It is difficult – meeting as we do a few hours after the bloody and criminal act of war against London, one of the most beloved Europeans cities – to concentrate on the specific issues of our agenda. As done yesterday by the deputy prime minister Giulio Tremonti, I first want to convey to the British people the Italian Government’s condolences for the murderous attack they have suffered. Terrorists may be able to inflict immense suffering upon innocent people and cause momentary disruptions, but they can not, and will not, prevail. To win the war they are waging against us, however, we need greater political unity – within Europe and within the larger Atlantic community. We need more, not less unity. In this respect, the Aspen format has an important role to play. I understand that yesterday the debate led to an ideal division of labour among the three largest economic areas of the globe, whereby the U.S. would adjust its twin deficit of trade and budget, the Asian countries would realign their currencies and Europe would tackle its crisis. In fact, the word that best defines Europe's current political predicament is "crisis." Over the last month, every major item on the European Union agenda has been put on hold, from the constitutional treaty to the 2007-2013 budget to further enlargement. A European “crisis” is a serious cause of concern. For it may mean not simply a temporary slowdown of the integration process, but a U-turn. Often compared to a bicycle ride, the process of European integration looks at risk of falling aside any time it stops going forward. I do not share the pessimism of this analogy, however. Most evolutionary processes, especially in politics, have very little to do with bicycles. They rather proceed by fits and starts. Crises always lurk behind corners, especially after long periods of uninterrupted success. And as Tony Blair is fond to say these days, in every crisis there is an opportunity. The last twenty years have indeed been for Europe such a period of uninterrupted success. Who remembers now the mid-eighties Eurosclerosis? Think of what happened in the meantime: the making of the internal market; the reunification of Germany; the creation of the European Monetary Union in 1992 leading up to the actual circulation of Euro notes and coins ten years later; the doubling of the number of member states, from 12 to the current 25; the elimination of internal border controls throughout the continent proper; the launch of EU-led military peacekeeping operations in the Africa and the Balkans. The constitutional treaty was meant to wrap up all these formidable accomplishments and as such it represented the apex of Europe’s political ambitions. But while the accomplishments had been fuelled in the nineties by a buoyant economy, the ambitious new treaty’s moment of truth arrived in the midst of a serious economic slowdown. The roots of the current political crisis of Europe are of an economic nature As Manuel Barroso told us a few days ago, what killed the constitutional treaty in France was to so much the text, as the context. American neo-cons welcomed with a cry of joy the French and Dutch popular rejection of Europe’s constitutional treaty. From Bill Kristol, to the American Enterprise Institute and the Heritage Foundation, no intellectual on the right made the slightest attempt to disguise the glee they felt in watching the defeat of “the most anti-US politicians in Europe”. Their satisfaction must have reached a climax when, two weeks later, Europe’s leaders put the treaty on hold and spectacularly failed to reach an agreement on the EU 2007-2013 financial perspectives. But as a more perceptive American observer of European affairs, Philip Gordon, put it: “Far from a statement about Chirac’s foreign policy, the main message delivered by [French] voters was about the economy”. Basically, what went wrong with the European economy is that France, Germany and Italy - the big three of the euro zone - failed to produce jobs and growth. Their failure stems from the fact that after having embraced the Maastricht school of thought (macroeconomic stability through stringent fiscal and monetary constraints) they balked at embracing the Lisbon school of thought (market-led flexibility through structural reforms). I have argued in the past that the Maastricht set up is too restrictive. I believe in particular that the “mission” of the ECB is too narrowly confined to ensuring price stability and I have also the feeling that at times monetary policy of the ECB could be more lenient without endangering price stability. In general I would welcome a wider definition of the ECB’s mission along the lines which govern the US Federal Reserve. In any case, I see the logic of the fiscal and monetary framework of Maastricht and wonder why Europe’s big Three after launching the Euro did fail to see that the implication was that markets should be the principal actors in the growth process. If there is a single obsession in Europe's economic soul-searching, it is the United States. Leaf through any of the hundreds of economic analyses produced each year by the European Commission and you'll inevitably find comparisons between the two sides of the Atlantic: how Europe is falling behind the United States in income and productivity, in the use of information and computer technologies, in research and development, innovation, employment, etc. In a nutshell, what explains the better performance of the United States vis-à-vis Europe in the last few years is a greater freedom of movement in both macroeconomic terms (rapidly turning a fiscal surplus into a deficit when need be) and microeconomic terms (less segmented and more open labour, product and services markets). In the euro zone, however, the Maastricht treaty and the attendant stability pact foreclosed the use of fiscal and monetary levers. Europe now has only one - microeconomic - road to jobs and growth. This is exactly what the Lisbon Agenda is all about. It is true that the mid term review has indicated that the Lisbon’s reforms have largely remained on paper. It was wise however in the European Council of March 2005 to insist on Lisbon as a major objective and to ask members states to produce three years programmes on the implementation of the Lisbon goals. The European Commission, which was entrusted with the task of monitoring this process, has set the 15th of October 2005 as the deadline to submit these plans. Can Europe make it? It must, because no less than its political future hangs now on the eventual success of the Lisbon strategy in turning around the economy. A renewed sense of public trust in the European institutions – and the restart of the constitutional treaty ratification process – can only be won by quelling the mounting angst for the state of the economy. There is but the steady creation of jobs and growth which can make further enlargement of the EU acceptable to European citizens – think of Turkey. Even decisions on spending priorities are easier when the pie is made larger by a more sustained creation of wealth. Thus implementing structural reforms is the opportunity that comes with the current crisis. Britain saw it before most others. Will continental European leaders take it? France is a cause for concern, not only because elections are long in coming, but also because neither the right nor (more understandably) the left seem keen on making the Lisbon agenda work. In less than a year, general elections will be held in Germany and Italy. It is certain that economic reforms will be the decisive issue in both. It is to be hoped that voters will empower governments not afraid of a change pointing to a more liberal society. The role the U.S. can play in the economic and political rebound of Europe cannot be underestimated. Coming just three days after the crisis registered at the European Council of 16-17 June, the EU-U.S. mid-year summit went this time largely unnoticed. Which is a pity because the two partners approved, among other things, a Declaration on Enhancing Transatlantic Economic Integration and Growth that looks very much like, well…the Lisbon agenda. It is heartening to see that also this American administration, as the ones before it, understands the importance of the EU as an active and engaged political actor, over and above its member states. What the neo-cons fail to see is how little America has to gain by the disunity of Europe. And that shows in an endless list of issues of concern to the U.S., ranging from GMOs – on which the Commission is far more open than member states – to NATO burden sharing – where avoiding the duplication and waste brought by having 25 different defence establishment is even more important than absolute levels of spending – to EU enlargement. Whatever political revenge against “the most anti-U.S. politicians in Europe” Americans wanted to have, they had it. It is time now, for them as for us, to look ahead. Ladies and Gentlemen, Paul Samuelson, one of the great economists of our age, used to warn us young economists, that we should avoid offering forecasts as to the future and confine ourselves to cautious hypotheses as to the past. Politicians cannot be that prudent. We have to stick our neck out for, as Tony Blair forcefully said in Brussels a few days ago, Europe’s crisis is fundamentally a leadership crisis. To emerge from the present predicament, continental Europe - and the big 3 in particular - needs to adopt bold economic reforms. As Martin Wolf put it in an article in the Financial Times: for Europe “market-led flexibility is not an option, but a necessity”. I am sure that Europe will rise to the challenge. And I am sure that terrorism which is meant to divide us, will fail and produce the opposite effect. For united we stand. Thank you Mr. Chairman. Giorgio La Malfa is Italy’s Minister for European Affairs An abridged version of this speech was published in The International Tribune of 9-10 July 2005