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European Affairs
European Perspectives
Challenges Facing the EU: A Business View
By Catherine Stewart
Let us for a moment change perspective and look at today's Europe not through the eyes of a politician, or a journalist, but through those of a business executive. Imagine that you work for a well-established international company that has grown steadily and successfully over the years. This year your company has simultaneously acquired ten foreign companies of greatly differing size, expertise and product range. One month later, head hunters have been searching for a new CEO, and, after all well known names have been rejected, the directors have settled on a young, unknown candidate with good potential on paper but little track record.
Soon afterward the board of directors is completely renewed, bringing in some with extensive knowledge of your business and others with little or no perience. New corporate governance rules have been proposed and your private and institutional shareholders are loudly demanding that the company meet its commitment to becoming the most competitive in the world, and soon. Few companies could survive so many upheavals at once. And yet that is a rough business equivalent to the challenges now facing José Manuel Barroso, the new President of the European Commission, and his team.
In May 2004, the European Union was enlarged to include ten new member states, increasing its population by 20 percent but its economic output by only five percent. A month later a new European Parliament was elected in which more than half the members are newcomers, many with little or no direct experience in Brussels. Within weeks a draft European constitutional treaty was adopted that will, if ratified, set new rules for running the European Union. At the same time, after much uncertainty, came the nomination of Mr. Barroso and his team of 24 Commissioners, 21 of them brand new to Brussels.
For the first time in EU history, all these events were synchronized. The date of enlargement was set to enable the new member states to participate in the European Parliament elections. Similarly, it was decided that the new Commission would take office in November, allowing time for the new Parliament to vet the nominee Commissioners and their portfolios. This has inevitably led to a greater politicization of the Commission.
At the same time, the EU institutions - the Commission, the Parliament and the Council of Ministers - have all grown bigger, making the Union more difficult to operate. How do you avoid bureaucratic and political deadlock while trying to find a balance between big and small, rich and poor countries? How do you ensure an effective single market while market rigidities persist and economic growth is sluggish, especially in the euro zone? How do you achieve the goal set in Lisbon in 2000 of making Europe the world's most technologically competitive economy by the end of this decade? And with so many diverse political and cultural backgrounds, how does Europe speak authoritatively with one voice on the world stage? The constitutional treaty is designed to tackle many of these issues but, given growing skepticism about the European project amongst the citizens of Europe, its ratification is not a foregone conclusion. Mr. Barroso has made a relatively good start, despite being obliged by the European Parliament to reshuffle his team slightly and drop the controversial Italian nominee, Rocco Buttiglione. Generally, however, he has been evenhanded in allocating portfolios, giving priority to skill and experience rather than to nationality, and he has recognized the importance of promoting a liberal, free-market philosophy. One of the most important posts, competition policy, has gone to an experienced Dutch businesswoman and former Transport Minister, Neelie Kroes, whose toughness has earned her the nickname of "Nickel Neelie." Taxation has been entrusted to another woman, a Latvian from the Green Party. It will be intriguing to see how she responds to charges by some older member countries, particularly France and Germany, that new member countries are unfairly using low corporate tax rates to attract investment.
The European Parliament elections did not much change the political profile of the Parliament, but returned a fair number of Euroskeptic MEPs, not just from older member states like the UK but also from some of the new members such as Poland. These MEPs will severely criticize any policies that do not bring real benefits to the citizen and to the business community. Mr. Barroso also understands that many companies resent the way Brussels delivers more and more legislation, raising costs for business, but does not create the free market conditions to make business competitive. The Commission is promising that in future the emphasis will be on not more but better legislation that will produce more jobs, more competitiveness and higher standards of living. It is, however, the governments of the member states that are responsible for implementing and enforcing new laws passed in Brussels - which is why it is crucially important for business to take its messages not only to Brussels but also to national capitals. That is where the power lies to remove obstacles to competitiveness such as labor market rigidities, high employment and socials costs, differing fiscal regimes and diverse healthcare and pension provisions.
If all this sounds rather pessimistic, there is some good news - particularly for Americans. One striking feature shared by many Commissioners and politicians from the new member states is that they have spent time overseas, and that part of their education has often been in the United States. This can only encourage an international approach to policy making, and it will certainly accelerate the already rapid adoption of English as the lingua franca in Brussels. To the chagrin of our Gallic colleagues, more of the new Commissioners speak Russian than French. And while the challenges may seem great, it is worth pausing to look back at what has been achieved in the last 20 years.When I first arrived in Brussels in 1984, the concept of a European Single Market had not yet been imagined. Yet by the end of 1992 it was a reality, albeit an incomplete one. In the early 1990s most people still scoffed at the idea of a single European currency. Yet by 1999 the euro was a working reality, and in 2002 we had euro bills and coins in our pockets.Within 15 years of the fall of the Berlin Wall in 1989, eight former communist countries are full-fledged EU members.
All this has greatly benefited business, both European and American, as standards are harmonized and barriers to the free flow of goods, services, capital and people are dismantled. Enlargement is opening up even more markets, some with breathtaking growth rates of seven or even nine percent, and, despite the difficulties, there are many opportunities to be grasped.
In Europe we often criticize ourselves for lacking the American 'can-do' mentality. But I sometimes think that we undersell ourselves and all that we have achieved in a relatively short space of time. It has required vision, tenacity, hard work and the ability to take difficult decisions. Mr. Barroso and his team will need all those qualities if Europe is to achieve its goal of becoming the world's most competitive economy, another grand ambition that, like the euro in the early 1990s, is still being derided by the cynics.
Catherine Stewart is Managing Director of Cabinet Stewart, an EU public affairs consultancy in Brussels.