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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

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

MATT SALMON, Arizona 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

MO BROOKS, Alabama 

PAUL COOK, California 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

RON DESANTIS, Florida 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

CURT CLAWSON, Florida 

SCOTT DESJARLAIS, Tennessee 

REID J. RIBBLE, Wisconsin 

DAVID A. TROTT, Michigan 

LEE M. ZELDIN, New York 

DANIEL DONOVAN, New York 

ELIOT L. ENGEL, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

BRENDAN F. BOYLE, Pennsylvania

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 

TOM MARINO, Pennsylvania 

MO BROOKS, Alabama 

PAUL COOK, California 

RANDY K. WEBER SR., Texas 

REID J. RIBBLE, Wisconsin 

DAVID A. TROTT, Michigan 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

THEODORE E. DEUTCH, Florida 

WILLIAM KEATING, Massachusetts 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

(III)

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

(1)

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 

2

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 

3

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 

4

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 finanVerDate 0ct 09 2002 09:28 Aug 13, 2015 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\WORK\_EEET\071415\95514 SHIRL
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cial 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 

6

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 refVerDate 0ct 09 2002 09:28 Aug 13, 2015 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 F:\WORK\_EEET\071415\95514 SHIRL
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ugees 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 

21

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 optout 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 

22

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 

31

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 shortterm 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. 

32

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? 

33

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 

34

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, EuroVerDate 0ct 09 2002 09:28 Aug 13, 2015 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 F:\WORK\_EEET\071415\95514 SHIRL
35

pean 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? 

36

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 

37

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 selfpreservation 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 

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rency 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. 

39

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. 

40

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. 

41

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. 

42

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? 

43

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 profitmaking 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, 

44

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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