The potential for Europe and the limits to Union

Citation

Hague, W. (1998), "The potential for Europe and the limits to Union", European Business Review, Vol. 98 No. 5. https://doi.org/10.1108/ebr.1998.05498eab.007

The potential for Europe and the limits to Union

The potential for Europe and the limits to Union

William Hague

I believe the nations of Europe have the potential to seize the great economic opportunities of the new century; and the European Union can be a force for peace, stability and prosperity in an uncertain world. But I fear that the European Union is in danger: in danger of accepting without debate a political destination agreed 40 years ago; in danger of proceeding with political integration not because it is right but because it is said to be inevitable; in danger of living in the past rather than facing up to the future.

There are European politicians who believe that the EU should continue down the path to closer integration. They believe there should be a common European foreign and defence policy. They believe that there should be a common EU criminal justice and immigration policy. They want tax and spending powers taken out of the hands of national exchequers and given to Brussels. And many of them believe our ultimate objective should be the creation of a single European state, and that this is an inevitable destiny. I believe they are wrong. There is a limit to European political integration. We are near that limit now.

I intend to make three arguments. The first is economic. The European policies that were a natural response to the problems of post-war reconstruction are not necessarily appropriate for the future. In place of the ideas of intervention and regulation we need to create a free and flexible Europe. My second argument is strategic. The fall of the Berlin Wall has completely changed the challenge facing European states. Bringing prosperity and stability to newly free states is now the most urgent of Europe's tasks. And the third argument is political. Push political integration too far and accountability and democracy become impossible to sustain.

On 1 January 1999, 11 Western European countries will take a momentous step. They will adopt a single currency between them and accept the authority of a single central bank. But momentous though this step will be, it will create as many problems as it solves. And the most important is the danger that the single currency will lead to an increasingly centralised Europe. I therefore believe that Europe should not press on towards an unacceptable degree of political union just to make the single currency succeed. I fear that a single currency could push us beyond the limits to Union.

A single thread running through these three arguments is that it is not the critics of the current direction of the European Union who are isolationist, out of date or even anti-European. Rather it is the EU's direction which is in danger of becoming isolationist. It is its post-war assumptions that are increasingly out of date. And it is the danger of integration and the abandonment of our continent's diversity and pluralism that is anti-European. I believe that true internationalism is about the relationship between states rather than their integration into a single state and that the nation state is not an outmoded concept, but is the best vessel for true democracy. I shall argue that the real pro-Europeans, the people who really want to see a peaceful prosperous co-operating Europe, are the opponents of further political union and the supporters of a confident outward looking Europe of nation states. I shall argue, too, that the favourite observation of integrationists ­ that technology is shrinking the world and that nation states cannot operate on their own ­ is in fact a strong argument against an exclusive Western European grouping. "Little Europe" is as unattractive a vision as "Little England". For my country, that means that our friendship with English-speaking nations remains vital and should be strengthened, and that our role as a bridge between those nations and the nations of Europe will be of increasing importance. Our generation should always be grateful to the generation of Europeans and Americans who rebuilt Europe; who restored freedom; who fought the Cold War; who built stable democracy; who ensured prosperity; who replaced enmity between states with friendship. But now it is our turn. Our turn to unite Europe after the Cold War. Our turn to defend freedom and stability now that the familiar landmarks of the post-war era have been removed. Our turn to advance prosperity when economic opportunities and challenges are presenting themselves. Our turn to defend democracy, community and nationhood in a time of uncertainty. I do not believe that we can succeed by simply taking the ideas of the post-war generation and applying them to new problems. We must not allow Europe's future to be driven by an obsession with Europe's past. To understand where the European Union is presently heading, you have to understand where it has come from.

The twentieth century has been the bloodiest century in a long line of bloody centuries for Europe. Forty-five million Europeans, a majority of them civilians, lost their lives in two World Wars of unprecedented horror and suffering. The slaughter of the trenches, the firebombing of cities and the pure evil of the Holocaust left indelible scars on the millions more who survived. At the heart of the conflicts lay a lethal rivalry between Germany and France that extended back past the Franco-Prussian War, Napoleon and even the wars of the French revolution. The political leaders who emerged from the rubble to build a new, post-war Europe devoted themselves to the task of ensuring that future war in Western Europe became unthinkable. After what they had been through, who could say they were wrong? The means of preventing future war devised by Jean Monnet, Altiero Spinelli, Robert Schuman and others was based on three ideas: economic, strategic and political. The economic idea was that economic planning and co-ordination was essential to rebuild the war-devastated economies of Europe. The strategic idea was that establishing a political community that would inextricably bind France and Germany together would prevent war in Western Europe and at the same time put them at the heart of a Western bloc capable of checking Soviet expansion.

The political idea was that democracy and freedom would thrive when nationalism was eradicated and nation states replaced with a supranational political structure and a new European identity.

These ideas came together with Monnet's extraordinary powers of persuasion, to provide the driving force for the remarkable experiment that has resulted in the European Union. These ideas and Monnet's gradualist method have remained constant as the community has changed. The post-war history of Western Europe has seen some great successes. Europe has enjoyed the longest period of peace in its history, with the nations of Western Europe uniting together in the NATO alliance rather than fighting each other. War between France and Germany, once unavoidable, is now unthinkable. The once fragile democracies of Greece, Spain and Portugal are now as secure as any in the world. Across the Union, peace and stability has brought rich economic rewards. And the only battles are those fought over a good lunch at the European Council. The EU should take its fair share of the credit for bringing these things about, as too should NATO, the USA and the nations of Western Europe themselves.

But the time has come to ask whether a 50-year old solution devised to heal a war-torn continent should dictate what happens in Europe over the next 50 years. I believe that it should not. But I fear that it might. The task for our generation is to persuade the European Union that it has to stop addressing the problems of the 1940s with solutions devised in the 1950s, and start facing up to the challenges of the new century. The immediate economic problems after the war were how to rebuild industries, how to get international trade flowing again and how to construct welfare systems that protected populations from the kind of hardship Europe had suffered under in the 1930s and during the war. To the post-war generation the success of corporatist and interventionist economics was barely contested. Europe's leaders wanted to use it not only to rebuild Europe's economies but also to ensure that those economies were intertwined in such a way as to make war between the countries concerned economically impossible. They began with the materials most necessary for war: coal and steel. The 1951 Treaty founding the European Coal and Steel Community refers to the need to "substitute for age-old rivalries the merging of their essential interest" and to the task of building "a broader and deeper community among peoples long divided by bloody conflict".

This was taken forward in the Treaty of Rome which created a European Economic Community. And the Single European Act was introduced for the ostensible economic reason of helping to create the Single Market. This economic drive has now reached its apotheosis in the most grandiose and far-reaching European project of all ­ economic and monetary union.

Interventionism was at the heart of Monnet's vision and has led the drive towards political integration throughout the EU's history. But for some reason the failure of interventionism in the West and the spectacular collapse of communism in the East does not seem to have dented the EU's faith in the power of the state. There is still great confidence, for example, in the efficacy of Government intervention and the ability to provide social protection through labour market regulations. These are old economic solutions and they are not right for new economic circumstances. For we now live in a world of opportunities unimaginable even a generation ago. Billions of dollars and pounds and yen flow freely from one country to another at the touch of a button; information flashes across the globe in microseconds; journeys that a hundred years ago took months ­ and only 40 years ago took days ­ now take hours. Businesses are becoming truly international in their outlook. Take the example of McKinsey, the management consultants I joined after I left INSEAD. The firm was founded in America. But it now has 74 offices in 38 different countries in five continents. McKinsey, like so many other firms today, no longer calls one country home.

Some argue that the proper response to globalisation is to create ever-bigger economic and political units; they point to some of the large multinational mergers that have recently taken place. But we are in fact in the age of the small unit: an age of small businesses and increased self-employment; an age of small cable TV companies and the Internet; an age when it is almost as easy for anyone to do business across the world as it is to do business across the street; an age in which the idea of a physical market confined to one part of the globe is out of date. In the age of the global economy, only the open, nimble and lightly regulated will thrive and the European Union is slowly starting to face up to some of the challenges of this new world economy. I applaud the vigour with which the EU, and particularly Commissioner Sir Leon Brittan, has pressed the case for freer trade in the World Trade talks. And I welcome the fact that the EU has at least started to talk about the problems of heavy regulation. The current rhetoric suggests that the Union has begun to recognise that the economic solutions of the 1950s are no longer appropriate. But to date only the language has changed. We need to go much further.

There are now more than 20 million unemployed people in the EU. European economies have the highest levels of structural unemployment of any advanced economies in the world. Europe is being out-priced and out-competed. Our record at job creation is lamentable. More new jobs were created in the USA in just two months last year than in all the countries of the European Union together in the last ten years. The reason is Europe has social overheads that make it the most expensive place in the world to employ someone. It is hardly surprising unemployment is relatively high here in France when it costs a French employer an extra 410 FF in non-wage social costs for every 1,000 FF it pays out in wages to an employee: an astonishing 41 per cent on-cost. By comparison Japanese employers face social costs which add only 16 per cent to wage bills while British non-wage costs are even lower at 15 per cent.

High unemployment is a human tragedy and a political time-bomb for Europe. Nothing is more likely to foster extremism and xenophobia than an economic system which throws people out of work and leaves them blaming "Europe". The nations of Europe have the potential to defuse that time-bomb. I believe the EU has the potential to achieve a great deal in the economic field ­ particularly in the four areas of competitiveness, the single market, lower taxation, and free trade. The EU should throw its weight behind the drive for greater competitiveness. European businesses will find it increasingly difficult to compete in global markets if they remain overburdened with social costs and inflexible employment laws. Instead of contributing to high unemployment by introducing statutory working weeks, the EU should be encouraging Member States to make their labour markets much more flexible. The EU should also recognise the case for lower taxes. The recent ECOFIN Council, chaired by the British Chancellor of the Exchequer, called for an end to "harmful tax competition" ­ a euphemism for removing from national governments their power to set their own tax levels. Why? The EU should be encouraging tax competition between its member states so that across Europe tax rates can fall and the people can keep a greater share of their own income.

I believe the EU should make sure that the Single Market is properly completed. People think it has been completed. But state subsidies, unfair public procurement rules, and uneven enforcement of EU regulations mean that many small and medium sized companies still find it difficult to export in the Single Market. And I believe the EU should build on its record of promoting freer trade by setting itself the ambitious goal of achieving global free trade by the year 2020.

The nations of Europe are uniquely placed to take this forward. Ties of history, culture and language have given us special relationships with all parts of the world. Britain has its relationship with the English speaking world. There is also that between Spain and Latin America, France and Africa, The Netherlands and Indonesia, Portugal and Brazil. In other words, Europe has the best contacts in the world. So I want to see the European Union take the lead in promoting global free trade through a new round of WTO talks and I welcome the EU's New Transatlantic Marketplace initiative which aims to remove industrial tariffs by 2010, create a free trade area in services, further liberalise investment and remove the technical barriers to trade that can prove so frustrating to exporters. European businesses alone could benefit to the tune of a staggering £100 billion a year from this initiative. But why limit our ambitions? I want to see the free trade initiative taken further. For example, why is the multi-billion dollar financial services industry excluded? Let's take up Newt Gingrich's offer of support and ensure the EU and NAFTA work together to create a transatlantic free trade area. And let's not stop there either. We should aim to abolish the very concept of a free trade area by making the whole world a giant free-trade area.

This will be an immense challenge for the European Union. We can conquer world markets and make the next century a prosperous one for the peoples of Europe. It is a great prize and we must have the determination and the dedication to fight for it. And we will need exceptional political leadership if we are to win through. Instead, I fear that the EU is channelling its energies in the wrong direction. I fear that European politicians have been concentrating on EMU at the expense of assisting and liberating Europe's businesses. It is time for new economic vision. And just as the Union's economic policies, conceived in the 1950s, are showing their age, so too are its strategic assumptions.

Europe's peacemakers had hoped to unite in permanent peace a continent divided by war. But long before the Treaty of Rome was signed Europe was divided once again. We had the tension of the Cold War, the Berlin Airlift, the Hungarian Uprising and the Prague Spring, Checkpoint Charlie and the Four Minute Warning. The European Union played a crucial role in binding together the democracies of Western Europe in the face of Soviet tyranny. And in making war between Germany and France unthinkable, it has achieved what at times in history has seemed impossible. But the landscape of Europe has now changed completely. For 50 years the ancient kingdoms of Central and Eastern Europe were frozen under the glacier of Communism. That glacier has now receded, and the first tentative shoots of democracy have spread and need to become deep-rooted. The Ice Age of the Cold War is finished. The old problems of Franco-German war and the Soviet threat are now things of the past. Instead the new danger is that the drive for political union in Western Europe that effectively excludes the new democracies from its heart will perpetuate a divided Europe. Eastward enlargement is spoken of so often and in such grandiose terms that we can become numb to what it really means. But the phrase "historic duty" is, in this context, for once truly apposite.

In the first place, Western Europe has a straightforward moral obligation to the states which, at Yalta, were handed over to Communism. Second, integrating the markets of Central and Eastern Europe is a tremendous commercial opportunity for all Europe's businesses. And third, repeatedly spurning countries which have gone through such pain to qualify for membership will eventually have the effect of bolstering the most reactionary and anti-Western elements in them, which would feed off a perfectly understandable resentment against Brussels. This could jeopardise the stability of the whole continent. So eastward enlargement is as much a question of hard-headed self-interest as of Western altruism. The irony is that an institution which was conceived as a means of uniting Europe could divide our continent just as surely as the Iron Curtain.

On the surface of it, the EU appears to be preparing for enlargement. At Copenhagen in 1993 the EU leaders committed themselves to opening the doors to the new democracies of eastern and central Europe. Poland, the Czech Republic, Hungary, Slovenia and Estonia have been allowed to start the complicated negotiations to join. Five other countries have been offered the carrot of eventual membership. In London earlier this year 25 European leaders gathered to congratulate themselves on the progress they have made. But, so far, the EU has confined itself to hollow statements of intent. No practical steps have been taken to prepare for enlargement. Indeed, the Amsterdam summit, billed as the summit for enlargement, resulted in a Treaty which takes Europe in precisely the opposite direction because the Union cannot expand without first overhauling its policies and institutions. That means radical reform of the CAP, cutting out price distortion and providing properly for farmers. That means sorting out the Community budget and the structural funds.

Expanding the membership of the EU will lead some to call for extensions in the use of qualified majority voting. This call should be resisted. It is true that a wider membership means getting more countries to agree before a decision can be made. But the discipline of getting nation states to agree is a vital control on EU policy making and should not be relaxed. When it comes to preparing the EU for enlargement we have seen a conspicuous failure of leadership. But that is as nothing compared to potentially disastrous way in which the Commission looks like fixing the system against new members. The EU could all too easily make the peoples of central and eastern Europe into second-class citizens. This must be stopped. This must end. Instead of forcing new countries to agree long transition periods before they can join, they should be admitted to the EU as soon as possible. And instead of forcing new members to sign up to economic and monetary union as a precondition of membership, let us give them the choice of whether or not they wish to join ­ the same choice was given to Britain, Denmark and Sweden.

We have got to reform existing policies to make it easier for others to join. Otherwise they will remain a permanent obstacle to enlargement. Just try for a moment to imagine a common agricultural policy stretching from the reindeer herds of Finland to the citrus groves of Cyprus or a common social policy for Swedish and Slovakian workers. The truth from which we must not shy away is that applicant states must be allowed to retain control over certain areas if they are to participate in the Union. And why is the Commission reluctant to face this truth? I hope it is not out of a concern that existing members might also want to control certain of their domestic policies ­ for it is precisely such flexibility that the Union needs if it is to be competitive in the coming century. The new challenge that confronts our generation is to bring stability to the whole continent by firmly establishing democracy and prosperity in the countries of eastern and central Europe.

What those countries want to hear from us is not that their nationality is a thing of the past. The crowds that marched in Leipzig and Timisoara wanted two things: national independence and political freedom. Those are the values they associate with Europe. Let us not shut them out. Deepening the Union is not just a distraction from widening. It is the opposite. Neither the rest of the world nor our own descendants will look kindly on us if, out of sheer introversion, we lose this opportunity finally to heal the division of our continent. Nine years ago the political landscape of Europe was transformed overnight when the young people of Berlin tore down the ugly, concrete wall that divided their city in two.

Yet we still have not shown courage to match the courage of those young people. How much longer must our fellow Europeans wait?

Economic and political integration were just part of the post-war project. The founding fathers of the European Union had a third and even more ambitious goal. They wanted to eliminate what they saw as the root cause of modern war itself ­ nationalism. They wanted to replace the nation state as the prime source of loyalty for Europe's citizens ­ and they wanted to replace it with loyalty to a European ideal. For those on the continent of Europe who had lived under Nazi tyranny, nationalism became understandably tainted by fascism, collaboration and war. Britain's experience had been quite different. It was our national identity, so powerfully expressed in Winston Churchill's speeches, which had helped see us through the darkest days of the war. For us, patriotism was the focus of our resistance against Nazi tyranny. We have never been as nervous of national feeling as our continental neighbours and, as a result, I believe we have never really understood, let alone shared, the fears and ambitions of European federalism. The ultimate goal of the Monnet-Schuman project is to create a European state with its own loyalty, its own identity, its own government and its own citizens. And it has a momentum all of its own. Over time, the institutions of the European Union have taken key elements of executive, judicial and legislative authority away from the national governments. Most fundamentally of all, the European Court has established the supremacy of European law over national law. The result is a steady erosion of power away from national governments and the ever closer political union envisaged by the Treaty of Rome.

As we enter the new century the original danger which confronted the founding fathers of the European Union has gone. By re-establishing democracy and prosperity across Western Europe, we have eliminated the threat of war. Prosperous, democratic states do not go to war with each other. If anything, the threat comes from precisely the opposite: the artificial repression of nationality. The lesson of Yugoslavia and the Russian Federation is that it is dangerous to force disparate peoples into a common political unit unless they already feel a sense of national affinity. I believe there are natural limits to political union beyond which stability and democratic accountability within the nations of the EU itself could be in jeopardy. I have argued in a series of speeches this year that human beings are more than just economic animals and that not all relationships are simply about buying and selling. There are ties of family and of community and of nation which go beyond the shop counter. National identity fulfils a basic human need to belong. As Sir Isaiah Berlin argued in his essay on nationalism, "The Bent Twig": "to be human, you must be able to feel at home somewhere with your own kind. People ... need to belong to a group where communication is instinctive and effortless". Nationalism is not easy to define. It may be shaped by language or by religion or by culture or by other factors. But not always. The Swiss have a strong sense of nationality, which is neither ethnically nor linguistically nor religiously homogeneous. Perhaps the best definition of a nation is this: a nation is a group of people who feel enough in common with one another to accept government from each other's hands. That is why democracy functions best within nations. The defining characteristic of national identity is that when we disagree with a law we do not disobey it, we try to get it repealed. When we dislike the complexion of our government, we do not attempt to secede from its jurisdiction but try to persuade our fellow countrymen to change it. France in this sense is a nation. So is Britain. Europe is not.

Another characteristic of the nation is that it cannot easily be dissolved or abolished. In the eighteenth century, the Polish state was carved up and eventually ceased to exist. The result was almost constant tension and occasional bloodshed. But although the Polish state has spent three quarters of the last two hundred years subsumed and submerged, the Polish national idea was strong enough to survive and allow the Polish nation to be reborn.

General de Gaulle said that "the nation state and democracy are the same thing". I believe that nations are essential for real democratic accountability. For democracy to function properly, there has to be a "demos" or people. People must feel their vote counts; that they can influence the decisions that affect them; that they can have their say. And those people must share a common national identity. This should be borne in mind by those critics of the European Union who complain about the "undemocratic" nature of its institutions and about the "democratic deficit" at Strasbourg. And by those who believe that we can integrate more tightly as long as we produce a democratic constitution.

There is, certainly, a marked absence of democratic accountability in almost all that the European Union does. Unelected Commission officials and European Court judges wield enormous power. The European Parliament has an important job to do. The Commission's management of the Community Budget and the detail of EC legislation need rigorous scrutiny. But the work of European Parliament should be to complement that of national governments and parliaments, not be a substitute for it.

The real answer to the democratic deficit is to increase the role of national governments ­ for they are the real focus of democratic accountability in the EU. The answer is not, as some argue, to increase vastly the powers of the European Parliament or elect a President. For the European Union will never be a democracy. It may have many of the attributes of a democratic state. It already has an elected Parliament, its own flag and anthem, even its own citizenship. And we could easily add more. But these are the symbols and trappings of nationality. They are no substitute for real national feeling. The nations of Europe have existed for hundreds of years. They are bound together by ties of tradition and allegiance. The EU cannot, in the space of a few decades, hope to manufacture a sense of nationhood comparable to that which has grown organically among its separate peoples.

Europe is not a nation, but a patchwork of nations. It is made up of many diverse peoples with different languages, different cultures and different political traditions. There is no single European consciousness. Even trying to get the countries of the EU to agree a common policy on, for example, the recent crisis in Iraq proved impossible. Different historical links with the Middle East meant different countries approached the issue from different perspectives and came to different conclusions.

Anyone who believes that one day Europe can become a single democratic state needs to answer this question posed by the British academic Noel Malcolm: can we ever imagine a time when a London housewife stays up late on the day of a European general election to watch the leader of the Euro-party they voted for, a Greek, say, make a speech to the people of Europe in Greek? Or, for that matter, the time when a Greek housewife stays up late to watch the latest general election results from London?

I do not believe such a sense of political community in Europe will exist in my lifetime. But I am certain of one thing: if we establish common political institutions without, or at least before, such a sense develops, we will drive our peoples further apart. That may not stop Monnet's successors from trying. But they would run a grave risk of undoing goodwill painstakingly built up over 50 years of European co-operation. The peoples of Europe would soon begin to feel that they no longer had a say in the political decisions that affected them. We are already seeing disturbing signs of the rise of extremism: the vote in Saxony-Anhalt in April, the recent by-election in France. People who feel their voice is no longer being heard look for ways to shout louder. I emphasise that there is a limit to European integration. We are near that limit now.

Push political union beyond its limits and you jeopardise the very peace, stability and prosperity which Europe's post-war statesmen were so anxious to secure. My fear is that the creation of a single currency will take European political union well beyond its acceptable limits. I have already set out the economic risks of economic and monetary union in my speech to the Confederation of British Industry last November. The effect of imposing a one size, fit all, single interest rate on a set of different economies with different cycles, structures and circumstances, could be disastrous. The single currency is irreversible. One could find oneself trapped in the economic equivalent of a burning building with no exits. But I am also concerned about the effects of EMU on the working of our democracy and our institutions.

Some may wish it otherwise but voters today live their lives in nation states. Voters expect national governments to be accountable to them for the state of their economy: growth, employment, interest rates, mortgages and inflation. If a government is thought to have performed badly it can be changed by the ballot box. That is the essence of our democracy, and underpins its stability. Under the single currency the one size, fit all interest rate may affect different countries differently. In some countries it might produce rising unemployment. But if it does the voter cannot change the government or the policy. Indeed the government cannot change the policy.

In Asia those countries that have had the most violent reactions to the financial crisis have been those countries that do not have the safety valve of democratic elections. How will the peoples of Europe react to a recession without the electoral means of changing the people responsible?

Professor Feldstein, Professor of Economics at Harvard, in a well-known essay subtitled "Monnet was mistaken", argues the shift to EMU and the political integration that would follow will lead to increased tension within Europe. Because the single currency will affect different countries in different ways, exacerbating recessionary tendencies in some, and inflationary tendencies in others, new disagreements will reflect incompatible expectations from one policy.

Countries that are concerned about unemployment more than inflation will be critical of the European Central Bank for not pursuing a more expansionary policy. On the other hand, if the German public sees inflation rise, it will become antagonistic towards EMU, and towards the countries that vote for inflationary monetary policy. But with a single currency these governments would suffer the frustration of not being able to decide for themselves and of being forced to accept the common monetary policy. If governments are likely to feel frustrated how much more frustrated will the voters be?

Professor Feldstein writes:

If EMU occurs and leads to (such) a political union in Europe, the world would be a very different and not necessarily safer place.

These words may seem alarmist to some, but coming as they do from such a distinguished source, they cannot be ignored. These are what one might call the political risks of the economic consequences of EMU. But I am also concerned about the direct political consequences of EMU.

The British Prime Minister and his Chancellor of the Exchequer have attempted to argue that the introduction of the Euro has no constitutional implications whatsoever, and is a purely technical question. I find it difficult to believe they really believe this. The Euro has potentially huge political consequences. Some continental European politicians are quite frank that the purpose of the single currency is political. A single currency was always seen as fundamental to the creation of European political union. Chancellor Kohl has said quite openly that "if there is no monetary union, then there cannot be political union and vice versa". The 1992 Maastricht Treaty that creates EMU calls explicitly for the evolution to a future political union. But even without that language, the shift to the single currency would be a dramatic and irreversible step towards that goal.

There are precious few, if any, examples in history of a successful monetary union not related to a single government. There is no sizeable country anywhere in the world that does not have its own currency so why should the introduction of the Euro be any different? The current President of the Bundesbank, Hans Tietmeyer, has said:

A European currency will lead to member nations transferring their sovereignty over financial and wages policy as well as in monetary affairs. It is an illusion to think that states can hold on to their autonomy over taxation policies.

Dr Tietmeyer's argument is entirely logical. In any economy, monetary policy on the one hand, and on the other hand tax and spending policy, that is fiscal policy, have to be closely co-ordinated. In order to make the single currency work I fear the European Union will be forced to intrude more and more into the spending and taxation decisions of individual states. Even if the EU does not actually raise the taxes or spend the money itself, it will increasingly control the decisions. The powers to raise taxes from one's citizens and to spend the money on their behalf are defining features of a sovereign state. I believe that to delegate powers over taxation and spending to the EU would take us beyond the limits of political union towards the creation of what would in effect be a European state. It would be to cross a line and abandon the independence of nation states with all the consequences for the future stability of Europe which I have set out today. The centre would have more power than the component parts. It would have neither legitimacy nor accountability since there can be no real accountability except in nation states. That is why I fear the political consequences of the single currency. For this reason the British Conservative Party is against British membership of the single currency now, and, subject to a ballot of Party members, intends to oppose it at the next General Election.

So I have set out a positive vision of an open and flexible European Union. But I know that not everyone will receive it in this spirit. For as the intellectual case for the direction upon which the EU is presently set has become weaker, so those who advance the case have become more defensive.

Let me rehearse some of the arguments that will be deployed against what I have said.

Some will say that my case is another example of the British causing trouble and being "non communautaire". I say to them that when Britain joined the EEC we took on responsibilities and pooled some of our power. But we also gained certain rights, and one of them is to have as great a say as any over the future direction of the Union. That's what being communautaire means.

Some will say that it is too late, that European political integration is inevitable and that Britain must jump on board or miss the boat. I say to them that it is not inevitable that the EU will fail to respond to the new economic opportunities. It is not inevitable that the EU will miss the historic opportunity to unite our continent. It is not inevitable that the EU will push political integration beyond its natural limits. None of these things are inevitable if Europe's political leaders speak out now.

Some will say that my view is alarmist, that no one wants to create a European superstate. I say to them that everything about the EU's origins and development to date suggests that this is precisely the direction Europe is heading in and unless someone speaks out we will find ourselves dragged into an unsustainable political union.

The EU has already helped to bring together countries torn apart by a world war. Just imagine what it could achieve by uniting a continent divided by a cold war. The EU has already helped spread prosperity through Western Europe with the Single Market. Just imagine what it could achieve by completing that single market and liberating Europe's businesses from the dead hand of regulation and social costs. The EU has already been a powerful force for free trade. Just imagine what it could achieve if it reached out across the Atlantic to build a new trading partnership with North America and set itself the goal of global free trade by the year 2020.

I believe the potential for the European Union is enormous, provided that it has the courage and the imagination to recognise that it needs to change direction, accept the limits to political union and embrace the challenges of the new century.