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"Open Europe" is a British conservative, but pro-European for the local standards, non-government organization established in 2005. It is funded by donations from business circles in London and it maintains the ideas of free market and free movement of people. In 2005, it held its first campaign for calling a referendum on the new European Constitution, and in 2007 - for a referendum on the Lisbon Treaty. In addition to in London, it also has an office in Brussels. The Research Director of Open Europe, Stephen Booth, talks with Maria S. Topalova.

Recently, I have listened to the British Prime Minister David Cameron ’s speech about the European Union and he said that the European Union is an organization in peril, representing a continent in trouble. How great is this peril and how serious is this trouble right now?

I think the European Union faces huge problems, huge challenges.  I don’t think it is just the UK that sees it that way. I think Chancellor Angela Merkel is also making similar statements that Europe is facing the worst processes since its foundation. People are right to be concerned because as well as there are these structural problems, as well as there are the other issues like bad demographics, aging populations, big welfare  that needs to be paid. And there is also a more pressing issue – the Eurozone crisis that has also started to create huge political problems, because you see that like now in Greece and Italy, governments are falling, and there has also been early elections in other countries as well. The current crisis is also reaching its economic as well as its political limits.

The most troubled country Greece. How can this country be pushed to implement the measures that will govern the financial discipline in the country?

What we are seeing now is that it is very difficult to force countries on the periphery of Europe like Greece or Italy to implement the reforms that many people agree are properly needed. But what we are seeing is the political limit of the Eurozone integration. However, much Germany or France, or the European Central Bank or the European Commission are making the changes they like but they are actually getting the changes implemented on the ground. It is a very difficult thing. Likewise, you can have governments come in. You can have a technocratic government replace the existing governments and they can again promise to deliver, make and sign memorandums of understanding and so on.  The crucial thing is delivering those reforms on the ground and implementing them. I think, there are fundamental problems with the Greek and Italian states that would prevent any government from actually implementing them because these are deep structural problems.  And without the political will behind those governments, it is very difficult to see how they can actually make these reforms work, because many of the reforms needed are not only short, a kind of superficial austerity cuts and so on. These are deep structural problems that may take kind of decades to really enact. We are looking at huge welfare bills, restructuring of pensions systems and so on that are changing the way that these societies actually live. And that is not an easy task. It seems that we are drowning inside the current Eurozone framework.

If we take as an example Ireland, which is a successful example of implementing the measures and if we take on the other hand Greece, which is unsuccessful in the implementations of these measures, what is the difference between the two countries? Why do these measures work in one place and not in the other?

I think Ireland and Greece are different countries for several reasons. The first one is that economically, they are very different models. Ireland has always been a much more open economy and it has been much easier to adjust to side shocks. Irish people are used to immigrating if necessarily and so on. They are more flexible in that way than Greece is. And in Greece, you have the problem with the closed professions, you have a much bigger welfare state, early retirement, big pension systems and so on. Ireland is much more by the Anglo-Saxon model in that sense. I also think there are other areas that appear to have some success in making the reforms. The problems are by no means over because there is still a huge housing market bubble that is yet really unwind. It is huge and it is standing to banks and given that the government is actually standing behind the banks, it is difficult to see how that is going to be unwound without more pain in the next 5-10 years. I think that Ireland although has made some progress, there are still big difficulties there economically.

I think in Greece the problem is not just economic. In Ireland, there is seen to be an acceptance among the public no matter how painful the reforms are. But these things need to happen and there is too much that needs to be changed. Whereas in Greece, there are huge problems that need to be fixed but there is no consensus whatsoever how to go about fixing them. And I think that is going to be a huge political challenge as well as an economic one.

Do you think that the new governments in Italy and Greece have any real chance to change things?

I think it is very early days. Both the governments are non-political and have not been elected. It is quite unsatisfactory situation to have unelected technocratic governments as we are seeing major structural change that has far-reaching consequences without democratic mandates. I think there are not so many things they can do without such a mandate. They can take short measures that might be needed to get through the next year or so. But after that, without a democratic process, the risk is to have the entire political class against the people. And that can only lead to more political problems down the road and potentially unrest and processes which would be hugely destabilizing in the future. 

How could you comment on the idea of Germany taking the European Court of Justice against Greece for violating the rules of financial stability?

I think Germany understandably wants to have greater control about the countries it is underwriting, essentially by the both bailout loans and also by the European Central Bank, which eventually is backed up by Germany essentially. I can understand why German politicians want to reassure that this money will not be thrown down on an endless pit. I think that European Court of Justice involvement is one way of ensuring the countries abide by the rules they have set down and sanctions can be enforced. And in that situation it is still quiet difficult to see what could happen other than paying them out, because you get back in the situation you are in now where the risk is if these countries will default or there will be a contagion around in the Eurozone. Those sanctions I think will help in terms of making sure that they will stick along with the current bailout. I think that is a kind of superficial problem. The real problem is the structural problems within the Eurozone.

What is the solution in your opinion?

I think it is very difficult to say. It is really unpredictable. But I think the structural problem in the Eurozone is quite clear to people now. These economies have actually diverged rather than converged. And in that situation, the southern countries have become very uncompetitive with the northern countries. A lot of money has been transferred from the northern countries to southern countries via bank loans and those loans have to be repaid now. And that is the situation they are in. It is difficult to see how these countries in the south can become competitive again. And that situation will repeat itself again in twenties time or forties time when you get through the latest posts and you have another boom. The German taxpayers put their money in German banks and that money finds itself back in Italy and Spain and Greece. And you pay attention to the same problem again. It is difficult to say how that situation can be resolved without potentially slimming down the membership of the Eurozone. On the other hand, there have been very stringent controls on the banks and how money is transferred within the Eurozone countries having very strict rules on it and much more coordination on economic policy and making sure it is in balances between the northern countries and the southern countries and do not get as large as they have done now.

One very obvious solution is the exit from the Eurozone. There are many comments that it will be a catastrophe for the whole European Union even for Britain, which is not a member of the Eurozone. How do you see the risks of a potential exit of a country or several countries from the Eurozone?

I think it is very important to distinguish between several things. Exiting the Eurozone is something that everyone is trying to prevent now, because it would have huge consequences not just for the Eurozone countries but also for the UK and also for the wider global economy. This is why the US is so involved as well. There is a difference between this sort of exit right now and possibly planning for a longer-term mechanism whereby countries could leave the Eurozone in a more orderly fashion, because the long-term choice is that: Either the Eurozone slims down or there has to be much quite of coordination  in terms of economic policy and so on. And I think there is the realization that it is very difficult to coordinate these 17 economies no matter how many rules you have in place. It is still a case of political will on the ground in terms of getting the reforms done and so on. So, I think that France and Germany may be thinking of how it is possible to get the Eurozone on a more manageable size, where the economies are more likely to function together under one-sized fistful monetary policy.  

How many members of the Eurozone do you see in 5 years time?

I think it is very difficult to say. I would be surprised if Greece is still in there. But I think this crisis has still a long way to play out. In five years time, we may not moved on that far, to be honest. We may be looking at that case before this is really resolved. I think, in an ideal world, it is probably five or six countries, maybe ten, that could really stick the pace with Germany. Many countries in the southern part may struggle, may have lost the pace in terms of maintaining the single currency. I think the point is that this is a choice that has to be really addressed by politicians. It has to be made clear. I think there is a risk that the Eurozone and the European Union could become inseparable. There is a genuine need to make it clear that the Eurozone and the European Union could sustain some kind of breakup of the Eurozone. If it was done in an orderly fashion, these countries should have choice. They should not be locked into a future they really do not want or cannot actually deliver. And in some point that may involve having a discussion with the electorate, saying where do you see your future life, do you see you country in the Eurozone in 15-20 years time or we could look at other options.

Do you see any new country joining the Eurozone?

I think it would be very brave for a country to look at that right now. I cannot see any country in the European Union looking to do that in the next five years, maybe ten years. But I think there are countries with ambitions to join the Eurozone. And I think for some countries it may make sense. If you are closely tight to an economy, which is in the Eurozone, this is something that could make sense. But I think the conditions have to be right. At the moment, there is clearly a huge crisis that no one really knows how it would be resolved. I think it would be very unwise if anyone wanted to agree to join a group that is going to be changing. So, if a country would like to join the Euro it will have to wait 10-15 years until it really sees how this crisis unfolds and what is done to resolve it. I think in the case of the United Kingdom, there is no chance Britain to join the Eurozone, certainly in my lifetime and possibly ever.

During the political crises both in Italy and in Greece, the Euro was very strong against both the British pound and the US dollar. How could you explain the fact that people still believe in the Euro although the Eurozone has this great problem?

The Euro is still one of the biggest currencies in the world and it is not like the UK and US’. They have their own problems. But at the same time, there are huge political problems in Greece and Italy. They are also facing huge economic problems because investors were dropping Greek and Italian bonds especially, which is driving economic problems. And we have Spanish bond deals kind of edging up and also there were suggestions that the next focus might be France. Although the currency may have still be held by investors, I think there are deep concerns about many of the countries within it. And I think those concerns are well found and correct because it is difficult to see how some of these countries in the long term can sustain that levels they have without being able to adjust monetary policy in a way that would help them possibly inflate it, which is what these countries have done in the past.

The European Central Bank is criticized quite a lot for its behaviour in the crisis because it does not behave as a bank but behaves as a ministry of finance of the Eurozone. How would you comment on the policy of the European Central Bank?

Well, the European Central Bank has been left with little options but to step in, if you like, because there has been constant delay in action by European leaders and the Eurozone. But I think the European Central Bank has got itself in a very difficult position that is effectively enacting fiscal policy rather than simply monetary policy tasks. And of course, that has huge political implications as well, because in countries like Germany, where the independence of the central bank is paramount and low inflation is one of the founding principles of the modern German state, seeing a central bank be so interventionist and purchasing government bonds has huge political difficulties. But on the other hand, the European Central Bank has been left with little choice, because it has been no other vehicle to step into the hole, which has been created. So, I think, in the long term, the European Central Bank is probably not going to be the answer. It cannot be the lender of loss, as some people would hope, because the Germans would not simply allow it. And this is a fact. So, it is very difficult to see how the European Central Bank can play that role in the long term.

I would like to get back to the words of Prime Minister David Cameron, who said that the European Union is out of touch and the crisis is a chance actually and an opportunity to re-fashion it. What kind of reforms does the European Union need from the point of view of Great Britain?

Well, I think, from the British point of view there are a lot of things that need to happen in changing the European Union to make it a sustainable organization in terms of meeting the challenges of 21^st century and also for the United Kingdom to be a full and happy member inside it. The list is quite long. The European Union budget has too many spending areas – on agriculture and on regional funding – and that does not make much economic sense. It is hugely bureaucratic and quite inefficient. I mean for European 21^st century spending, 35% of your budget on agriculture – it does not really fit with the idea of modernity and research and development that is needed to compete with the United States and China. The United Kingdom has been pushing for a long while and I think, slowly, but it is getting some kind of progress.  Otherwise, I think the crisis is giving opportunities to make the European Union much more flexible, because you have the potential of the Eurozone countries maybe going further and possibly of non-Eurozone countries, being able to take some powers back potentially. And that is something I think the United Kingdom and Europe could be interested in.

What kind of powers?

I think the United Kingdom is particularly interested in safeguarding its financial service industry, which is crucial for the economy of the United Kingdom. In addition, things like social, unemployment laws, where there is a feeling that the regulation of the European Union often hampers growth in the United Kingdom and puts barriers to creating jobs. And there are other areas such as crime and justice and justice affairs where often the European way of doing things conflicts with the traditional legal style and principles of the United Kingdom. And I think that is the key. On a more fundamental scale, I think the Eurozone crisis and the political repercussions of it have actually changed the founding principles of the Eurozone, the idea of ever-close union. I don’t think that you can really argue now that every country in the European Union eventually be part of the Eurozone, part of the single currency or the treaties of the European Union. Because what we are seeing now is that some countries will have to move further, some countries will probably want to stay roughly where they are, and some countries may have to pull back a bit. I think the United Kingdom will try to play a leading role in helping to develop that variable geometry in the European Union. It will potentially play a leadership role for those countries that are in the Eurozone now, looking for areas where it could be more flexible, more focused on things that matter – creating growth and jobs, and less interfering in terms of regulations.

How strong are the voices against European Union membership in Great Britain?

It is a sizable minority that certainly would like to see the United Kingdom leave. There is a majority of people who would certainly want to see the European Union reformed in some way. And there is pretty much smaller minority on the other hand, that would like to see the things remain the same or potentially go further in terms of integration. I think the majority of the British public is probably in favour of some level of European Union reform. And there is a sizeable minority, probably around 30-35% that would like to see the United Kingdom leave, if there is a referendum tomorrow, for example. That is what the government is facing. There is real demand in the United Kingdom for a change in the relationship with the European Union. And given what is happening at the moment, given the opportunities there will be to negotiate with European Union partners on possibly new treaties, this government really cannot afford to not address the issue. There will have to be something achieved in terms of making the United Kingdom relationship with the European Union more sustainable. That is in the interest not just for the United Kingdom but also in the interest of other European Union members, because I think, there are many countries in the European Union, which would like to see Britain remain a fully committed member, especially on things like the single market, more economic liberty ideas, free market things. And the United Kingdom has been a big champion of enlargement, for example. So, I think many of these countries would like to see the United Kingdom committed to the European Union. But I think they have to understand the United Kingdom and the country feels that the relationship is not working. So, it is important that it becomes more sustainable, becomes something that will be working in the long term. As things are going now, it is very difficult to see how the United Kingdom can really remain in the European Union in the way it is at the moment and for the next fifty years. It is difficult to see how that can happen.