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20 November 2013

Graham Bishop: Perspectives on the future of the EU and possibilities for a transatlantic free trade agreement

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Speaking at the Senate Presidents' Forum in Madrid, Graham reprised the history of the EU movement and gave his perspective on the future of the EU.

The Senate Presidents’ Forum gathered  representatives  of  25  State Senates for its biennial international session, which was held in Madrid, Spain and included a meeting at the Spanish Congress.

Graham Bishop reprised the history of the EU movement for the Forum, which started as a movement to establish peace on the continent after the devastation from two world wars. “The EU offers the hand of friendship, but along with it comes the requirement to respect the rule of law", Mr Bishop said. The rule of law must be fully established before countries are admitted to the EU.

Mr Bishop commented on the challenges facing admission of Turkey and the Balkan nations into the EU. The Balkans are the meeting point of Islam and Christianity, he said, and this has been the centre of 1,000 years of war. He described the problems of integrating 100 million Turks into the EU both because of the size of the population and because of significant differences in the culture and values of an Islamic country. Mr Bishop said adding Turkey into the EU would be like taking Mexico into the US. Today, the population of the EU is 500 million, with a €13 trillion GDP. The combined population of the US and the EU is 800 million, and the combined GDP is $26 trillion, or half of the world’s total GDP. As a result, the trading terms between the US and the EU affect the whole world. A key difference between the US and the EU is that the 27 Member States of the EU have a 3 per cent trade surplus and public sector debt equalling 90 per cent of GDP, which they are taking measures to reduce. The US, in contrast, has a minus 3 per cent GDP trade deficit and 110 per cent of GDP in gross public sector debt, and the situation is rapidly deteriorating.

The Maastricht Treaty focused on establishing unity only in the public sector. The 2010 Greek crisis highlighted the limitations of this policy. Greece represented only 2 per cent of the EU GDP, but its risk of default put everything at risk. It was not clear if the EU would survive. It required a $1 trillion package to bail out Greece.

Today, the EU recognises the need for collective control of the competitiveness of the whole eurozone, taking both private and public sectors into account. As the EU advances towards full union, the need for a single market with a single currency with coordinated financial regulation is apparent, Mr Bishop said. The technical nature of the financial system has changed dramatically, and the political impact of modern financial markets is now undisputed, Mr Bishop told the Forum. He believes that market discipline has a vital role to play in maintaining fiscal sovereignty. His insights into the interaction of monetary union and political sovereignty have placed Mr Bishop at the heart of financial policy-making for a unified Europe.

Economic and fiscal governance in the EU and the euro area has been fundamentally strengthened in the recent months. Increased surveillance for budget oversight and mechanisms to redress excessive deficits are being considered. The so-called Six-Pack regulation ensures stricter application of the fiscal rules and operationalises the debt criterion. The Two-Pack adds regulations to monitor budgetary plans and to ensure the correction of excessive deficits in eurozone Member States. “This is a revolution in economic governance, a completely new experiment", Mr Bishop said, "and it is moving the EU towards collective control of public debt and a pooling of economic sovereignty across Member States".

Further excerpts

Returning to the earlier question of cultural unity, the EU is not going to become the United States of Europe. We think of Germany as a unified country, but it is only 130 years old. Rhinelanders are different from other regions in Germany, and the same is true of regions in every European country. Europe is a gathering of tribes that arose long before medieval times. Each country’s culture is deeply embedded in its own history.

The European Union's single market is designed to dismantle barriers and simplify existing rules to leverage the opportunities created by having direct access to 27 countries and 500 million people. The core of the EU’s economic and social policy is summed up under the idea of the four freedoms: free movement of people, goods, capital, and services.

The movement towards a genuine EU political union will be a huge test for Europe. These changes will need to be legitimated by the peoples of Europe when they vote. That will be a proper moment to seek legitimation of the effective union that has already been created in response to the crisis. The euro area will develop into a close political union during the next decade OR it may yet disintegrate.


Graham Bishop: Spain has improved its exports and reduced dependency on foreign investment; how did small and mid-sized companies make the transition to exporting to global markets?

Mr Beneyto [attorney and elected representative of the Popular Party in the Spanish Congress]: Before 1980, Spanish products were sold only to domestic markets. When Spain joined the EU, larger companies started to export to EU countries. They provided a role model for small and mid-sized companies, demonstrating how modernisation and internationalisation could improve business. For smaller companies, suvival was the key driver. Domestic demand was gone, so companies had to export or disappear. Spain also has a large roster of companies with international offices, and managers and executives went abroad to learn new strategies and to better understand external markets.

Graham Bishop: The EU Banking Union will have profound effects politically. Europe as a whole will be regulating the banks. Santander will no longer be a Spanish bank. Because the UK did not adopt the euro, they will not be in the Banking Union. How do these changes affect Santander?

Mr Fraga [Director of International Corporate Affairs for Santander Bank]: The surviving Spanish banks have provisions that are even stronger than other European banks. There are firewalls between the units that insulate them from losses. We also are triply supervised: first by the bank of Spain, then by the local country bank, such as the Bank of England, and, third, by the European Central Bank (ECB). The asset quality review and stress tests used by the ECB are easy for the Spanish banks, as we have already survived trial by fire.  

Graham Bishop: It is already difficult for other EU countries to accept the veto power of each Member State. Turkey, with 100 million people, would be the poorest country with the largest number of votes, including veto power. One of the 4 Freedoms of the EU charter is the free movement of people. When people leave poorer countries, it strains the public services, schools, and hospitals of the receiving countries. And this produces negative reactions that are exacerbated by religious and cultural differences.

Mr Merritt [Secretary General of the Friends of Europe]: I disagree. Europe has changed dramatically. Today, most European countries have large Muslim populations. Some 80-100 million young Turks might be just what we need to solve the labour shortage and address the demographic problem. I believe that immigrants create jobs. More people create more wealth. We are waking up to the fact that individual countries are not big enough to survive in a global, Asianised world economy.

© Graham Bishop

Documents associated with this article

Senate Presidents' Forum Newsletter.pdf

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