Why Europe Will Run the 21st Century

CHAPTER 2 ‘Divided We Stand, United We Fall’

1968 was a year of revolutions. What started in the Sorbonne in Paris as a protest about an outdated curriculum and the threat of a reduction in student numbers soon spread like wildfire around Europe and the United States. But the excitement was not limited to universities. Dee Hock, a middle manager in a bank in Seattle who had dropped out of community college after just two years, was starting a revolution of his own – one that could hold some important lessons for the European Union. Many have argued that Europe’s divisions will stop it punching its weight in the world, but Hock’s example shows that you can take over the world without developing a centralized bureaucracy.

Hock’s journey started when the bank’s headquarters appointed him to a committee that was working on a business strategy for its ailing credit card, Bankamericard. The backdrop was bleak. Credit cards had only existed for ten years and the infant industry was in chaos. Banks had dropped millions of unsolicited cards on an unsuspecting public that had no experience of credit facilities of this kind. Losses were thought to be in the hundreds of millions of dollars. Card owners were bankrupted, politicians were alarmed, and the media launched a feeding frenzy of blame-calling.

Instead of developing a new business strategy, Hock persuaded his superiors to start a new kind of organization: Visa. He was determined to move beyond the hierarchical companies that were products of the industrial revolution and create an organization based on biological concepts – a network. He wanted to create a franchise that would have global presence, but maintain competition between individual banks so that they would be driven to innovate.

The basic principle was to create a company that did not have shareholders but members. These members would own the company for ever but could not buy or sell their part of the company – which meant that it would be impossible for any individual member to gain control of the overall organization. Hock wanted to create an organization that would be both highly decentralized and highly collaborative. Authority, initiative, decision making, wealth – everything possible was pushed out to the periphery of the organization, to the members. What began with just a handful of modest banks in just twelve states grew into an organization that is now owned by over 21,000 financial institutions in 150 countries. Today Visa is responsible for the largest single block of consumer spending ($2.7 trillion annually), services 600 million people, and continues to grow at a rate of 22 per cent a year.1

In spite of its enormous economic power, Visa is effectively a skeletal organization with a tiny central administration and only three thousand employees in twenty-one offices around the world. It relies for its strength and success on enabling others to flourish. And that, says Hock, is exactly how it ought to be. ‘The better an organization is, the less obvious it is,’ he says. ‘In Visa, we tried to create an invisible organization and keep it that way. It’s the results, not the structure or management that should be apparent.’2

Network Europe

Although he predated Dee Hock and came from a very different world, the principles that Monnet promoted bear a remarkable resemblance to those that have turned Visa into one of the most successful companies in global history. Though very few people realize it, the European Union he gave birth to is already closer to Visa than it is to a state: it is a decentralised network that is owned by its member-states.3

The headquarters of the EU Council says it all. The Justus Lipsius Building looks like it has landed in Brussels from outer-space – obliterating the genteel Art-Deco surroundings with its marble footprint. Clad in heavy grey stone and reflective glass, this anonymous rectangular building covers some 215,000 square metres, circling a mammoth atrium with 24 kilometres-worth of corridors of power.4 Like a Russian doll, the external shell has replicated itself infinitely inside, housing dozens of rectangular rooms – each containing a rectangular table with a hole in the middle. The tables are neatly set up for European negotiations with placenames for the twenty-five member-states, long, thin microphones, notepads, and bunches of red pencils. In some of the rooms there are booths for interpreters to translate between the twenty EU languages. This building is like a factory for European agreements. And because the EU is a network rather than a state, negotiation is not a part-time activity: it goes on every single day, around the clock. Like the banks that own and control Visa, it is the national governments that set the agenda for the future of Europe.

Four times a year, all the EU Heads of Government gather here amid a fanfare of publicity, with a media party that runs to the thousands. There are between 80 and 90 meetings a year5 of various formations of the Council of Ministers, which brings national ministers (agriculture ministers, finance ministers, health ministers, etc) together to agree policies in each of their areas. Working under the ministers are groups of national civil servants. The ‘Committee of Permanent Representatives’, made up of ambassadors from all the member-states, is responsible for agreeing 90 per cent of the European Union’s legislation.6 Working under it are dozens of ‘working groups’ that prepare agreements in each of the different policy areas.

The process is complicated, but it allows every country or parliament in the network to have some say. Before decisions even reach the magic circle in Brussels, national parliaments can mandate their governments to stick to a clear national position. After decisions have been taken, they then face a tough process of scrutiny from the 723 directly elected members of the European Parliament who represent citizens from the twenty-five member-states.7 Finally, the laws that are agreed are upheld by the European Court of Justice, made up of judges appointed from all the member-states and which acts as a supreme court.

In seminar rooms across the world, historians and political scientists are trying to understand and categorize the European Union. The usual parlour game is to guess which country the EU will end up copying. Will it be the USA – perhaps the 1850s confederal model? Or will it be a constitutional federal democracy like post-war Germany, or the Swiss system where national political debates are much less important than local scuffles and the needs of the secretive banking economy? Some predict an overpowering bureaucratic state on the Napoleonic model, while others fear we will build a political system so divided that it could collapse like the French Fourth Republic. Some Americans, in particular, are impatient for the Union to unite; to develop a federal structure; to have a constitution that clearly separates the executive, judiciary, and legislature; to elect a single president; and to give the European Parliament law-making powers like national parliaments. In short, to get a ‘single phone number’.8 But Jean Monnet’s genius was to create a political structure that is quite different from the traditional nation-state.

Although some federalists still dream of a country called Europe, and the European Union sometimes pretends to be a state with its flag, passport, and anthem, it is fundamentally different from a state. Like Visa, it is a decentralized network that exists to serve its member-states. The EU is a skeletal organization that leaves the real power to its member-states, which are responsible for implementing and overseeing the vast majority of the European Union’s activities. This revolutionary structure has allowed the European Union to grow with the support of its members. But it has also fundamentally changed the nature of global politics.

Reversing the Balance of Power

If Europe’s peaceful twenty-first century will benefit from the wisdom of an American banker, the horrors of the first of half of the twentieth century can be traced back to a banker from Italy. The man in question was Lorenzo de’ Medici, whose family ran Florence in the fifteenth century. At that time it was one of five city-states that dominated the Italian peninsula – along with Rome, Naples, Venice, and Milan. These cities were immensely wealthy and in perpetual competition: at that time Florence had a higher annual income than the King of England, while Venice’s revenue was double that of England and Spain.9 In 1454, Francesco Sforza, the ruler of Milan, approached de’ Medici to propose an alliance between their two states. He wanted to gang up on Venice before it grew too powerful. De’ Medici agreed, but insisted that they must not destroy Venice as one day its power might itself be needed to stop Rome. His reply contained the historic phrase: ‘the affairs of Italy must be kept in balance’. He is credited with being the first person to talk explicitly of a ‘balance’ of power, a principle that became one of the key foundations of European order (or disorder) for five hundred years.10 The system was based on the mechanical idea that groups of states needed to be brought into equilibrium – like the scales that bankers used to measure gold – so that no single one could dominate the continent.

Europe’s invention of small nation-states – and a system to stop any one of them overpowering the others to create an empire – was a mixed blessing. The fierce competition between them spurred them on to develop the most advanced technology in the world, and allowed a continent that was a sleepy backwater to overtake the empires of the East and assume global dominance.11 But the logic of the balance of power was also perpetual war: the Thirty Years War, the Franco-German War, the First World War, the Second World War, and the Cold War were all fought to stop any one country rising to hegemony.

All that has now come to an end in Europe. No one fears a rising Germany or France because all the countries of Europe have formed themselves into a network that is bound together by laws and regulations.12 Instead of competing with each other to build up arsenals of weapons or build regional alliances, their interests are defended through mutual vulnerability, pooled sovereignty, and transparency. But outside the warm womb of the European Union, the balance of power lives on: between India and Pakistan, in the Middle East, in Central Asia, and the Far East.

Although these countries are all trying to balance each other, no one is trying to check Europe’s rise. In fact, Europe has even managed to reverse the very idea of the balance of power. As its strength grows, it is becoming a powerful magnet for its neighbours who want to join it rather than balance it. The American political economist Richard Rosecrance has shown that this is the first time in history that a great power has arisen without provoking other countries to unite against it. In a remarkable survey of the formation of empires and states he shows how every major power from Spain in the sixteenth century through France, Britain, and the United States in the nineteenth century to Germany, Japan, and the Soviet Union in the twentieth century and the USA in the twenty-first century has provoked its neighbours to unite against it.13 So why has Europe managed to become more united and powerful without attracting hostility?

One argument is that Europe is an economic rather than a political superpower. Walter Russell Mead argues that economic might draws people in while political power creates hostility. He explains this theory by comparing economic power to the carnivorous sundew plant: ‘a pleasing scent lures insects towards its sap. But once the victim has touched the sap, it is stuck; it can’t get away. That is sticky power; that is how economic power works.’14 There is something in the claim that economic power doesn’t create the same fears in its neighbours as political power, but it does not explain why the United States, China, Russia, and India look more benignly on the growth of the European economy than they do on each other’s economic development. There is an entire industry of US foreign policy thinking based on the need to balance China’s growing economic power, even though by some definitions its economy is still smaller than Italy’s, but there is very little concern about a European Union whose economy is the largest in the world.

The most compelling explanation comes from the unique nature of the European Union: as a network rather than a state. International relations scholars have compared the relationship between states to billiard balls on a table. They have a hard shell and repel each other when they clash. But while it is easy to clash with another state, it is difficult to clash with a network that is made up of a cacophony of different voices. The point of a network – or club – is that it doesn’t have a hard centre like a billiard ball, so when you try to balance it, you are often sucked into a process of engagement with its different members. The most surprising example of this was the crisis in Iraq.

The Beast with Twenty-Five Heads

There are few creatures more potent in Greek mythology than the Hydra, a beast with the body of a serpent and nine heads. Each time you chopped one head off, two others would grow in its place. With its many member-states, the EU is like a modern day hydra – as Colin Powell discovered when he tried to build an international coalition for invading Iraq. Each time he managed to sign one country up, he found another one still had doubts. In the immediate aftermath of the invasion, the conventional wisdom was that the Americans had won – dividing the European countries and prevailing on some of them to invade Iraq on American terms, without a United Nations mandate and against the wishes of a majority of European citizens. A headline in the Financial Times on 12 March 2003, as troops prepared to invade Iraq, seemed to say it all: ‘Europe is the first casualty of war.’15

Most people think that Iraq was a disaster for Europe, and I shared their distress at the political fall-out from the crisis. But with hindsight we can see that some good came out of it. The European project has survived the transatlantic train crash, and its multilateral agenda has in fact made a comeback. Though the Continent was divided on tactics for handling the United States, all EU countries shared three fundamental goals: to preserve the transatlantic alliance, to restore the authority of the United Nations, and to prevent unilateral preventive war from being established as a norm. Europe has somehow met all these objectives – not by putting up a united front, but by engaging the Americans with competing factions. The negotiations in the run-up to the war were reminiscent of the routines in so many Hollywood detective movies where the ‘bad cop’ scares the suspect into submission, while the ‘good cop’ wins his trust. Between them they manage to get him to confess.

In 2003, the transatlantic relationship seemed as if it was on the cusp of being discarded when the American Defense Secretary, Donald Rumsfeld, grouped Germany with ‘problem states’ like Iran and Libya and Germany’s justice minister compared George W. Bush to Hitler. Robert Kagan’s fashionable thesis that Europe and the United States were two tectonic plates inevitably moving apart seemed irrefutable. 16 In retrospect, however, the fact that some European countries supported the war meant that the transatlantic relationship survived. As long as Bush needed Blair alongside him, there was at least an incentive for America not to be too destructive towards a political project valued by the British government.

The United Nations was sidelined and mocked during the 1990s – powerless in the face of civilian massacres in Rwanda and Somalia, ignored over Kosovo, and starved of dues by big donors. But during the run-up to the Iraq war it became the crucible in which the arguments were aired and decisions on the basis for war were made. For the first time since the Cuban missile crisis, dramatic presentations at the United Nations dominated the media, and international public opinion rallied to its cause. Now the United States has turned to the United Nations to give credibility to the beleaguered Iraqi Governing Council – not something that would have seemed likely at the time of the invasion.

Most importantly, the doctrine of preventive war seems to have disappeared into the desert sands. The US national security strategy had outlined a doctrine of war that would allow the USA to attack potential enemies before they posed a direct threat to US security. At their most hubristic, the neoconservatives argued that the USA could take advantage of its victory in Iraq by unleashing a ‘democratic domino effect’ in Iran and Syria. The political and economic costs of invading Iraq make another occupation impossible for several years. France and Germany have made any future action harder by refusing to commit troops to Iraq or pay for reconstruction.