The past six months has been a grim time for British supporters of European integration in general, and the euro in particular. The French beef ban, the EU-inspired attack on two successful London markets (the eurobond market and the contemporary art market) in the name of single market harmonisation, and the perceived failure of the euro, together have taken some of the shine off the improvement in Britain's relations with the EU, which began in May 1997. The scepticism towards the euro is, in part, a function of the success of the British economy-performing better than it has for a generation. Yet so strong is the groundswell against the euro that the group set up to promote it, Britain in Europe, appears to have been forbidden by the government from arguing the case.
As so often in Britain's debate about Europe, we seem to be missing the bigger picture. The EU which is taking shape for the 21st century is closer to what successive British governments have been seeking than we might ever have imagined. We have become so absorbed in our fears about the Brussels threat that we seem to have missed the plot; we have become incapable of taking yes for an answer.
Back in the days when John Major's administration was destroying itself from within over Britain's role in Europe, the plaintive cry was regularly heard from Major himself, from Douglas Hurd, Kenneth Clarke and Michael Heseltine, that in reality things were going our way in the EU. Given the disarray within the Tory party, and the contempt in which Britain was held by other member states, this was as hard to credit then as it might seem now. Exchanges of insults did not help to promote the impression that Britain was at the heart of Europe-notably Major's own announcement in The Economist that continental striving for a single currency had all the quaintness of a rain dance.
Some of the sourness of the Major period still lingers. The prevailing caricatures of those days (albeit with deeper roots) still dominate British debate. Britain is seen to profit from a robust Anglo-Saxon, free-market bias-which Tony Blair battles to maintain against EU pressure, in association with the booming US economy. The EU, on the other hand, is still seen as a purely continental project driving towards a political union which is centralising, bureaucratic and anti-American. It is elite-led, undemocratic and, following the revelations about Franco-German slush funds, appears to be corrupt, too. The economics of the project is dedicated to preserving the rigidities of corporatist economies. The euro is another self-imposed rigidity inspired by European power politics.
Yet, invisibly to British political and public opinion, it has turned out that John Major was at least partly right: the British approach, politically and economically, is the one which increasingly prevails in the EU.
in britain, even supporters of further integration in the EU tend to have an instrumental view of Europe. The EU is a legal forum for working out common (and sometimes conflicting) interests in the economic and political spheres-a forum which, to work effectively, requires some pooling of sovereignty and some supranational institutions.
This approach-it might be called intergovernmentalism-plus-has been contrasted with the more teleological view of Europe as a "heroic" project designed to create an ever closer union of Europe's peoples. Until recently this latter approach did have some basis in the reality of the EU. There were influential European supranationalists with little time for the nation-state: federalists from the Benelux countries and Italy who did not think much of their own states, and who canvassed drafts for a federal union in the run-up to Maastricht in 1991; idealists in the European commission, treading in the footsteps of Jacques Delors, who dreamt of Europe as a superpower like the US; above all, German federalists, especially in the CDU, who developed blueprints for the commission to become a government for Europe, the European parliament to be its legislature, and the European council-representing the nation-states-to be its senate. For many years, Helmut Kohl blessed this approach. It was only in the wake of the Maastricht ratification difficulties that he was persuaded to stop referring to his dream as a United States of Europe.
But even as the British Conservatives were scrapping with their partners about beef, the single currency and majority voting, European governments were coming round to the view that they, not the commission or the parliament, should be driving the EU. Public opinion in EU states, from Denmark and Greece to France and Germany, rejected the idea that national identities and interests should be routinely subordinated to a higher political authority. That was the lesson of Maastricht; and at the Amsterdam conference in 1997 it was Kohl who slapped down ambitious plans to empower the European parliament.
Indeed, the presidency of Jacques Santer, and the resignation of the commission last year, could be said to mark the end of an era. Intergovernmentalism is for now the operating principle of the EU. The Helsinki summit in December endorsed the next, very modest, intergovernmental conference, which will address a small number of tightly defined issues, the most important of which will be to increase the voting weight of larger states-such as Britain. Even the rhetoric has shifted. Jacques Delors himself no longer talks about a federal Europe but a European federation of nation-states. And Jacques Chirac, never a federalist, refers not to the United States of Europe but to a United Europe of States.
This is not to deny that Britain has some historic difficulties with European integration. Economically, we have, arguably, benefited less than many other states because we have not had a large agricultural sector and because our recent success stories have been in services which do not cross borders (even tariff-free ones) as easily as manufactured goods. More speculatively, as Andrew Marr argues in The Day Britain Died, many continental states express their national identities through language and culture, which are not significantly challenged by European integration. British national identity, on the other hand, is more tied up in the unbroken evolution of our political and legal institutions, which are to a greater extent challenged by integration.
More prosaically, there will continue to be conflicts over how to square European regulation with diverging national interests. On taxation, or fiscal harmonisation, we British have good reason to favour as much subsidiarity as possible; on food safety we do not find subsidiarity so relevant, while the French clearly do. These tussles are part of the natural order, and there is no reason why the British or the French should not exercise their national vetoes on what matters to them most. When majority voting applies, as it already does on most single market issues, we need to make the best deals we can-and we are currently on the losing side of majority votes less frequently than any other large member state. The EU is a forum for peacefully resolving conflicts between competing national interests, and between the claims of the group and the claims of individual states. Each time a conflict arises it should not raise the existential question of whether we are European or not.
Sovereignty in this new EU is a fuzzy thing. No one can seriously argue that Slovenia or Latvia (or indeed Britain), should preserve veto powers on everything within EU competence. But nor should they be bulldozed into submission, by majority vote, on the questions that really matter to them. The change is well described by Karl Kaiser, the German international relations academic whose views carry weight with Chancellor Schr?der: "What is emerging is different from what we expected, and totally different from classical models of federalism like the US. There will be transfers of powers in some areas but in others the nation-states will pursue their own policies, indeed that will be the norm."
The argument hinges on definitions of "flexibility." How much room can there be for countries to act in different ways, or move at different speeds, within a common framework? There are significant disagreements here, but also a wide consensus-stretching from Romano Prodi to William Hague-which accepts that some countries, particularly new entrants, must be able to proceed at a slower pace in some areas, while others move ahead; this already happens in areas such as Emu and border controls.
But the retreat from federalism is most visible in the European commission itself. For much of the 1980s and 1990s, under the Delors presidency, the commission led the integrationist drive. But since the Amsterdam summit it is the council of ministers-the committees of relevant national ministers (transport, agriculture and so on)-that drives Europe. Of the four big initiatives currently being undertaken by the EU-the establishment of the euro, enlargement, the creation of an EU defence force and the review of immigration and asylum procedures-only enlargement provides a serious role for the commission.
if the guiding philosophy of the EU now seems more congenial to pragmatic Anglo-Saxons, the same is all the more true of Europe's economic and business trends. The talk is of competitiveness, flexibility, shareholder value and venture capital-all introduced into the Brussels lexicon in the Major years. These ideas have been advanced with even greater force by Gordon Brown and Tony Blair. At the same time, the Blair government projects a balancing concern for social exclusion and for a limited social dimension which can be better reconciled with continental traditions of Christian and social democracy than Major's approach. And yet, to hear the Frenchman, Pascal Lamy, speaking like an American market fundamentalist on behalf of the EU at international trade meetings, can be quite disconcerting. Continental European politicians have learnt that economic success in the age of globalisation means adapting technologies, labour markets and welfare systems. As Dominique Moisi, of the French Institute for International Affairs, says of Prime Minister Lionel Jospin: "He talks like Jospin, but he acts like Blair."
So far, the embrace of market values is being driven more by companies than by politicians, and the deregulation of capital markets is further advanced than labour markets. It is not yet clear how much the one requires the other-a hybrid may emerge, combining an Anglo-Saxon-style business sector with continental-style worker representation and job security. Perhaps that will prove incompatible in the longer run. But in the meantime, the best indicator of the transformation of the European economy is the number of mergers and acquisitions taking place either within member states or across national frontiers.
Vodafone's takeover of Mannesmann became an epic for two reasons. First, these two European champions have succeeded on the back of a huge European single market and a shared European technical standard, GSM. Second, Europe's capital markets have been transformed both by the advance of "shareholder value" attitudes, and by the euro which has made it possible to mobilise funds on a much larger scale. Big hostile takeovers have become politically and financially feasible.
The euro was always expected to produce greater price transparency and a renewed rationalisation drive by business. But the extent to which it has provided a tool for coping with globalisation-and driving it on-has been a surprise. The slump in the euro's external value has been compensated for by the fillip this has given to the continent's slowing economies-the opposite situation to that feared by most Anglo-Saxon economists, who worried that the external value of the euro would be maintained at the expense of European growth. And although there is concern, especially among bankers, about the euro's value against the dollar, the headline story on the continent is that the euro has established itself as the world's second major currency-and that it is playing a key role in making Euroland more competitive.
Continental Europeans are also accepting more readily than they did in the early 1990s the reduced role of the state in guiding national economies: cities, companies and entrepreneurs can generate wealth more effectively than governments or, for that matter, the European commission. In the many job creation efforts funded by the EU, the stress is now less on job subsidy and more on stimulating small business. The EU's economic reform summit in Lisbon in March will have an agenda which could have been drafted at the Harvard Business School. The summit will be chaired by Antonio Guterres, the Portuguese prime minister, but many of the ideas will come from his close collaborator, Tony Blair.
so, in recent years, the EU has edged closer to mainstream political and business opinion in Britain. But for many Britons, something in our engagement with Europe is still missing. A combination of commercial self-interest and geographic proximity seems inadequate for the destiny of a country with the outward-looking geopolitical traditions of Britain-with its history of empire and special links with the US. One of Britain's difficulties with Europe has been how to square its proud traditions and its role in the wider world, most recently in two world wars, with the tendency of continental states to play down their recent history and exaggerate a shared European identity. It has been difficult to identify their dreams with ours.
This may be changing. Another sort of convergence is taking place, which is not about the abolition of the nation-state but about a greater acceptance of the multiple identities which new technologies and population movements are imposing on all of us. People are getting better at being, say, British, Scottish and Asian all at once-or German, Bavarian and Turkish. They are also accepting more ambiguity in their professional, political or religious affiliations. Identity is coming to have less to do with narrow criteria of ethnicity, religion or class than with being consumers and citizens.
This is not undermining the national state; if anything, the opposite: as people's particular identities become more complex and fragmented, they hold on more tenaciously to the more general category of national citizenship. (That can lead to the illiberal nationalism of J?rg Haider, but he is the exception.) The French and the Germans are now more confident of their national identity than they were and even flawed states like Belgium or Italy have weathered the worst of their identity crises. National media play a key role in this; and even when real economic power is moving to the international or regional level, the nation-state remains the most effective level for democratic representation. The nation has shown great resilience as the focus for people's cultural and political aspirations, and will continue to be a central part of Europe's future. The arrival in the EU of Nordic and central European countries as jealous of their national traditions as the British or the French will only reinforce this.
Yet this national strand will be one among other strands of identity. It is in this respect that Europe offers an attractive model to the world, rooted in diversity, tolerance and enlightened self-interest. The group of nations which gave rise to the most bloody conflicts of the 20th century is already a model to other parts of the world as a result of the successful elimination of the use of force between them. Europe now has the opportunity to spread its stability, prosperity and values beyond western Europe, in the first instance to the east and south of our continent, and ultimately further. This might be regarded as an imperialist ambition, as a modern equivalent of the white man's burden or the mission civilisatrice of the French colonialists, whose ambition was to create a world of Frenchmen. But a civilising mission is not a bad aim in a wider world which starts with Bosnia and Kosovo, and extends well beyond Chechnya.
In fact the mission is already established, and has recorded quiet successes through the EU enlargement process. It was possible that countries like Hungary, Poland and Romania-whose 20th-century history was dominated by communist, right-wing populist or fascist governments-would relapse into a nasty nationalism. The promise of being part of the EU's democratic prosperity has been used by liberal politicians to keep nationalist demons at bay. Where there was no realistic prospect of early EU membership-in ex-Yugoslavia-the nationalist nightmare has become reality. It was also no coincidence that the new post-nationalist government in Croatia last month made its first official call to the EU presidency.
It is not just the benign effect that the promise of future EU membership is having. A growing network of association and partnership agreements offers economic incentives to liberalise the politics as well as the economies of countries which have encountered a difficult transition from communism. Such agreements now extend to Bulgaria, Romania, the Baltic states and to most of the former Soviet republics. At the end of last year, the president of Kyrgyzstan, which nestles alongside China and India, said in Berlin: "We dream of being part of Europe." And far beyond Europe the EU is establishing itself as the most powerful global shaper of social and economic developments, with aid budgets more than four times the size of the US, and an increasingly political role in the way it allocates these funds.
But there are more immediate geopolitical questions, too. After the Helsinki summit in December, the headline story in most European newspapers was the decision to add Turkey to the list of candidates for EU membership. The British media focused on the beef war, which was not even discussed, and the withholding tax issue, which was deferred to the following summit because there was clearly not going to be agreement. The public debate on the continent centred on the extent to which EU membership might have a stabilising effect both on the outflow of Turkish workers to EU countries, and on the politics of this sensitive region between Iran, Russia and the Caucasus-not to mention Greece. The fact that the US had been pressing the EU to look sympathetically on the Turkish application only confirms what we ought to know already: even if we Europeans, especially the British, are reluctant to accept the EU's wider role in the world, others are determined that we should not shy away from it.
The other aspect of the civilising mission which came into focus in Helsinki-again, almost unnoticed by the British press-was the formal agreement to develop the EU's defence identity. This is often taken as code for the European army, which ranks alongside the federal superstate in the Eurosceptic canon. But as the leading figures involved in making sense of the EU's disparate foreign and defence structures are Chris Patten and Javier Solana for the EU, and George Robertson for Nato, it is difficult to portray the initiative as a project of ideological federalists or faceless bureaucrats. There is broad acceptance that European countries must deliver more military capacity than they did in Kosovo the next time force is used on our continent-and the Americans are making very clear that they are not willing to fill in all of the gaps.
The scope for autonomous national European foreign policies around the world is much smaller than it was. We learnt in Bosnia that competing French, German and British policies were a disaster; it was only when the three worked together that European policy came to count for something. In conflicts such as Chechnya or former Za?re, or in countries such as the Ukraine, it is difficult to make a case for separate national policies from EU member states. The Americans do not ask what is the British or the German or the French position, but what is the European position-and what are the Europeans actually willing to do? The British have a pivotal role here, rooted in history, in the professionalism of our forces and in our ability to summon up the necessary political will for difficult decisions. We should identify wholeheartedly with this aspect of the civilising mission.
It is axiomatic that we need to pursue this civilising mission in collaboration with-and occasionally in friendly competition with-the US. We share the same bedrock values, but Europe has nothing like the same capacity to play the role of global power. There is one superpower and that will remain the case. But increasingly, we shall find that neither the US government nor the American people are willing to take the lead in every part of the world. Sometimes our more diverse cultural heritage, including our residual historic links around the world, will equip us better to take the lead. As we know from Bosnia, Kosovo and many other regional conflicts, this does not mean that relations with the US will be unproblematic. Managing those relations will need to draw on the historic links between Britain and the US. But there is no serious US politician or official who will say that Britain can play this role better by keeping its distance from the EU. It is not, as some Tories argue, a choice for Britain between the English-speaking world or European integration. It must be both.
Will Europe's new defence role interfere with the coherence of Nato? There will be bumps along the way. But Nato is itself acutely aware of the need to change. And just as the EEC, the EC and now the EU have been experiments with new forms of cooperation, so the grand questions of foreign policy and defence will inevitably take us into new territory.
This raises the question of risk, which hangs over the debate about Europe and the euro in Britain. We seem to have become curiously parochial and risk-averse at a time when our EU partners are becoming more globally ambitious. While we reassure ourselves that the City of London will apparently not lose out if we stay outside the euro, our partners are talking to the Americans about jointly stabilising the international financial system. Of course there are reasons to be cautious about Emu, but the risks cut both ways.
The main risk now seems to be that for want of courage, conviction or imagination, we shall continue to defer decision, and even discussion, on the euro, and this will extend into a more general failure to commit wholeheartedly to the rest of the new EU prospectus. This would be a sad echo of the gradual erosion of John Major's strong position on Europe at the beginning of his premiership.
Perhaps the government can get away with what seems to be its current policy: remain quiet for now, wait for the euro to be seen more clearly as a success, call a referendum after winning the election and achieve a spin-doctored conversion of public opinion within three years so that we can still arrive at the party in time. But the timing will be tight. If it fails, we shall once more fall into the pattern of Britain missing out on the early stages of setting the rules for the next Europe, only to turn up, a little humbled, one or two business cycles later. We seem to learn this lesson every generation, then forget it. And we always have to catch up on less good terms.
There is no inevitability that the Europe of the next few years will develop exactly as we would wish. There are still protectionist and anti-American forces in France, and pressures for more harmonisation in areas such as tax and social policy than most people in Britain would favour. There is no secret Franco-German blueprint for a federal state, but there are interests shared by continental governments which sometimes differ from our own. The record shows that when Britain is in at the birth, as with the single market, what results is more in line with our interests. In the case of the single market, it could easily have been a much more corporatist and protectionist version, for which the precedents existed as far back as the 16th century. When Britain is not fully involved, Europe can end up with policies like the Common Agricultural Policy, which are no more in Europe's general interest than in our own.
We are not going to rewrite the rules of Emu from one day to the next, nor can we join the euro tomorrow. But it might just be that the euro will be a more potent tool, domestically and internationally, than we have been willing to consider. And if we raise our eyes, we can see a Europe in which we can feel comfortable, and which also involves a historic mission in the world. This could be attractive to an ambivalent but open-minded public-which is sceptical in the proper sense but is not anti-European or xenophobic. If we can see beyond the parochialism of our press and the timidity of our politicians, and summon up a more courageous British tradition of confronting risk in an unpredictable world, we will find a European project worthy of our history.
