Romani Prodi, former Prime Minister of Italy and frequent Eurocrat, took a moment to speak to room of reporters yesterday at China Europe International Business School’s (CEIBS) Lujiazui Finance Research Centre. Prodi, who is widely derided as a boring and pedantic speaker in Italy, was relatively glib at the conference, holding forth on a wide variety of topics on the European Union and China. He dutifully took notes as reporters asked questions, then answered them one by one.
If Prodi’s comments had a recurrent theme, it was the advocation of the Continental model to China. When Chinese state media asked him about the Greek debt crisis, he pooh-poohed its gravity ("This country only constitutes 2% of the EUs GDP"); when asked whether the decision, made under his EU Commission leadership, to expand the EU from 15 to 25 states might have been premature – especially given that Greece was busted cooking its books to meet the EUs economic criteria – he said that the EU had no choice. "When the train passes, you have to catch the train." He also defended incorporating bits of the former Yugloslavia one by one using a similar GDP ratio logic.
Prodi may well be right about Greece, but when it comes to Yugoslavia, the issues are more political than economic. Strengthening the divide between Croatia and Serbia by planting an EU flag on one side of it seemed profoundly foolish to me, as it exacerbates both the same cultural and economic disconnections that once led those countries to engage in a horrific war – a war that showed Western Europe at its muddling, paralyzed worst … and incidentally provoked a dangerous Sino-US diplomatic crisis.
Prodi then turned to the subject of public debt and social services. He pointed out that despite "Anglo-Saxon" suspicions of wider instability in southern European countries, both the UK and the US have higher levels of public debt than Italy or Spain. This defense is a bit simplistic, to put it mildly. Likewise Prodi’s suggestion that China not embrace the US model of privately provided social services. Prodi is right to note that the US spends a lot more on social services as a proportion of GDP than Italy does (17% and 8%, respectively), but it is doubtful that China would be willing to accept the Italian welfare state if it came with Italian growth or Italian research productivity. And there are genuine questions as to whether European-style social service systems are scalable enough to work in countries as large and diverse as China or the US. Still, Prodi hailed China’s decision to use the stimulus package to improve social services as the most important chapter of modern Chinese history, and no doubt he is right.
On other questions, his responses were less useful. He derided the Lisbon Treaty, which is supposed to unify European trade negotiating strategy toward countries like China and prevent member states from breaking ranks, as a "compromise on a compromise on a compromise." But he seemed to believe it is still an improvement: "It is what can be done now."
The final question I posed was related to the decoupling thesis. Given how the current financial crisis has illustrated how firmly dependent the global economy is on the American one (those who say China has managed to decouple ignore how much China is spending to keep the economy afloat until the US recovers), what policies does Prodi believe are necessary to make Europe and China less reliant on exports to the US consumer? On this question, Prodi answered indirectly. He noted that Europeans and Asians had participated in the US economic crisis by buying bundled mortgage products, thus voluntarily increasing their exposure, without explaining why foreign investors would prefer such products to investing in their own economies. And then he argued that the crisis called for a greater level of global financial regulation: "You cannot have a globalized economic system with local control," he said.
Two things. First, we do have precisely such a system, albeit with increasingly powerful international regulatory institutions, and while it may not be perfect, the proposal for a truly powerful international regulator is a pipe dream that only a politician on the sidelines, however temporarily, could advocate as a solution. Second, one might argue that another way of describing local control is "checks and balances."