EAST & WEST
The Challenges of European Integration

By MILAN PANIC
Former Prime Minister of
The Federal Republic of Yugoslavia
And
Chairman & CEO
Of ICN Pharmaceuticals, Inc.

Remarks to the Center for European Policy Studies

BRUSSELS, BELGIUM
SEPTEMBER 19, 2001

Thank you for inviting me to speak today. It is truly an honor to be here in Europe’s capital. As someone whose business spans six continents, I know there is not more exciting and dynamic part of the world – politically, economically, and culturally – than Europe. And there is no institution doing a better job of analyzing, explaining, and setting out a future path for Europe than the Center for European Policy Studies.

As you know, I have lived in the United States for more than 40 years. I was born a European, and am proud of it, but I am also proud to be an American citizen, and forever indebted to my country for giving me the opportunity to build a major global company from practically nothing.
I have never been more proud of my country than over the last eight days, as we have responded to a horrible mass murder that defies belief. We are grateful for the swift and certain expression of solidarity from Europe. No terrorist can destroy the sprit, the freedom, or the economic strength of the United States, or the unity of our alliance.
I would like to talk today about the future of Europe. As I said, I am proud of my country, and last week’s horrible even notwithstanding, the 21st century in many ways holds even greater promise for Europe. You have embarked on an extraordinary and historic adventure. Uniting many free states into what will become an ever stronger and more powerful political and economic alliance, and doing so not through the military might of one power but though the power of an idea – this is an extraordinary tribute not only to those whose vision has brought it about but to the fundamental ideas of democracy and free markets.

Today, I want to talk about the importance of extending that idea Eastward, not only to those countries that seem to have the easiest path in front of them to EU membership but to some of those with the toughest path, the nations that emerged from the former Yugoslavia. I will argue that, to prevent ethnic bloodshed and ensure the long-term stability of the Balkans and the continent, Europe must show that it is prepared to move quickly – more quickly than some would prefer – to bring those countries into the community. And today, that stability is more important ever.
The EU has become and economic force that challenges that of the United States. It already has an annual GDP nearly equal to that of the U.S., and, unlike the U.S., it has a number of additional states yet to add to its total. The U.S. does not have that luxury. Of course, for all of my country’s diversity, it does not face the challenge of integrating economies that, if not centuries apart, are at least decades apart in their sophistication and maturity.
For all it has already accomplished and as difficult as it has been, and will be, to accommodate the distinct political, economic, and social needs of its various states, the toughest challenges – and perhaps greatest opportunities – lie ahead.

For 45 years of cold war, Europe was not one continent but two, divided symbolically most of that time by a wall, but in reality by stark political, military, cultural, and economic differences. Democracy and market economics ultimately proved to be strong and sustainable, while dictator ship based on command economies failed. But victory for the West was short-lived, because the enemy became a dependent.

And yet Western Europe could not turn its back. Soon after the fall of the Berlin Wall, the EU began mapping plans for the restoration of Central and Eastern Europe and its eventual integration. However, that has been a difficult road, a road that will continue to be strewn with potholes, fallen tree limbs, and the occasional boulder that cannot be moved but must be driven around. Still the road must be traveled, because it is one that leads in the long run to peace, stability, and greater prosperity.

Unlike Europe, the United States has always had an isolationist streak, ever since our first immigrants decided to rid themselves of Europe’s problems. Since the beginning, some Americans have been under the illusion that the troubles of the rest of the world could be kept away from us because we are separated from the world by two great oceans. Our history has taught us the folly of isolationism. Some of our leaders seem never to learn, but I believe most in our country have taken the right lesson from the horror of September 11th.

Here in Europe, you have always known you could not afford the luxury of isolation. Instability and conflict in one part of Europe can have an immediate impact throughout the continent. Economic and diplomatic policies and actions must always reflect the interrelated destinies of all of your neighbors, both close and distant.

That is why I so strongly support the EU’s efforts to integrate the former Soviet bloc countries. Ultimately,, it is continuing economic progress that will bind them to a stable, democratic way of life based on market economies. And when they are so bound, Western Europe will be better off for it.

ICN owns companies in three Central European countries that are now candidates for EU membership – Poland, Hungary and the Czech Republic. They hope to enter in 2004 or 2005. As a businessman, it is obviously important to me that they meet that timetable, and I am pleased that they and eight other Central and East European countries are candidates for EU membership. They re negotiating the process a t varying speeds, and I join them in hoping for expeditious treatment.

While negotiations are going smoothly, we know that the most difficult issues have been postponed. The will have to be resolved in the future. It is very important that the parochial interests of current member nations not stand in the way of success. Whether the issue is agricultural subsidies or subsides for those countries at the lower rungs of the economic ladder, it is important that Europe not lose sight of the larger goal.

On their current schedules, none of these countries is threatened with serious public disorder or conflict, and they are in no danger of political collapse or ethnic conflict if they remain on their present courses.
Unfortunately, for a number of countries not yet on the EU’s candidate list, we cannot be so certain of their short-term stability.

Among them are four of the countries of the former Yugoslavia – Croatia, Bosnia, Macedonia, and of course, the Federal Republic of Yugoslavia. All are new democracies, and all are trying to gain their footing under very difficult circumstances.

We need only read the morning headlines most days to see the evidence of problems In May, Croatian and Serbian nationalists organized demonstrations in Bosnia that turned violent. Albanian terrorists have provoked armed ethnic conflict in Southern Serbia and Macedonia, resulting in numerous casualties and leading to a new NATO force in Macedonia that may eventually turn into a long-term commitment. For now, these situations are relatively under control. But they are a wake-up call reminding us that in the Balkans, peace and the quest for stability that can be sustained are very fragile.

For the past ten years, as Prime Minister of Yugoslavia and then as a businessman and as an adviser to the then-Yugoslav opposition and the United States government, I have stressed that regional economic development is the key to peace and stability in the Balkans. Now, after ten years of tragic conflict and the destructive ultra-nationalist policies of Milosevic and Tudjman, Croatia and Serbia have thrown out their corrupt leadership and elected new democratic governments. The entire area is finally moving in the right direction, toward true democracy, free market economies, and the rule of law. We cannot permit this hopeful movement to falter. But danger lurks in the background, poised to emerge if significant economic progress fails to materialize fast enough.
Poland, Hungary, the Czech Republic – these are the relatively easy cases. The Balkans – that is where we find harder cases. But they are not impossible.

We in the West have twice failed to recognize the potential for disaster in Yugoslavia and have paid a heavy price for our reluctance to take resolute steps. We let matters get tragically and disastrously out of control in 1991, when we acted too quickly to recognize the independence of Slovenia and Croatia. When we did that, we gave up any leverage we might have had resolve the political issues. We celebrated their independence, not recognizing we were helping to lay the groundwork for ethnic conflict and economic deterioration.

We had a second chance to slow down the destabilization process and end the fighting in 1992, when I served as Yugoslav prime minister and challenged Milosevic for the Presidency. A number of analysts, in books and articles written since that time, have called that time a lost opportunity. They have said that recognition and support for my election by the United States and Europe could have saved tens of thousands of lives at a cost far less than the military solutions that later became necessary.

They have said this not because they think I was another Churchill or Roosevelt – not that I would have argues with such a conclusion – but because I was in a better position than any other political leader to represent and carry out the majority’s clear opposition to Milosevic and his cronies, their opportunism, and their destructive ultra-nationalism.
We now have a third chance. And if I may be permitted, and American baseball metaphor comes to mind: three strikes and you’re out. At this point in the game, we cannot afford to strike out.

In recognition of this, Europe and the United States created and are funding the Stability Pact for Southeastern Europe to stimulate regional economic development. This is a positive development, but the stability Pact alone cannot deliver enough, fast enough, to have the desired effect and head off future ethnic conflicts.
In May and again during he past two days, I participated in conferences in Belgrade designed to stimulate foreign investment in the newly democratic Yugoslavia. At these conferences, there were a number of excellent presentations by the impressive young economic ministers of the new Serbian government. They projected bold and imaginative policies and programs. I found their ideas attractive and realistic. But they are realistic only if the Yugoslav and Serbian governments create an attractive atmosphere for foreign investors.

I say “foreign investors” because there is no domestic investment capital of any significance in Yugoslavia. The Serbian government’s economic team recognizes this and acknowledges that its policies must be directed toward attracting foreign investors. In my view, that attractive image must include a believable vision of EU membership as soon as possible. There is a lot that Serbia must do to fulfill that image, such as establishing the rule of law and ensuring that private property is sacrosanct. The case of ICN’s own business in Yugoslavia, which was taken over by Milosevic and has still not been returned to its rightful owner by the new government, is a good example of the work that needs to be done.

But Europe must also help create that attractive image for investors. Finance Minister Dr. Bozidar Djelic has spoken of EU membership by the end of the decade. He may be realistic under current timetables, but I don’t believe that is soon enough.

A recent IMF World Economic Outlook urged the EU to clarify the terms and conditions of entry and to establish a more credible and certain timetable. The report noted that the inflow of investment to East European countries “ to some degree may be based on timely accession.”

While it seems to be accepted by Europe that the major institutions that form the basis for Europe’s strength must be open to all of the nations of the former Yugoslavia, the question is timing. Everybody agrees that it is critical to the future security of Europe to avoid new ethnic conflict in the Balkans. The real question is how much Europe is willing to pay for this security. As we have seen in Bosnia and Kosovo, the cost of conflict is infinitely greater, in both human and monetary terms, than firm measures to head off conflict.

In the 1970’s and 80’s, Europe was faced with the dilemma of Greece and then Spain and Portugal. There was a combination of problems that made EU admission extremely difficult if not seemingly impossible. There economies were not nearly as advance as the existing EU countries, and there were specific sectors, such as agriculture, whose particular circumstance could have caused very serious problems for member countries.

All three countries were undergoing enormous political change – in the right direction. Military rule had given way to democracy. But there could be no certainty of permanent change. It was believed at that time, like today, that the hope and then the reality of EU membership would provide the incentive for economic growth and stability to ensure that these countries did not revert back to non-democratic rule.

And so, ways were found to bridge the gap between where these countries were economically and where they needed to be for admission. Changes in tariffs, in agricultural policies, in immigration policies, and in other area were made gradually, to provide time for adjustment by both old and new member countries. Even today, these three countries have not caught up economically. But they are productive members, and they are politically stable democracies. And who can measure the economic and other benefits of that?

Today, we face comparable circumstances in the Balkans– new democracies, weak economies, and the potential for reverting to old ways. Once again, Europe faces and enormous challenge combined with enormous opportunity, the chance to help lock in democracy and political stability for millions of people who have suffered for far too long. The chance to secure a united, democratic Europe for the 21st century, at peace and economically prosperous.

I call upon Europe to establish and maintain a vision of full political and economic integration into Europe for all of the countries of the Balkans. It will not be easy. Just as leaders found creative ways to admit new members in the 1980’s, we need a new burst of creativity and commitment to determine how these new members can be admitted.

But I do not believe we can wait ten years, as Serbia’s new leaders may think they must settle for. I believe we need to establish a fast-track process, with requirement reduced to the absolute essentials for EU membership.

In its desire to encourage the movement toward democracy in Greece, Spain, and Portugal, the EU moved swiftly and resolutely. The EU needs to do no less now to keep the Balkans headed in the right direction, and to make it clear that it will not tolerate any militant ethnic interference with this process. In a world where political, ethnic, and religious extremists have done so much damage, those who believe in democracy, economic freedom, and the rights of the individual must united to protect and advance the quality of life for all our citizens.

The EU is already engaged in the very difficult process of integrating what I have called the “easy” cases, the former Communist bloc countries that are farthest along the road toward establishing strong market economies, as well as secure democracies. Undoubtedly compromises will be made and the process will be very gradual, as it was, in many ways, for Greece, Spain, and Portugal. But the EU cannot allow this to divert attention from the bigger potential problem in their back yard – the Balkans. The right combination of timetable, exceptions, and other measures must be found to put the republics of the former Yugoslavia on a fast track.

The leaders of the EU have a great vision – a 21st century Europe at peace and united, democratic, and economically strong. That vision will not automatically become a reality. It will take hard work very difficult choices, and a few careful gambles. But if they persevere, then just as the 20th Century was the American century, the 21st Century can truly be the European Century. And the world will be a safer, stronger, and more secure place for it.

Thank you.

Response to Mr. Milan Panic by
Nicholas Whyte
Research Fellow
Center for European Policy Studies (CEPS)

It would be inappropriate not to join in the general outpouring of sympathy after last Tuesday. My cousin works for Morgan Stanley and my family had an anxious couple of days before word came through that she was all right; an old college friend who work on Wall Street turned up at the weekend, stuck this side of the Atlantic because of the flight ban. Now we see European ministers increasing measures against terrorism, and a special European summit on Friday to address the issue. It’s also good to see that the U.S. is intent on building a broad international coalition to deal with this awful threat, and that Europe is actively participating. This week we have seen President Bush and his team work to defuse the Israeli escalation of its war with Palestine, so that there seems now a realistic possibility of peace in the Middle East. Even Iran, of all countries, ahs allied with the United States at this moment.

Sadly, we Europeans are no strangers to scenes of horror and the suffering of innocent civilians, and the people of the Balkans least of all. You were the first leader in Yugoslavia to openly condemn Milosevic’s repression in Kosovo. When you stood against him in the 1992 presidential election, the official results gave you 34% to Milosevic’s 56%. Milosevic’s winning margin came entirely from votes stolen in Kosovo. His fraudulent victory meant another seven years of conflict. Had Milosevic been removed from power at that stage, there would have been a far quicker exit from the conflict; there would have been no massacre of thousands at Srebrenica, no expulsion of hundreds of thousands of Serbs from the Krajina, no NATO campaign on Kosovo.

However, your speech today rightly looks at the future, not the past. At CEPS, as you know, we have been arguing strongly for precisely the sort of European strategy that you describe. And I think there are positive signs here. Sometimes the process reminds me of my old Skoda – the car of which it is said that to double the value, you fill the petrol tank.

The European petrol tank has been filled. There is a much more focused delivery of policies now, thanks to the existence of Mr. Solana and the vigour of Mr. Patten. There have been some tangible policy successes, particularly in the area of trade relations. The present policy, of offering to each country a Stabilization and Association Agreement before embarking on membership negotiations, is perhaps halfway to meeting the ambitions that you and CEPS share for the region. However, I’d just like to briefly mention two points which I think Europe will have to address.

First is the future of the country of which you were Prime Minister. It’s quite obvious that Serbia, Montenegro and Kosovo are approaching the EU along different if parallel tracks. The current policy requires that there be a single agreement for the entire Federal Republic of Yugoslavia. But it is rather unlikely that Serbia, Montenegro and Kosovo will all three be equally ready for the signing of a Stabilization and Association Agreement at the same time. Perhaps Belgrade, Podgorica and Pristina will sort out their mutual constitutional status before that stage is reached. But I think the EU should be prepared for the most likely outcome, which is that they do not.

My second point. As you have pointed out, the time horizon currently foreseen for full EU membership of the Balkan states if very distant, so distant that there is a risk of the process bringing instability rather than stability. However, I think those who argue that full membership for each state will have to wait until they are ready to carry the burdens as well as to receive the benefits of membership do have a point. The consequence is that we have to consider some form of partial membership of the EU, as a stepping stone to full membership of the EU, as a stepping stone to full membership, to reward those who have made a good start on the road to reform but who have not yet reached the finishing line. This could include participation in the Euro, in the customs union – which already includes Turkey– as well as involvement in the European security system, both military and policing. I would also argue for countries in partial membership to elect non-voting members of the European Parliament and have the right of employment in European institutions. We at CEPS will be working on these concepts over the next few months, not only for the Balkan states but also for Turkey, for Norway and for other countries which are not ready, or do not want, to take on the burdens of full EU membership.

The other joke about the Skoda is this: why does the Skoda have heating in the rear window? The answer: to keep your hands warm while you are pushing it. There are a lot of hands pushing the European policy on the Balkans at the moment, and I think we will get there in the end.