MR. MCLAUGHLIN: Issue one: Europa the beautiful!

EU PRESIDENT ROMANO PRODI OF ITALY: (From videotape.) I hope that what we are doing is appreciated for the dimension of the program, if you consider the difference of income, the different tradition, the different habits of the 25 countries that now we shall have together inside the European Union.

MR. MCLAUGHLIN: The continental superpower! The European Union, the EU, comprised of 15 member states: Belgium, Denmark, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland, Sweden, The United Kingdom. And 13 candidate states are expected to join, with at least 10 before the end of this year, adding up to 25 to 28 EU member states.

As an economic superpower, the emergence of the EU has been rapid and robust. Its roots date back to 1952, when the EU was a steel-and-coal common market for six nations. Now a 15-nation market, the EU rivals the U.S. in trade volume. More on that later.

Focusing now on the EU's political power:

Administration: The EU Commission and EU Council, both in Brussels, the city that is considered the capital of the European Union. EU parliament: Strasbourg, France; members directly elected every five years by citizens of member countries. Courts of justice and auditors: two courts; EU member states agree to delegate to these institutions -- courts, parliament, commission and council and a few other institutions -- sovereignty over some issues.

EU symbols: Flag: gold stars on a blue background. Anthem: "Ode to Joy." Passport: burgundy in color. License plates. Europe Day: May 9, official EU commemoration day.

Hold that up again, Gerry. Hold -- (laughs; laughter ) -- there's the passport.

Question: Despite the symbols of unity, does the Union of Europe more closely resemble a single national entity or a federation?

Lawrence Kudlow.

MR. KUDLOW: Well, I think it's kind of a mixed bag and probably will be for the foreseeable future. I mean, you have this incredibly centralized unelected bureaucracy in Brussels, which is trying to impose its will on the rest of the countries. And at the same time, the rest of the countries in Europe are beginning to revolt against all this. In fact, in the most recent elections, conservatives, or at least center-right governments, have been sweeping Europe, and I expect it to continue next month, in Germany. So no, I don't think they've accomplished their end, and I, frankly, hope this Roman Prodel (sic), who is a Socialist -- I hope this superstate they're trying to rig up never succeeds.

MR. MCLAUGHLIN: Michael Mandelbaum, welcome. What is your view? Is it more of a federation, or do they have national identity?

MR. MANDELBAUM: This is an economic union and a very strong one. Politically it's very weak, and militarily it doesn't exist. The old saying is "Europe is an economic giant, a political midget and a military worm." And that's going to continue to be the case. Europe matters a great deal in economics and not in politics or military affairs.

MR. MCLAUGHLIN: Do you share that view, Tony?

MR. BLANKLEY: Not necessarily. This is a fascinating moment to talk about this, because this is the year of their constitutional convention, going -- started in February, and it's going to go on for months more -- in which they're debating whether to be a federation, much like -- a federated government, much like United States, or sort of an intergovernmental thing, loosely like we had at the Articles of Confederation. So they're at a moment similar to a way the America was in 1770s and '80s. And the big countries want to go towards a less structured central power, and the small countries in Europe want to go to a more central power, because they'll have more of a voice there. So it's a fascinating moment. I don't know which way it breaks finally, but 20 years from now, they could look a lot like -- if the federalists win, they could look a lot like the United States.

MR. MCLAUGHLIN: How do you feel about this, Gerry? Straighten this out for us, would you?

MR. BAKER: The big problem here is that, despite what Tony says, the -- what's going on is, there is no support in -- among most ordinary Europeans for the kind of European superstate that the political elites in the leaderships in Europe would like to see. There just isn't that support.

And actually, the analogy which the Europeans are very much trying to play, themselves, with the constitutional convention in 1776 here is a completely flawed one, because the constitutional convention in the United States was about devolving power away from a government that was remote, tyrannical, bureaucratic and not in Americans' interests. Unfortunately, the constitutional convention that the Europeans are doing is heading -- all of the members of the constitutional convention with, I think, the exception of two in Europe, actually want to make the problem of a remote European government actually worse.

MR. BLANKLEY: See, what -- but --

MR. BAKER: But they want to centralize more.

MR. BLANKLEY: But the point is that we first went to the Articles of Confederation; it didn't work, and that's when America went to the federal system. So yes, I do think there's an analogy to America's founding.

MR. KUDLOW: But there's been -- there isn't --

MR. KUDLOW: But John --

MR. MCLAUGHLIN: Let me ask --

MR. KUDLOW: John, there's a --

MR. MCLAUGHLIN: Hold for one minute. Let me ask Michael this question, since I thought that his speech a moment ago was remarkably pithy. Did you not think so?

MR. KUDLOW: Not only that; I agreed --

MR. MCLAUGHLIN: Do you think that -- does it follow from what you say --

MR. KUDLOW: I agreed with it.

MR. MCLAUGHLIN: -- that superpower status for Europe as a collectivity -- for the European Union -- you would see as equally fundamentally and irrevocably flawed a development as you described earlier about the European Union today, correct?

MR. MANDELBAUM: I would call it extremely unlikely in the near term, because although there are Europeans who would like to form a superstate, there are powerful forces against this, especially in Britain and France, who want to maintain the sovereignty of individual nation-states. So if there is ever to be a European superstate, it will have to overcome stout resistance.

MR. MCLAUGHLIN: Well, you could see it as -- certainly the economic power is there. The military power -- you've spoken about deficiency. It's a protectorate. Europe is a protectorate of the United States, and it has been for -- since 1945. And it will remain so for the indefinite future -- at least 50 years. Then you have command of resources. They can to some extent mobilize that. And then you need a polity. And I think you see the polity of the European Union as fundamentally fragmented and really not being able to collect itself. Is that true?

MR. MANDELBAUM: I believe that that is true in the near future; 30 years from now, when you celebrate the 50th anniversary of the McLaughlin Group -- (soft chuckling) -- whoever is sitting in these chairs talking to you might conceivably be talking about a European superstate.

MR. KUDLOW: They have a long way to go.

MR. MCLAUGHLIN: We're going to get back to the factors that separate us -- and hold on to your thoughts -- when we get to the euro.

Exit: Factors exist that unite Europeans. Factors also exist that separate Europeans, which we've discussed -- especially nationality, I believe -- I think we all believe. Are there more factors that unite or are there more factors that separate today?


MR. KUDLOW: At this particular juncture, I'd say the factors separating are becoming greater than the factors of uniting at the federal level in Brussels.


MR. MANDELBAUM: The factors that unite Europe are economic; the factors that divide them are political.

MR. MCLAUGHLIN: So you would say that the factors that separate are more extensive in number and in reach than the ones that unite?

MR. BLANKLEY: I would phrase that point slightly differently, although I agree with it. I think the factors that separate are passion, and the factors that unite are logic. I think passion will -- is surging now and will eventually be overwhelmed by the logic of the need for them to be united.

MR. MCLAUGHLIN: So you would see them as more united.

MR. BLANKLEY: Over the long term. I mean, we're talking --

MR. MCLAUGHLIN: But not today?

MR. BLANKLEY: Not today. No, right now, the passions of division are more powerful.

MR. BAKER: In most European countries, especially the big and powerful European countries -- it's not so true of the smaller countries -- in most big European countries, the people feel firstly French; they feel German; they feel British. They feel --

MR. MCLAUGHLIN: Danish, Dutch.

MR. BAKER: They do not feel European. They -- sure, we have a European identity. Of course we do. And we've had a very successful economic union. And in some respects, we've had a successful political union, too. But there is not the legitimacy for a European-wide organization, for a European-wide nation, if you like, among Europeans because they are -- because Europeans are, first and foremost -- not in the way that -- you know, of course you have fierce local and state identities here in the United States. These are national identities which will persist.

MR. MCLAUGHLIN: If citizens want to protest, they go to Paris or they go to Rome. They don't go to Brussels. So I guess on balance, you think that the factors that separate are more in number than the factors that unite, correct?

MR. BAKER: The issues, you know, that have been proving incredibly powerful in Europe in the last six months, that dominated the French election -- the issue of immigration there; the dispute that's been going on between Spain and Morocco, for goodness' sake, over a deserted island --

MR. MCLAUGHLIN: Which Prodi, the head of the European Union, could not separate in that goat-ridden island off the coast of Morocco.

MR. BAKER: These are national identities. These people feel, first and foremost, that's what they --

MR. MCLAUGHLIN: Okay. Another McLaughlin Y-2-0 Moment marking our 20 years: The place: Berlin. The time: November 1989, 13 years ago. The event: The collapse of the Berlin Wall.

(Begin videotape.)

MR. MCLAUGHLIN: That party had no roots at all. It collapsed like a house of cards, number one. And number two, East Germany, despite its political liberation by Gorbachev, despite the fact that Russia is its principal trading partner, is already tilting towards Helmut Kohl and the West -- and West Germany --

MORTON KONDRACKE: Because of economic penetration by West German companies, which all want to expand and get in front of the eastern market.

MR. MCLAUGHLIN: Yes, because there was -- there was no roots to the Communist Party. When the Wall went up, it seems as though everybody just got into line, and from a practical, a pragmatic point of view, they played the Party game, but there is nothing there.

PAT BUCHANAN: You know what it really shows? The people who were saying in this country, "Well, they've known nothing but communism, and that's sort of their system; they've adapted to it; they've taken it to heart" were all foolish.

ELEANOR CLIFT: There are very few card-carrying Communists in these societies.

MR. BUCHANAN: John, after East Germany and Czechoslovakia, Berkeley and Harvard can't be far behind. (Laughter.)

(End videotape.)

MR. MCLAUGHLIN: When we come back: EU versus U.S.


MR. MCLAUGHLIN: Issue Two: "Euronomics."

EU PRESIDENT PRODI: (From videotape.) This brings a sense of identity that will change all the European environment.

MR. MCLAUGHLIN: E-day. Euro-day. January 1, 2002. Eight months ago, the European Union debuted the euro, a piece of monetary paper, faceless, with allegiance to all. No liras (sic), no francs, no pesetas, no guilders, no Deutschmarks. Euro only, please.

Today over 300 million people trade with the euro, and the transition has been unbelievably smooth -- a triumph of preparation. In valuation, the euro is now stable against the yen and the dollar. In fact, while the euro once traded as low as 82 cents against the dollar, recently the euro surpassed the dollar.

Question: Will the euro help to foster a sense of European identity?

Michael Mandelbaum.

MR. MANDELBAUM: It will if it succeeds. The euro is on probation. The big question overhanging it is, what happens when different European national economies go in different directions? If Germany is booming and Spain has high unemployment, the Spaniards will want loose monetary policy the Germans will oppose. If the European central bank that governs the euro says "No, no; we're not going to loosen monetary policy," the Spaniards may blame the euro and Europe as a whole for their economic miseries. So we won't know how well it's going to work out until we see a situation like this.

MR. MCLAUGHLIN: To what extent will Germany play a heavy hand or a light hand, and is that an ongoing concern?

I ask you, Gerry.

MR. BAKER: Well, Germany, in terms of economics, is the weak component of Europe at the moment. It's had the weakest economy for a long time. The Germans were very much -- ordinary Germans were very unhappy about the idea of giving up their currency. The problem is that -- and the problem continues to be that the German economy is very weak, but it is still the largest economy, and so, as Michael was saying, monetary policy will have to be set according to the overall needs of the union without taking account of individual needs of individual countries.

MR. MCLAUGHLIN: Britain, Sweden and Denmark are staying away from the euro because they fear potential German domination. So the German problem is back. Is that correct? I'm putting that starkly, but that is still -- that is still there, is it not?

MR. KUDLOW: It's partly correct, but it's undermined by the point that Gerry just said -- that actually, the German economy has been weak. They have lost stature. That may change with a new administration coming in, but thus far, it has not changed.

What the Brits are worried about predominantly is just taking orders from Brussels on regulations, on tax policy. The real weakness of the euro as an economic organizing event is, right now, taxes, because there's a tax revolt going on in Europe. And European states are cutting taxes across the board.


MR. KUDLOW: And that jeopardizes the economic hegemony. You could still have the currency, but it damages Brussels' power.


MR. BLANKLEY: Yeah, the German factor is very alive in Britain. Right now there are advertisements in British cinema with a German actor comedically playing Hitler saying, "Ein Volk, ein Reich, ein Euro." And so it's not just an economic thing; at the public level, there's a passionate English -- or British opposition to a domination by Germany in their currency.

MR. MCLAUGHLIN: Well, that's -- dominates the current history, doesn't it?

MR. BLANKLEY: And also --

MR. MCLAUGHLIN: Exit: Compared to the dollar, how will the euro be valued at the end of the year, December 31st, four-plus months from now?

Lawrence Kudlow.

MR. KUDLOW: I hope it's going to be about the same, one-to-one parity. I think that's a very convenient benchmark.

MR. MCLAUGHLIN: Quickly, Michael.

MR. MANDELBAUM: One to one.

MR. MCLAUGHLIN: One to one.

MR. BLANKLEY: Just slightly more. I think the euro will be slightly higher than it currently is.

MR. MCLAUGHLIN: What do you think?

MR. BAKER: I think the euro could be a little bit higher than it is now.

MR. MCLAUGHLIN: A dollar and 10 cents to one.

Issue Three: EU vs. US.

BRITISH PRIME MINISTER TONY BLAIR: (From videotape.) I say to you, we stand side by side with you now, without hesitation. And I give you, on behalf of our country, our solidarity, our sympathy and our support.

MR. MCLAUGHLIN: That was in the aftermath of September 11 -- European solidarity. The anti-American, Euro-left, French newspaper Le Monde headlined on September 12, "We are all Americans."

That was then. This is now: a continental divide. One: International Criminal Court.

PRESIDENT BUSH: (From videotape.) We'll try to work out the impasse at the United Nations, but one thing we're not going to do is sign on to the International Criminal Court.

MR. MCLAUGHLIN: President Bush doesn't want US soldiers to be dragged into a newly created war-crimes court on bogus, politically motivated allegations. Europeans support the court.

Two: Mideast. "If Bush doesn't want the U.S. to be the honest broker in the Mideast anymore, the EU can step right in." So says a senior European official.

Three: Iraq. President Bush fully understands Europe is against an invasion of Iraq. So he utters a pro forma qualification:

PRESIDENT BUSH: (From videotape.) As I told President Chirac, I have no war plans on my desk, and I will continue to consult closely with him.

MR. MCLAUGHLIN: Let's talk about European pretensions of diplomatic power.

Could Europe really broker a resolution to the Middle East conflict, Gerry Baker?

MR. BAKER: No. It has no standing whatsoever in the region. It's far too -- over a long period of time, it's been far too closely associated with Palestinians. A lot of visceral opposition to Israel among Europeans in the way the Israelis have performed. So there's no possibility of the Europeans being able to play any kind of broker role there.

MR. MCLAUGHLIN: That was exhibited in the exchange -- or the meeting between Chirac and Sharon, too.

MR. BAKER: Extraordinary. I mean, yeah, there is still a loss of really powerful, powerful opposition to -- to what Israel has been doing there and a lot of support for Palestinians.

MR. MCLAUGHLIN: What about the Oslo process?

Does that suggest to you that there is a potential diplomatic role for Europe, Michael Mandelbaum?

MR. MANDELBAUM: No. I agree with Gerry. Europe is not a player. And on Iraq, it's also not a player. And on the International Criminal Court, the United States will have its way. On these issues, the United States is more powerful. On economic issues, Europe is a peer of the United States, and there will be serious negotiations.

MR. MCLAUGHLIN: Oslo, by the way, was fundamentally flawed, because it postponed the really serious and important decisions until the end. And that incremental approach was structurally and inherently a failure.

I want to go on to the exit question:

From the European perspective, Mr. Kudlow, is the U.S. truly seen as unilateralist -- from their perspective?

MR. KUDLOW: Only be the elites in Brussels. And I want to make the statement that ordinary, Main Street Europeans are not going to oppose our invasion of Iraq; they would like to depose Saddam. And these are freedom-loving people, though their so-called masters in Brussels may not be.

MR. MCLAUGHLIN: Are they unilateralist from their own perspective?

MR. KUDLOW: They're not, because they're not powerful enough.

MR. BLANKLEY: Well, then, they --

MR. MCLAUGHLIN: Are they from --

What do you think?

Hold on.

MR. BLANKLEY: Are you saying Europe is unilateralist, so they think we're unilateralist?

MR. MCLAUGHLIN: From their perspective, are they truly unilateralist?

MR. BLANKLEY: Are THEY truly unilateralist?

MR. MCLAUGHLIN: Are they truly unilateralist? Let me tell you this: that --

MR. BLANKLEY: I've never heard anyone suggest that.

MR. MCLAUGHLIN: -- that when they needed us in Kosovo, they really regarded us as multilateralist, did they not? "In their regard for us, do they truly think we're unilateralist?" is a better way of putting it.

MR. BLANKLEY: Yeah, I think that they -- at least, the Europeans I talk with -- do have this "cowboy" view of Americans.

MR. MCLAUGHLIN: Did you get my point about -- "unilateralist" is a code word for them meaning "You're doing something we don't like"?

MR. : -- we don't like." Yes.

MR. BAKER: There's a big difference there -- a fundamental difference here, which is that Europeans -- continental Europeans -- and we need to make a distinction between Britain and continental Europe, because Britain is very supportive of the United States on most of these issues. Continental Europeans have had national sovereignty for the last 100 years, which has resulted in disaster.

MR. MCLAUGHLIN: Issue four: EU versus U.S. II.

SPANISH PRESIDENT JOSE MARIA AZNAR: (From videotape; through interpreter.) The final point is that U.S. and Europe account for 40 percent of world trade. Between us, approximately 96 -- 97 percent of the economic issues work satisfactorily, with no problems.

MR. MCLAUGHLIN: But that vexing three or four percent: First, bananas. The UK wants to buy bananas grown in former European colonies, not in those places US companies grow their bananas, like Costa Rica. This has caused the US to inflict $200 million worth of sanctions against European imports to the US.

Also, currently, steel: President Bush gives tariff protections to the U.S. steel industry. So the EU is now designing its retaliation against the perceived Bush breach of free trade.

Also, mergers derailed by the EU: Time Warner and EMI, WorldCom and Sprint, GE and Honeywell.

More populous than the US, The EU presently conducts about the same amount of trade. With its growth in new member countries, however, the EU will pass the United States in GNP.

Given that the EU is a larger number of people, will it eventually surpass the United States economically?

MR. BLANKLEY: I don't think so. I think it lacks extensive innovation.

MR. MCLAUGHLIN: What do you think?

MR. BAKER: No. The demographics of the EU are terrible. Populations are declining. Birth rates are declining. The United States is growing. The EU is in a long-term real -- got a real long-term problem with its economy.

MR. KUDLOW: Europe can't outstrip us, because they don't have as much economic freedom as we do. But with political changes coming, they may challenge us more than people think.


MR. MANDELBAUM: Rich, but not as rich as we are.

MR. MCLAUGHLIN: Yeah, and furthermore, they may have more people; they won't have more consumers. They spend less than we do. They don't have the kind of credit we do, and they don't have the kind of debt that we do. On a consumer basis, we consume a lot more, and we're used to it. Whereas they tend to be more avaricious and frugal, we're more materialistic and free-spending.

We'll be right back with predictions.

How's that?


MR. MCLAUGHLIN: Predictions: Lawrence Kudlow.

MR. KUDLOW: Edmund Stoiber is going to be the new prime minister -- president -- chancellor of Germany. It's going to be a big victory defeating Schroeder, and it's going to restore a more free-market, capitalist approach not only to Germany but to the entire continent.


MR. MANDELBAUM: The grand expansion of the European Union to eastern Europe, scheduled to begin in 2004, will be delayed. New target date: 2008.

MR. MCLAUGHLIN: Why the delay?

MR. MANDELBAUM: Too complicated, too difficult to decide who gets what money and too difficult to reorganize the European Union in a way that can control 28 countries.

MR. MCLAUGHLIN: Do you mean that Bulgaria and Estonia and Latvia and Lithuania this coming November will not get the word that they're in?

MR. MANDELBAUM: They will be promised that they will get in, but not WHEN they thought they'd be in.

MR. BLANKLEY: They should --

MR. MCLAUGHLIN: Well, this is an amazing prediction.

Yes, go ahead.

MR. BLANKLEY: I think that Tony Blair, despite a lot of political danger to it, is going to push to have Britain embrace the euro.

MR. MCLAUGHLIN: When? With a referendum?

MR. BLANKLEY: With a referendum.

MR. BAKER: The current population of Europe is roughly the same as the population of the United States. Within 50 years, the population of the current European Union will only be about two-thirds of the population of the United States. That's not a prediction; that's a forecast based on extrapolations from current population growth.

MR. MCLAUGHLIN: What about Britain and the euro?

MR. BAKER: Britain will not join the euro. Tony Blair will not hold a referendum. Opinion polls are totally against it. He won't risk his (governmental ?) -- (inaudible).

MR. MCLAUGHLIN: His government will not do it. What about Denmark and Sweden?

MR. BAKER: Some time in the future, but not soon.

MR. MCLAUGHLIN: My prediction is -- I agree with all these predictions. And also, the European Union will develop stronger trade ties with South America than with North America.