Tipping Point Near? Don’t write Europe off

Don’t write Europe off, but China must face up to political reform . . .

BUSINESS cycles always turn, says Chris Patten of the situation in
Europe. There comes a tipping point, where people start to think of the glass as half-full rather than half-empty, he says. In this exclusive interview, Patten, former British MP, Governor of Hong Kong and EU Commissioner, now Chairman of the BBC Trust and Chancellor of the University of Oxford, offers his assessment of the 21st century challenges facing Europe, China, the United States and the world . . .

IT IS A MISTAKE to write off Europe too easily, says Chris Patten, the respected international statesman best known in Asia as the last British Governor of Hong Kong.
"Europe is still responsible for 18 per cent of world trade, yet it has only seven per cent of the world's population and attracts a huge amount of inward investment because of the returns on those investments,” he says. “It has the ability to reform itself without political disruption."
Patten, EU Commissioner for External Affairs between 1999 and 2004, says people should not underestimate the underlying strengths of Europe. He mentions its political stability; decades of economic growth (albeit slowing in the last few years); a strong system of social solidarity; sophistication; highly-trained work force; and good higher education.
Europe is facing up now, he says, to a shorter-term issue. Can it manage to resolve the Euro crisis in a way which allows a currency union to operate with some form of fiscal union, accountable to nation States?
"It is quite a tough call and it requires adjustment in some southern member States and in the northern member States — like Germany and the Netherlands," declares Patten, who, since leaving politics, has led a more genteel life as Chairman of the BBC Trust and Chancellor of the University of Oxford.
Patten told ATI that a bigger long-term issue is whether Europe is able to improve its competitiveness, and to raise its growth rate so that it can pay for the quality of life and the standard of living which Europeans have come to expect.
He refers to a speech by the German Chancellor, Angela Merkel, in which she mentioned three key statistics defining, to some extent, Europe's problem. These are that the EU has seven per cent of the world population; 25 per cent of world output; and 50 per cent of world spending on social programmes.
Says Patten: "Europe has to increase its growth quite substantially in order to balance the books, and, to do that, it needs to invest more in skills, research and development, higher education and reform of its labour market."
It is not easy for Brussels to deal with this big agenda at a time when people are feeling hammered economically by a sustained period of low growth. However, Patten says, business cycles always turn. There comes a moment — a tipping point — where people start to think the glass is half full rather than half empty.
"They become more confident and they start to invest more. The problem at the moment is that quite a few of the signs of economic progress are not only wafer thin but seem to rest on rather slight foundations."
Despite the high levels of unemployment across Europe, Patten says Europe has not become more protectionist — but it is becoming more concerned about the lack of a level playing field with China and other countries.
He says Europeans will become increasingly concerned with what they see as unfair competition — whether it is the politicisation of credit or impediments to European entry into certain markets. "Europe should take far more seriously what its companies — which are trying to do business in China — tell them. Their Chambers of Commerce should provide the agenda to which the EU works.
"China has been very skilful in playing off one European country against another, and if this continues, European business will suffer.”
This isn't an anti-China point, he stresses. Rather, it is a reflection on competition among European countries. "It is very important that China and Europe don't get into a  perpetual round of disputes. It is in both Chinese and European interests that the bilateral relationship should thrive with a high level of investment and trade in both directions."
Patten is reminded of those who were writing off the US as a manufacturing economy and are now having to eat their words. “Today, the US car sector is competitive when people thought that it had been played off the field.”
The US economic revival, he says, is a bright spot on the international landscape.
"We know the West Coast, Massachusetts and other parts of the country continue to fire on all cylinders. The Americans have the capacity to turn knowledge into money in a remarkable way."
The trouble with America, however, is its politics, which cast a shadow over definite signs of economic revival. The ongoing debate on Capitol Hill over sovereign debt, aimed at embarrassing the Administration, he says, reveals a definite weakness in the whole system of economic management. "In macro-economic terms, arguments in Washington may not matter so much, but they definitely send bad signals to the market," says Patten.     
Of Asia, he says the attention is on China's economic slowdown and how it deals with the consequences of that, and whether it plays a cautious hand in relation to its neighbours and to international issues in the next few years, or whether it seeks to assert its authority rather more rigorously.
One should also follow the relationship between India and China, he says, as India becomes a larger country in terms of a larger population with a younger workforce that will obviously have some impact on the relative rates of growth.
History has recorded that Patten had an acrimonious relationship with Beijing when he led the Joint Declaration negotiations on Hong Kong almost two decades years ago. (He reflects on this period of his life in his book, East And West, published in 1998.) With time, he has mellowed and is encouraged by signs of more "grown-up" views from Beijing on how it should define its role in the world.
"For all of us outside China, there should be only one hope — that China grows and prospers peacefully. China represents one-fifth of humanity, and nobody in their right mind would want any outcome for China other than success," he told ATI.
Looking at China today, Patten does not see a system which would fit into Marxism Leninism.
He hopes that China can flexibly adjust to take account of economic, technological and social changes. If it can, it will be a first for China — and any country for that matter — because it is very difficult for any State to have an iron grip on politics while opening up its economy successfully.
Invariably, however, there will be tensions between economic opening and politics, especially if the Party continues, for example, to privatise State-owned enterprises.
"Where does that lead me? It leads me to say I am sure that, in the next few years, China will have to face up to the need for political reform.
"I don't say that as somebody who thinks that a democracy based on the founding fathers of the US is suddenly going to be parachuted into China, or that the Chinese will suddenly start listening to the Voice of America or the BBC, or that there will be multi-party elections and democracy tomorrow. Things will evolve. It is clearly in the interests of my children and grandchildren that China manages the process of change without turbulence, and with some degree of sophistication."
Patten has been reading a book on the Dowager Empress Cixi about China in the late 19th century and the problem China had then in accommodating change. Its problems were made worse by what Patten describes as the "appalling" way much of the world behaved towards China. He was struck by reports that senior Politburo member Wang Qishan had given his colleagues and senior cadres copies of Alexis de Tocqueville's book on the ancien regime in France, and the difficulties of reforming an authoritarian government.
"I say authoritarian — while recognising the huge liberalisation which has taken place in China in the last 20 or 30 years — because there is still very strong control at the heart.
"de Tocqueville noted that an authoritarian government is at its most vulnerable when it starts to reform. His argument is that reform has to be managed with exquisite sensitivity, and that, in a way, runs with the grain of human nature." And while they are reading about the French revolution, Patten adds, mischievously,  it would be sensible for senior cadres to also read de Tocqueville on Democracy in America.
"Sooner or later, whichever comes first, political and economic liberalisation goes together and produces sustainable political and economic success," he says.
Since leaving Hong Kong in July 1997, Patten has been back to the territory eight times, with another visit due next year. The Pattens, including three daughters and eight grandchildren, celebrated Christmas 2011 in Hong Kong.
Patten thinks it would be "wholly wrong" for a former Governor to offer "a political or economic dipstick" on Hong Kong.
He observes that the Hong Kong skyline is slightly different on each visit, and that pollution is worse than it was a few years ago.
"But there is every sign of continuing economic growth. I'm pleased that the rule of law and the independent judicial system has survived. I hope that the civil service will survive as a clean and efficient organisation because the civil service was always one of the best in Asia, or anywhere for that matter."
Patten is particularly pleased that the Hong Kong press has remained "admirably outspoken and investigative". But he is obviously disappointed with lack of progress on the democratic agenda. "There is still a strong sense of citizenship in Hong Kong, which is one of its greatest virtues. Hong Kong is not like anywhere else. Hong Kong people understand that, and are prepared to stand up for it.
“Hong Kong is not a democratic society, but it is a free society. I hope. in due course, it will become democratic as well as free."