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Lugano Speech: Europe - or Rather the European Union - in Mid-2020s, as Seen from Prague

English Pages, 11. 11. 2025

Many thanks for the invitation to this important gathering and at the same time to this extremely beautiful corner of Europe which is a value added. I have travelled through Lugano many times, once even stopped here for a coffee, but never stayed here overnight. We in the far north, I mean we Central Europeans, see Lugano and the whole region as a unique part of Switzerland with a pleasant Italian flavour. We take it as an excellent combination. 

Let me express my gratitude to Alan Friedman, Executive Director of the Forum. We met at a similar event in Polish Karpacz in early September. He listened to my speech there, probably liked it, and the consequence is my being here today. Once again, thank you for bringing me to the Lugano Forum. 

It is also very pleasant to meet here an old colleague of mine, Romano Prodi, after such a long time. We had a chance to see each other repeatedly in the 1990s when we both served as Prime Ministers of our countries. We were helped by our similar background, by being university professors of economics before entering politics. It made it easier to find common topics and positions. 

We are just a little older now. Surprisingly. Nevertheless, I expect that he came here on his legendary bicycle. Without Romano’s permanent pedalling, the EU would have ceased to exist – as he famously proclaimed. So fragile the EU probably seemed to him. That statement already belongs to history. 

Originally, two months ago, I was asked to make a speech here with the title “Europe at a Crossroads”, but I dared to disagree. I saw it as a wrong and misleading idea. Europe isn’t a political, economic or social entity. Europe – as a continent, as a geographical space, as a conglomerate of nations and countries – can’t be at a crossroads. The continent doesn’t have any ability to choose where to go, what direction to take. What can, eventually, be at a crossroads these days is a man-made organization. the European Union. I am afraid the leaders of the EU don’t see it that way. 

In 2004, after the entry of the Czech Republic into the EU, as President of the country, I extensively travelled all around Europe and visited all EU old member-states. I was repeatedly greeted with the seemingly friendly phrase “Welcome in Europe”. I always protested. My country had been part of Europe all the time, even during the dark communist days. We were just not part of the EU. 

The difference between Europe and the European Union is, for me, essential. In my correspondence with Alan Friedman and Barbara Erskine, they suggested that I speak about “the failure of Europe” and about “its lack of unity”. I will try to make a few remarks on it. 

As an economist, I am more than well aware of the ongoing creeping stagnation of the European economy (especially as compared to the economic growth of South-East Asia and the US) and of the declining share of Europe in the world economy (and foreign trade). I would have been pleased to be asked to speak about it here, but this stagnation is not the failure of Europe. The economic stagnation is the result of the lack of competitiveness of European firms. 

And this lack of competitiveness is the consequence of the failure of politics and of the politicians governing individual European countries. It is the consequence of the intentionally introduced and years and decades maintained inefficient, overregulated and overcentralized economic system created by the – economic rationality violating – economic policies. Most of us would probably agree that the economy in Europe is now more social than market, more green than free, and increasingly, more digital than open. 

Some of us may be oversensitive in this respect. I am. It is due to my personal experience. When the promising Czechoslovak economic reforms of the 1960s were brutally interrupted by Soviet (and Warsaw Pact) armies in August 1968, Leonid Brezhnev tried to suggest us an alternative solution to market-oriented reforms. Of course, a totally wrong and impractical one. When he supressed our attempts of making fundamental systemic changes, he came up with the idea of “scientific and technological revolution” as a way how to catch up with the West and eventually how to overcome it. This became the official communist ideology of the 1970s and 1980s. I don’t mention it for the sake of teaching history. I find it, to my great regret, relevant again. 

Many aspects of the current information (or digital) revolution are in my eyes based on a similar technocratic, non-economic way of thinking. What we need isn’t digitalization. It will come whether we want it or not. What we need is a return to free markets and free trade. This fundamental truth has been forgotten in Europe. The European economy has been instead heavily taxed, regulated and restricted in the last decades. The markets are not free. Digitalization is not the opposite to an overregulated state, but a method how to make regulation more easy and more efficient. How to regulate us more effectively. 

I know that to preach this is a minority view. I know that the explicit or implicit heroes of congresses like this one are people like Mario Draghi. His recent Rimini speech motivated me to call him – at a conference in Prague – Gorbachev of Ursula von der Leyen’s European Union. He speaks as a typical “perestroika” man, if someone still remembers that term. Draghi wants to keep the basis of the current arrangements untouched. Gorbachev also wanted to preserve communism but aimed to make it – technocratically – more efficient. 

In our Velvet revolution, whose 36th anniversary we will celebrate in Prague in a week’s time, we refused the idea of perestroika, this form of “a third way”, and declared instead that we wanted capitalism, “the first way”. I am, similarly, convinced now that we need a change of a systemic type in the whole of Europe. The sooner, the better. A continual patchworking is not enough. It is not sufficient to “turn scepticism into action”, which was the title of Draghi’s Rimini speech. We should pay attention to the substance of the system. 

In the past, in our efforts to critically look at communism, we understood that the fundamental step forward would be to give the economy a sufficient autonomy which was, of course, incompatible with central planning. The economy mustn’t be dictated by politics. I saw this as the root of the problem already more than half a century ago. Today’s economy in the countries of the EU is in a similarly subordinate position – the economy is again dictated by politics. 

The roots of that are these days not in the old socialist concepts of exploitation and equality but in the doctrine of environmentalism, in the green ideology. The Green Deal, oder die Energiewende für die deutschsprachigen Schweizer, is an embodiment of this. My good friend, Swiss economist and journalist, Claudio Grass put it clearly: “the energy transition in Europe was catastrophically premature”. I am sure the rapidly growing technical progress itself will – in due time – bring about some form of an energy transition, but such a transition has enormous costs when it is done ex-ante, prematurely. We pay these costs now. 

A further typical complaint of European technocrats is “the lack of unity”. Is it about the lack of genuine European unity which would reflect and respect the interests of individual nations, or is it about the asked for formal unity which should make the political unification of Europe meaningful and justifiable? 

The shift of economic integration to political unification has been a very problematic development. It represents an attempt to homogenize the authentically very heterogeneous European continent. Let’s not blow against the wind. Let’s accept the existing heterogeneity and its consequences. 

Even Mario Draghi asks for a change: “the EU must move toward new forms of integration”. What should we imagine under his “new forms of integration”? What will be new? The idea of a closer or more united Europe? Will it be new? And will it be a way to an improvement? I doubt it. 

In his Rimini speech, Draghi shocked me by differentiating between bad and good debt, something which is not in serious economic textbooks. He even declared that “good debt is no longer possible at the national level. … Only common debt”. Was this meant seriously? Do we read his texts with a full attention? 

I am, of course, aware of the 2022 book by Berry Eichengreen “In Defence of Public Debt” where the author also distinguishes between good and bad debt. For him, the “good” debt is the one used for macroeconomic stabilization and productive investments and the “bad” debt for public and private consumption, but this is just playing with words. It is – in substance – the extreme, unreconstructed version of Paleo-Keynesianism. 

I am convinced that the existing heterogeneity of the EU 27 member states does not ask even for the current degree of centralization of the EU, not to speak about the endless and continuous transfer of competencies to Brussels. Should we become even more centralized than we are now? I am resolutely against it. A country bordering Morrocco is different and has different national interests than a country bordering Russia. A country close to the Arctic Circle is different than Sicily. The old biblical principle of subsidiarity shouldn’t be translated into a non-biblical axiom “the more power concentrated in Brussels, the better”. It is probably not necessary to stress that here in Switzerland. I follow the discussion here by regularly reading Die Weltwoche. 

At the end of the 19th century, the economists, and it was a great achievement, invented the very useful and productive term “public goods”. The economists did it, not the critics of economics. But this term mustn’t be misused. We shouldn’t accept the claim of non-economists that almost all goods are public goods. And that they all need a central planning, called these days – euphemistically – a regulation. The economists know that there are, in reality, not many public goods (in general) and only a very few at a continental level. The competences of EU institutions must be, therefore, radically decreased, not increased. 

Some Europeans, above all the Brussels politicians, have the feeling that they are not listened to in the rest of the world. Will they be able to talk to the US and China as equal partners – auf Augenhöhe auf Deutsch – by artificially uniting Europe, by transferring more competencies to Brussels? I don’t think so. The strength is not and will never be given by the size. We will never be able to compete in this respect. Our real strength lies in our freedom, in our diversity and in our free competition of views and ideas. And it should stay so. 

Let me conclude. Those were, in my view, the topics which should be discussed at conferences like this one. We need a free discussion, not a fair one. Especially not a politically correct one. Many thanks for giving me a chance to do it here in Lugano. Thank you for your attention. 

Václav Klaus, Lugano Global Forum, Lugano, November 11, 2025