Monday, 20th June 2005

European Trade Commissioner Peter Mandelson's Fabian Europe lecture offers a wide-ranging vision for how European debates about economic reform and the future of Europe's social model, enlargement and democratic legitimacy need to change in the wake of the French and Dutch referendums rejecting the EU's Constitutional Treaty - and why Britain needs to change the way it deals with European partners.

Building a New Consensus for Europe

It is very good to be here at Clifford Chance. I am particularly pleased to be speaking on a Fabian platform. It is a little known fact that I was launched into national politics as a member of the Executive of the Young Fabians - the rest is history. I have been a Fabian all my life at different levels of activism. For me, the Fabian Society has always represented what is most decent, progressive and efficient in the Labour movement. Fabians have always been innovators, gradually of course. By definition, as innovators Fabians have also always been modernisers and helped to pave the way for new Labour. I also congratulate you as clearly when you first invited me , several months ago, to speak soon after the French and Dutch referendums, you must have predicted just how badly wrong things would have gone to place Europe in the position that we find ourselves today.

Europe today faces a deep crisis of direction and legitimacy. There have been many such crises before, and doubtless there will be more in the future. For make no mistake – Europe does have a future. I believe profoundly that Europe, having solved the problem of the European civil wars of the twentieth century, is a large part of the solution to many of the challenges of the twenty first – and unless we succeed in making the idea of Europe more effective, the progressive politics we all stand for will be greatly weakened.

Nye Bevan famously said that unilateralism would mean sending him as Foreign Secretary 'naked into the Conference Chamber'. I am equally sure – without Europe, Britain and the other individual nation states of our continent will walk naked into the world of globalisation. But after the French and Dutch votes, Europe doesn't feel it is the bold solution now. The rejection of the Constitutional Treaty poses pro-Europeans with a profound problem. This lecture is about how we can turn Europe from being a problem to being a solution; how we build the new consensus that will allow Europe to fulfil its potential.

There were multifarious motives for the No but the message is stark. Partly it was a domestic protest vote. But people are disenchanted with the European Union. They are confused about its direction or they think it's speeding ahead too fast in the wrong one. They feel it lacks connection with their real concerns.

Europe presents too many visible targets to its enemies: from the failure of MEPs to control their expenses – despite the sterling efforts of many MEPs - to a culture of over prescriptive regulation – which the new Commission is at long last attempting to tackle. This produces a vicious circle in which national politicians, claiming to be pro Europeans, make populist attacks on Brussels, just as past leaders in the United Kingdom have done, which only nurture public alienation. This is the trap Jacques Chirac fell into. If political leaders are to persuade their electorates to support the idea of Europe, they have to explain clearly why, despite the inevitable frustrations of working together in a collective of 25 countries through the machinery of Brussels, Europe is a good thing from which we gain many benefits.

The decisive No vote amongst the younger generation in France was distressing. The old European project of 'an end to war' has inevitably lost resonance. The freedoms Europe offers – democracy and human rights across our continent, the freedom to travel, study, work and settle in different European countries – are taken for granted. They should not be. We are only 15 years from the end of the Soviet Union, and much closer still to the horrors of the former Yugoslavia. We must beware of amnesia.

This is all grist to the mill of Britain's so called Eurosceptics. It may surprise you, but I have no objection to genuine sceptics. The dictionary definition of a sceptic is someone who is intellectually open to persuasion. But the vast majority of Britain's Eurosceptics are not in that camp. Just look at how they either deceive themselves, or wilfully misrepresent what happened in France and the Netherlands.

It was a vote against the idea of European integration, they say. Well actually it wasn't. In France, many on the Left voted against the Treaty because for them it didn't integrate enough. It didn't in their view build the kind of protectionist social Europe that they imagine, falsely in my view, would be a strong shield against globalisation.

The sceptics also say it was a vote for their vision of a looser, wider free trade Europe. Well again, it most definitely was not. In both countries, the No vote drew on a rich vein of discontent about enlargement which is all part of a more general populist reaction against immigration, fear of Turkish membership and the competitive threat of the Polish plumber.

And British Eurosceptics are wrong most of all in thinking that the Treaty was rejected because of its institutional proposals. People were not flocking to the polls to vote against the double-hatted EU Foreign Minister, the end of the rotating Presidency or because they believe the complexities of the Nice Treaty's voting formulae are superior to the double majority of the Constitutional Treaty! And surely people were not voting against the idea of a smaller Commission!

The Constitutional Treaty itself is not the real problem. The Treaty's institutional reforms would make the EU more effective, transparent and accountable. Europe would be mad to scrap a painfully established consensus. If the European Council later this week decides to put ratification on ice, the aim must be that in future, popular support could be mobilised to implement those reforms, perhaps in a different form, but without seeking to bypass the people's will.

No. The real problem in Europe is that there is no consensus about what Europe is for and where it is going. The European project is today under sharp attack from a populism of the Right that blames foreigners for every woe, and a populism of the Left that feeds on fear of globalisation, Anglo Saxon 'liberalism', job losses and 'delocalisation'. This phenomenon is widespread, of course in France, but also in the Netherlands and right across Europe, including Britain where immigration was stoked up into a powerful issue in the election.

On the Continent the progressive centre ground in which the idea of Europe has always been rooted, is damaged and weakened in several countries by poor economic performance. How to marry economic dynamism successfully with security and social justice is the central political challenge for politicians seeking to build a European consensus in the globalised post-war world. For a decade or more the answer has eluded some of the biggest economies in Europe. And the issues don't get easier as all Europe faces the double challenge of an ageing society and intensifying global competition, especially with the rise of Asia.

There are of course many voices in Britain who think this is others' problem, not ours. The anti- European tendency would happily leave the rest of Europe to get on with it. Freed in their demonology from the tentacles of Brussels that allegedly want to hold us back, they would then be free to spectate from across the Channel with a mixture of righteous sermonising about the successes of our own Anglo Saxon model, and not a little schadenfreude after decades of humiliating post war decline. 'Thank God they're failing' the anti-Europeans privately think, because this enables Britain to do what they most want it to do, as in 1940, proudly 'stand alone'.

I do not expect everyone in this country to share my enthusiasm for the pro European cause, but let me explain briefly why I believe this course of disengagement from the European Union at this time would be a total betrayal of Britain's national interest.

The fate of our economy and our personal prosperity is inextricably bound up with the rest of Europe. 50% of our trade is with the rest of Europe. 'Their' market is our market. 'Their' demand for goods and services is the demand we want for what we produce and supply. The reason, therefore, that the European Union really matters to Britain – and why schadenfreude is the wrong instinct - is that the Continent's economic success or failure contributes directly to our economic success or failure. I saw a Treasury statistic the other day suggesting that a 1% increase in the Continent's growth rate lifts the British growth rate by 0.25%. That may not sound much, but it's an extra 3 billion or so of national wealth added cumulatively every year. In terms of the additional tax revenue that would accrue over a Parliament, it's more than enough to pay for a decent system of child care in Britain. So that should make a Fabian audience sit up and think twice.

So the more we contribute to more successful economic policies in Europe, the more we gain ourselves. And the potential is huge. People complain the Single Market hasn't delivered what it promised. They are right. That's because it hasn't been carried through to anything like the full extent it could be. This is a central UK interest.

And remember this. It's impossible to have the Single Market without the supranational institutions that make it work: the Commission that is the initiator and enforcer of legislation and fair competition; majority voting in the Council that breaks deadlock; and a Court of Justice that can hold Member States to account. When anti Europeans in Britain say, 'we like a free trade Europe but we don't want Brussels', they gloriously contradict themselves in a single sentence. You can't have the Single Market without Brussels – end of story.

People complain about the increased volume of intrusive EU regulation, particularly as it impacts on business. There is more than an element of truth in this. But it was the impetus of the Single Market that led to this explosion of regulation, to harmonise and converge. The Barroso Commission is now slowing this trend, and reversing it where European legislation is excessive or not needed. In October we will publish proposals to simplify – I hope radically – the legislative 'acquis'. But does anyone think the likelihood of this happening would be improved if Britain relegated itself to the sidelines? Eurosceptics, please wise up. We can't have the free trade benefits of a single Market without Brussels and we can't deal with the problem of excessive regulation unless we are in Brussels fighting there to stop that excess.

Think of my own responsibilities as the Commissioner for Trade. In Trade, uniquely in terms of our external relations, Member States have pooled their negotiating authority – in me, as the lucky recipient of their trust. And – in all humility - it's a pretty sensible thing for them to have done. When European nations are negotiating with China, whether it's an issue of rocketing textile imports or unfair competition or the Chinese being slow to deliver on their commitments on market access or intellectual property, who thinks a Minister for Britain representing 60m people would get a better hearing and a fairer deal in Beijing or Shanghai than a European Trade Commissioner who speaks on behalf of a prize market of 450m people? Again, it's a no-brainer.

I could go on to identify other areas where Britain gains business opportunity, international leverage, economy of scale or additional security by combining its strength with that of other European nations, whether we are talking about counter-terrorism, emissions trading, or immigration policy. These are hard-headed arguments about where Britain's national interest lies. They are the reasons why a genuine British sceptic would be a fool to disengage from Europe. But I also want us to engage because I believe we share common values as well as common interests with our European partners. It's not just about economics. It's about politics.

Europe must press ahead with painful economic reforms. But reform is for a purpose: not to Americanise Europe but to make our European model of society sustainable for generations to come. Essentially we need a new social consensus for economic reform as New Labour has achieved in Britain, based on a social justice argument, which is capable of uniting mainstream opinion in France and Germany as well as Britain and Holland and the rest of the EU25. The fact that the British people have three times in succession returned to power a New Labour government demonstrates that we share the wider European vision of a social justice economy. Those both in Britain and on the Continent who believe that there is a fundamental and irreconcilable difference between an 'Anglo-Saxon' model and the continental view create in my view a false antithesis. Our vision of the society we want to live in is close. Where we differ is in our understanding of the need to accept change and reform is fundamental.

This has been brought home to me with exceptional force in my current role. Europe cannot stop the world and get off. Take China's emergence as a world economic power, given that I have just returned from negotiating with the Chinese Government, so I have China in my mind. I don't want to stoke fears about China. Rather the reverse. I want Europe to rise to the challenge of accommodating a new China as a constructive partner, not a deadly rival. China is itself only a proxy for what is happening on a wider scale in Asia and South America – and some day hopefully in Africa and the Middle East when those regions are able to participate in the benefits of globalisation. Ten years ago, Chinese exports to Europe amounted to roughly a fifth of those of the United States. Today they amount to about three quarters. Over the last five years they have expanded at 23% a year – an estimated 38% in 2004.

For the past two months, I have been facing insistent demands for the imposition of safeguard measures against surges of imports on a scale that our domestic producers complain they simply cannot withstand. My point today is not whether you think I have done too little or too much. I struck a deal with the Chinese that gives European business stability to plan ahead and restructure in the next couple of years without facing short term disruption and without triggering a major trade dispute that would jeopardise our longer term economic relationship with China.

My point is a much more profound one – about the economic challenges ahead. The issues we face in textiles today will affect other sectors tomorrow. Intensifying competition exists in all the traditional industrial sectors: footwear, machine tools, consumer electronics, and cars. You name it: we're going to experience it and the impact will be severe, not just in France and southern Europe where the volume of demands for action in textiles has been heard loudest, but across the EU as a whole.

Of course the temptation is to cry foul. To denounce competition as unfair; to complain of artificial exchange rates; to protest that goods are being sold below long run sustainable costs; and to argue that wage levels reflect forced labour and the absence of trade union rights. As the responsible political authorities in Europe, the Commission and the Member States have a duty to listen to these arguments, not dismiss them as a fantasy and be prepared to act where a well founded case can be made.

But let us not deceive ourselves and refuse to face realities. Europe is faced with a fundamental choice of directions. One way we sink into protectionism and populism - either the populism of the Left that rejects globalisation or the populism of the Right that blames foreigners for everything. And if we make that choice, we really will sink. Because by putting up barriers between ourselves and world markets, we may save jobs in the short term but only to ensure that our industries are globally uncompetitive in the longer term.

The only alternative is the difficult and painful tasks of reform and modernisation. It's the policy that the Barroso Commission set out in February for Europe and its Member States, explaining our revised Lisbon strategy. To prioritise Growth and Jobs is not a neo-liberal obsession. Yes, it involves difficult economic reforms, affecting many vested interests as well as people's livelihoods. Yes, it demands of us to press ahead with opening markets in Europe, in order to provide European business with a vibrant economic base on which it can compete in the rest of the world. But the thrust, I repeat, is reform for a purpose: to make our European model of society sustainable for generations to come. No wealth, no opportunity. No opportunity, no progress.

I realise that for many people on the Left, the use of phrases like 'reform and modernisation' is seen as code for more labour market flexibility, less job security, a weakening of employment rights, and welfare reforms that reduce social benefits and/or make entitlement to them 'conditional'. And reform may indeed involve tough and unpalatable choices. But the larger failure of economic reformers has been in not offering a positive vision within which the short term pain can at least be understandable, even when it still hurts.

In the past we've tended to stress the inevitability of globalisation in the world, together with the inevitability of deepening economic integration in Europe: we've said there's no alternative as if politics cannot offer people security any more. But globalisation is not a tide that we should simply let flow over us. We have to make the case that we can marry globalisation with social justice; that we can open markets in Europe and pursue economic reforms in way that narrows, not widens the gap between 'winners' and 'losers'. Globalisation is not some zero sum game, certainly not for politicians with progressive values.

There have always in history been losers from the dynamics of economic change, from the handloom weavers in the first stages of the English Industrial Revolution. What we have to show now in our policies is as much concern for the losers, as for the winners. The basic political problem with open market and economic reform is that the benefits are spread out while the costs are concentrated. Poor families across Europe benefit from cheap Chinese T-shirts, but it is the textile workers standing to lose their jobs who understandably are most vocal. If economic reform is to be acceptable politically, the losers have to be cushioned and equipped to adjust to change.

Since we took office, the Barroso Commission has been at fault in not articulating that balance and failing to make the social justice case for economic reform. The old European Social Model was a great achievement, but it is flawed. In most European countries, it was build around the protection of existing jobs – through legal rights and collective bargaining. These arrangements worked well in an era of slower economic change, when employers could manage any need for job losses and redundancies smoothly over a long period. Today in a more rapidly changing world, firms have to be faster on their feet. Today's innovation may be overtaken by tomorrow's new technology or new market demands. This is why in the world today, our existing job protection arrangements, which put emphasis on preserving the status quo, deter new investment in Europe.

In the face of globalisation it would be a dead end to extend the legal protection of jobs, simply accentuating the flight of capital from Europe. It would also offend against the requirements of social justice because it would accentuate a great divide between the lucky insiders who have protected jobs and the unlucky outsiders who are unemployed. Look how many young people are unemployed in France and ask yourself why so many of them see Europe as the unwelcome agent of a job-destroying globalisation. A New Social Model for Europe has to break down this insider/outsider distinction country by country, according to their different circumstances, but at the same time offer new forms of security and opportunity for all, at all stages of the life cycle.

I have always believed in a social dimension to Europe. My preoccupation has not been to question its importance, but to argue that the Social Europe we build should be modern and forward looking, rather than stuck in the past, defensive and protectionist. Its driving purpose should be to provide security by advancing opportunity rather than fruitlessly attempting to block change.

The Single Market was never conceived as an end in itself. I still remember my feeling of excitement and pride when Jacques Delors re- launched the idea of Social Europe. His concept - that market liberalisation and the drive for competitiveness had to be matched by flanking measures to promote social cohesion and environmental sustainability - is still valid. The right social and environmental policies strengthen competitiveness and at the same time make reform more acceptable. But the achievements of Social Europe have in truth been limited. True we have put in place a set of minimum social standards, which for all the furore they have aroused and still arouse, have improved millions of people's lives, from the right to paid holidays to a comprehensive outlawing of all forms of discrimination at work. But beyond a minimum floor, a modern Social Europe can make more progress.

The challenge of today is to equip every citizen of Europe, from whatever social background, nationality, colour or religion, to fulfil their own individual potential in a rapidly changing world. The essence of our European cultural and religious tradition is this recognition of the uniqueness and equal worth of the individual. We then combine this essential insight of the Enlightenment with recognition of the need for a strong society, particularly in both the social catholic and social democratic traditions, to enable the individual to achieve fulfilment within a stable social framework.

The situation today is that these essential insights of our Europeanness remain valid. But the collective institutions and systems we built in the last century to underpin them have outlived their time – in particular, social consensus corporatism, the social insurance welfare state and centralised universal public services that played such a crucial role in the era of mass industrial society.

The ends remain – but the means require modernisation and reform. What we need today are new approaches and new institutions to tackle the new social challenges of extending opportunity throughout the lifecycle– tackling inherited disadvantage by investing in the social support and education of young children and their mothers; providing high standards of schooling in ethnically diverse and socially fractured communities; promoting skills and lifelong learning for those who missed out at school; reaching for world class standards of excellence in higher education and research; opening access to retraining and help with adjustment for the victims of economic change; helping older workers reintegrate to the labour market and abolishing the traditional concept of retirement: integrating migrants and minority groups more successfully than we have so far succeeded in doing into our local communities. These are examples of the common challenges a modern Social Model should be addressing.

Some people will say what has this all got to do with Europe. Aren't these in essence national questions for each Member State to solve? Well, yes they are in the main. Welfare systems and labour market policies are country specific: and so need to be reform policies. When I talk of creating a modern Social Model for Europe, it is not a question of harmonising employment law and social standards. But there is an indispensable European dimension to national reform policies. Establishing greater consensus on how we make economic change acceptable is the key to faster economic reform, Member State by Member State, from which we all benefit.

And addressing the needs of the 'losers' in Europe is essential if Europe is to proceed with enlargement. I believe in enlargement as a means of extending democracy, human rights and our values to a wider Europe. But there will be no consent for enlargement to the Balkans, Turkey and beyond, unless we first address the problems of the 'losers' back home. All politics is local, ultimately even the geopolitics of enlargement.

On economic reform, Europe's policy makers know what needs to be done: the problem is summoning the political will to actually do it. The policy is all there in the Barroso Growth and Jobs strategy: a crack down on abuses of competition; enforcement of Single Market laws; a revised Services Directive; opening up public procurement; reform of State Aids; thoroughgoing regulatory reform. But to develop a New Social Model, we now need an open debate. It won't work if advocates of the old Social Europe simply continue as before, regardless of globalisation. It won't work if economic reformers appear to think that acceptance of globalisation is all that matters, regardless of the social action needed to make it work for all. Economic reformers need to adopt both a new language and a new set of priorities.

There is a paradox that in Britain, New Labour has been strong advocates of a modern social democratic mix of market flexibility with massive public investment and the first successful attack on poverty in a generation. In Brussels, Britain has sounded neo-Thatcherite as though nothing has changed from the 1980s. Both tone and substance need now to change if the British Government is to command attention and win the backing it seeks on the continent. A greater effort must be made to get this right during the UK Presidency which starts in a few weeks time.

These broader, more profound issues are frankly more important than the familiar argy-bargy over Britain's budget rebate. I am not saying that EU spending – and who pays for it – does not matter. Of course it does. Refusal to talk about much needed budget reform is part of the old conservatism in Europe which the Barroso Commission is determined to change. But Britain should be careful not to play into the hands of this conservatism. Ministers must be consistent and courageous in their reformism, and be prepared, in the context of a deeper re-think about the EU's budget, to look at reforming Britain's rebate. For a start it is surely wrong to ask the poorer new accession states to pay for any part of the rebate.

I want the European Union collectively to find a way of addressing and bringing definition to these issues in the months ahead. What we spend and how it is financed is directly linked to Europe's direction and its policies and priorities. A new consensus can be found in Europe. You don't have to know much about the political situation in France and Germany to realise that. There is massive public discontent, but also a realisation that things can't simply go on as before.

One thing the so-called 'elites' need to learn form these referenda is that we must stop pretending that the answers to the problems lie in yet more treaties, charters or institutional tinkering. Treaties are needed to set a framework of cooperation and oil its machinery. But only policies, not Treaties, or Euro theology, can address the core issues I have set out today.

Engaging in this debate and making this new case for Europe can galvanise British pro Europeans. We have to put on the backburner the old argument that Britain has no alternative to Europe. The fact is that with our present economic success, there is an alternative – but one that it is not as good as being fully committed members of a reformed European Union and its vast Single Market.

A more successful Europe is critical to enhancing British prospects of achieving greater prosperity with social justice, and of being part of a strong grouping of nation states that can advance shared interest and values in a world of globalisation. The time is ripe for the government to go on to the front foot in Europe but not in a divisive way. At home the Prime Minister and his colleagues should make a modern pro European case and in so doing, lead the way forward to a vision of a New Europe that all 25 Member States can share.

This is the full text of Peter Mandelson's Fabian Europe Lecture, delivered on Monday June 13 2005. The Fabian Society is grateful to our event partners Hill & Knowlton for supporting this event and to Clifford Chance LLP for hosting the event in Canary Wharf, London.