The theme of our discussions here really illustrates the changing world in which we are living. Through the 20th century questions of strategy were ones primarily of ideological rivalry and the deployment of military power. Now, in the 21st century, it is the importance of economic strength, growth and integration that are important when it comes to shaping the strategic relationships of tomorrow’s world.
That does not mean the age of politics has been totally replaced by the age of the markets. The last few decades have taught us that without proper markets, be they domestic, regional or global, development simply will not happen. Countries seeking to shield themselves from markets are curtailing their own future. The last few years have certainly illustrated that a world that neglects to take its politics seriously is a world heading for an instability that will also threaten the future of the markets.
The mega trend of our age is undoubtedly the process of globalisation facilitated by profound political changes in the last few decades and also driven by the revolution in science and technology that is still gathering speed by the day. A year ago it might have been wise to speak about globalisation in somewhat more guarded language. The world economy barely survived the near‑death experience of the financial markets in the preceding autumn. Global growth was plummeting in a way not seen in modern times; capital flows had virtually ceased to exist and we were faced with the risk of state failures caused by economic collapse in several parts of the world. There was a risk of a rapid rise in protectionism, the gradual collapse of globalisation and a new age of brutal national and regional rivalries. It had to be taken very seriously. Literally no one could be certain at that time where we were heading.
The answer was twofold – new mechanisms for global dialogue, in particular the G20 and the mother of all stimulus programmes in virtually all countries with China in the lead. The result is that the most serious challenge has gone. The world economy is reviving in some sort of way. Partly as a result of the measures that were taken, however, we are now dealing with a deficit crisis that is most immediately centred on southern Europe, but is also causing many to take a look at more solid economies such as the United Kingdom and the United States. It is a difficult situation without doubt, but let us remember that we are all alive and no one any longer is discussing the end of the age of globalisation. The most significant thing with the profound crisis of the last few years is thus not what happened, but what did not happen. The mega trend of globalisation has again demonstrated its profound resilience and few things are more important.
It is against this rather positive background that we are discussing the challenges ahead. A recent report by the ex commissioner Mario Monti discussing the future of the European single market notes that we are now in a period of market and integration fatigue. It goes on to say we will need profound political will and leadership in Europe and in the world to drive the necessary issues forward. I believe that is correct, but I also believe we are at the beginning of a political process to shape a more sustainable process of globalisation for the decades ahead. It will take time and it is bound to have its ups and downs, but I believe logic will carry it forward.
The public deficit crisis in a number of European countries will force them to face the even more serious reform deficit that has been growing. A good crisis can also be a good opportunity. Part of the Nordic world built up a profound reform deficit through the 1970s and the 1980s following a good period in the 1950s and 1960s. When the crisis hit us in the early 1990s I was ordered not only to tackle the budget deficit, but also the reform deficit. The result of what was done at that time is now there to be seen. The top of Europe is now virtually the top of the world in every one of the indices of globalisation, network readiness and competitiveness published in the last few years.
What we did can be done by others. The peoples of the Baltic world are not genetically superior to the peoples of the Mediterranean world or the Anglo Saxon countries. My working assumption is the new crisis will lead to a wave of structural reforms in European economies in the coming years. They were necessary before the crisis; the demographic challenge was known, but they are now obviously urgent. This, however, should be seen in a wider regional and global context as well. Europe is part of a global neighbourhood that faces major challenges in the decades ahead.
During the last two decades the European Union has transformed the future of approximately 100 million people in central Europe. These 10 countries have been transformed virtually beyond recognition. The largest, Poland has performed very well even during the recent difficult period, but the task of transforming our part of the world is by no means complete. There are a further 100 million knocking on our door including Turkey and we have an obvious interest in their stability and prosperity, but it should also be clear that we, the European Union of today, would benefit from the demographic dynamism and economic growth potential that primarily Turkey represents. The economic reforms undertaken in that country since it joined the customs union of the European Union have been profound and we see the results in the impressive figures today.
The modernisation and European integration of the roughly 60 million people of our eastern partnership countries should hopefully give new strength, as well as the modernisation and integration of the 140 million people of Russia. On the southern shores of the Mediterranean and beyond the borders of Turkey we see countries where modernisation and reform challenges are even more acute. These countries will add a further 600 million people to their population within the next two decades. They will have to open up their societies and economies in a far more fundamental way in order not to betray the aspirations of these hundreds of millions of individuals with the profound political consequences that would have. The Iranian model has failed and faded. It was finally beaten to death in the streets of Tehran last year. The Turkish model of reform and European aspirations have certainly gained in attractiveness.
The way we Europeans handle or own economies, the integration of the immediate parts of our aspiring neighbourhood and the modernisation and liberalisation of our wider environment will be of profound global significance. These are moderately large areas with significant economic growth potential for the future, but they are also areas of potential for significant political conflict, if things do not go the right way. Our attention beyond this must be to increase the focus on what soon will be a billion people in the 47 countries south of the Sahara and the new south. Asia is returning to its rightful position in the global economy, a position it has had throughout recorded history with the exception of the last two centuries.
In a couple of decades we will see 90% of the global middle class, perhaps 1.5 billion people living in the new south stretching from Shanghai to Sao Paolo. We will also see the emergence of new mega cities posing profoundly new political challenges. In the same timeframe we might see another 1.5 billion people living in urban jungles, where necessities such as water and public order might be in short supply. It should be obvious to us all that we need to reinforce the institutions and practices of what is loosely described as global governance to safeguard the sustainability of the process of globalisation and discuss how to face all the new challenges that can only be faced together.
The Doha Development Round and the Copenhagen difficulties have well illustrated we are no longer living in a world where things can simply be dictated by the Atlantic powers. We need to look at reforming the United Nations. Clearly its key political body, the Security Council, is not representative of the world today, let alone the world of tomorrow.
I believe we also need to look at reforming the G20 group that will be and should be of increasing importance. Its composition is somewhat arbitrary. The Nordic and the Baltic world, including Poland is today the eighth largest economy in the world. We do have a track record of economic policy and contributions to global development in different respects that stand comparison with Argentina, a G20 member. I believe the G20 should develop in the direction of a global economic council side by side with the Security Council. I think there are solid reasons for taking the development in that direction. Its membership should be based on constituency representatives in the same way as we have it in the international financial institutions. Otherwise I see a risk of it gradually losing its legitimacy. South Africa might not automatically always be seen as a representative of all of Africa south of the Sahara. Saudi Arabia similarly might not always be seen as a representative of the entire Arab world. In such an arrangement it would also make sense to streamline further the European representation, which today in all honesty is excessive. The Lisbon Treaty was supposed to make things easier in this respect.
These are some of the issues that we are likely to change. The process of globalisation goes on; it was not interrupted in any significant way by the very profound crisis of last year. The debt and deficit crisis will have to be dealt with, but we must deal with the reform deficit as strongly as we deal with the deficit in terms of public money. In Europe we must continue the process of integrating our economies, taking responsibility for our neighbourhood and reaching out in order to facilitate the modernisation, reform and liberalisation processes in a far wider neighbourhood in which we have an historical role and an economic responsibility.
Bahrain is the natural place to discuss all of these increasingly important issues, between the east and the west, the north and the south, with trading traditions stretching back thousands of years. I look forward to coming back here again as we take the dialogue on these important issues forward.
