Modern Liberalism

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Gaston E. Thorn
(Brussels, 28 May 1982)

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Born:	In Luxemburg on 3 September 1928.
Education:	Doctor of law (Montpellier, Lausanne and Paris).
1957-1969:	Town Councillor for Luxemburg.
1961-1963:	Alderman of Luxemburg.
Since 1959:	Member of Parliament.
1959-1969:	Member of the European Parliament; deputy chairman of the Liberal Group; Chairman of the Committee on Developing Countries.
1959-1961:	Secretary-General of the Democratic Party of Luxemburg.
1961-1980:	President of the Democratic Party.
1968-1874:	Minister for Foreign Affairs.
Since 1970:	President of the Liberal International.
1974-1979:	Prime Minister and Minister for Foreign Affairs.
1975-1976:	President of the 30th session of the General Assembly of the United Nations.
1976-1980:	President of the Federation of Liberal and Democratic Parties in the European Community.
1979-1980:	Deputy Prime Minister and Minister for Foreign and Economic Affairs.
Since 6 January 1981:	President of the Commission of the European Community.

Honorary doctorates from the universities of Aix (France), Louvain (Belgium), Miami and Texas Wesleyan College (United States) and London.

Awarded the Robert Schuman prize in 1977.

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Interview with Gaston Thorn

1. Economic Policy

Bolkestein: There is relatively little inflation and unemployment in Luxemburg. What is its secret?

Thorn: The rate of inflation is not exceptionally low. We import from West Germany, from Belgium and to a lesser degree from France. Our inflation rate is higher than in Germany, and similar to the Belgian and Dutch levels, so if one takes account of our suppliers it is not particularly low. Last year, in fact, there was quite a growth in the inflation rate, prompting the government to take anti-inflationary measures and to modify the indexation system. Belgium, Luxemburg and Italy have the most extensive systems of wage indexation. With systems like these, there is the danger of a spiral - a form of spontaneous combustion as it were, whereby the system itself generates the inflation. It is supposed to be seeking to compensate. These measures of adjustment, of course, met some opposition from the unions but they are nevertheless having some effect.

On unemployment, while it is true that we have the lowest rate in the EEC, one should guard against hasty conclusions. A major contributing factor to this situation has been a fall in population, not to mention that for many years we have had to import foreign labour - which, indeed, constitutes 25% of the population of Luxembourg. Not that we have repatriated foreign workers - indeed, last year the inflow was greater than before. Still, with such a large part of the workforce foreign in origin, there is undeniably a certain margin of security.

Bolkestein: French economic policy is much more accommodating than

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Germany's. Which approach do you prefer: the Keynesian or the neo-classical?

Thorn: I don't think that in political practice these economic concepts can usefully be pursued in their pure form. But if you ask for my opinion on the different tendencies in economic policies pursued in Member States I would say that personnally I feel greater sympathy for the policy followed by Germany, which has achieved good results. I am not a believer in the virtues of Keynesianism and certainly not in present circumstances, but with unemployment at present levels one cannot ask each country to follow the same policy. Germany is a highly industrialised and very competitive country. It is perhaps understandable that Germany should accept the laws of the market more readily than some of its other partners, as a means of boosting its industry and ensuring continued high performance levels. French economic structures are somewhat different, as indeed are its political structures. Each country is of course a prisoner of its own traditions and history and the nationalised sector in France has always been larger than elsewhere. That said, the French have also shown little hesitation about enlarging their public sector. At the same time, there are also certain nationalised industries, like the automobile industry, which operate on market principles.

What I regret, is that both in France and elsewhere there is a tendency to think that one can reactivate the economy by a simple injection of purchasing power. I do not believe this is possible. What we really need above all is investment. Certainly we must create new jobs, but competitive and durable jobs. We must create advanced industries based on research. A general increase in wages or in consumption would, I fear, be no more than a false dawn. It would be paid for later in the day by higher inflation.

Bolkestein: Some Socialists say that the unemployed cannot afford to wait for an economic upturn and that one must therefore create jobs. It is a dilemma between sound government finances and the impatience of the unemployed.

Thorn: It is true that we find ourselves in a particularly difficult situation. The European Commission - and in particular Vice-President Ortoli - has often said that in certain countries the disastrous state of

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government finances does not allow for a boost of purchasing power. The budgetary deficits in The Netherlands, in Belgium and in Italy are such that these governments can not undertake additional efforts. What they must do, I'm afraid, is to take some disagreeable measures in order to create a framework conducive to new investments, for indeed everything ought to be subordinated to the cardinal need for increased capital formation.

I cannot entirely disagree with the Socialists, though, not so much for economic reasons as for psychological and political ones. Let me illustrate what I mean. If a few years ago we had been told we would have 11 million unemployed, we would probably have thought that the breaking point of social tolerance would have been reached, with the result that the system itself would collapse. Indeed, no doubt we would have thought that with ‘only’ 8 million unemployed. Clearly, we have underestimated our tolerance. But how long can the system hold? Up to 12 million? Or 13 million? The system is not infinitely elastic and therefore we must do something - but it must not simply be increasing consumption nor benign neglect of the inflationary peril - factors which to a large extent have caused our present predicament. We must release the money necessary for investments. This will be easier for some countries than for others. Government finances in France have been relatively sound up to now, so the French government has possibilities which others do not have. In the Benelux countries unpleasant measures must be taken. Social security systems must be reviewed and perhaps reformed. Government deficits must be reduced. A shift from consumption to investment must take place.

Bolkestein: The EMS rests upon the Paris-Bonn axis. If the difference in economic policy between France and Germany became more pronounced, might it be replaced by a dollar-D. Mark axis, to which the guilder could be linked?

Thorn: I can't go along with your conclusion but, certainly, the EMS is under considerable strain because of diverging economic policies. The rates of inflation differ between the various European countries. True, there have been monetary readjustments, but these have been accomplished without too many difficulties and in any case in a framework provided for by the EMS itself. No, monetary readjustements are not

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the problem but the fact that economic policies do not adjust in kind. When the EMS was set up the intention was that member countries would take fundamental measures - that measures were needed not just to combat the effects as represented by the rates of exchange, but that one would attack the root causes of these effects. In other words, governments would coordinate their economic policies. Unfortunately that is precisely what has not happened. What we need to do is to have the courage to sit around the negotiating table, discuss the economic policies of the various member states and see how far we can make concessions to each other. If we do not do this, the EMS - which is still incomplete for it does not yet include the United Kingdom and Greece - will experience great difficulties.

Bolkestein: Is an industrial policy possible without protectionism?

Thorn: As a Liberal I am resolutely against protectionism. Closing one's door serves absolutely no purpose. Our countries are condemned to export because we lack raw materials. We must import raw materials and export them in manufactured form. If we shut ourselves off from the world we are lost. If we broke up the Common Market which we have taken all these years to construct, it would be a tragedy. I agree with Raymond Barre and with Count Lambsdorff that those who have exposed themselves most to the wind of competition are best able to adapt themselves. Those who close the door do not know what the climate is like outside and will never adapt themselves. Nonetheless, where necessary, there should be ordered withdrawal, but not panic retreat. A businessman cannot simply say: ‘I am broke - too bad for my employees.’ Transition and change need management. Hence what the European Commission says to the Japanese: ‘We are not closing our borders, we agree to see your exports to us grow, but don't be so vigorous that you kill your client.’ With time to adjust, we need not take protectionist measures.

2. Trade Unions

Bolkestein: Do you share the opinion of others that unions have become too powerful?

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Thorn: I wouldn't say that. We must recognise that they are going through a difficult time. It is not easy for a union leader to have to explain that he was perhaps mistaken - that we have left the fat years behind us and that we are now faced with the prospect of many lean years. Union leaders have in the past made promises of higher wages and shorter working hours, but now that this prospect seems out of reach for many years to come they no longer know what message to give their membership. In short, they are in a predicament, and it is one we must seek to understand. In current circumstances, they should not be forced to bear the heaviest burden for the present situation.

We cannot simultaneously advocate free enterprise and yet allow employers to avoid the responsibility of helping us to find the way out of our present dilemma. In happier economic times, business has taken its fair share of gains. Now it must also assume its fair share of responsibilities. Businessmen have the disconcerting reflex of looking to the state for help. Government and employers each have their responsibilities. We must now ask unions to show a degree of understanding.

Liberals were probably right when they were reluctant to allow worker participation in industry but wished unions to be given maximum information. The better unions are informed about the state of the company the more reasonable they are and the better the results achieved by the company. I once met an employer who said: ‘Those union leaders are no economists and do not understand the business.’ I replied: ‘See to it that they have better economic advisers who will prevent them from making unrealistic demands.’ We talk a lot about industrial dialogue, but if it only starts when the company is declared bankrupt, it is too late. The company's books and financial reports should be opened much sooner so that one can discuss with work force representatives, with due respect to legitimate confidentiality, how the company is faring and what the future prospects are.

Bolkestein: Can one ask unions to take the responsibility - even if it is only partial - of what they call ‘managing the crisis’? They say it is up to the employers. Are there limits to the usefulness of the tripartite approach in times of crisis?

Thorn: I am in favour of the tripartite approach. I have tried it in my country, at first with quite some success. Then the situation changed.

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Let me return to what I said just now. A tripartite dialogue is essential with respect to information, but the final responsibility must of course always remain in the hands of those who have been elected to carry it. Politicians must never let their responsibility fall into the hands of either social partner.

Bolkestein: You are resolutely anti-corporatist.

Thorn: Absolutely.

Bolkestein: In a speech which you gave in the Middle Temple Hall on 12 November 1981 you said that we must adapt our traditional industries and technologies more rapidly than we have done in the past. How does one secure the support of unions for the introduction of new technology?

Thorn: What has always struck me is the time which our western economies have needed before recognising the true nature of the crisis. For too long one believed that it was simply part of the business cycle. Even when people recognised that it was structural, they failed to act in consequence. So, while speaking of a structural crisis they actually behaved as if it were a cyclical problem. They said: ‘We are going through a bad period - let us wait for better times.’ But in a structural crisis it is absurd to wait for better times because better times by definition will not return of themselves. Double-digit economic growth rates, as in the past we have had in steel and in construction, are no longer on. Finally it was realized that the job of restructuring industry needed to be tackled consciously. We must make a ‘tactical retreat’ involving ordered withdrawal from certain sectors, with some, but not massive unemployment. We must rebuild industrial capacity in other sectors and in yet others open up new potential. Many in business have not done this, but those who have, have reaped the rewards and that is why the Germans are less affected by the crisis than others. In some countries the steel industry waits unreconstructed for its plants to become profitable again. In these cases, such waiting promises to be indefinite.

Now it is true that the high technology industries needed in our countries, which enjoy amongst the highest standards of living in the world, do not employ many people. With the advent of the robot one wonders

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where the tens of thousands of people who used to work in the steel and textile industries will ever find work. The industrial reorganisation we need will not take place from one day to the next. It will take ten or twenty years. Moreover, it is the small and middle-sized companies which have turned out to be the most flexible in adjusting to change. With their smaller size, they can adapt more easily. They don't need such enormous investments. The industrial giants will have to be replaced by a lot of small and medium-sized businesses. The great industries which lie at the base of the industrial revolution will not have the same importance in the Europe of tomorrow.

Bolkestein: It remains true, however, that unions find it difficult to accept industrial reorganisation because this inevitably means some loss of jobs.

Thorn: I accept that. However, the state does have various means of intervention at its disposal. Fortunately, the system we have today is different from the one existing in the thirties. Restructuring remains painful but not as painful as then. Is the glass half empty of half full? Are we laying off one third of the work force, or saving the jobs of two thirds?

3. The Problems of Europe

Bolkestein: There are two ways of approaching the problems of Europe. On the one hand, one may say that it is best to utilize to the full the instruments which we have. That is the approach of the French ‘relance’ document. On the other hand, one may also say that the time has now come for new structures. That is the approach of Genscher and Colombo. Which approach should we take?

Thorn: Much can be achieved by applying what already exists in the Treaty of Rome. We have caused a lot of damage by not applying the Treaty. If we said: the whole Treaty and nothing but the Treaty, we would make a lot of progress. This does not mean that we should only do what we have been doing up till now. We must add new policies to those which were laid down at the beginning, such as the Common Agricultural Policy. We cannot have a Europe only for the farmers or for the bureaucrats. We must have policies for industry, for energy and for joint research. Only then will people slowly discover that the European

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Community can give them something which their own countries cannot. Now introducing new policies can be done without changing the Treaty. On the other hand, we should not be too afraid to change the Treaty, if that widens our possibilities. What was a good thing 25 years ago, not long after the war, when there where six countries, need not apply now. The world has changed. The Member States are different. Politics have changed. And so has Europe.

It would hardly do justice to the memory of Monnet and all those who wrote that excellent treaty to think that they would simply draft the same treaty in 1982 as in 1952: no more, no less. We owe it to them to see how, a generation later, we can widen and improve it - while basing ourselves on its fundamentals and acting in its spirit. Hence the Genscher/Colombo proposals which you have mentioned.

Bolkestein: In the Treaty of Rome there are three independent elements: the Commission, the Parliament and the Council. In the Genscher/Colombo plan there would in practice be only two. The Council would become much more important and Parliament would have much more power. They would be the two main elements. Why should one think up new structures if the political will in Member States is absent? One should begin with the political will and then see what one can do with the Treaty of Rome.

Thorn: I don't think Genscher and Colombo have the intention of diminishing the powers of the Commission. There is a representative of the Commission in the group that studies the Genscher/Colombo plan. We shall clearly do our utmost to prevent the Commission from losing power. However, I do of course recognize that Parliament must occupy a more important place than it does now. I also understand that Genscher and Colombo, being realists, want to recognize the basic realities surrounding the Council of Ministers. But I believe as you do that if the European Commission lost its independence, the Community would cease to make progress. One cannot make progress with a Council of Nations - if I may stigmatise the functioning of the Council of Ministers in this way. One cannot function if there is a Council of Nations which only takes decisions unanimously and an elected Parliament which tries to be the engine of it all. The Commission is the only truly European institution which can organize progress.

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Bolkestein: There is ever more talk of a two-speed Europe, especially after the recent experience with Great Britain.

Thorn: I don't like the idea. I said so when Willy Brandt first mentioned it. I wanted the six countries of that time - thereafter the nine - to progress simultaneously. I was afraid that if at the first difficulty one country sought to detach itself from the others, fairly soon another would drop away and in the end there would be none left. It is not, therefore, a temptation to which one should give in too soon. However - let me choose my words with care - if after ten or more years we were to diverge profoundly over what the Community can be, then perhaps we would be forced to have, not so much a two-speed Europe but rather what I'd call the model of two concentric Europes. Let me explain. Perhaps one could envisage three or five or six countries with a common vision and a greater degree of integration. If that were to be the case - if certain countries were prepared to take certain risks - then they should be allowed to do so. Around this core there would be a larger ring of countries, which would be closely linked to the core group and in certain respects go along with it completely while being more reserved in other areas. One could imagine that. But there can be no question of an ‘Europe à la carte’. One cannot say: ‘Here I'll join in, but not there.’ We must agree on certain basic principles, which perhaps we should now reconsider. This could be an agonising reappraisal. That is why I prefer not to envisage it just yet. But if it becomes necessary, we have a duty to do it. There should perhaps be a second Messina conference where the Ten must have the courage to look each other squarely in the eye and say: ‘Just what sort of a Community do we want?’

Bolkestein: Jean François Deniau has said that there will never even be three, five or six countries which will want to go more quickly than the others in all areas. Italy, for example, might want greater integration with Germany and the Benelux politically but not as regards its industry. That is why he is in favour of a ‘variable geometry’ Europe.

Thorn: It is an interesting idea but I do not see how it would work in practice.

Bolkestein: You wish to apply the Treaty of Rome. The Treaty stipu-

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lates that decisions should be taken by majority, not unanimously as is now the case. How do we put the Treaty into effect?

Thorn: There are two ways of approaching the problem. Firstly, you can shock people by saying that we should go back to the system of majority votes as soon as possible. People will cry out against it - and not just in the larger countries like France and Great Britain. The smaller countries will also be afraid of being overruled. Everybody would want to retain the veto as an ultimate protection. The second approach is politically and psychologically better. It consists of organising the use of the veto so as progressively to limit voting by unanimity. At the moment anyone can say, on any subject: ‘It is of vital importance.’ In fact, one does not even have to say that. One merely has to say: ‘I am of a different opinion.’ We then say: ‘Well, we are not all in agreement: let us come back to this matter in a month or in a year.’ That is not the way to make progress. We should say - perhaps at the European Summits - what we are going to do until the next summit. Are we ready to decide on this matter by majority vote, on that matter by unanimity? If we handle the veto in this way it will become the exception and no longer the rule. The more experience we gain like this, the more people will be in favour of decisions taken by a qualified majority. They would perhaps be even more prepared to limit the veto if they had a guarantee that they could employ it in matters which would be truly essential and vital for their country.

Bolkestein: Piet Dankert has proposed that the European Parliament should have the right to be informed by the Council of the details of the vote, of the arguments in favour of the final decision and of the precise details why a decision concerns a vital national interest. Do you agree?

Thorn: Yes. In Parliament one also votes. Everybody puts forward his arguments and one knows the results. Why not in the Council?

4. A New Solidarity

Bolkestein: How can we avoid a relatively poor country like Great Britain paying more into the European exchequer than a richer country like France?

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Thorn: Our British friends know the origin of this problem. They know that all this comes from the fact that they got on the train when it was already in motion. If Great Britain had been a member of the Community at the beginning, the Common Agricultural Policy would have been different. The Common Agricultural Policy was made to suit the conditions of the six founding countries. That is why it does not suit Great Britain. As the CAP takes up two thirds of the Community's budget it is understandable the British feel they do not get their fair share - our system of own resources being what it is. Raymond Barre, when he was Prime Minister of France, publicly recognized that this was the main problem. Fortunately, trade flows are slowly changing. When Great Britain joined the Common Market only 32% of its trade was with the other Member States. Today that part is 43%. The British are increasingly buying agricultural products from within the Community. Their agriculture is also assuming greater importance. They have even become net-exporters in some commodities in recent years like soft wheat and barley - a result of the Common Agricultural Policy. Differences are therefore being ironed out, while unlikely to disappear in the foreseeable future. The only way further to reduce this gap would be to draw up new policies specifically geared to British interests. Together with the Community's regional, social and industrial policies, the situation could I believe be changed.

Bolkestein: Would you consider a progressive system of payments in accordance with GNP?

Thorn: When we reach the 1% VAT limit, which is bound to happen in the coming years, we shall have to reconsider the problem of contributions and of own resources in the light of experience. Too many countries are of the opinion that these resources do not really belong to the Community. They are not really willing to give up their claims. They want an equivalent sum in return. Perhaps we should study the possibility of a system which reflects inequalities in wealth between Community nations, thus enabling contributions to be modulated accordingly. For the moment this is only a hypothesis but one which should perhaps be developed. One day, for sure, we shall have to come to terms with this issue.

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Bolkestein: You have yourself spoken of a new European solidarity. What does that mean if not contributions ‘from each according to his wealth’?

Thorn: I think solidarity in European policy must be defined on a much broader basis than simple considerations of budget contributions and relative wealth allow.

You cannot do a book-keeping calculation every day and at the same time pretend to pursue the objective of political union. A Community of nations obsessively preoccupied by its internal balance sheet or profit-and-loss account would never develop into a political entity of any meaningful kind. The economic problems of the present - like unemployment, inflation and recession - as well as the political, from Afghanistan and Poland to the Falklands - have made it plain that we can only face our major challenges by standing together and by acting coherently and jointly. My impression is that most people and politicians are becoming increasingly aware of this but there is a major step to take from simple realisation of the need for solidarity to actually acting in consequence.