Europe as a geographical entity and Europe as a concept

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Rector, guests, teaching staff and students,  

Thank you for your invitation. It is always stimulating to come to the Norwegian School of Economics and Business Administration (NHH). Last time I came to give a guest lecture, I left full of inspiration after stimulating discussions and meetings with various experts, who shared their insights into the market economy and society.

Both the economy and society. For they are inextricably linked, and I am glad that such a broad perspective is presented at NHH.

I feel I really have to be on my toes when I come here. For I have read – in a newspaper from this part of Norway – that a substantial number of actors with power and responsibility in the private sector come from this school. In other words, many of those who will be wielding power in tomorrow’s markets are sitting in this room.

We also know that some of you will go even further – right up to the Ministry of Foreign Affairs. We now have 80 economists on our staff, most of them from NHH, and I have to say that they are making themselves very useful. As for me, I have no ties to the school other than having attended a number of student parties – with varying degrees of success – many years back in the previous century.

Congratulations on your 75th anniversary. You have every reason to celebrate this – as an institution, and as students, teachers and administrative staff.

I also note your willingness to make a difference for others, for example through the NHH Aid collection for schools in Malawi this week. The NHH Aid initiative – which started in 1985 – commands respect, and supports an important cause. Equally important, it shows that you are willing to take responsibility for others. This is an important dynamic that I hope you will retain when important jobs full of responsibility beckon.

Because, again, remember this: the economy and society – at both national and international level – are inextricably linked. Human resources develop not just in relation to markets, but also in relation to complex, multifaceted societies. It is the quality of a society that determines what can be achieved in the markets.

Thank you – again – for your invitation to give this year’s Lehmkuhl lecture. Preparing this lecture, while travelling up and down the country in connection with the election campaign, has been a stimulating task. Kristofer Diedrich Lehmkuhl would have understood the many different demands that a politician must address. For he played a key role in the birth of the modern, independent Norway, both as member of the Storting (1904–1906) and as Minister of Labour in Christian Michelsen’s first Government in 1905.

Major issues were being settled at that time, and those who took part are still remembered. Among them is Lehmkuhl, the “father of the university college”, who has had both a sailing ship and a guest lecture named after him. In 1906 he was awarded the “7 June” medal, with the following inscription: “Hafrsfjord 872. Eidsvold 1814. Kristiania 1905”, “Norway’s independence achieved”. No less!

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My lecture today is about one of the most important issues for Norway – Europe, and developments there in terms of both economics and society. I have given it the title “Europe as a geographical entity and Europe as a concept” and the underlying question is this: Europe is being tested. How sustainable is Europe as a geographical entity and as a concept? In a way, I will pick up from where I left off in my lecture last year – on the consequences of the financial crisis for foreign policy, shifts in the global power structure, and how “new” powers, particularly in Asia, are stepping into the international arena, where it is no longer enough for the US and Europe to settle things between themselves for everyone to agree.

And I will talk about Europe’s prospects for addressing the financial crisis that continues to roll on. For this is how I see it: the financial crisis and the banking crisis started in the US (yes, it is exactly three years since the collapse of Lehman Brothers) and had huge spillover effects in and for Europe. It started there in 2008, but it keeps turning; like a wheel it goes round once, and then again, each time bringing a new phase. The financial crisis turned into an economic crisis, and in many cases into a social crisis, and – in some countries – into a political crisis. Once a wheel has turned once, it tends to keep on turning.

This is affecting individual countries, it is affecting Europe, it is affecting the EU, and it is affecting the US. But my main focus today is Europe. The present crisis is hitting at the heart of the political institutions, the foundation – the very backbone – of both individual states and the union as a whole.

Indeed, it is hitting both the economy and society. And it is hitting many forms of capital: financial capital, real capital, human capital and social capital.

***

In 2008, states were prepared to rescue banks. Banks were salvaged then, but they are still at risk. Now states are finding themselves in a worse state of affairs – more and more of them are affected. Who will rescue them? And once states are at risk, we have to take a look at the institutions – how they are organised, how they are geared to address the crisis.

Today European cooperation – in its full breadth and depth – is being challenged, and again the constantly recurring question arises: What is Europe? What is Europe as a concept? What binds Europeans together? And where do we draw its borders? Europe as a geographical entity with its different cultures, and its 500 million inhabitants.

Europeans have been asking these questions for a long time. In my view, Europe is characterised by the ability to ask questions, and to respect the fact that there may be more than one answer. Europe represents a democratic approach to our time, values such as transparency, equality and tolerance – values that we cannot take for granted. Particularly not at the present time, in the situation Europe is in right now.

Europe is still rich. We are still seeing strong growth and significant value creation. It is still true that that the links between the economy and society mean that democracy can bring about the changes needed today.

But at the same time we are seeing – brought to light and exacerbated by the crisis – greater vulnerability, signs of social marginalisation, increased poverty, protests and political paralysis. And – we might add – in some parts of Europe, we are seeing ethnic conflicts, religious dividing lines, social tensions, and rising crime rates.

What is this doing to Europe?

Over the last few months I have felt what I can only describe as a sense of unease. I wrote about this in my regular column in Bergens Tidende this summer, in an issue published on 21 July – of all days. My point was this:

When I read about the major events of history, I often wonder what people were thinking just before these events happened. In the early summer of 1914, leading political figures could see no clouds on the political horizon. A few weeks later, World War I had broken out. In the late summer of 2008, Icelandic banking authorities expressed full confidence in the country’s banking system. A few weeks later, the whole system collapsed.

The reason for my unease is that we tend not to even realise that something is about to happen right before it does. On 21 July, we could not imagine the terrible events that would unfold the following the day. How could we? On 21 July, I spent most of the day on the island of Utøya, a day when Utøya was everything a political camp for young people should be: political discussions, songs, sports and fun. Then tragedy struck.

A feeling of unease is not the same as pessimism. I am not pessimistic about Europe. For Europe has the world’s best possible starting point. One aspect of this is its willingness to engage in open, critical debate about what is going on and how we can deal with it.

My unease is due to the feeling that what we are seeing in Europe is more than just a financial crisis, it is something that is shaking the very foundations of our continent, threatening established power structures, something that may even undermine important building blocks of democracy. It is the possibility of economics being wrenched away from politics, of regional economies taking a different direction from the global economy. 

***

Against this backdrop, I would like to reflect on four key questions:

Firstly, does Europe have what is needed – the economic and institutional fundamentals – to get through this crisis?

Secondly, and this is related to the first question, does Europe – and here I am mainly referring to the EU – have a strong enough democratic basis? Is the crisis threatening the balance between economic demands and society as a whole?

Thirdly, how is this crisis colouring our views of the state, the community and the market?

And fourthly, how is the crisis affecting the impact Europe has at the global level?

***

Starting with the first question: Does Europe have what is needed to get through the crisis? Is its foundation sturdy enough?

It is nothing new for European banks to be under pressure. What is new is that government finances are at risk in several countries. There is no blueprint for getting out of the trap many countries now find themselves in – heavy debt combined with a large deficit.

Ola Storeng, economic editor in Aftenposten, recently suggested that the best advice is to avoid getting into this situation in the first place. Many Europeans today do not have that choice – they are already in the trap. What is special about Norway is that it is not.

One of the most important things we must take on board – all of us in Norway that is, the government and the business sector alike – is the fact that we are the odd man out in Europe today, with our low unemployment rate, our budget surplus and our freedom from debt.

For, at present, we are a prosperous nation in both political and economic terms. But we should keep in mind that you have to be strong to weather good times as well. Our situation makes it imperative for us to keep our economy in order and ensure its long-term competitiveness. We must maintain a good balance between value creation and distribution. And we must respond appropriately to our colleagues and other Europeans who are facing far harder challenges than we are.

In my lecture here last year, I talked about shifts in the global power structure, from the West to the East and South. The economic crisis in the West has reinforced these shifts. Some take a more sober view, like Gordon Brown in his article in The New York Times in August. The European backdrop to the crisis is decreasing global competitiveness, an aging population, chronic unemployment and a falling share of world production.

In the OECD’s most recent assessment of 8 September, the growth prognoses for the G7 countries for the last half of 2011 – even when Japan is excluded – have been adjusted downwards to less than 1%. Statistics Norway (SSB) takes a similar view: “There are fewer and fewer bright spots in the international economy. Growth in the OECD countries is very weak (...). We expect the downturn to continue into 2014.” However, SSB is more optimistic about Norway’s situation.

Taking a global perspective, we are reminded that the picture changes according to your vantage point. At the start of the year, The Economist wrote that never before had so many people had such an optimistic view of the future. The magazine is right – as regards the majority of the world’s population. What is new is that this optimism is to be found far from the West. The optimists today live in the East – and increasingly in the South.

Several hundred million people are being lifted out of poverty as a result of economic growth in China, India, Brazil and other countries. For the first time in history, we can start to talk about a global middle class. New markets are opening up.

This shows that these developments also offer opportunities. We must not lose confidence in our ability to grasp opportunities. Neither must we lose sight of the advantages Europe already has: democracy, the rule of law, strong educational institutions, a culture of innovation, a highly educated population, a dynamic business sector and a diverse civil society – Europe as a concept.

And neither must we forget that crisis as a phenomenon – the feeling, experience of being in a crisis – has been a driving force for European integration and key decisions since the end of World War II. For the institutions established in Europe after the war were designed for this very purpose: to prevent and deal with crises. And they have on the whole been successful in this.

Today’s Europe was built up on the smouldering remains left behind after the war. Through sheer hard work, Europeans too lifted huge numbers of people out of poverty. The challenge for the EU is to develop its binding cooperation in a way that engages a whole new generation in a common project.

***

The question is whether the financial crisis is just another bump in the road or something more fundamental. Is it true that European integration is always strengthened by a crisis? Or has this one hit something deeper in a way that could divide us?

We see something of Europe’s strength in the political response to the crisis: heads of state and government finally making the compromises needed in the early hours of the morning, though perhaps not as decisively or as promptly as they should have done. We also see differences in national interests being thrashed out and a willingness to cooperate through the institutions and mechanisms available.

From our short-sighted contemporary perspective, we fail to see what a fundamental shift this is, seen from a historical perspective. In the past, European states in crisis turned against each other. And amidst criticisms of the EU’s inability to take decisive action, no one – or at least very few – would like to see each European country with its own separate currency fighting this out against each other.

Europe is the region where the modern nation state came into being, and this has become the norm for the whole international system. So it is perhaps not surprising that it is here – in Europe – that the most robust systems for cooperation between countries were developed. Systems where individual states make compromises and relinquish some of their sovereignty in exchange for other advantages. For it is here that most states have ventured into something quite new – the creation of a political union.

But even if some of its decision-making powers have been lost – at the hands of globalisation and supranational political structures such as the EU – the nation state is still a vital framework for people’s lives. I am not saying this out of nostalgia, but as an observation. International organisations are vulnerable for the very reason that it is still at the national level that we raise our voices and express our discontent – for we continue to live our lives locally. It is at the national level that cuts must be made and wounds licked, as it were, while the international arenas get blamed for everything that isn’t working.

We often talk about countries “quarrelling” in the EU. I think we should be grateful for this ability to “quarrel”. While European institutions generally have a decision-making process based on a majority, in reality their dynamics favour consensus. There is a deeply ideological factor here – a recognition of the importance of working towards agreement.

I remember the EU membership negotiations of 1993–94, when I was a senior official in the Office of the Prime Minister working with the then Minister of Fisheries, Jan Henry T. Olsen from Troms in North Norway. These were his first international negotiations, and I recall him being calm, competent and collected in the midst of difficult discussions, where fish was one of the toughest issues. In one of the coffee breaks, I asked him, “How are you finding this, Jan Henry? It must be very different from what you are used to?” He leant back in his chair, and said, “No, it’s very like an AGM of the Norwegian Fishermen’s Association – huge disagreements and late nights, but the end we find a solution.”

And we did, but the Norwegian people voted against it – in 1994 just as in 1972.

***

In Europe today, the Central European countries are part of and take part in a network of institutions. This year, it is 50 years since the Berlin Wall was erected – over night – and nearly 22 years since it was torn down. Countries that used to be behind the Iron Curtain are now members of the EU and our partners in the EEA.

Take Estonia for example, which can pride itself on being one of the best integrated countries in Europe, the one that is involved in most cooperation mechanisms, and the 17th country to introduce the euro. That is impressive!

In just two decades – not even a whole generation – we have witnessed a peaceful upheaval without parallel in European history: a transition from a single-party system to democracy, from a planned economy to a market economy, from uniformity to a vibrant civil society, and a revival of the strongest elements of European cultural heritage.

The rediscovery of this part of Europe has told us a great deal about who we are – we who saw ourselves as part of so-called Western Europe – and about Europe as a concept.

But the way there – to Europe in 2011 – has been tough. There have been diversions and derailings, and political stability is still fragile in many countries. One of the reasons for this is that democracy takes time. It is not just a question of free elections; it also entails a particular political culture, dynamic organisations, a strong civil society, a free press and a well functioning legal system. Knowledge and competence.

Again – the right balance between the economy and society. These will continue to be important challenges in the future, and Norway is doing its part, for example through the EEA and Norway Grants – a large pot – which promote social stability and participation in this eastern region.

The outcome could have been different. Russia bemoaned loudly the departure of its former “vassal states” into European and Atlantic organisations. This was a loss for Moscow. But Russia could have experienced something far worse: a belt of unstable and unpredictable states to the west. We remember a similar situation just after the First World War. It did not turn out well. The situation today is far better.

And I will repeat something I have said before: the Nobel Peace Prize should be awarded to the EU, precisely for its enlargement process – the great peace project of our time.

***

So, let me underline this: integration within the framework of the EU has had a stabilising effect on the economy. The consistent implementation of the internal market has substantially increased the competitiveness of the member countries. This integration has set new standards for democracy throughout Europe.

We have never before seen a freer and more united Europe – economically, politically and culturally – than we see today. I consider this to be an important backdrop – a finely woven and colourful backdrop – to bear in mind when we ask whether Europe has what is needed, the “fundamentals”, to get through this crisis.

At the same time, there is a great deal at stake. In the increasingly intense debates of the 1990s on whether the EU should choose enlargement or deepening, those who wanted deepening were sceptical about enlargement. They could go so far as to accept the EFTA states, because they were already integrated, but a broader enlargement would thwart the vision of ever closer integration culminating in an inner core of countries that resembled one another politically. The idea was that, around this core, other countries could link up through a common market.

Then history ran its course. History is capricious and often surprising. The Berlin Wall came down. And the EU did the right thing: it invited the new democracies into the club. There was never really an alternative to enlargement. But first the question of deepening had to be cleared off the table.

In many ways, history has overtaken the European project. Few predicted the fall of the Berlin Wall. Few predicted that the Soviet Union would collapse at the time it did. Few European leaders were prepared for the political spin-off effects these events would have.

Again, it is often difficult to know, to predict, what is going to happen right until it actually does. It was difficult then. It is difficult now, and I ask you to bear this in mind – you whose minds are at work much of the time.

***

A good deal of the tension in Europe today has its origin in what I would call the conflicting pulls of deepening and enlargement.

The new member countries are now part of the union, subject to the same ground rules and the same institutional framework. The same rules apply for southeastern Romania and northwestern Scotland, far apart as they are in terms of geography, political culture and economic development.

Nevertheless this is a huge and historic step forward for Europe.

At the same time, we are seeing now – in this the crisis – how this institutional framework is being challenged. How it is creaking in its joints.

In the midst of an economic downturn, the EU needs to deal with what I would call three extensive “digestive processes”. The first is the enlargement. The second is the Lisbon Treaty and the new institutions, including the new foreign service. The third is the euro.

This adds up to an EU that is spending a good deal of time and energy on deepening. This is understandable. But it is also being felt by those who are on the outside, both countries like Norway that are closely linked to the EU, and the world at large, where the EU has become a more distant actor.

First to the euro cooperation, which is hitting the headlines these days – as well as the obituaries.

The EU developed a common currency that was to span from Hamburg to Thessaloniki. The problem was – and still is – that the EU clearly did not equip itself with all the tools needed to manage a common currency area such as this. The economic project took precedence over political factors. A currency was introduced without the necessary political framework. Many are quick to point out the lack of responsibility shown by certain countries in southern Europe. But the fact is that some of the major countries have failed to meet the requirements they had set themselves.

And you know this better than anyone: every society must have a currency. And it must be supported, for it must withstand both upturns and downturns. We are now following developments in Europe from one crisis package to another, from one crisis meeting to another. It is good that the crisis is being discussed in meetings. But focus is now on the political “fundamentals”, the question as to whether these countries and institutions are in a position to resolve the crisis they are clearly embroiled in.

Different advice is coming from different quarters. At the same time it is a paradox that the markets are exerting the greatest pressure on the euro countries, while there are other countries – outside the eurozone – where government debt is greater. The markets are punishing the euro countries particularly severely because of the uncertainty as to whether they have the will and the ability to reach a common understanding of the situation and make joint decisions. 

For many, the logical conclusion is that closer integration is needed in tandem with the necessary institutional improvements, that policies relating to the euro must follow the same path of integration as the policies surrounding the dollar, that a common finance policy is needed, that the European Central Bank must be given considerably broader powers, and that stronger central bodies are needed to monitor national budgets.

If this is the way to go, we know that the necessary decisions will take time, a great deal of time, longer than the markets can be expected to wait. Treaties must be approved by 27 countries; crisis packages must be approved by critical national parliaments. And what we are hearing from one EU country to another is not a call for more integration – rather the opposite.

Or to put it another way, the common interests are not sufficiently obvious. Or they are not being made sufficiently obvious. It is not clear which solution is the answer to which problem. And popular support for the EU is falling (as the Eurobarometer shows, it is down from 59% in 2007 to 50% in 2010).

To sum up: in terms of democracy – where Europe should be in the lead – it is difficult to chart the way forward, to find the right balance between national competence and joint competence. In the area of technocracy, and here I am thinking of the institutional aspect of the common currency, where Europe should also be in the lead, it is proving difficult to address obvious weaknesses.

These weaknesses are a serious problem. It will take time to correct them. The question is: How much time is left? And what would be consequences of a collapse? What would happen if a country was not granted a new loan? Or if another country was no longer able to pay the ever increasing interest rates? If one of the creditor countries was unable to persuade the private sector to bear part of the burden? If the credit rating of the banks in a creditor country was downgraded?

This is the reason for my unease.

We are in the interface between economics and society, and we can see the links between a modern economy and political institutions. The two must work in concert. In an unstable, turbulent, unbalanced world, they must work well together. This is not the case in Europe today.

Neither is it the case in the US. This summer, the country witnessed a political struggle that most considered damaging to the American economy and American politics. The political system in the US is based on the assumption that the political parties and the President will agree on the main principles when the situation demands this. That is not how American politics works in 2011.

As American professor Francis Fukuyama points out in his recent book on the history of political institutions, when a society fails to meet a serious budget problem with real institutional reform, it is tempting to resort to a broad range of short-term solutions that over time undermine these very institutions.

Professor Fukuyama had the US in mind. But could his observation apply to Europe as well?

***

This brings me to my next question, which is about confidence. Does the European cooperation project have sufficient democratic legitimacy, the ownership necessary to withstand adversity, to take new steps forward?

Europe is the cradle of democracy. The nation states that comprise it are based on market economies and parliamentary systems. The EU is made up of individual democracies, and none of them joined the Union in order to become less democratic. On the contrary, the EU’s vision is to develop a stronger democracy between countries in addition to that which exists within each country.

Nevertheless, we find today that there is growing tension between the debate within the member countries and the debate in Brussels. Communication between these democratic systems is getting out of kilter. Summits are held in Brussels, but the consequences of the financial crisis, the cuts in welfare systems and the austerity measures are implemented on home ground, where people live, in the nation state. The bills have to be paid at home.

We are reminded of the old American adage that “all politics is local”. There are major tensions here, and they are being made use of by forces that want less European cooperation, less European solidarity.

Let me underline this: the EU is a historic peace and welfare project that Europe still needs. Reversing European integration would be detrimental for everyone. The EU may be struggling to promote a vision for the future, but no one has a credible vision for the way back.

Still the point is this: it is in the rural areas, villages, towns and cities that people live their lives and can hold their leaders accountable. This is a question of fundamental democratic ownership. A popularly elected European Parliament on its own cannot secure the same sense of ownership.

Europe can look back on some good years. As a welfare project, the EU has delivered – particularly in countries like Greece, Portugal and Spain. Here, the EU has been seen to represent democracy and modernisation. But now there are problems. The EU is no longer the bearer of good tidings. Welfare is coming under pressure, and democracy may be taken for granted by a younger generation that hasn’t experienced dictatorship or the Cold War. The sense of ownership of the European cooperation project may be put to the test.   

EU scepticism is no longer the preserve of the British. Ask people in Paris, Berlin, The Hague, Helsinki and other capitals. These attitudes are being reinforced not only by European leaders who can’t agree at European level but also by national leaders who are tempted to blame the EU for difficult times and to scorn the European project.

National politicians are tempted to do so because they are under pressure themselves. It is not just the EU that is struggling to win confidence; so too are the governments in the European countries that are facing the greatest problems. Governments in countries such as Greece, Spain, Ireland and Italy will have to implement painful cuts and reforms – without winning greater confidence in the financial markets in the short term. For the real questions at stake are whether Greece will get through the crisis, whether the Eurozone will stand firm, and the global prognosis for growth.

In this context, no one is taking to the streets to demand “more EU”. Those who are demonstrating – and there will be more of them as the social consequences of the crisis unfold in more countries – don’t feel they are represented by the EU or their national governments and parliaments. The result is considerable political uncertainty.

This is worrying at a time, and in a world, where people are rising up – as we saw in the Arab spring – in support of values that are a common denominator in Europe: human rights, the rule of law, development and welfare. At a time when the world could have done with clear European leadership, particularly in areas such as trade, international climate solutions, and efforts to promote peace and reconciliation outside Europe.

Now the debate has started on where the boundaries for collective responsibility and European solidarity go. We are seeing that national interests and viewpoints are coming to the fore. Leaders are playing the national card.

What will this stronger focus on the nation state mean? Will nation states seek to win back power from the EU institutions?

I believe it will rather mean a loss of confidence in both the nation state’s and the EU’s ability to provide welfare and a secure economic future. This is worrying. But I also believe that this crisis could mark the start of a new and necessary debate on what public and collective responsibility requires of us – in terms of value creation, solidarity and welfare.

***

This brings me on to my third question: How is the crisis colouring our view of the state, the community and the market in Europe?

I believe the crisis is going to lead to an ideological and ethical awakening in relation to other questions than those concerning the market. I think we are moving towards fundamental debates on the links between a global economy and modern society.

I also believe we will see a debate on the role of the state in individual countries – a state that must have the strength and the ability to ensure stability and, if necessary, launch rescue operations. Since the Thatcherismen of the 1980s, much of the political discourse has been disparaging about the state. It has been maintained that a state’s power must be limited so as not to restrict the freedom of it citizens. Hardly any political ideologies – my own included – have actively promoted the state in recent decades. Those who have spoken up for public responsibility for the common good have been on the defensive.

I think this will change. Paring down the state can make society vulnerable in the kinds of crises we are seeing today. We can expect cuts in welfare schemes, austerity measures and rising unemployment rates to primarily affect vulnerable groups such as young people and members of minorities, and those who have the least from before. This in itself is negative.

But there is another argument – which is being clearly reinforced by recent research – namely that this is also bad for the economy. Major differences, greater disparity, make the economy less robust, less able to adapt to change.

Budget consolidation is necessary. No political ideology can defend high debt levels and consistently large deficits. This is just as detrimental for a state as it is for an individual or a company. But political ideology can determine how cuts are made and how budgets are consolidated, what should be a public responsibility and what should be left to the individual.

We will see a more fundamental debate on what is needed for modern economies to function in the best possible way, on what part welfare, education, kindergartens and social inclusion policy play in a modern economy’s ability to adapt. And on what part they play for the key factor – human capital.

Some people on the political right welcome the cuts in public spending and the reductions in welfare services that are being introduced in certain European countries, because they believe that this will diminish the state, and that this will again be good for the economy. But they may find that the opposite is the case, namely that a strong economy depends on a strong state with healthy government finances.

This is also a question of democracy, giving people real opportunities for political engagement. Norway’s experience is that growth and distribution go hand in hand and together create another key condition for real democracy. For just as important as the balance between citizens’ duties and their rights – the social contract – is society’s ability to strike the right balance between value creation and distribution.

Everyone can see that we have to create value before we can distribute it. What is interesting is to see how important distribution is for our ability to create value.

***

American Robert Putnam and other well-known sociologists have identified confidence as a key factor for a society’s ability to function – economically, socially and politically. They refer to the fact that the Nordic countries enjoy the highest levels of confidence in the world; we are rich in terms of social capital. More recent research shows that confidence – trust – is also decisive for a society’s ability to adapt. And, as we know, a society’s ability to adapt is crucial in a modern economy.

But what happens to confidence and the ability to adapt – and the outlook of the younger generation – when unemployment among young people rises above 40% as in Spain, or 20% as in countries even closer to us?

What does that do to our confidence in institutions and politicians?

We could end up with a considerable number of young people in Europe who don’t have jobs – regardless of how good their exam results are or how hard they are willing to work – and who don’t have the same faith in the EU as a force for democracy and economic development as their parents had.

We could end up with a generation that is actually afraid of the future. What consequences could that have?

Another worrying effect of the crisis is that a populist far right movement has gained momentum in Europe. At times like these, it is all too easy to look for scapegoats – a role that is too often assigned to minorities.

We must meet this challenge with political discussion and public debate, with openness and respect for other people’s points of view, with discussions and debates in universities, colleges and schools. But we must also have the courage to counter generalisations and scaremongering based on disinformation and xenophobia.

This is a question of protecting fundamental European values: openness, tolerance and equality. With equality as a cornerstone, we must also acknowledge that all modern European societies are full of diversity. And that is our strength.

***

In my lecture here last year, I said that the economic crisis in Europe was reinforcing the global shifts in power. “The crisis has catapulted the world into its future,” wrote Martin Wolf in the Financial Times.

Policy areas that are traditionally promoted by Europe in international forums (and by us in Norway) – like the principles of the rule of law and human rights – are increasingly clashing with the interests of other powers. States that are enjoying economic growth have always converted their economic and technological power into political influence. This is what China, India, Brazil and Turkey are doing today – in different ways.

This brings me to my fourth question: How will Europe position itself in international forums in the future?

Will Europe maintain its position as a global source of inspiration and norms, demonstrating that welfare and security can be reconciled with democracy and openness?

Europe’s voice and engagement are absolutely decisive for finding good solutions to global challenges such as climate change, energy access, development and the fight against poverty. These are areas where Norway and the EU have interests and viewpoints in common. We are best served by an EU that succeeds, by Europe’s voice being heard.

I am concerned that the crisis is concentrating so much energy and decision-making on internal affairs that Europe will have less impact in the global arena. This is not in our interests.

As reflected in the Lisbon Treaty, the EU has the ambition to become a stronger global actor. It now has its own foreign service – the European External Action Service – which will make it easier to speak with one voice in its dealings with the rest of the world. This is an advantage from a Norwegian perspective. We are in close contact with the EEAS. We are well received when we have something to say. For example we are currently working closely with the EU on the Middle East question.

But the way forward will be challenging: enabling 27 member states – with different interests and different degrees of assertiveness – to chisel out a common foreign policy. The structure is there. The challenge is to fill it with a policy that is not just the lowest common denominator.

And what about the EU’s relations with its neighbouring countries? Will Europe include or exclude its neighbours?

Where do Europe’s political borders go? And what about its geographical limits?

This is a debated question, and it is an invigorating and important debate. And again, I would like to emphasise that debate and the exchange of views are a hallmark of Europe. There are those who think clear boundaries should be drawn, for example at the borders to Russia and Turkey. We – as a non-member – should not think we have the answers. For we are at a considerable distance from these debates in the EU.

But I see the enlarged EU more as concept than a geographical entity – to return to the title of my lecture. It was the EU’s political strength that made it possible to include countries in Central and Eastern Europe. A region where the EU could have a similar impact is the Balkans.

To the south, the Arab spring – now summer and soon autumn – is both a historic opportunity and a challenge for Europe and European cooperation. Democratic change must come from within and must have strong local ownership. Elections, the rule of law, civil society, human rights, gender equality, free trade unions and social dialogue – all these must be developed by the country itself in its own way, but Europe can provide support and assistance.

Why shouldn’t Tunisia and Egypt eventually be invited in? Not into the inner core, but into a closer relationship as part of the European framework? Like we are in Norway, through the EEA Agreement, which ensures us participation in the internal market on equal terms? Or what about letting them into the European human rights framework – including Council of Europe conventions?

Turkey is a key country. It has formal candidate status. But it has received a clear signal that there is no easy way into the EU. This is bringing about changes in the Turkish mindset and identity. We see Turkey becoming more aware of its regional role – a role that is not European, but due to its position between continents, balancing between Europe, the Caucasus, the Middle East and Central Asia.

Turkey is both full of self-confidence, and full of frustrations – to put it bluntly. It is experiencing growth and progress, and Turkish leaders are suggesting that, “The EU will soon be needing us more than we need the EU”. As a leading spokesman said, “The average age in Turkey is 28, in Germany it’s 45. So who has the best prospects for the future?”

Further north, the Balkans are home to Europe’s unresolved process of reconciliation. It is as though we are hearing the reverberations from the fall of the Berlin Wall, or the last bits of reconstruction work after the collapse of Yugoslavia and the wars of the 1990s. Slovenia is already a member of the EU. Croatia is on its way. More countries in this part of Europe are considering joining. This enlargement will be one of the EU project’s greatest tests.

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So finally, some reflections about Norway and Europe.

I am foreign minister of a country that is not a member of the EU, and where opinion polls show that there is still a majority against membership. But at the same time a country that is closely integrated into European cooperation because our closest allies are in Europe, our trading partners are in Europe, and more than 80% of our exports are to EU countries.

Is there any country that is more dependent on the EU due to exports, common rules and respect for these rules than we are?

We are certainly at the top of the league. And at the same time we see ourselves as doing very well outside the EU. And we are at present – in terms of figures. But life – even for a state – is not just about numbers. And my job is to ensure that Norway is not out of sight and out of mind in relation to Europe.  

Are there any new opportunities for Norway to engage politically in Europe in the present situation? This is something we must consider more closely. Norway’s expertise and experience are in demand in many areas – ranging from maritime policy, the Arctic, the High North, natural gas and fisheries, to the situation in Sudan, Afghanistan and the Middle East.

When we have something to offer, we are listened to. We constantly bear this in mind in our meetings and talks with European colleagues, both in and outside the EEA. Our challenge is to be relevant at all times.

So to the EEA Agreement. Not many political actors in Norway have declared their love for the EEA Agreement. As Jacques Delors put it in the 1980s, “No one falls in love with a market!”

But I still maintain that EEA Agreement is the cornerstone of our relationship with the EU. It gives us access to the very platform for stability in Europe today: common rules and enforcement of these rules. It means that students, researchers, employees in the private sector and others can travel, work, live and cooperate anywhere in Europe without any obstacles.

The Agreement has proved itself to be robust. It provides a good framework, but the main reason for its success is the political will under successive Norwegian governments to find practical solutions. This has been possible because a large political majority has considered the Agreement to generally be in Norway’s interests.

But will the EEA Agreement work equally well in the years to come?

Does it give Norwegian citizens, businesses and institutions the opportunities, framework conditions and predictability that we want – in a Europe that is undergoing rapid change?

This is what we must discuss. On the whole, we need to get better at discussing Europe, the EU and Norway without reducing the debate to a question of yes or no to Norwegian membership, although that too must be debated. Again, asking questions is a key element of an open democracy.

We must also take part in the great European debate, the development of European ideas. Twenty years ago, when the Berlin Wall fell and the US became the dominant world power, what we called the “Washington consensus” – privatisation, reducing the public sector, export-driven growth, etc. – was the standard prescription.

Today the playing field is broader. Developing countries are seeing China achieve a growth rate of around 8% year after year, as well as substantial growth in India, Brazil, Turkey and others. They are looking for models. What works? What generates growth and lifts people out of poverty?

And many are looking to the Nordic countries, which also represent a kind of model – one that was considered doomed to failure in the 1990s on the assumption that the public sector in these countries was too large, taxes too high and trade unions too strong. But those who looked closely at the figures gradually realised that the Nordic countries were doing better than others, with more people in work, healthier government finances, and greater innovation and ability to adapt. This year, one of the main themes at the World Economic Forum in Davos was the Nordic Model. Not as something to be avoided at all costs, but as a source of inspiration.

Expect more of this in the time to come: a quest for new ideas, conventional wisdom that is losing ground. Look for new lines of thought, new regimes for free capital flows, new rules for world trade. New approaches to preventing climate change. New ways of organising society.

Remember that just the day before an incident occurs, most people have no idea it is going to happen. No one could have predicted the May 1968 riots in Paris earlier that spring. Social tensions in many European cities today are greater than they were then.

The present is an exciting time. We must open our eyes and look to each side for new ideas and sources of inspiration. For new ideas enable a political system to breathe and develop. And, as I have emphasised today, society and the economy are inextricably linked.

You are privileged to be able to follow all this from the Norwegian School of Economics and Business Administration – a recognised centre for insight, overview and analysis. For although – or perhaps because – Norway is a prosperous nation in both economic and political terms, in a world where deficits are growing, we must be open to new ideas, promote new visions, and look for new opportunities.

Thank you.