A DECADE AGO, I gave a speech, "The Problems of Liberty in a Newly-Born Democracy and Market Economy." At that time, we were only 10 years after the fall of communism, and the topic was relevant. It is different now. Not only is communism over, our radical transition from communism to a free society is over, too. We face different challenges and see new dangers on the horizon. So, let me say a few words about the continent of Europe today.
You may like the old Europe--full of history, culture, decadence, and fading beauty--and I do as well, but the political, social, and economic developments here bother me. I am neither a visitor to Europe nor an uninvolved observer of it. I live here, and I do not see any reason to describe the current situation in a propagandistic way, using rosy colors or glasses. Many of us in Europe are aware of the fact that it faces a serious problem, which is not a short- or medium-term business cycle-like phenomenon, nor is it a consequence of the recent financial and economic crisis, which only made it more visible. As an economist, I would call it a structural problem, which will not, by itself, wither away. We will not simply outgrow it, as some hope or believe.
It used to look quite different here. The question is: when did things start to change? The post-World War II reconstruction of Europe was a success because the war eliminated, or at least weakened, all kinds of special-interest coalitions and pressure groups. In the following decades, Europe was growing, peaceful, stable, and relevant. Why is Europe less successful and relevant today?
I see it basically as a result of two interrelated phenomena--the European integration process on the one hand, and the evolution of the European economic and social system on the other-both of which have been undergoing a fundamental change in the context of the "brave new world" of our permissive, antimarket, redistributive society, a society that has forgotten the ideas on which the greatness of Europe was built.
I will start with the fast issue, because I repeatedly see that people on other continents do not have a proper understanding of the European integration process--of its effects and consequences. This partly is because they do not care, which is quite rational, and partly because they accept a priori the idea that a regional integration is---regardless of its form, style, methods, and ambitions---an exclusively positive, progressive, and politically correct project. They also very often accept the conventional wisdom that the weakening of nation-states and the strengthening of supranational institutions is a movement in the right direction. I know there are many opponents of such a view in the U.S., but it has many supporters as well.
A positive evaluation of developments in Europe over the past 50 years can be explained only as an underestimation of what has been going on recently. In the 1950s, the leading idea behind the European integration was to liberalize, to open up, to remove all kinds of barriers that existed at the borders of individual countries, to enable the free movement of goods, services, people, and ideas across the European continent. This indisputably was a step forward, and it helped Europe significantly.
However, European integration took a different course during the 1980s, and the decisive breakthrough came with the Maastricht Treaty in December 1991. Political interests that sought to unify and create a new superpower out of Europe started to dominate. Integration had turned into unification, and liberalization into centralization of decisionmaking, the harmonization of rules and legislation, the strengthening of European institutions at the expense of institutions in the member states, and what even can be called pest-democracy. Since then, Europe's constituting elements---the states--consistently and systematically have been undermined. It was forgotten that states are the only institutions where real democracy is possible. …