supervisory institutions which Europe wants will probably be in place or shaping up.

We will probably have set up some of the elements resulting from the post-crisis situation to avoid further crisis. 2013 will also be the final year for the financial perspectives negotiations.

All our problems will be very much reflected in the new EU financial framework and in the budget for seven years (or five).

Are you going to push for a common EU energy market during your presidency?

It is a real necessity for our region because we are isolated – in energy, gas and infrastructure.

If we are talking about the internal market, it needs to be integrated not only in goods and services, but also in energy infrastructure.

Now, we don’t have a common policy in many areas, but we can agree. We do not need to change treaties to have a political agreement on a common energy policy or foreign policy. It only takes the Council and governments to agree – a gentlemen’s agreement.

We can do a lot of things without changing the EU Treaty. We don’t need to formalise them.

We need to move ahead, because after enlargement, economic integration in many areas has just not been completed.

Six years after enlargement, we have a fragmented single market – we have pieces, not a common market – in energy, in transport, in railways and in electricity grids, Lithuania is isolated.

Take the electricity grid, for example: Western Europe works on one system, we work on the Russian system. If you think about it, not only it looks strange, but it is not very secure.

Without energy infrastructure and trans-European networks at the borders, we are just not one economic area. We are still pieces or a few economic areas. I am not only talking about the Baltic states, but also about Romania and Bulgaria. In the future we will see the Balkans in the same situation.

It looks like the political process of enlargement went faster than economic integration.

The Lithuanian prime minister was in the US last week. The Latvian prime minister discussed bilateral cooperation on energy with the US that same week. Are the Baltic states losing the interest of investors from the European Union?

I would say no. It is rather the opposite. The main investors in the Baltic states are from Europe, especially from the Scandinavian countries, Germany and France. European investments are dominant. Of course, we do have investors coming from our neighbours – that means Russia also.

But US investments are very symbolic compared to other investments. The prime minister was there to attract investors in high-tech information technology. He signed a letter of intent with IBM to set up a joint research centre in Lithuania.

But otherwise in the whole region European investors are dominant.

Estonia is entering the euro zone. Do you think this is wise? If the Baltic states join the euro zone without solving their competitiveness problem beforehand, they will face the same problems as Greece. Merkel said over the weekend that there is a need to bridge the gap between Europe’s strongest and weakest economies. Do you think that is true?

I hope what Madame Merkel said was not referring to Estonia. She is right in general that the differences between member states are still huge. But structural funds are there for countries to catch up, especially for those behaving responsibly. Estonia from this point of view was the best pupil in the school.

Before the crisis, their budget was positive. After the crisis they posted not more than a 2-3% deficit. The political elite always behaved responsibly, never bluffing statistics, economising expenditures, people were supportive of all restrictive measures during the crisis…so from this point of view, Estonia can be seen as the best example of member states that during the crisis were able to master all the Maastricht criteria.

It is a good example for all of us to see how in difficult times, if you are behaving responsibly, you can achieve a lot.

It all boils down to political responsibility, doesn’t it?

Absolutely. The euro is not just a goal, but a tool for responsible policies. That’s how I see it. In Lithuania too, de facto we have the euro, because our currency is pegged to the euro. But my country was not always behaving responsibly. Not always.

Estonia, from this point of view, is a good example for everybody.

Realistically, when do you think these countries will be able to get into the euro zone?

Each of the Baltic states is in a different situation. For us, the big problem is the deficit, but it depends very much on the recovery. Each of the Baltic states makes about 1% of EU GDP. In reality, we influence nothing. We will not jeopardise anybody. We can be good or bad examples, but only on behaviour, not on economic influence.

What happens outside our countries will directly influence our economies, because we are very open and very liberal, but unprotected. We still think 2014-2015 is possible, but it all depends on how we manage, as well as on the outside situation.

Last question: There is a pervasive sense across the EU of integration fatigue and Monti clearly stressed this in his report. Do you think Europe is taken for granted and how can we get out of this fatigue? Do you think a global Europe could revive the sense of solidarity that seems lost?

Indeed, Europe was created because of leaders’ solidarity in helping each other. And this, as you rightly said, is more taken for granted, especially for some new member states.

It looks as though Europe is an overgrown teenager, who was growing faster than the clothes he is wearing. Internally, we also need to adjust enlargement in everything: in political terms, economic integration, responsibility, solidarity. That we might be in a rethinking pause of enlargement is also clear, because we need to adjust not only our institutions, but we need to redesign our common policies.

You cannot go for further enlargement with the same Common Agricultural Policy. It is too costly. The same applies to regional policy, because the less effective it will be.

We need to change along with enlargement, which we really have not done yet.