Luncheon Speech by Emma Bonino

Thank you very much for having invited me today to speak before this prestigious audience.

The time of our meeting is indeed appropriate, as the European Union is embarking upon yet more momentous changes.

First, a few weeks from now, the Union's heads of state and government are expected to give their green light to the third phase of EMU which, in all probability, will subsume eleven national currencies into one, the Euro. In a matter of months, the Euro will surface in your banks; and by January 2002 at the latest, the new currency will finally hit the road - or rather the wallets of some 280 million European citizens, and many more around the world.

Second, accession negotiations were opened last week with five countries of central and eastern Europe, plus Cyprus; this group will - as soon as conditions are ripe - be widened, to include as many as eleven countries in the enlargement process. There is no doubt that, rather than merely extending its borders, the Union itself will undergo, through enlargement, a dramatic process of change.

Eurosceptics will certainly believe that this is enough to give pause even to the most ardent Europhile. I am afraid I have to disappoint them.

True enough, monetary union is - if not the first - certainly the most symbolic transfer of a key national prerogative - printing money - since the signing of the Treaty of Rome. For the very same reason, the historical relevance of this step is essentially political. Even those who discard its political dimension, and keep looking at EMU in purely economic terms should take stock of past experiences, and recognise that those monetary unions that withstood the test of time did so only because a political union was also in place. With one exception: the franc shared by Belgium and Luxembourg.

Curiously enough, my own country, Italy, experimented with both. A monetary union "cum" political union since 1861: and the lira, for all its bad times and good times, is still there. And a monetary union with other sovereign states - the Latin monetary union of 1865 with France, Belgium, Switzerland and later Greece, that eventually collapsed at the onset of World War I.

One hears all sorts of wild speculations, these days, on the very bright future that lies ahead of us, once the euro becomes the alternative, if not the first, reserve currency of the planet; and on how this is going inevitably to accrue to Europe's status in the world. Let me say from the outset that I do not belong to this school of thought. Quite to the contrary, I believe that monetary Union will further expose the contradiction of having a Union which is an economic giant, a political dwarf and a military worm. Let's face it: to explain the greenback seating in everybody's vault there must be more than the virtues of Washington's fiscal and monetary policies. And indeed, especially if one looks back at the seventies and the eighties, one might ask: what virtues?

Thus, if there is room for sobering thoughts here, it is precisely for those who claim "oh my God! Let's avoid being trapped by the politics of it all! Let's keep the Union within the boundaries of its proven track record, i.e. on purely economic grounds". My personal conviction is that, without the transfer of other key national prerogatives from our member states to the EU - such as building up over time an effective common foreign policy, and eventually a security policy - even this newborn child, the Euro, will have a hard time growing.

I must admit that I am one of the most impatient Europeans, when it comes to the speed with which we are moving toward a common foreign and security policy. Thus, I felt somewhat relieved last week, when I came across the title of an article in the Financial Times, whose title read: "Dwarf gains stature". It was the first of April, so I thought it might be a joke. In fact, it went on saying: "The European Union has been criticised for failing to forge a foreign policy. But enlargement eastwards represents just that".

The author, Lionel Barber, is a journalist that I admire much and always read with great interest. I am sure he will excuse me if I take issue with him.

Because I believe that an enlargement process engaged in advance of a serious institutional reshuffle may complicate further the much needed streamlining of our current decision - making machinery; and will put at risk the very modest steps taken so far to build up a meaningful foreign and security policy. Indeed, it may jeopardise any prospects thereof for decades to come.

Enlargement will have a major impact on the economy of acceding countries, but a customs union, an internal market and a bulk of common policies are not enough to build up an overall political identity. We are not even enlarging our greatest political achievement so far, the Euro - since it is out of the question that even the first wave of entrants will be able to join EMU for many years to come.

As things stand, then, an acceding country is not asked to surrender any of its key prerogatives as a nation-state: printing money, having its own armed forces and its own diplomacy, let alone its own judicial system. On the other hand, whoever joins the Union will keep a veto power over a host of very substantial decisions, which it may see as unsuitable for its national interests.

Notwithstanding the dramatic changes (on the positive side) that the process of EU enlargement will bring about for the security and the prosperity of the whole continent, the destiny of the European project remains somewhat blurred, and exposed to too many uncertainties. The Treaties spell out the notion of "finalité politique" of the Union. But what is it after all? If we (the 15) are not clearly in agreement about it, how can the candidates for accession be aware of it?

One may easily claim instead that, since EU trade and competition rules to which all members must conform are basically in the best interest of any state keen to give its economy a chance to compete globally; and since newcomers are granted not only financial support but also transitional periods before fully adhering to those rules and obligations, it is no wonder that anybody wants to join.

A political identity, though, is not just made up of institutions and procedures for the exercise of certain prerogatives. A large part of its legitimacy comes from an often unwritten social contract that for example defines the boundaries between public and private, between the role of the state and the freedom of individuals.

And here, I believe, the noyau dur of the difficult relationship between the United Kingdom and Europe comes into play. You have come to terms with the opportunity Europe represents for us all. This opportunity is what economists would call "economies of scale" and nuclear physicists "critical mass". Let's face it: much as we might like to think otherwise, in today's world none of our member States is able on its own to make its voice heard in world affairs; not even those with the strongest national currencies; not even those with a permanent seat at the UN Security Council; not even those with a special relationship with Washington.

If the British see, as all other fellow Europeans, the opportunity, what then makes them so reluctant to jump on it? What then makes them so jealous of their national prerogatives? The answer, I more and more believe, could be found in what I called above the social contract prevailing in what you call "the continent".

I happened to look back recently at some figures on the evolution of public expenditures in rich countries. Between 1960 and 1996 it went, as a percentage of GNP, from 27 to 33 in the U.S., and from 32 to 42 in the UK. But, starting everywhere from around 30, the same percentage hit 49 in Germany, 53 in Italy, 54 in Belgium and France, and 65 in Sweden.

As an example, an independent worker in Italy, who is not a tax dodger (a rare species you may say), and whose gross income amounts to the equivalent of 35.000 pounds, will transfer this year to the State coffers some 60 percent of his or her income through direct and indirect taxation, plus a host of social contributions. I suspect the situation is broadly similar elsewhere on "the continent".

An individual who sees 60 percent of what he earns taken away and administered by the State on his behalf has the right to ask himself whether he has not ended up in the Soviet Union, where the terms of the exchange could not be that different: even there a few roubles were left in the people's pockets, to chase whatever good one could buy. This makes me uneasy, because, with all my federalist convictions, it was the United States of Europe which I wanted to build - not the Union of European Soviet States!

If this is what frightens you British about Europe, you may have a point. The matter is, this has nothing to do with European integration. If anything, the virtuous financial cycle instaured by the run to meet the ambitious Maastricht targets for EMU, will provide a decisive contribution to "sanitizing" many national budgets and ill-inspired macro-economic policies. Which in turn, will create better economic conditions for individual entrepreneurship at European level.

I do hope that, rather than remaining committed to a sterile and static defense of national prerogatives, British public opinion at large will see the merits of European integration. I know that the business community, with some hesitations, is increasingly committed to injecting good doses of British pragmatism into the most liberal aspects of European construction. I can only hope that this trend continue, unabated. For the sake of Europe.