Y ou have been involved in several European Union-China summits. There’s a long history of contacts and working with the mainland. How has the relationship evolved? What are the issues or obstacles to a stronger relationship?

Romano Prodi - If you take the EU framework, relations are very good. There are no tensions, no big problems. If you had to put it in one phrase, you would say “perfect”. But I think the relationship could and should be more intense, both from a qualitative and a quantitative point of view.

When I was president of the European Commission, about 10 years ago, we had already tackled the problems of [China’s] recognition as a market economy and the end of the [European] arms embargo [against China]. But these problems are still there.

Of course, they do not impede things. There is still friendship and cooperation. But I think friends should solve problems that [have been] on the table for so many years.

This is a fact and clearly a consequence of a European mistrust vis-à-vis China [and] of a difficult phase for European politics. We are just setting the rules for such a big, big, big union with 27 members. The decision process is much slower than we hoped and this is a big obstacle to deeper cooperation between Europe and China.

The other problem is European public opinion. Such a strong rise of China, multiplying exports and also emigrants to Europe, sometimes gives Europeans a sense of fear. That must be explained, must be guided by political wisdom.

You have advocated that there are some lessons that China should take from Europe, namely at the level of creating a welfare state.

I do think that, because, in terms of personal income, in terms of expectations for the future, this is just the moment when China will be obliged to define a welfare state. And there’s a choice. Do you want to go in the American direction, or do you want to go in the European direction?

A country like China, because of its historical roots, because of its political choices, its characteristics, is in some way [inclined] to the European welfare state, in which the state has a specific role and in which the cost of welfare is less than in the American model, taking into account the results.

Take, for example, the health system. To get universal protection, Europeans spend much less than the Americans, who do not have universal protection. And in terms of income distribution fairness and protection of the lowest classes, I think the European system is much closer to Chinese expectations.

I know that a process needing so many resources cannot be built in one year or even three. It is a long-range perspective. From this point of view, the European model of life represents, in my opinion, the ideal model for the new Chinese generation.

At the popular level, the American model is much shinier than the European one, but sometimes you should better focus on the substance of the problem. There is, in some way, more fairness, more justice in the European model.

It is up to the Chinese government to take a decision, not up to us.

What is the role of Macau and Hong Kong, which have been European outposts for a long time, in this EU-China relationship? Do you think there could still be value added for Europe on these historical connections with China?

I don’t want to go back only to historical rhetoric. I do think that the links were strong. Ricci came here to learn Chinese; think about what Hong Kong represented as a financial and trade link between the East and West. It has been so wise to keep the diversity. Wise for China and for Europe, for both, to have some sort of an open area in which you may make experiments. Think how the Chinese monetary experiments pass through Hong Kong.

A sort of lab?

Yes, these are laboratories. I call them a bridge. But you are correct. It is more appropriate to say a laboratory. In the changing world, we need laboratories, we need cushion areas. I consider this as a fantastic and wise cushion area. By preserving them, we preserve room for dialogue, room for experiment.

Global role

Coming back to China, but now regarding its relationship with the United States, some even talk about a G2.

My feeling is not like that. First, a G2 is not appropriate, not even a G3.

We are in a moment in which everybody is looking at the dialogue between Mr Obama and Mr Hu. If you read the excerpts from the press conference [held during the Chinese president’s recent US visit], you find there is fantastic, positive progress, because 2010 was a bad year for the relationship between the United States and China.

This meeting was warm, but no hint to a G2. The big issues that were on the table are still on the table.

I don’t want to say: ‘G2, or let me make it G3, and problem solved’ because this is a different world. We are in a multilateral world. Think [about] the role, the real power of Turkey, Brazil, Indonesia, Russia.

Let us not think of a world that is different from the real world in which we live. Clearly the Chinese and American roles are particularly important. In the future, the role of China will grow. But don’t put in your mind a world dominated by China or by an agreement between China and the United States.

The world will be a multilateral world, with many protagonists, major and minor, no one strong enough to dominate the others. The United States dominates the military side but there are demographic and growth sides. In terms of Gross National Product, Europe is bigger than the Unites States and China.

So, you have this world. Now the problem is to find the table around which to settle the problems.

Should it be the G20?

Well, should be. You put it correctly, “should”.

I was full of hope at the first meeting at the peak of the [global financial] crisis. Then, at the following meeting, we didn’t find a common agreement.

Clearly we have to go for the G20. But also we have to give more authority to a supranational body like the United Nations. Having some sort of G20 for decisions and then having the UN to act as a referee, not only as a “Red Cross”, but something more, making the role of the wise man in difficult decisions. We must go in this direction.

The UN should be reinforced?

What is clear is that the G8 only represents 15 percent of the world’s population. The old world is over. It was clear before the launch of the G20. I have taken part in ten G8 meetings, five for Italy, five for the European Commission, and you clearly had the feeling that you could not take decisions because the world was different. The world in its all was not represented around that table.

The G20 is the right table but we have not yet the right cooperation. This is why I think that you must also have the UN and supranational authorities like the International Monetary Fund.

That is, the reinforcement of the international organisations…

Yes.

Allow me to come back to Europe. You have commented on the current European crisis, with several countries facing financial problems. You have tried to put a positive slant on it, saying the Greek crisis has been overcome. And you said that, in the end, German Chancellor Angela Merkel would understand that it is in her interest to sustain the euro. What could be the future for Europe in this context?

My thoughts are very clear. No country, starting with Germany, has an interest in destroying the euro. I can also tell you that you do not always have rationality in politics. This is a rule also for China. It’s a general rule.

Having said that, I think that we have taken some wise decisions after the Greek crisis, in the right direction, like the financial stability fund. But this is not enough.

Europe has created a fantastic miracle with the currency. But in the long run, that must in any case be accompanied by coordination, strict coordination, over financial and budgetary policy.

China has been saying it is ready to help, even to buy some debt. How do you fit that into the general framework of relations with Europe? And is the undervaluation of the renminbi still an issue for Europe?

The answer to the first question is that I consider the Chinese were absolutely intelligent [during the European crisis] because it did not cost them much money.

It was a message to the Europeans that it was not necessary to be in disarray in this situation. Even big outside players, like China, found that it was not so risky to take part, in buying bonds. In some cases, it is not even necessary to buy; it is enough to say that you will buy.

It has also been an occasion to understand that China does not only buy US dollars but also euros for its own reserves. For me, this is important to make people understand that the US dollar is not anymore a dominant currency in the world. The euro may be in crisis at this moment and cannot substitute the US dollar, cannot be considered to be some sort of paritarian player. But it can still be attractive for Chinese reserves.

On the renminbi, I will repeat what I have always said. The more you ask the Chinese to revaluate the renminbi, the less probable it is that they will do it. Not only for a problem of pride but also because nobody wants to be dictated to by the outside world about what to do.

Honestly, I repeat that the real interest, task and obligation of China, vis-à-vis the world, is not to provoke imbalances. But how you do that is up to China to decide.

You don’t think we are at the breech of a currency war, as the Brazilians have been hinting?

We may risk a currency war but this is a different question. It’s about wisdom in international policy. Clearly everybody understands that we need a reform of the international system if we want to avoid it. But I tell you that it is difficult to have it now, because we are in a moment of change.

It is clear that ten years ago China would have accepted a change in the international system by simply adding the euro to the dollar. Today it is not the case, we need a basket [with at least] three big currencies but probably more than that. And to arrive to that you need in-depth technical meetings and you need long, long, long deals.

Bretton Woods was done, also, because it was easy at that moment. There was one currency dominating. Only the United States was in peace. They had their homeland safe. Now, [it is] totally different. So, the reform is necessary but it will be long, long. And in the meanwhile I don’t exclude tensions.

An academic turned politician

Born in 1939 in Scandiano, Italy, Romano Prodi has matched a remarkable career as a scholar with one in Italian and international politics.

Mr Prodi was president of the European Commission from 1999 to 2005. During his presidency, the euro was successfully introduced and the European Union was enlarged with 10 new members in central, eastern and southern Europe.

He was also prime minister of Italy from 1996 to 1998 and again from 2006 to 2008.

He has been, since then, president of the Foundation for Worldwide Cooperation and in July 2008 was named by the secretary-general of the United Nations, Ban Ki-Moon, as chairman of the UN-African Union high-level panel for peacekeeping in Africa.

Since February 2009, he has been professor-at-large at Brown University in the United States. Last year he was appointed professor at the China-Europe International Business School in Shanghai.

“I’m absolutely happy because school students and the alumni are a substantial part of the new Chinese flourishing generation. So it’s quite an experience and keeps me younger,” Mr Prodi told Macau Business in January.

Mr Prodi is no stranger to the mainland, a country he has visited regularly since 1984. “I don’t say that I am familiar with China because nobody is familiar with China,” he says, adding he was there at the birth of the special relationship between the mainland and the West. “Since 1984 I was betting on China – and I am so happy that the bet was not wrong”.