[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


 
                      THE EUROPEAN UNION'S FUTURE

=======================================================================

                                HEARING

                               BEFORE THE

         SUBCOMMITTEE ON EUROPE, EURASIA, AND EMERGING THREATS

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 14, 2015

                               __________

                           Serial No. 114-61

                               __________

        Printed for the use of the Committee on Foreign Affairs
        
        
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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       BRIAN HIGGINS, New York
MATT SALMON, Arizona                 KAREN BASS, California
DARRELL E. ISSA, California          WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina          ALAN GRAYSON, Florida
MO BROOKS, Alabama                   AMI BERA, California
PAUL COOK, California                ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas            GRACE MENG, New York
SCOTT PERRY, Pennsylvania            LOIS FRANKEL, Florida
RON DeSANTIS, Florida                TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina         JOAQUIN CASTRO, Texas
TED S. YOHO, Florida                 ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida                BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
TOM EMMER, MinnesotaUntil 5/18/
    15 deg.
DANIEL DONOVAN, New YorkAs 
    of 5/19/15 deg.

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director
                                 ------                                

         Subcommittee on Europe, Eurasia, and Emerging Threats

                 DANA ROHRABACHER, California, Chairman
TED POE, Texas                       GREGORY W. MEEKS, New York
TOM MARINO, Pennsylvania             ALBIO SIRES, New Jersey
MO BROOKS, Alabama                   THEODORE E. DEUTCH, Florida
PAUL COOK, California                WILLIAM KEATING, Massachusetts
RANDY K. WEBER SR., Texas            LOIS FRANKEL, Florida
REID J. RIBBLE, Wisconsin            TULSI GABBARD, Hawaii
DAVID A. TROTT, Michigan
                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

John McCormick, Ph.D., Jean-Monnet Professor of European Union 
  Politics, Indiana University-Purdue University Indianapolis....     4
Stephen Walt, Ph.D., Robert and Renee Belfer Professor of 
  International Affairs, Belfer Center for Science and 
  International Affairs, John F. Kennedy School of Government, 
  Harvard University.............................................    12
Jacob Funk Kirkegaard, Ph.D., senior fellow, Peterson Institute 
  for International Economics....................................    20

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

John McCormick, Ph.D.: Prepared statement........................     7
Stephen Walt, Ph.D.: Prepared statement..........................    14
Jacob Funk Kirkegaard, Ph.D.: Prepared statement.................    23

                                APPENDIX

Hearing notice...................................................    46
Hearing minutes..................................................    47

                      THE EUROPEAN UNION'S FUTURE

                              ----------                              


                         TUESDAY, JULY 14, 2015

                       House of Representatives,

         Subcommittee on Europe, Eurasia, and Emerging Threats,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The subcommittee met, pursuant to notice, at 2:01 p.m., in 
room 2200, Rayburn House Office Building, Hon. Dana Rohrabacher 
(chairman of the subcommittee) presiding.
    Mr. Rohrabacher. I call to order the Europe, Eurasia, and 
Emerging Threats Subcommittee for this afternoon's hearing on 
the future of the European Union.
    From a relatively modest idea in the early 1950s for six 
countries to form a common market for steel and coal 
production, the supranational organization that we now know as 
the European Union was created. Five and a half decades on, the 
European Union has expanded to include 28 national governments 
and represents over 500 million people. Taken together, the GDP 
of the EU is over $18 trillion, one of the largest global 
economies.
    The historical forces which promoted the European 
integration after World War II helped to make that continent 
more peaceful and more prosperous. The European Union and the 
liberal values it embodies helped numerous post-Communist 
Eastern European countries make the transition from their 
Socialist Communist economies to a market economy. The fact 
that new countries continue to seek membership shows that the 
fundamental values of the EU are the right ones and continue to 
be attractive.
    Despite this, however, the future of the European Union and 
the entire project of European integration has arguably never 
seemed so much in doubt. The EU has expanded to include 
economies of all sizes, countries, and different cultures, and 
sometimes conflicting national interests. This has led many to 
rightfully ask: Has the EU become too large to manage? Must 
more authority continue to be ceded to Brussels in order to 
prevent dysfunction?
    While the negotiable agreement reached by the Greek 
Government yesterday appears to keep Greece in the eurozone for 
the time being, the crisis there is far from over. Greece's 
economy has shrunk by a quarter, and youth unemployment is 50 
percent. And I hope the implementation of this latest 
agreement, which we saw yesterday, will set Greece on a better 
path. But, given the experiences of the past 5 years, I am 
certainly less than optimistic.
    So let me just note, in 1953, Germany received a massive 
debt relief from its creditors. I can't help but wonder, if 
Greece received the same treatment 2 or 3 or 4 years ago, would 
we still be in this crisis moment that we see in Greece today? 
If questions about the integrity of the eurozone weren't 
enough, the authority and the legitimacy of the EU is also 
being challenged from within.
    The popularity of basically Eurosceptic political parties 
has increased, and they are pushing back against the 
centralized power in Brussels. In last year's European 
Parliamentary election, over a quarter of the seats were 
claimed by Eurosceptics and Eurosceptic parties. In 2016, 2017, 
Great Britain, one of the largest EU countries, will hold an 
in-or-out referendum over the question of remaining in the 
European Union.
    In the face of a major fiscal question and increasing 
doubts among the citizens of Europe, what then is the future of 
the EU? Have the influences, which historically drove 
integration, now are they driving people apart rather than 
bringing them together? Or is the answer to these difficulties 
to double down and to deepen the union to an even greater 
degree?
    Before we go on, let me just note, I think the Greek crisis 
has an important lesson for our own country: A government can 
live beyond its means and live well on deficit spending, but 
not forever. And I hope lawmakers here in Washington, not just 
in the European capitals, have taken note of that fact.
    So, with that said, I am looking forward to our witnesses. 
And I will turn now to the ranking member, Mr. Meeks, and then 
I will introduce the witnesses.
    Mr. Meeks, you may proceed.
    Mr. Meeks. Thank you, Chairman Rohrabacher, and thank you 
for working with and putting this hearing together to provide 
us with an opportunity to openly examine current events in 
Europe and how they will shape the European Union's future.
    The future, it seems, is becoming the present quickly. For 
many of us who work on Europe and related issues in this House, 
events within the EU have come into sharp focus. The issues 
being sorted out are not new, however. The United Kingdom has 
always had a special relationship with the continental Europe. 
The Greek economy did not begin to show troubling signs 
yesterday and the rise of extremist parties is not something 
new to Europe.
    The question, therefore, is this: Are we seeing a 
restructuring of the European political system, or is this 
simply a necessary crack along the path to a more peaceful and 
united Europe? A prime example is the situation in Greece. This 
process is a reminder that the union is indeed a process and a 
club that demands cooperation, solidarity, and compromise. It 
is moments like what we have witnessed over this past weekend 
and into the early morning of yesterday that tests the mettle 
of the Union.
    And I am encouraged by the fact that the parties came to an 
agreement for now and wish to see that the Greek Parliament 
make the necessary decisions in the upcoming days. Hopefully, 
in the future, such crises can be stemmed earlier in the game 
and not lead to brinkmanship involving such high stakes.
    You know, I just returned from a trip to Riga, Latvia, 
where I discussed these issues with Latvian political leaders, 
their foreign ministers, citizens, and as well as with members 
of the European Parliament. They clearly see the benefits of a 
successful European Union and an American presence on the 
continent. During the cold war, they lived on the other side 
under a regime that did not allow them the freedoms and 
prosperity they have today.
    In Latvia, I also shared a meal with young American 
soldiers--some who happened to come from my State of New York--
that represent our friendship and common values with Europe. On 
the ground, in people's lives, the future of Europe depends 
upon us working in partnership, America and our friends across 
the Atlantic. A united Europe represents American ideals along 
with European ideals and commerce and liberty and security that 
can lift standards all over the world.
    Though difficult, times like these, I think that it is time 
that I believe that by working together we can ensure success. 
From the U.S. Congress' perspective, we understand the 
difficulties in creating a more perfect union, and we are still 
trying to move in that direction. But let us take a step back 
to define our important relationship with Europe and the 
European Union. The European project is a peace project firmly 
aligned with American interests and designed to promote liberal 
democratic ideals while working for the global common good.
    Such a project may seem lofty, but in practice, it sets a 
framework to facilitate the free movement of people, commercial 
goods, finance, and ideas. This unprecedented and evolving 
union on the other side of the Atlantic consists of allies, our 
allies. And, of course, there is no roadmap for constructing 
the EU. Whether or not these mistakes could have been avoided 
is irrelevant at this time as we work together to iron out the 
remaining wrinkles in the European Union, working with them.
    In our country, we are still perfecting our system of 
government and cooperation between the State and Federal 
levels, yet I believe that despite the difficulties of such an 
ambitious European Union, the will to do that is there. Despite 
the pain of reforms, the overwhelming majority of Greek 
citizens want to remain in the European Union. And we will find 
out what citizens of the United Kingdom think of their 
membership soon also. The internal affairs of the EU must be 
resolved so the integrity of the Union can continue to sustain 
its purposes.
    So, with that, Mr. Chairman, I look forward to hearing the 
testimony of our witnesses as we talk more because we have all 
kinds of scenarios. When we talk about ISIS, China, we have got 
to work together with our allies across the Atlantic. I think 
that is tremendously important, and as so, there is plenty to 
do. And I would love to hear the testimony of our witnesses.
    Mr. Rohrabacher. Thank you very much, Mr. Meeks.
    And, Mr. Sires, do you have a opening statement?
    Mr. Sires. I just want to say thank you for holding this 
hearing, and I want to hear what the witnesses have to say. 
Thank you.
    Mr. Rohrabacher. How about you, Colonel Cook?
    Mr. Cook. I just have a brief statement since there was so 
much talk about Greece, and depending upon votes, some of my 
questions may orient toward that.
    My big concerns right now are Russia. And Russia, which has 
been using oil and gas to control Europe, this is something 
that is not new. And, of course, if you look at the history and 
the cultural and historical ties, the Byzantine Empire, if you 
will, going back many, many years, long before I was born, I 
might add, that relationship kind of scares me, particularly 
the offer to help out the Greek economy. And that could drive a 
wedge between Greece, of course, and everything that is going 
on, and they might reorient themselves to Russia.
    And so my questions, when we do get there, will be oriented 
toward that. As I said, I am very, very concerned about that, 
and not just the EU, but it is going to dwell into, of course, 
NATO.
    So thank you very much for being here today. I am glad you 
had this hearing.
    Mr. Rohrabacher. Thank you very much, Colonel.
    And we have three witnesses with us today. I would ask each 
of them to try to sort of put all of it down in about 5 
minutes, if you could, and the rest you can submit for the 
record. But try to pick out the points that you really think 
are the most important for us to discuss. And then we will 
have, as I say, a dialogue afterwards.
    Our friend from Alabama, Mr. Brooks, do you have an opening 
statement at all that you would like to make?
    Mr. Brooks. No, sir.
    Mr. Rohrabacher. All right. So, with that said, let me 
introduce our witnesses.
    Dr. John McCormick is the Jean Monnet Professor of European 
Union Politics at Indianapolis campus of Indiana University. 
And he has authored over a dozen books, numerous journal 
articles. He was educated in Rhodes University in South Africa 
and University College London. All right.
    And we have with us Steven Walt, the Robert and Renee 
Belfer Professor of International Affairs at Harvard's John F. 
Kennedy School of Government. And he is a contributing editor 
to Foreign Policy magazine and has authored four books on 
international affairs, including a New York Times bestseller.
    And, finally, we have with us Dr. Jacob Kirkegaard, and he 
is a senior fellow at the Peterson Institute for International 
Economics. Previously, he worked with the Danish Ministry of 
Defense and the United Nations in Iraq. He studied at Columbia 
University, received a Ph.D. From Johns Hopkins University.
    So we have three very prominent witnesses and people who 
are not only respected in the education but in foreign affairs 
as well, so we would be very appreciative of hearing what you 
have to say.
    Dr. McCormick, you may begin.

 STATEMENT OF JOHN MCCORMICK, PH.D., JEAN-MONNET PROFESSOR OF 
 EUROPEAN UNION POLITICS, INDIANA UNIVERSITY-PURDUE UNIVERSITY 
                          INDIANAPOLIS

    Mr. McCormick. Well, good afternoon, and thank you very 
much for inviting me to this very topical hearing. My name is 
John McCormick. I am the professor of political science at the 
Indianapolis campus of Indiana University, and I have been 
studying, teaching, and writing about the European Union and 
its precursors for about 25 years.
    In that time, the last decade, without question, has been 
the most challenging and the most troubled, beginning with the 
rejection of the constitutional treaty in 2005, moving to the 
global financial crisis that began in 2007, the eurozone crisis 
that began in 2009, which both evolved against a background of 
a growing popular reaction against European integration, a deep 
cynicism about the achievements of the European Union and 
doubts about its capacity to play a meaningful role in the 
world.
    Regardless of all this, I remain the eternal optimist. I 
continue to believe very much in the many longer term 
achievements of the European Union: For example, the European 
single market and its many benefits; the role of integration in 
helping keep Europe at peace; the slow building of a Pan-
European identity; the promotion of democracy and free markets, 
both at home and abroad; and everything from a cleaner 
environment to greater mobility for college students to cross-
border police cooperation, common policies on trade and 
competition.
    So we are here today to talk about the future of the 
European Union, but doing so is particularly difficult because 
of the nature of the raw material that we have to work with. 
And there are two particular problems that present themselves. 
First of all, we cannot agree on the political identity and 
personality of the European Union. It is very difficult to have 
a meaningful conversation and discussion about its successes 
and failures or about its future prospects when we don't know 
what ``it'' is.
    Unfortunately, nobody has yet offered a definition of the 
European Union that can help us sort through these 
complexities. And when I am asked to answer the question, 
``What is the European Union?'' My answer is, it is a 
confederal system with Federal qualities. And, unfortunately, 
that definition always demands subsidiary conversation about 
what exactly I mean, and it is not one with which many of my 
peers would anyway agree.
    Second, much of the debate about the European Union and the 
effects of European integration is diverted by 
misunderstandings about the power and the reach of the European 
Union. Critics routinely overstate the powers of the European 
Union institutions. They routinely overstate the extent to 
which the laws of the member states are driven by the 
requirements of European Union law. They routinely blame the 
domestic problems of the member states on perfidious Brussels. 
And they often choose to focus more on the problems of the 
European Union, which make for dramatic headlines, than 
focusing on the successes, which don't.
    So I was asked to comment specifically on three matters, 
and while I have done so in more detail in my written 
statement, I will just provide a very brief summary here. First 
of all, there is the question of the sovereign debt crisis in 
Greece. Many bright and creative minds have wrestled with the 
design and implementation of the euro and then with how best to 
respond to the debt crisis, and yet we still find ourselves in 
dire straits.
    So predicting the future presents an enormous challenge. I 
do believe, though, that the crisis will be resolved; that all 
parties will adapt to the outcome; and we will learn and move 
on. Why? Very briefly, because the euro project is too big to 
fail, both politically and economically.
    Secondly, there is the question of the U.K. Referendum on 
membership of the EU, and here I am on firmer ground. I predict 
firmly that the British people will vote to remain part of the 
European Union. Why? Because the majority in favor of staying 
has been growing; because the referendum debate itself has been 
a learning experience that has drawn more attention to the 
benefits of staying and the costs of leaving; and because the 
Cameron Government has pledged to negotiate with forms of the 
European Union that may result in a further reduction in 
support for leaving. Now, we should also remember that the 
referendum is ultimately an effort to resolve a disagreement 
within the governing Conservative Party. And we should assess 
it as such.
    Finally, there is the question of the electoral success of 
Eurosceptic political parties. It is true that they are 
attracting more support, but this is as much because of 
criticism of the political establishment in Europe and also as 
much about concerns about immigration as it is because of 
criticism of the European Union. And it is also important to 
appreciate that Euroscepticism comes in many different shades 
and that while some of its adherents wish to see their home 
states leave the European Union, many seek only reform of the 
European Union.
    So, in conclusion, I would argue that the successes of the 
EU far outweigh its failures, that the governments of the 
member states will continue to work hard in the interest of 
European integration, and that the EU will weather the current 
storms and emerge bruised but wiser.
    Thank you very much, again, for the opportunity to speak to 
you.
    [The prepared statement of Mr. McCormick follows:]
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    Mr. Rohrabacher. Thank you, Dr. McCormick.
    Dr. Walt.

   STATEMENT OF STEPHEN WALT, PH.D., ROBERT AND RENEE BELFER 
 PROFESSOR OF INTERNATIONAL AFFAIRS, BELFER CENTER FOR SCIENCE 
     AND INTERNATIONAL AFFAIRS, JOHN F. KENNEDY SCHOOL OF 
                 GOVERNMENT, HARVARD UNIVERSITY

    Mr. Walt. Mr. Chairman, Ranking Member Meeks, and members 
of the committee, it is an honor to speak with you today at 
this uncertain moment in European history. And given Europe's 
importance to the United States, trying to anticipate its 
future path is a critical task.
    It is hard to be optimistic, however, about the EU's 
prospects. It has been a positive force in world politics for 
many years, but it suffers from growing tensions and self-
inflicted wounds. It is likely to experience repeated crises 
and growing divisions, and we cannot rule out a gradual 
decline. Because a prosperous and tranquil Europe is in our 
interest, this is not good news for the United States.
    As we have just heard, the European Union is in many ways a 
remarkable political achievement. Yet despite its past 
accomplishments, it faces five fundamental challenges, none 
easy to overcome. First, it is a victim of its past success. 
What began as a limited arrangement among six countries has 
become an elaborate supranational organization of 28 members. 
Those members are increasingly heterogeneous. Germany's GDP is 
300 times larger than Malta's. Luxembourg's per-capita income 
is eight times higher than Latvia's, five times higher than 
Greece.
    The size, population, and economic resources of these 
states varies enormously, as do their cultures and national 
histories. The expansion has made the EU more cumbersome and 
less popular. Two years ago, more than 70 percent of EU's 
citizens believed ``their voices do not count in EU 
decisionmaking.'' Nearly two-thirds believed ``the EU does not 
understand the needs of its citizens.''
    Second, although the disappearance of the Soviet Union was 
a welcome development, it removed one of the main motivations 
for European unity. Since then, EU members have repeatedly 
pledged to develop a common, foreign, and security policy, but 
they have never done so. Today, the incoherent European 
response to events in Ukraine highlights the lack of consensus 
on basic security issues.
    The third problem facing the EU today, of course, is the 
euro crisis. Seven years has passed since the crisis hit, and 
the EU still lacks the political institutions needed to sustain 
a genuine currency union. If Greece eventually exits, its 
departure will demonstrate the euro is not irreversible and so 
new doubts about its future. If Greece stays in, another crisis 
is probably inevitable.
    Even worse, the crisis has sewn deep divisions within the 
continent, with debtors and creditors exhibiting a level of 
resentment and hostility not seen for many years. Needless to 
say, this is not what the euro's creators had in mind when they 
took that fateful step.
    Fourth, the EU is now buffeted by serious regional turmoil. 
State failures in Africa and the Middle East have produced a 
flood of refugees seeking entry. Extremist movements, like Al 
Qaeda, have had worrisome repercussions among some of the 
Europe's Muslim population. The conflict in Ukraine raises new 
concerns about the eastern frontier. The EU has been unable to 
agree on new measures to address any of these challenges, 
further underscoring its dysfunctional decisionmaking.
    The final challenge is the persistence of nationalism. The 
elites who built the EU hoped it would transcend existing 
loyalties. This has not occurred. Indeed, the United Kingdom 
may vote to leave the EU next year. Scotland may exit the 
United Kingdom. And national settlements continue to simmer in 
Catalonia and elsewhere.
    Now, economic hardship and rising concerns about 
immigration are reinforcing the emergence of Eurosceptic 
parties that reject the basic ideas on which the EU was built. 
And you add to that mix Europe's unfavorable demography--its 
population is declining, and the median age is rising rapidly--
and you have a recipe for continued economic stagnation, which 
will, of course, encourage the prospects of some of these 
nationalist parties.
    Looking ahead, you can imagine at least three possible 
futures for the EU. First, in theory, bold leadership could 
build the institutions needed to support the euro, assimilate 
new immigrants, adopt reforms to produce stronger economic 
growth. But that is unlikely. No European leaders today have 
the vision and stature of an Adenauer, de Gaulle, or Thatcher. 
Serious reforms would take years to implement given the EU's 
elaborate machinery.
    Instead of an ever greater Union, therefore, the EU is more 
likely to simply muddle through. It will try to contain the 
fallout from the euro crisis, hope new trade deals with the 
United States and with China will provide an economic boost. In 
this scenario, the EU survives, but its global influence 
declines.
    But there is a third possibility: The entire experiment 
could begin to unravel. A Greek exit would set a dangerous 
precedent. Nationalist sentiments could deepen. New 
authoritarian leaders could come to power. Greece or Hungary 
might even draw closer to Moscow. And once that process begins, 
the only question would be, how far and how fast will it go?
    Lastly, both muddling through or a gradual unravelling 
would be bad news for the United States. Slow growth in Europe 
means slow growth here in the United States. A weaker Europe 
will be less useful as the United States tries to deal with a 
rising China or a turbulent Middle East.
    To sum it up: Since the end of World War II, stability and 
prosperity in Europe have been a great benefit to the United 
States. And the EU has been a key ingredient in a world order 
that was very favorable for the United States.
    But if the EU's best days are behind it, Americans will 
have to prepare for a world that is less stable, less secure, 
less prosperous than the one to which we have become 
accustomed. I hope that is not the case, but that is the most 
likely outcome, given where we are today.
    Thank you very much.
    [The prepared statement of Mr. Walt follows:]
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    Mr. Rohrabacher. Well, we have heard from the optimist and 
the pessimist.
    And now do you have a fusion position for us, Doctor?

   STATEMENT OF JACOB FUNK KIRKEGAARD, PH.D., SENIOR FELLOW, 
         PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS

    Mr. Kirkegaard. Mr. Chairman, Ranking Member Meeks, members 
of the committee, it is a pleasure to testify before you today.
    In my oral testimony, I will address three impacts on the 
European Union's future: First, from the Greek sovereign debt 
crisis; then from the upcoming United Kingdom referendum on EU 
membership; and, finally, on the growing electoral success on 
Eurosceptic parties.
    The Greek sovereign debt crisis is first and foremost a 
crisis for the euro area. Relative to existing Pan-EU 
institution, recent developments have essentially cemented the 
existence of a multispeed Europe where countries in the euro 
area have undertaken dramatic new integration while other 
member states remaining outside the common currency are only 
affected to a limited degree.
    Recalling, however, that this multispeed situation has been 
de facto present in the EU for many decades, there is no 
obvious reason to fear that the existing new institutions 
cannot continue to cope with this situation also going forward.
    Recent events over the weekend saw a dramatic escalation in 
the confrontation between the Greek Government and the rest of 
the euro area. Negotiations took place with a major taboo in 
the euro area of politics, the possible exit of a member state 
from the common currency broken, and Alexis Tsipras for the 
first time faced this political calamity for Greece. He 
subsequently, in my opinion, quite understandably, folded his 
position.
    The decision, however, by the euro area to make the 
possibility of exit from the common currency an explicit and 
obviously very effective negotiating tool will have changed the 
nature of the euro currency itself. Given the willingness of 
top euro area political leaders to use this exit threat, the 
irreversibility of the common currency in all member states is 
today less certain and subject to a higher degree of political 
uncertainty.
    This will significantly have increased the political and 
financial onus on the euro area to agree to more and deeper 
institutional integration of the euro area in the short to 
medium term. Recent events in Greece therefore can be expected 
to lead to a further accelerated integration of the euro area, 
though, as mentioned, not have direct implications for the EU 
as a whole.
    The upcoming U.K. Referendum on EU membership is highly 
unlikely, in my opinion, to lead to material and lasting 
changes to EU institutions for the simple reason that the 
referendum is overwhelmingly likely to be fought with the U.K. 
Government, the Prime Minister, and all the main bridge 
opposition parties all campaigning successfully for the U.K. To 
remain in the EU.
    David Cameron and the U.K. Government will campaign, in my 
opinion, for a yes to avoid severing the ties between the 
Conservative Party and its traditional funding base in the 
British business, as well as to avoid the results in economic 
uncertainty and damage to the U.K. Economy from a no vote. 
Similarly, the referendum will take place in a favorably 
economic context of a projected growth between 2 and 2.5 
percent between now and 2016, which is the most likely year for 
the referendum.
    Most importantly, however, the politically necessary 
changes to EU law will be possible for David Cameron to 
achieve. In principle, EU law is valid throughout the 28 member 
states, yet in a number of cases, individual member states have 
secured so-called legal opt-out for specific elements of the EU 
treaty, exempting them from having to implement some policies 
at home.
    In short, the EU legal framework is a highly flexible 
animal when EU leaders require such flexibility and legal 
finessing to overcome a particular political problem. Given how 
Germany and many other EU members have already expressed their 
clear political interests in seeing the U.K. Remain a member of 
the EU, there can, in my mind, be no doubt that the full 
arsenal of legal EU flexibility around the EU treaty will be 
made available to David Cameron.
    There will, consequently, in my opinion, be ample 
opportunities for the Prime Minister to secure politically 
important as well as legally binding changes to the EU laws 
governing the economy at the United Kingdom as part of the now 
ongoing negotiation, all of which points to a yes vote in the 
referendum and therefore largely maintaining the institutional 
status quo within the EU.
    In recent years, many EU countries have witnessed the 
growth of new parties that can be classified as broadly anti-
establishment and Eurosceptic in their political outlook. At 
the same time, however, it is important to recognize that 
European parliamentary systems have historically often operated 
very successfully with very large anti-establishment 
representation at national and European levels.
    Prior to 1989, this was often seen with an often sizable 
Communist Party representation in national legislatures. There 
is, therefore, a priori no reason to believe that current 
levels of representation of these types of parties in EU 
Parliament represent a historically unprecedented and 
impossible situation.
    There is further no immediate reason to believe to 
Eurosceptic parties are going to continue to grow beyond their 
historical political range of up to about 25 percent of public 
support and into effective governing majorities across Europe. 
This is due to the narrowness of the core shared both left- and 
right-wing populist message of many of these parties, which can 
best be described as a welfare chauvinistic political platform 
that at once advocates a strong and activist role for the 
government in protecting the social welfare but only so for the 
native population.
    This policy mix has generally and successfully targeted the 
lower skill segments of European electorates yet has to date 
failed to extend much beyond these groups and into a genuine 
majoritarian platform. Yet, even without the prospects of 
gaining governing power, the stronger political voices of these 
parties very significantly raise the political hurdles for 
further revisions of the EU treaty.
    This means that the EU for the foreseeable future will have 
to continue to function within the broad legal framework laid 
down in the 2009 Lisbon Treaty. In sum, therefore, the recent 
reemergence of these Eurosceptic and anti-establishment parties 
across Europe will not materially affect the overall direction 
of EU policies but will greatly slow down the adaptability of 
the EU's existing institutional design to future challenges.
    In summary, therefore, the overall state of the EU is 
challenged but nonetheless remain more stable than is often 
believed. Thank you very much.
    [The prepared statement of Mr. Kirkegaard follows:]
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    Mr. Rohrabacher. Thank all of you for your testimony today. 
I will start with a few questions, and then we will proceed to 
our other members as well.
    So you are saying that the British are going to vote to 
stay in the EU.
    You are more pessimistic about that, correct?
    Mr. Walt. Actually, no, if I had to bet, I would bet that 
the U.K. Would remain in as well, but as was just said----
    Mr. Rohrabacher. Okay. So all three of you are thinking the 
U.K. Will stay in there, all right.
    I was interested in this talk about EU being flexible. And 
I think one of the things that I believe is being criticized is 
that Brussels actually is trying to manage things from a 
central location, and that is creating a lot of resentment 
among people. Just as here in the United States, some people 
are a little bit concerned about the fact that Washington, DC, 
is coopting various political decisions that used to belong to 
the States.
    But none of you are convinced that this in and of itself is 
a resentment about the centralization of power that will lead 
to the demise of the EU or at least some crisis for the EU. 
However, what about what you just touched on, the immigration, 
the effect of immigration into these countries? And, quite 
frankly, there is a lot of people in our country that don't 
believe that people who have come here illegally should be 
receiving government benefits and the benefits of our society, 
even jobs.
    Is the immigration that is going on in the EU now changing 
the fundamental nature of those countries to the point that the 
EU--these were different countries then that joined the EU 30, 
40 years ago. So is immigration going to change that? Maybe a 
little bit--30 seconds for each one of you on that.
    Mr. McCormick. Yes, it is. I mean, there is a lot of 
similarities between the kind of problems we face here and the 
kind of problems that the Europeans are facing as well. The 
immigration issue is more complicated for them because there is 
a religious factor, and there is a racial factor involved. So 
part of the concern about immigration is motivated by religious 
and racial extremism. But the number of immigrants in Europe, 
as a percent of the population, is less than the number of 
immigrants in this country.
    Mr. Rohrabacher. Of course, we are a nation of immigrants, 
so, I mean, we represent every race, religion, and ethnic 
group. We are very proud of that. So it wouldn't have that much 
of an impact as opposed to a homogenous society.
    Dr. Walt, what do you think?
    Mr. Walt. One is, Europe historically has done a poorer job 
of assimilating immigrants than the United States has. That has 
been one of our great successes throughout our history. And, 
second, this has to be understood in the context of a continent 
really that has experienced very slow economic growth ever 
since the financial crisis.
    So in addition to having significant problems of 
immigration, some degree of violence stemming from that, you 
have the concerns of unemployment, the concerns that immigrants 
from Eastern Europe are taking jobs away. Whether that is 
correct or not, the perception, I think, is widespread in parts 
of Europe. And that in turn reinforces the popularity of some 
of these right-wing nationalists or Eurosceptic parties.
    So, in a sense, the inability to deal with the immigration 
problem may make the Euroskeptisim problem worse as well.
    Mr. Kirkegaard. I would say that I think the main political 
impact of immigration in the EU right now is actually both the 
scale but also to relative novelty of this because the scale is 
actually very large. If you look at the number of permanent 
legal immigrants coming into the EU since in the 21st century, 
it is actually about twice the level of green card holders 
coming into the United States.
    But, secondly, this is happening to countries that 
historically does not have the tradition that the United States 
has. These are countries that were traditionally very 
homogenous, have sort of light culture, nationally dominant 
cultures, and therefore, as was mentioned, these countries have 
historically done poorer in terms of integrating these 
immigrant communities.
    So if, indeed, the EU policy is a more, let's say, liberal 
policy of accepting this immigration into these countries, that 
would work to undercut--the nationalists within those countries 
would then be a more opposed to the EU. Is that correct? You 
understand? In other words, if the EU is pushing for a higher 
level of acceptance of immigration, and the people of those 
countries, because they are more homogenous, do not want them, 
that would actually be weakening the EU. Is that correct?
    Mr. Kirkegaard. I think it would depend very much on where 
you are in the EU. If you are in Italy right now, where the 
number of illegal immigrants crossing the Mediterranean is 
very, very large, you would actually campaign and be very much 
in favor of the EU taking charge of this migration and trying 
to spread it out throughout the entire Union, thereby loosening 
the burden of Italy specifically.
    Whereas, of course, if you are in Finland, you would 
probably have the opposite opinion about sort of sending this 
up to be a policy area dictated or governed by EU.
    Mr. Rohrabacher. Okay.
    Very quickly, the agreement with the Greek Government is 
thumbs up or thumbs down for the EU? Is it positive or negative 
long term?
    Mr. McCormick. Thumbs up.
    Mr. Rohrabacher. Dr. Walt.
    Mr. Walt. I think it is largely irrelevant. I think it is a 
short-term Band-Aid, but I don't see in this agreement yet the 
solution to Greek's ultimate economic problems.
    Mr. Rohrabacher. But is it going to be a thumbs down then?
    Mr. Walt. Then I believe we will see a replay of what we 
have just witnessed at some point in the future and how many 
times Europe can go through this series of brinkmanship before 
you finally do get a Greek exit remains to be seen. But I 
wouldn't be confident that patience is infinite.
    Mr. Kirkegaard. Thumbs up. I think the political 
significance of a country that, having lost a third or perhaps 
up to a third of its GDP, now still would, I believe, in the 
coming days will find a significant political majority to 
implement this deal--and therefore stay in the euro area--I 
don't think should be easily dismissed.
    Mr. Rohrabacher. All right.
    Mr. Meeks, you may proceed.
    Mr. Meeks. Thank you.
    Let me make sure that--and I think I got it right. But I 
think that, Dr. McCormick, is it important for the EU to stay 
together?
    Mr. McCormick. Yes.
    Mr. Meeks. Dr. Walt.
    Mr. Walt. It would be better for us if it did and better 
for Europe if it did.
    Mr. Meeks. So it is better for us and Europe?
    Mr. Walt. Yes.
    Mr. Meeks. So it is better for everyone?
    Mr. Kirkegaard. Absolutely better for everyone.
    Mr. Meeks. So, now let's just talk about dealing with this 
Greek problem for a second because some say to deal with the 
problem, if you listen to the Greek Prime Minister, he came in 
on a mandate of no austerity. And yet, in this agreement, there 
is austerity. Do you see any debt relief in this agreement? 
Because some will say--and I will go to--I guess, you are the 
economist here--that if Greece is ever going to get back on its 
feet, it is not just austerity. It is austerity with debt 
relief so that it can begin to grow again. Can you talk a 
little bit about that?
    Mr. Kirkegaard. Yeah. I mean, there is no doubt that you 
need a combination of the two. You need some degree of fiscal 
rectitude because Greece is a country that historically has run 
very large and persistent government deficits. But given where 
the debt is now, you clearly also need debt relief.
    And I actually do believe that there is very credible 
prospects for debt relief included in this agreement because 
what it does is that it basically tells the Greeks that if you 
agree to a new bailout program, following the first successful 
review of that program, we can have a discussion of debt 
relief, meaning that the debt relief comes only as a reward, so 
to speak, for good behavior.
    And then the other issue is that we need to be clear about 
what debt relief entails. I don't believe you will see an 
actual haircut on the debt, but I certainly do believe that you 
will see the Greek Government debt being restructured in a way 
so that they may not have to pay any interest or amortization 
for 30 years. The maturity of the debt may well be extended to 
60 years or beyond that. So the actual cost of the debt--which 
incidentally is already below the levels of interest paid by 
the U.S. Federal Government, despite much higher gross debt 
levels--becomes more or less a non-issue, in my opinion, for 
the ability of the Greek economy to grow.
    And then, finally, I should note that--and this is where 
the U.S. influence will be very important--part of the reason 
that the European Union will be compelled--or sorry the euro 
area will be compelled to do this probably by the first quarter 
of next year is that they are seeking IMF cofinancing, about 
one-third financing for this program starting March next year. 
That can only happen, in my opinion, that should only happen if 
they by that time have done a restructuring of the Greek debt.
    Mr. Meeks. Anybody want to add anything or take away 
anything from that?
    Mr. Walt. I will just say, I am not as optimistic for 
several reasons. First of all, Greece's debt is now in excess 
of $300 billion or so. This new relief package is about $80 
billion, I believe, somewhere along there. But most of that 
money is simply going to get recycled back to European 
financial institutions of one kind or another. It is not a 
stimulus program for Greece; it just allows them to keep 
servicing their loan. So it does nothing by itself to actually 
get the Greek economy to be more productive at all.
    There is no debt relief in this package yet. It is promised 
out there. And what the Europeans are now asking Greece to do 
is suffer a little bit more, in fact, suffer a lot more with 
the prospect that then things will improve at some point down 
the road.
    What I am, I guess, still baffled by is if the Greek reform 
was so easy, why hasn't it happened already? It has been, you 
know, 5 or 6 years where they have had multiple opportunities. 
It is clearly politically extremely difficult for the Greeks to 
do this. And to expect them to do it having inflicted even more 
pain on them, I think we are as likely to see essentially 
sharper political divisions within Greece, as opposed to 
suddenly all linking arms and beginning a serious reform 
program.
    So, again, I hope this package works, but I am not 
confident that it will.
    Mr. McCormick. One line of thought that is not often 
explored and discussed in the Greek debt crisis is the 
responsibility that Greece itself holds for getting itself into 
this current mess. Greece should never have been allowed into 
the U.N. in the first place. That was a mistake because it 
didn't meet the terms of membership.
    It had mismanaged its economy before it was allowed into 
the euro. Being allowed into the euro just made matters worse 
because it was allowed to borrow money at a lower interest rate 
than there have been before. It then went off on a debt-laden 
spending spree which made all of its bad previous habits even 
worse.
    So my optimism about Greece is based on the fact that I 
think the Greek people and the Greek Government are going to 
get to the point where they realize they have to clean house; 
they have to manage their economy effectively, as effectively 
as some of their other European neighbors have. And whatever 
the terms of the bailout or the debt relief or the terms of 
some of these deals that are done, I think what we are seeing 
here is a very hard learning experience for the Greek people 
about how to manage a modern economy.
    And I am a bit nervous about saying this because I am not 
sure it is a very popular idea, but I think the European Union 
and the eurozone--and the Germans--attract more criticism than 
I think they deserve. And I think we have to look at what the 
Greeks have done to bring this upon themselves.
    Mr. Meeks. I am out of time.
    Mr. Rohrabacher. All right.
    Colonel Cook.
    Mr. Cook. Thank you, Mr. Chairman.
    I talked in my opening statement that I was going to ask 
you about the Russian situation and the fact that, not just in 
terms of the EU but NATO having that economic olive branch out 
there: Hey, we got the money. We can help you out.
    Can you comment on that possibility of--somebody 
mentioned--I think the doctor talked about that in Hungary--and 
you can include that in other countries, that--because their 
economic situation might be interested in that handout.
    Mr. Walt. I think, given the conflict we have with Russia 
now over Ukraine, Russia has quite cleverly and understandably 
used its various assets, including offers of money to try and 
diminish European unity and to some degree NATO unity to 
prevent extensions of economic sanctions to try and weaken 
Western resolve. And as I indicated in my initial statement, 
one of the problems here is that there isn't really a consensus 
in Europe today on just how serious the Russian threat really 
is.
    I think everyone acknowledges that it is a problem. There 
is no real support for Russia's behavior in Ukraine. But 
whether it is a new cold war or whether it is the return of the 
battle of Soviet Union, there is certainly no agreement there. 
And I think most Europeans actually don't see it as nearly as 
serious a problem. Perhaps the Baltic states do but hardly 
anybody else in Europe.
    So I think you will see Russia attempt to dangle various 
blandishments in front of some European countries, including 
Greece, and that is a way they can exploit it. I don't think it 
is going to, you know, cause the EU to dissolve tomorrow, but 
it is an additional source of centrifugal force within the 
union as a whole.
    Mr. Kirkegaard. I guess I would be slightly less optimistic 
or pessimistic, depending on--but I don't basically think that 
Russia has much to offer Greece in the real world. The reality 
is that Greece needs so much money, that Vladimir Putin doesn't 
have that.
    Just to give you an example, if there had been no agreement 
over this weekend, the European Central Bank would have pulled 
out 89 billion euros from the Greek banking system, and it 
would probably, in fact, need considerably more than that to 
keep these banks afloat. And Vladimir Putin, in my opinion, 
doesn't have that much money in liquid reserves. And even if he 
did, I am highly skeptical that he would be willing to put that 
much cash into Greece.
    So Vladimir Putin, therefore, in terms of, shall we say, 
offering a material difference to the acute economic crisis 
that Greeks face right now, really doesn't have much to offer. 
And I think you can see that, in fact, that at the end of the 
day when the negotiations in the European Union about extending 
the current sanctions on Russia was up for debate where 
unanimity is required, the Greek Government basically posed no 
particular objection.
    Mr. Cook. Thank you.
    Dr. McCormick.
    Mr. McCormick. You know, in my opening statement, I said 
one of the great benefits or achievements of the European Union 
was the expansion of free markets and democracy, both within 
Europe and outside Europe. Greece is one of those cases where 
it joined the European Union after having spent some time under 
military government with its democratic credentials in 
question.
    I think the benefits that Greece has seen over the last 30, 
40 years, have been part of the European economic community, 
European Union. It would be very difficult to imagine anything 
that Russia or specifically Putin could offer that would be 
better than what Greece has now, even in spite of the fact the 
Greeks are going through terrible times at the moment. The 
political and economic benefits that have been part of this 
enormous partnership are so much greater than having any kind 
of association with something like Putin's Russia.
    Mr. Cook. Thank you.
    I am going to a conference, a NATO conference this week, 
and we will see whether they have the same optimism.
    I want to talk about the borders and terrorism. And if X 
amount of terrorists get in one country, particularly one that 
is easier to get into, that they all share that the same logo 
of being able to enter another country, is the EU going to 
strengthen that, or are they going to continue that policy as a 
whole, particularly in light of increased terrorism? And I am 
looking at ISIS and some of the other elements.
    Mr. Walt. As I mentioned, one of the concerns I have is the 
degree to which external events, events around the European 
continent are beginning to impinge upon Europe in new ways, and 
you have just referred to them.
    The so-called Schengen principles, which allow internal 
migration without real restriction, without border controls in 
much of the European Union, is a major achievement and has been 
an economic benefit but, I also think, has contributed to a 
general sense of being a European community. And there have 
been calls in recent months for tightening those various 
restrictions, to reimposing some of these border controls to 
deal precisely with this problem.
    I personally think that would be a mistake because I don't 
believe the problem that Europe faces or the threat Europe 
faces from various forms of extremism is so great as to warrant 
that decision. But politics is not always rational, and I can 
easily see that if there were one or two more incidents in 
Europe, even if they were of a rather small scale, you might 
see more momentum up to start reimposing some of the border 
controls. And that would be a step back from one of the 
achievements that the community had made in recent years.
    Mr. Cook. Thank you.
    I yield back.
    Mr. Rohrabacher. Mr. Sires.
    Mr. Sires. Thank you, Mr. Chairman.
    You know, the more I read and the more I try to learn about 
Greece, it is just mind boggling. And then you have all these 
rumors out there that I don't know what is true or what is not 
true, about the percentage of tax collection that they have, 
about supposedly it is cheaper to take a cab across Greece than 
to take a train because the trains, the way they are run, the 
transit system, I mean, it is just--and then you talk to other 
people, and they tell you that the underground economy in 
Greece is thriving.
    Now, is that accurate, the underground economy?
    Mr. Kirkegaard. Yes, that would generally be, in my 
opinion, correct. It is both very large and has historically 
been very large, and it has certainly grown a lot bigger in the 
last 5 years.
    Mr. Sires. And this is just a reason to avoid paying taxes?
    Mr. Kirkegaard. Yeah, this is to avoid paying taxes but 
also to avoid being subject to a whole other host, a range of 
social and labor market regulations.
    Mr. Sires. Would you agree with that?
    Mr. McCormick. The most recent figure I saw for 2009, the 
OECD said that approximately 25 percent of the GDP of Greece 
was based on the gray market. By nature, the gray market and 
the black market are very difficult to measure, but the OECD, 
25 percent.
    Mr. Sires. So but this is something that has been going on 
in Greece for a very long time. So this is like the old 
expression, you know: You have an old dog; how can you teach 
him new tricks? You know, how are you going to do that?
    Mr. McCormick. In brief, I think the costs of reorganizing 
their economy in a sensible, modern fashion--sorry--the 
benefits are much greater than the costs of continuing to do 
what they are doing now. They can see the costs now. The 
terrible things that the Greeks are having to go through, the 
costs they are having to pay for years of this kind of activity 
are abundantly clear to most Greek people.
    Mr. Sires. Do you agree with that?
    Mr. Kirkegaard. Yes, I would absolutely agree with that. 
And I think the way to look at Greece is actually not through 
the lenses of thinking of it as just in an economic crisis. I 
think a closer comparison is actually sort of 1989, the 
collapse of communism because what has happened in Greece in 
the last number of years is essentially that the existing 
economic and political system, I would argue, that was put in 
place after the end of the military regime in the 1970s has, 
for all respective purposes, collapsed.
    So what you need is actually an extensive amount of 
fundamental capacity building and nation building in order for 
this country to reemerge, quite frankly, as a modern, 
functioning market economy.
    Mr. Walt. I would just add that when I hear the word 
``nation building,'' it always makes me nervous because I think 
we now know that that is a very difficult, time-consuming, and 
unpredictable enterprise. And if you consider the scale of 
reform that has to take place in Greece for this to work--we 
have to have a complete reform of their tax system; complete 
deregulation of many of their industries, revision of the 
pension system; and this all has to happen in a period where 
there is no slack, right, where the economy has essentially 
been in free fall for quite some time now--you need both 
political will to pull that off; you need lots of competent 
people to pull that off. And we are expecting Greece to do that 
in very rapid order, right.
    This is a very large demand that essentially the rest of 
the European Union is making. It may be necessary. It may be 
the right prescription, but you can't be confident that they 
will pull it off, even if they try hard.
    Mr. Sires. You know, as I listen to you, to me, why would I 
throw money in there? Why would I even insist in trying to----
    Mr. Walt. Well, I think as----
    Mr. Sires. I know what you said, that it is important and 
all that, but they don't seem capable of doing it. I mean, 
Portugal and Ireland, they got some money, and they seem to be 
getting their act straightened out pretty much. But I don't see 
anything going on in Greece where that gives me the confidence, 
if I were a European country, to go in there and say: Well, you 
know, let's throw in another $95 billion in the hope that in 
the next 50 years, that it will get better.
    Mr. McCormick. It does seem like throwing good money after 
bad. But I guess my question would be: What is the alternative?
    Mr. Sires. Let them go on their own.
    I mean, why----
    Mr. McCormick. Then you are going to have more disruption 
right on the border of the European Union. You are going to 
have another unstable country causing difficulties for 
everybody right on the border. Surely, it is best to invest and 
work with the Greek Government because, remember, you know, the 
Greek Government is meeting with its 27 peers all the time at 
meetings. They are talking about common issues. So to be 
brought into this family of negotiation, this new style of 
negotiation, surely better to bring them into the room and talk 
to them than to throw them out and say, Good luck.
    Mr. Kirkegaard. There is a significant degree of political 
self-preservation in this as well because if you do not give 
Greece a new third bailout, then the Greek Government will 
default on all the existing loans that the eurozone has made to 
them, which is 240 billion euros or something like that, which 
means that the Germans and others would have to admit to their 
own voters that this was actually not a loan that at some point 
in the future might be repaid but a gift.
    Mr. Sires. I mean, Greece existed before the eurozone, 
right?
    Mr. Kirkegaard. Correct.
    Mr. Walt. And as I think one thing we would all agree on 
this panel is it was a mistake to let Greece into the eurozone 
in the first place. It may even have been a mistake to create 
the euro given it lacked the political institutions to actually 
make a common currency work.
    The disagreement you are hearing a little bit on the panel 
is, of course, replicated inside Europe itself, from those who 
think it would actually be bettor for rest of the EU to allow 
Greece to Grexit, to leave the common currency, despite all of 
the consequences that have just been referred to and those who 
think that those consequences could be so severe that it has to 
be avoided. That has essentially been the disagreement between 
France and Germany over the past few months.
    Mr. Sires. Thank you very much.
    Thank you, Mr. Chairman, for the courtesy.
    Mr. Rohrabacher. Sort of like those people who think it 
might have been a good idea to let Puerto Rico be independent.
    Mr. Brooks.
    Mr. Brooks. Thank you, Mr. Chairman.
    I have been pondering American history with Europe while we 
have been listening to your testimony and Q&A back and forth. 
It seems, after World War II, for 47 years when there was not a 
European community, our relationship with Europe was good. Then 
we had the EU created, 7 years' worth of phase-in, and the euro 
currency comes into play, roughly 1999, and now we have had 16 
years thereafter, and our relationship has been good. So it 
seems to me, either way, America's relationship with Europe has 
done well with and without the euro.
    So, to me, the European Union issue is more of a focal 
point for the European nations, and they should be the deciders 
of their fate. And I am curious about a comment that was made 
that the ``European Union is better for the USA.''
    And my question is, why? What can you share with us that 
would help convince me that it is in America's best interest to 
have a European Union as opposed to not having one in as much 
as our relationship with Europe was good in both contexts?
    Mr. Walt. I think I said that so I will take a swing at it. 
First of all, the EU, whatever its current problems may be, is 
a major economic block in the world and a major trading partner 
for the United States.
    Mr. Brooks. Was that good for us or bad for us if they 
collectively have more strength as they negotiate trade 
agreements with the United States?
    Mr. Walt. But a prosperous European economy and a European 
economy that is growing is one that American businesses can 
send and sell more products to and American investors can send 
their money and make money investing in Europe.
    Mr. Brooks. Do you have any data that shows that Europe was 
growing slower before the EU as opposed to after the EU?
    Mr. Walt. It has grown at different--in the 1990s, it 
actually grew quite well, as did we. It has had problems since 
2008 as we have. We have recovered more quickly than Europe 
has.
    Mr. Brooks. I know this is little bit outside the framework 
of this hearing, but do you have any data that backs that up--
--
    Mr. Walt. I don't have----
    Mr. Brooks. The history of that--well, we are talking since 
1945, so that would be somewhere in the neighborhood of 70 
years.
    Mr. Walt. The lowering of trade barriers throughout Europe, 
which was part of the original European project, clearly helped 
stimulate economic recovery throughout the 1950s, 1960s, so it 
was very beneficial for Europe to essentially allow free trade 
within Europe and allow their economies to grow.
    Second thing is that, as has been said here, the European 
Union has been a source of stability within Europe, and the 
community was also very instrumental in helping the transition 
from communism, and that is good for the United States because 
it has been, until relatively recently, a part of the world 
where we didn't have to worry as much post the breakup of the 
Soviet Union.
    There are other parts of the world that we have been much 
more concerned with, and if Europe began to spiral back toward 
real national rivalries, American policymakers would have to 
spend more time worrying about that and less worrying about 
other problems.
    And then, third, I would say that, you know, Europe has 
been a strategic partner of ours for a long time. And if Europe 
is internally preoccupied and economically weaker and 
increasingly divided, then when we try to deal with other 
strategic problems in the world, we are going to find we are 
going to get even less help from Europe than we do now.
    Mr. Brooks. One of the important aspects of our 
relationship with Europe is our military alliance, particularly 
NATO, and it seems that under the European Union, defense 
spending by the collective of European nations has declined, as 
opposed to when they weren't a part of the European Union, thus 
making them less able to help America in troubled spots around 
the globe. I just mention that as a concern of mine.
    I want to focus more in my remaining time on the Greek 
bailout impact on America. We have had now our third bailout. 
Our first one was in 2010, second one was in 2012, and now we 
are 2015, and there is some hope that maybe this one will stick 
when the two prior ones did not.
    What is the monetary exposure to the United States of these 
bailouts failing?
    Mr. Kirkegaard. I guess I can take a stab at that. The 
direct exposure to the United States to the Greek bailouts 
comes through the IMF and the approximately 17 percent 
ownership or shareholding that the U.S. Has.
    Mr. Brooks. 17.69 percent.
    Mr. Kirkegaard. And that--given currently that exposure is 
about 25--I believe $25 billion, so 17 percent of 16 to 17 
percent of that.
    However, as was seen in the last--in the agreement this 
weekend, actually, the Europeans made it very explicit that 
they are going to pay--essentially give Greece the money so 
that they can repay the IMF, which means that, in my opinion--
--
    Mr. Brooks. Very quickly, in my remaining few seconds, is 
the IMF involved in the third bailout?
    Mr. Kirkegaard. I believe they will be, yes.
    Mr. Brooks. That you will increase our exposure to the 
extent the IMF is supplying funds for the third bailout?
    Mr. Kirkegaard. It will not necessarily increase it because 
existing loans will be repaid simultaneously so there----
    Mr. Brooks. Do you know the net?
    Mr. Kirkegaard. Sorry?
    Mr. Brooks. Do you know the net, is it going to go up or 
down because we have got the old bailout numbers and now we 
have got the new bailout numbers and payoffs of some of the 
old, but we have got all the new, is it going to be a net up or 
down?
    Mr. Kirkegaard. I don't know what the requests from the 
Europeans will be. It also depends on the size of Greek 
privatization proceeds, et cetera. But I would say that for the 
next 3 to 4 years, probably it will be about even, after which 
it will begin to decline quite rapidly.
    Mr. Brooks. Mr. Chairman, my time is expired. Thank you for 
the indulgence and the extra 45 seconds.
    Mr. Rohrabacher. So we have the--so the United States will 
be paying for the some of the bailout because we are part of 
the International Monetary Fund. No? What is it?
    Mr. Brooks. Yeah, we are; 17.69 percent is our quota 
ownership of the International Monetary Fund. So whatever the 
assets are in the IMF and their obligations to Greece, since we 
are one of the owners, there is an impact on the United States.
    Mr. Rohrabacher. So of this--so what is your guess, then, 
of the--if you say that there is going to be a certain amount 
of bailout, and how much of that is the United States going to 
end up paying?
    Mr. Kirkegaard. Well, the range that was mentioned in 
this----
    Mr. Rohrabacher. Through this, you know----
    Mr. Kirkegaard. The range that was mentioned of the 
agreement over the weekend was 60--or 82 to 86 billion euros, 
which is about 90--a couple of--just over $90 billion.
    Mr. Rohrabacher. Right. And so----
    Mr. Kirkegaard. And then the--however, subtracted from that 
will be whatever the proceeds--a certain number of Greek 
Government privatization proceeds from privatizing state-owned 
enterprises, et cetera. Now, how much that will be is unknown, 
but the target is 50. I certainly don't believe they would 
reach 50, but let's say it is 20. That takes you down to sort 
of in the mid 70s or $70 billion. So one-third of that would be 
for the IMF to cover.
    Mr. Rohrabacher. And how much of that of us? So one-third 
of that is--what--20 billion, $25 billion?
    Mr. Kirkegaard. Yeah, give and take. It will be--let's say 
it is 22, and then 16 percent of the 22.
    Mr. Rohrabacher. 16 percent of it. Now, what does that 
leave? That leaves us about $5 billion just about?
    Mr. Kirkegaard. Yeah, something like that.
    Mr. Rohrabacher. Okay.
    Mr. Kirkegaard. Give or take.
    Mr. Rohrabacher. So isn't that wonderful, we are getting to 
bail out Greece and our friends over in Europe for $5 billion? 
Isn't that wonderful? We can't find any way to use that money 
anyway, just, you know----
    Mr. Walt. It is important to recognize that if the bailout 
deal were to work, then it is not a handout. It is a loan that 
gets repaid. All right, so the question really is, do you think 
that this is likely to turn Greece around, finally allow it to 
begin to pay off its debts, lead to a restructuring of the 
debt, and we all live happily ever after?
    Mr. Rohrabacher. When you talk about this debt--excuse me, 
and I am going to go to our last member of the panel here, but 
what is--these banks. We are talking about we are bailing out 
these--the European banks. These people are being bailed out, 
said the banks are actually getting the money. Are these 
privately held banks or are these banks that are owned by the 
Government of France and England, and et cetera?
    Mr. Kirkegaard. Well, in this instance, the current bailout 
that is under discussion is actually not private banks that own 
the debt. There was that issue back in 2010, where there were 
clearly some European banks that benefitted from that. They 
were mostly private banks in France and elsewhere.
    But, clearly, the European government entered into this 
process because they were afraid that otherwise they would have 
to bail out these banks themselves and therefore make them, so 
to speak, publically available.
    Mr. Rohrabacher. So we are not bailing out any private--
this money for bailing out Greece does not include money that 
is going to privately owned banks.
    Mr. Kirkegaard. No. I mean, there are----
    Mr. Rohrabacher. Is that right? The other gentleman, is 
that true? Is that true?
    Mr. Walt. I don't think that is entirely true. It depends 
sort of what you mean by privately held banks. Some of this 
money will help Greek banks that have no cash on hand at 
present. It is why they----
    Mr. Rohrabacher. It sort of have--makes it even worse, 
doesn't it, as far as we are.
    Ms. Gabbard.
    Ms. Gabbard. Thank you. Thank you, Mr. Chairman.
    Dr. Walt, just wanted to follow up on some of your previous 
comments about being better for us in the U.S. If EU stays 
together--EU stays together. If you could--if you could answer 
the question in the opposite way of talking about how we can 
measure what the impact on our economy would be if the EU 
completely dissolves or if it ends up that the U.K. Ends up 
exiting the EU, what kind of impact would that have for us?
    Mr. Walt. In terms of purely in economic terms, I think 
that that would be a blow to the eurozone and the EU in general 
as an economic actor. I think it would lead to slower economic 
growth within Europe, which is already relatively low, but 
that, in turn, reduces economic opportunities for the United 
States because if the euro--the EU is growing at \1/2\ percent 
a year, then there are far fewer American firms for consulting. 
There are far fewer Europeans who are going to be buying 
American products.
    So we would be better off if Europe had a rapidly 
vigorously growing economy and a healthy demand for American 
products.
    Ms. Gabbard. Do we have any idea, with a little more 
specificity, on what kind of impact that would be? Obviously, 
you are saying there would be some loss here, but I am just 
trying to look for a little bit more specifics.
    Mr. Walt. Yeah, I can't give you a figure, sort of 
macroeconomic estimate. I just don't have that, of what the 
actual impact on the U.S. economy would be. But I know that 
anything that hurts the European economy will also hurt the 
United States, not perhaps as much, but it has a negative 
effect on our economic prospects as well.
    Ms. Gabbard. Okay.
    Mr. McCormick. It is very difficult to put numbers on this, 
but I mean, the United States now is dealing with one economic 
block, so when the U.S. trades with the European Union, 
negotiates with the European Union, trade negotiator, it is 1-
on-1. The European Union breaks up, it is 1-on-28. There are 28 
separate sets of bilateral agreements the U.S. has to work out 
with these countries.
    Also, access to one big single market of 506 million 
people, a U.S. corporation doing business in any one of those 
28 countries has access to the entire market. If this breaks 
down or splinters in some fashion, it adds that much more level 
of complication in terms of dealing with these entities.
    Ms. Gabbard. With regard to what Prime Minister Cameron has 
before him, what do you assess he will be trying to renegotiate 
with regard to Britain's commitment to the EU?
    Mr. Kirkegaard. I mean, I can take it. I mean, what he 
has--I mean, it is a little unclear precisely what he is asking 
for at this moment from the EU authority, but what he has 
mentioned is he would like to have Britain exempt from 
something called the working time directive, which is 
essentially a European regulation that says that you cannot 
work more than 48 hours a week.
    Excuse me. And then there are other specific types of EU 
regulation or EU law that he would like the U.K. To be exempt 
from. He may also, it is alleged, seek to have the EU exempt 
from the sort of opening clause of the EU treaty, which talks 
about an ever closer union, which of course, would be purely 
symbolic politics. But, nonetheless, that of course is very 
important in a referendum campaign.
    Ms. Gabbard. Thank you.
    Thank you, Mr. Chairman.
    Mr. Rohrabacher. All right. We have a vote. So we are going 
to have to go very quickly here. Again, I just want to confirm 
this. So we are talking about, in this bailout, the Greek 
bailout, that about $5 billion will be--Americans can be--about 
$5 billion coming from our pockets.
    I would like to again go back to who this money is going 
to. It is going--the bailout--first of all, is it accurate to 
say that the bankruptcy can be traced back to policies of the 
Greek Government?
    Mr. Kirkegaard. In my opinion, yes.
    Mr. Walt. Yes.
    Mr. Rohrabacher. Okay. So the Greek Government had policies 
that put us in a spot where banks--now, the banks that will be 
repaid now because they have been spending this money to keep 
the Greeks afloat. These banks are--you are saying they are not 
private banks; they are German banks, French banks and----
    Mr. Kirkegaard. No, no. This is in 2010. Today, the people 
that are going to be repaid are, in fact, among other things, 
the IMF itself. It is also other official sector, the European 
Union--sorry, the euro area, and then a relatively small amount 
of total outstanding debt, about 20 percent of Greek debt is 
still held by private investors.
    Mr. Rohrabacher. Okay.
    Mr. Kirkegaard. There is no direct, so to speak----
    Mr. Rohrabacher. So the last bailout, we saw private banks 
being--basically being given money bailed out, or excuse me. 
The bailout with the Greeks, but they give it to the private 
banks. Those private banks, are they profit-making 
institutions, or are they government-related institutions?
    Mr. Kirkegaard. They will be mainly profit-making 
institutions.
    Mr. Rohrabacher. So how much was the last bailout?
    Mr. Kirkegaard. The--well, the original bail--I mean, the 
total bailout so far is about 240 billion.
    Mr. Rohrabacher. $240 billion. Of that $240 billion, how 
much went do these private banks?
    Mr. Kirkegaard. I think that that--I don't have a number 
off the top of my head, but I would say, if you look at the 
direct exposure that these banks had to the Greek debt that was 
restructured, which should also be known that these banks 
actually took, as all private debt holders did, a 50 percent 
haircut on this debt in 2012.
    Mr. Rohrabacher. Depends on if their haircut meant that 
they are still making a profit or whether it means they are 
going to eat into the resources. If a bank or if any other 
private institution, at least in our society, it is supposed to 
be, that if you take a risk, that is what you are--you are 
making your money because you are taking a risk in giving your 
money out. And if the Federal Government or if the European 
Union just simply bails out anybody who is taking a risk and 
makes up for it with public funds, I don't see why we are--why 
are they they making a profit then on this stuff? You are 
saying those banks didn't make a profit those years?
    Mr. Kirkegaard. Well, I mean, I am saying that they are 
profit-making private enterprises. Whether--I would say that 
they definitely did not make a profit on the Greek debt 
holdings because they were compelled to take a sizeable debt 
restructuring, a 50-percent haircut back in 2012.
    Mr. Rohrabacher. Well, I am wondering--I could see why a 
lot of people would be very skeptical, regular working people, 
people who own small businesses or whatever, would be very 
skeptical in hearing about the transfer of all these billions 
of dollars and a lot of it going and bailing out really very, 
very wealthy people who control the banking system.
    Mr. Meeks, you got one last----
    Mr. Meeks. Well, just, you know--sorry. It seems as though, 
from what I am hearing, that the risk to the United States, as 
far as us, it is minimal, if anything. It is not substantial. 
And the likelihood of us having to pay anything, especially 
with the special fund that the Europeans have set up to make 
sure the IMF is paid because the only exposure we would have is 
through the IMF, and that seems to be backed up already by the 
EU in this agreement saying that they are going to make sure 
that the IMF is paid. So, therefore, that basically would leave 
$0 that the United States is, you know, as far as being--is 
that not correct?
    Mr. Kirkegaard. Yes, I absolutely--it is very important for 
me to emphasize that the IMF is the super senior creditor, and 
I believe that there will always be a very firm political 
commitment by the euro area to ensure that the IMF is paid 
back, and therefore, the actual exposure to the U.S. is, as you 
said, close to zero, effectively zero.
    Mr. Rohrabacher. I remember when we bailed out Mexico, but 
all the money----
    Mr. Meeks. You had your time already.
    Mr. Rohrabacher. But all the money went to American banks 
that never actually left our shores at all.
    Mr. Meeks. All I know is that what we had is a financial 
crisis in the United States also in 2008, and what we had to do 
was bail out our banks to keep our economy afloat. The banks 
ultimately paid things back, so this is not something that is 
unusual as far as, you know, dealing with the current economy. 
It is something, you know, they are not doing any differently 
than what we had to do.
    We rebounded, and now we have got to get the reforms that 
are necessary and is best for the cost. You know, when you look 
at the EU as a whole for us, we are looking at what is in 
America's best interest, we got to hope that, you know, we are 
also doing what is in the Europeans' best interest, but I don't 
think--I don't know if you--but if you are looking just for 
what is America's best interest, it is for us to deal with 
Europe as a whole.
    For example, one of the next big issues that we have to 
deal with in Congress is going to be another trade agreement 
called TTIP, and it would be best for the United States if we 
were negotiating that deal, that we are doing it with the EU as 
a whole because that then gives a greater market for our 
businesses to try to make sure that we are getting the best 
deal to create jobs here, et cetera. Is that not correct?
    Mr. Walt. That is correct.
    Mr. Kirkegaard. Correct.
    Mr. Meeks. Thank you.
    Mr. Rohrabacher. We have skeptics over here. I am one of 
them. All right. Thank you all very much.
    Mr. Meeks, thank you. Thank you to our witnesses. We have a 
vote on, so we are going to have to run. God bless you. Thank 
you.
    [Whereupon, at 3:20 p.m., the subcommittee was adjourned.]
                                     

                                     

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