EU: CDU/CSU and Balladur's proposals.

Di the economist - 10 settembre 1994

EU: CDU/CSU and Balladur’s proposals.

EUROPEAN UNION

BACK TO THE DRAWING-BOARD

SUMMARY: In 1951, Germany and France began working towards a united Europe. Britain snubbed their invitation to join the forerunner of the European Union, only to find itself repenting at leisure. Plus ça change.

(The Economist, September 10th 1994)

In William Blake’s poem, “Europe: a prophecy”, a rebellious angel called Orc defeats the guardian angels of Albion and spreads the spirit of freedom over Europe. The British of the early 19th century thought Blake mad : no man of sense could have such a vision. The British of the mid-20th century thought much the same when Jean Monnet, a French founding father of the European ideal, wrote that “the States of Europe must form a federation”, but found they ignored him to their cost.

Now, the vision is returning. On September 1st, the parliamentary group of Germany’s ruling Christian Democrats unveiled ideas for a new phase of European union to be led by France and Germany, with Britain apparently trailing some way behind. A strikingly similar notion for a Europe of “concentric circles” had been floated 48 hours earlier by Edouard Balladur, the French prime minister. The future European Union, both camps indicated, could be arranged around a core of countries which would pool their sovereignty and push towards a single currency, common laws, and common defence and foreign policies. This group was rashly defined in the German version as including Germany, France, Holland, Belgium and Luxembourg.

Outside the five-nation core would be ranged a second (some would say secondary) circle of countries, unnamed but presumably likely to include Britain, Italy, and Spain, for example. For these more peripheral nations the obligations of EU membership would remain at more or less their present level, to include participation in the common agricultural policy, the single market, structural funds to help poorer regions and so on. The German scheme sees each country as a welcome future member of the inner circle when it is ready to apply.

A final, outer circle would contain other aspirant states, including new entrants from Central and Eastern Europe. These countries would be presumed to be many years away from full integration with the innermost circle; theirs might be little more than a free-trade zone.

Although Mr Kohl and Mr Balladur quickly emphasised that there was nothing “official” about the French and German proposals, there was enough in the coincidence to rattle John Major, the British prime minister. In a speech in The Hague on September 7th Mr Major outlined a competing vision for Europe that sounded like something dreamt up by a 1970s management consultant: in effect, Europe as matrix. Down the side, countries; along the top, policies. The British model would allow countries to pick and choose, à la carte as it were, the policies they liked best. Germany, France and a few others, presumably, might sign up for monetary union and social-chapter legislation; Britain and France might be among the takers for foreign policy co-ordination; Britain might opt out of monetary and social policy.

These competing Franco-German and British visions are best seen as the opening bids in a contest to decide what sort of Europe will emerge from an inter-governmental conference in 1996 at which EU memberstates will review the Maastricht treaty of 1991, which committed them to European unity in name at least. France and Germany, successive presidents of the EU from now until mid-1995, will oversee most of the early preparations for the conference; and, controversial as it may be, the notion of a “core Europe” is a plausible one with attractions and historic echoes for both countries.

C’est si Bonn

The Maastricht treaty was an attempt, born of the economic boom of the mid-1980s and of the success of the single market programme, to enable EU countries, despite their differing interests, to draw closer to the goal of integration. Notably, it allowed Britain to agree to the principle of monetary union for other EU countries in exchange for opt-outs for itself. Now, in a climate of greater political and economic anxiety, the stage looks as though it is being set for a renewed clash of ideas that will raise perhaps the most profound and divisive questions about Europe’s future since the start of the European adventure in the early 1950s. The Franco-German view, with its pooling of sovereignties and its stress on the political aspects of union, points towards a United States of Europe. The British view defends a Europe of nation-states. The cracks which the Maastricht treaty tried to paper over with its opt-outs and movable deadlines are not only still there, but yawn wider than ever.

Whatever protestations may be made to the contrary, a Europe of concentric circles would tend to create new distance between the countries in the core and those in the outer circles. Imagine that the (five?) core countries were to establish a common currency. They would become even more a single market than the 12-country EU became at the end of 1992, and so would reap benefits of scale and efficiency denied to those outside the monetary union. Trade and investment would probably grow faster in the core than outside it. If the core remained small, an “us-and-them” effect would grow more pronounced as economies of the core countries tended to converge. Eventually the core might grow reluctant to pay for policies, such as the common agricultural policy and structural-fund aid, that benefited the rest.

Lines and angles

The French insist that their ideas are consistent with the Maastricht treaty, which allowed “variable geometry” into the EU for the first time by enshrining British opt-outs and permitting a sub-group of EU states to move towards monetary union after 1997 provided they met various macroeconomic criteria.

Between the German proposal and the fine print of the Maastricht treaty there is, however, an important difference. The treaty says that a qualified majority Of EU members (70% of weighted voting) must give their blessing before any sub-group of them moves towards monetary union. The German proposal says that the core group should be able to decide for itself what policies it wants to impose on its own members. Reasonable as it sounds, this approach would be counter to the spirit of the Maastricht treaty, which was to allow just enough flexibility to keep as many countries as possible moving forward together in the hope that they would all arrive at the same destination in the end. Barely a year after the treaty was ratified by its last and perhaps most important signatory, Germany, the careful balance of Maastricht looks in danger of being displaced by another, less emollient philosophy.

if the ideas now being floated are any guide, therefore, the inter-governmental conference of 1996 will prove to be a turning-point for Europe. To guess which way Europe’s countries will want to go, look at their interests; they can be arranged into five “constituencies”.

The first and most important constituency is made up of France and Germany; the Benelux countries are in effect an appendage. France and Germany form, as the CDU proposal puts it, “the core of the hard core”. Their community of interest is based on a shared need for stability across Europe, and a shared fear of ever again becoming one another’s enemies. That was what drove them together in 1951 to build a European Coal and Steel Community (ECSC) on the wreckage of three wars fought within a century; it is still a compelling force in both countries, powerful enough to overcome occasional sharp disagreements over trade and other issues, where - as was evident late last year in the closing stages of the Uruguay round of GATT talks - Germany is much closer than France to the liberal camp.

Beyond that mutual reassurance, everdeeper integration serves slightly different French and German interests. France sees an institutionalised political alliance as the best way of exerting influence over its bigger, richer neighbour. Germany sees integration as a means of dissipating the destructive force of German nationalism and of acting in Central and Eastern Europe not as the old imperial monster but as the leader of an unimpeachable alliance.

The second European constituency is that of the free traders: essentially Britain, which joined the European Community, the EU’S predecessor, in 1973; and Denmark, which joined at the same time. Historically, Britain’s interests in Europe have been two-fold. First has been the negative one of opposing the emergence of any dominant continental power. Winston Churchill wrote in 1936 that “British policy for 400 years has been to oppose the strongest power in Europe by weaving together a combination of other countries strong enough to oppose the bully.” (Britain sniffed at the founding of the ECSC because it doubted anything important would come of it.)

Britain’s other main interest in Europe has lain with the expansion of free trade, a service both to itself and to its main strategic ally, America. The creation of the single market in goods, people, services and capital marked the high-point of Britain’s European Union membership; since then, its aims have been almost entirely defensive.

The poor four

A third constituency is made up of poorer; newly democratic members admitted to the European Community in the 1980s. Greece joined in 1981, Spain and Portugal in 1986. All had shaken off authoritarian regimes in the 1970s. All were poor (Portugal’s GDP per head was scarcely more than a fifth of the EC average when it became a member). Each saw membership of the European club as a way of guaranteeing its democracy and modernising its economy.

This enlargement widened the division between the EU’s richest and poorest countries just when the single market was encouraging money and goods to flow more freely across borders. The result was that aid payments to poorer regions took a bigger part of the European budget; they increased again during the negotiations over the Maastricht treaty, when the object of maximum unanimity gave the “poor four” (including Ireland, which had joined with Britain in 1973) leverage to demand more special treatment.

But other EU members are now less uniformly sympathetic than they were to these poor relations, with which Italy may be loosely grouped. Democracy around the Mediterranean looks well enough entrenched. The poor countries, keen as they are on integration, worry that the creation of a “hard core” would serve to keep them at a distance - which may, indeed, be part of its charm to those safely within the core.

The final two constituencies in the EU debate are products of the changes that shook Europe in 1989-90 when the Berlin wall crumbled and with it communist power and the post-war division. The wars of Yugoslav succession began, and with them fears of fresh schisms. The notion of the European Union as a means of widening the borders of rich, stable, liberal Europe had obvious attractions for countries inside and outside Eu boundaries - with Germany prominent among the former.

Europe’s fourth constituency thus comprises the Czechs, Poles and other post-communist aspirants who see the Eu as a way to cement democracy and modernise their economies - much as the Spanish, Portuguese and Greeks did before them. In addition, they see membership as a form of security against Russia. The Eu has made the commitment in principle to let in the East Europeans; the German proposal gives the year 2000 as a target.

EFTA and after

The economic problems of the post-communist countries are, however, much greater than was the case with the Mediterranean nations in the 1980s. These waiters at the gate are poorer even than the “poor four”. They would place huge burdens on the structural funds and the common agricultural policy. Monetary union would neither be possible nor desirable for them in the near future. Their main concern is with getting a timetable of when they will become members and a clear idea of what they will be expected to do. Like the Mediterranean constituency, they worry that a “hard core” will disadvantage them by promoting a deepening of the EU rather than a widening of it. But they should not expect too much in the way of support from the “poor four”, for whom they will also be potential rivals for foreign investment and hand-outs from Brussels.

A fifth and final constituency comprises Austria, Finland, Sweden and Norway-all countries of the European Free-Trade Association, jolted into seeking to join the EU by the completion of the single market and the prospect of a widening to include Eastern Europe. Subject to national referendums, all will become full members in 1995. These new recruits are small, rich and already highly integrated with the EU. They will add only 26m extra people to the EU (7.7% ofthe present population), but will increase overall GDP by almost 9%. Their visions of how Europe should develop vary. Sweden, for which the Maastricht convergence criteria could prove tricky, may welcome the chance to pause outside a core group and join it later; Austria, which has long tied its monetary policy to that of Germany, may hope to jump straight into the inner circle.

Such are the interests that will have to be reconciled in a European debate that is now resuming after a two-year pause, a hiatus imposed by the need for national governments to ratify the Maastricht treaty and by the EU’s entry negotiations with Austria, Sweden, Finland and Norway.

A balance sheet

One relatively quick conclusion to be drawn is that the arrival of four newcomers in 1995 (if the three Scandinavians follow Austria and ratify membership in referendums later this year), and the prospect of more still some time after 2000, makes the break up of the EU’S present, monolithic structure inevitable, whatever else happens and however the EU might then evolve.

A second safe bet is that, if there is unanimous acceptance that a “one-speed” Europe is out, at least for a long time to come, there is plenty of room for argument about what sort of “multi-speed” Europe might replace it. The appearance of the post-communist and post-EFTA countries, by virtue of introducing more members with different priorities, should advance the cause of the British model, Europe as a matrix, which is designed expressly to reconcile conflicting demands.

To Europe’s integrationists, the fundamental problem with the British scheme is that it would impede the emergence of an integrated political structure. This is enough to make it unacceptable to most other EU governments, particularly those concerned about the EU’S clout in the outside world. They seek a strong, single voice on foreign policy and defence, and argue that this requires a degree of political integration that the matrix approach cannot provide. Britain might retort that the Union already speaks with one voice on trade even though it lacks that degree of integration.

Should France and Germany proceed with a plan for a core group of countries within the EU, their commanding vision is thus liable to find more support from other EU countries than is Britain’s more modest rival. But it remains to be seen whether there will be the sustained close co-operation between the French and German governments between now and 1996 needed to develop and sell a new plan. The longstanding personal relationship between Mr Kohl and Mr Mitterrand might have made such a thing relatively easy to envisage; but Mr Mitterrand stands down next spring, leaving Mr Kohl, supposing he is still in office, without his favourite interlocutor.

From a practical point of view, of course, if France and Germany do push briskly ahead with monetary union, there will be little that Britain or anyone else will be able to do to stop them. If that

happens, should Britain try to join them at the outset and avoid the history ofthe early 1950s repeating itself? In that prospect lies what Britain will see as an agonising choice. It may be that

forcing the pace towards union will be bad for Britain and perhaps even for all Europe. But if Britain stays out, only to change its mind later, its leaders may one day seem as silly as Churchill

now seems, for this comment on the founding of the ECSC 43 years ago: “I love France and Belgium but we must not allow ourselves to be pulled down to that level.”