COPYRIGHT

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Copyright © Keith Middlemas, 1995

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DEDICATION

To my grandchildren:Hugo, Georgia, Fabian, Isabella

EPIGRAPH

It is the duty of the patriot to prefer and promote the exclusive interest and glory of his native country: but a philosopher may be permitted to enlarge his views and to consider Europe as one great republic, whose various inhabitants have attained almost the same level of politeness and cultivation. The balance of power will continue to fluctuate, and the prosperity of our own, or the neighbouring kingdoms, may be alternately exalted or depressed; but these partial events cannot essentially injure our general state of happiness, the system of arts, and laws, and manners, which so advantageously distinguish, above the rest of mankind, the Europeans …

Edward Gibbon, The Decline and Fall of the Roman Empire, Vol VI, chapter XXXVIII, p. 402 (1818 edition)

CONTENTS

Cover

Title Page

Copyright

Dedication

Epigraph

Introduction

Presidencies and principal Commissioners, relevant to the main themes, since 1981

Presidencies of the Council of Ministers and Meetings of the European Council

The European Integration Experience

by Richard T. Griffiths

1. 1945–58

2. 1958–73

Part I: History

3. The Stagnant Decade, 1973–83

4. Making the Market: The Single European Act, 1980–88

5. Maastricht and After, 1988–93

Post Script

Part II: Forces

6. The Commission

7. The Member States

8. Institutions: The Parliament and the Court of Justice

9. The Regions

Part III: Players

10. Firms and Federations

11. Players in Action

12. Policy-Making: Industry and Trade

Part IV: State without a Country

13. Unity and Diversity

14. Conclusion

Notes

Glossary of Abbreviations and Acronyms

Index

Acknowledgements

About the Author

Other Books By

About the Publisher

INTRODUCTION

The late 1980s brought a sense of quickening tempo to the European Community after a decade of stagnation. Two landmark Treaties, the Single European Act of 1986 and the Treaty of Union at Maastricht stood out in that optimistic period. Now that the wave of euphoria has broken, and the tide receded – though not nearly to its pre-1985 level – it is worth asking what were the permanent achievements and the quality of change that each brought about. As EEC, EC or EU, the European Community has habitually moved through troughs and hollows, punctuated by much shorter bursts of energy: neither can be explained without asking what all the relevant forces – governments, Community institutions and the array of interested outside players – were doing at each point in the cycle.

How member state governments and EU bodies relate is similar enough to what goes on in national political systems to be comprehensible, and open enough to be readily accessible. Community institutions are in most cases much the less secretive of the two. But the task of weaving the influence of non-governmental players (industrial firms, financial institutions, trades unions, regions and distinct state organs such as central banks) into the recent history of a subject extending over twelve or more nation states requires a different format, almost an alternative kind of history. Robert Brenner did this for seventeenth-century England in Merchants and Revolution,¹ with the benefit of access to all surviving archives. But the EU, like its member governments, restricts access at every point after 1965.

Yet without a complete picture of how influence is exercised and who moves whom, we have only half the story. Present day comment lacks essential connections to the recent past, to the trends which may not be obvious today but remain latent, like nationalism in eastern Europe before 1989. Without contemporary history, studies of the contemporary world – by political scientists, lawyers, economists, or specialists in international relations – rest on a dangerously relative foundation, and students are faced with a blind spot for the ‘years not taught’.

The contemporary historian (like any other), ought to contribute a distinct sort of understanding of three connected phenomena: processes as they change over time; the continuous interchange of many players; and the mutation of institutions, and the beliefs and behaviour patterns of those who work in them. These were my own concerns in a series of studies of British government during the twentieth century which developed the concept of a long and continuous game between an increasing number of players of different power, status and interests, a game in which all of them used the needs that the modem state had for their participation to draw it and its component parts into an informal framework, from which there could subsequently be no retreat to a pristine minimal state.

Their continual rivalry in the political marketplace focused on a range of goals, from naked self-interest to bargaining a consensus about what the common or national interest might be. Each one’s willingness to accept a measure of interdependence ensured that the others would be more inclined to recognize some of its own claims, if only as the price of general social harmony (for which, in turn, governments and political parties were prepared to pay). As a descriptive device, I called this a ‘competitive symposium’ – to signify a prolonged discourse, not between equal partners but ones which recognized each other’s claims and followed, voluntarily but as a precondition of membership, a code of political language and conventions of behaviour in pursuit of rational self-interest.

The competitive element was always present but was limited by the need not to risk the whole delicate balance through outright conflict. The game was therefore a continuous one, many-headed and usually peaceable, with regular prizes but no final victories, open to generally acceptable players bound by agreed rules and a shared belief that negotiated results, though never entirely binding or satisfactory, were preferable to dictation by a higher power.

Having reached a point in 1990 where a contemporary historian could not reasonably go further forward in a British context, I have tried to apply the same method on the European scale, by looking not only at the Community’s history over the last twenty years but at the interchanges between a much broader range of players or constellations than is usual in the approaches of other disciplines. To borrow a phrase of Andrew Shonfield’s, I hoped to study a great theme from a single standpoint, to discover an underlying coherence in the idea that the arena where these players meet could be described as informal politics, part of the overall system whose more obvious features are of course formal.

Living in a country which, more than any other member of the Community, has difficulty with the concept of being European, yet which I firmly believe has no special role and hardly any living space outside it, I am disturbed by the distorted and frequently trivial way the Community is portrayed in the press and on television by all but a handful of commentators. Apart from the brief period in 1972–4, and during the 1975 referendum, British governments have done little in their public discourse to make clear what is at stake, so that stereotypes are used habitually which provoke incomprehension if not derision across the Channel.

What is said here is meant therefore also as a contribution to perceptions: as Rudyard Kipling put it in Something of Myself in 1891, ‘trying to tell the English something of the world outside England – not directly, but by implication … a vast conspectus of the whole sweep and meaning of things …’. (Kipling of course wrote ‘Empire’ not Europe.) To start with, the Community is not just Brussels, the Council of Ministers and the Commission, but fifteen member states of varying size, importance and interests, some of which are very much more effective than others (insofar as their games lie within Europe). Beyond them, but in overlapping circles, range other players at national or regional level, of different status operating from different standpoints. There is no ideal Europe, no single picture, outside the emptiness of political rhetoric; just as there is no one centre. The centre is wherever the players meet. Those from ‘above’ may be formally superior, but informally, when they meet as a matter of common interest, it is each one’s effectiveness that counts.

The question to ask here is not ‘what is Europe?’, because in this dimension Europe is whatever you see, but how, informally, does the Community function, how do governments and non-governmental players act and what do they try to achieve? Does informal politics help to ameliorate the deep-rooted discords between north and south, core and periphery, small states and large, Anglo-Saxon and continental mentalities? Does it facilitate the entry of new players? Does it reduce rigidities and friction which would otherwise make the Community a less efficient mechanism for what its members want?

The Europe which questions like these throws into focus is one of interests, elites and powerful groups. It is vital to study these as they are: Europe as it is, not as people might wish it to be, as a preliminary to changing it. Players in the informal sector of a system are those who choose to enter out of self-interest, who have the willpower and resources to stay in and the capacity to make themselves heard in that highly competitive arena. Lack of resources or inability to form stable alliances condemns the rest to marginal status or, like small companies, to reliance on whatever support they can get at national or regional level. There is no democratic bias here.

But not all roads in the EU’s history lead to the same outcome. The narrative from 1973 to the present given in chapters 3 to 5 is intended to make clear how the European project revived after a long stagnation, and why the Single Act led on to the Treaty of Union at Maastricht – in the context of a Europe which had been fundamentally altered by the collapse of the Soviet Union after 1989. There are other ways of telling the story because the Community’s development is not teleological, not precisely delimited by the Treaties. How it evolves and what new legal texts it produces are for the players to decide.

As an historian I have tried not to confine myself to any one interpretation, whether federal, functional or intergovernmental, and to proceed empirically, taking account of all the significant players. The project assumes no hierarchy of players, no measured evolution: it examines ‘punctuated equilibrium’, change rather than progress, short bursts of energy interrupted by longer troughs (usually associated with recession). Of these, the economic and financial crisis of 1973–5 profoundly altered the balance between industry and labour, while that of 1981–3 had a direct effect on the behaviour of large firms and their federations towards the Community. The more recent 1990–93 recession ran parallel to a political cleavage between governments and elites on one side, publics and media on the other, in all member states, which severely impaired the Union (as the Community had by then become) and delayed completion of the internal market. Deep discontent with Community institutions seemed to be a sort of retribution for pre-Maastricht euphoria, as the last vestiges of post-War settlements disappeared, to be replaced by anguish at the threats to welfare systems and national identities, the latter at least being one long consequence of 1989.

There is a difficulty with this approach to incremental change. Existing studies of the Community and its processes take for granted a sense of progress and seek general conclusions, which the detailed evidence of what large numbers of players do does not always substantiate. Self-interest and bargaining, as Richard Griffiths shows in his historical introduction, written from the EU’s own archives, bulk much larger than earlier accounts, written by committed Europeans, allowed.

At best these concentrated on peak organizations or federations. But the primary actors were not usually federations but their members, for whom central bodies served mainly to correlate the varying opinions within them. A group study of such bodies gives an illusory impression of continuity. Likewise, most large firms or banks had a presence in the Community from the 1970s onwards. But generally their interest increased substantially and in a qualitative way in the 1980s, so that they appear to be now fully engaged as players; yet the intensity and scope of their involvement differs according to what is at stake, and may diminish (as many companies’ efforts did, once the internal market legislation was in place).

Either way, corporate players helped to create the Community’s informal political infrastructure, as they did nation states’ systems rather earlier during the twentieth century. In the European Union, however, they operated in greater freedom from the constraints of the past, because the Community is only an imperfect or quasi-state, some thirty-seven years old. Its system is different from those of nation states and the degree of informality greater, because of its institutional heterodoxy.

All this makes it necessary to examine the links and networks that have grown up, and to look at how similar informal politics operate in the European Court, the Parliament, the regions and among financial players or central banks, in their context rather than in isolation. Networks in the 1990s are growing fastest in the recently colonized commercial or financial spheres. They have always crossed borders, but here borders have ceased to count. The increase by volume is perhaps the most noticeable feature of the last decade; but the fact that major players can no longer ignore less relevant areas, for fear that their competitors will establish bridgeheads there, suggests that the quality of change is more important.

As the competitive symposium extends itself, a sort of interdependence becomes established. Bargaining through networks in a densely structured game reduces friction and produces results for which the formal system may be ill attuned, even on ostensibly formal matters such as easier implementation and enforcement of laws. It allows for wide, flexible participation; it reduces inconsistencies; it gives rise to conventions, rather than formal rules, which can be adapted more easily over time. But it is not protective of weaker interests and it privileges the more efficient ones.

Like the dusty engagements in a ‘soldier’s battle’ spread over a huge terrain, it is hard to see results. Even business participants are often unclear who is winning at any one time or what constitutes success. They might reflect with William Morris ‘how men fight and lose the battle, and the thing they fought for comes about in spite of their defeat; and when it comes, it turns out not to be what they meant, and other men have to fight for what they meant under another name.’

Appreciating the game’s totality is vital: without it, it is impossible fully to understand EU processes and the behaviour of players or individual practitioners; the informal constitutes the ‘dark side of the moon’, without which that sphere is only a disc.

It is impossible even to think of including here more than a brief selection of the sorts of cases where informal politics proliferate. But space should be made for all the players or the sense of totality is lost. Each one, whatever its size, effectiveness, status or resources, has some influence on the outcome. Until it has proved unimportant or marginal, therefore, it should be given historical space. The Community contains large numbers of games which are distinct, as well as ‘nested boxes’, and a group powerful in one may be outplayed in another – which is not the case in the formal system between legal entities of equivalent status.

Power of this kind is also a function of how much the EU’s institutions need what players have to offer. Commission officials’ willingness to consult peak organizations from particular industries and their component firms is well known; and so is their propensity to take on experts from member states or those same firms as advisers (which is ascribed reasonably enough to shortages of staff in the Directorates and the need to take account of what exists in national or local markets). Very complex forms of diplomacy govern the subsequent transactions of information and influence.

Early in the EU’s history, individuals carried great clout, as befitted a relatively small Brussels elite. Today, the keys to sustained influence lie much less in personal linkages, more in tightly argued dossiers and presenting the most up-to-date information at the initial stages of policy evolution. The professionals have taken over, flanked by cohorts who constitute their own distinct groups: technical experts, lawyers or journalists.

But whoever acts, the questions remain the same: who manipulates? Who controls whom? What are effective transactions rather than ritual ones? The gains made by either side may not have obvious market connotations, especially once players have committed themselves to a long-term involvement: positional gains often outweigh monetary ones. In such circumstances it is hard to ascribe a balance of advantage, or to portray influence as a one-way process. Both sets of participants tend to shape each other, whether at the Commission/Council level, or at that of the firm and Directorate official.

It is clear from the interviews on which this book is based that the game begins surprisingly low down among relatively junior Commission officials; and that what matters is the cumulative weight of such bargaining (governed as it is by its own system of filters, access mechanisms, rules and conventions) by the time that decisions, whose basis rests on joint agreement, have become EU law or policy. This is no longer – if it ever was – a matter merely of lobbying, but of degree of commitment, indicated by when a player finds it expedient to set up an office in Brussels or to develop a department of EU affairs with a direct link to its main board.² The index of commitment is to be measured in terms of resources (for example, the cost of lobbying in the European Parliament), the quality of personnel involved, and the extent to which the player develops internal mechanisms for dealing with the EU in its corporate structures.

If one selects only certain categories of players, the game’s totality is lost, not least because such studies tend to ignore the variety of modes of action open to all those players, ranging from direct pressures in Brussels or use of MEPs (a multinational corporation might have a minimum of fifty MEPs on its contact list at any one time, including the total membership of some key Strasbourg committees), to leverage via its own member state government’s European Affairs Coordinating committees, or with its Permanent Representation in Brussels. The sheer volume of new entrants, the number of corporate offices set up in Brussels in the late 1980s, the numbers of lobbyists who, like Renaissance mercenaries, did well at Strasbourg out of the legislative boom, have done more than clutter the EU’s political marketplace. They have changed it, probably irreversibly, because all the serious players (which does not include those who work sporadically or primarily through lobbyists) have engaged themselves permanently, on a large scale and with substantial resources, to the evolution of means of influence at every level. A firm cannot ignore any of these approaches, not because all means are equal, or have a commercial or even viable return, but because competitors might gain advantage there.

It is sometimes argued that players are more concerned with relative than collective advantage. My impression is that, in the more coherent industrial sectors like chemicals and pharmaceuticals, this is not so and may not even be true for the less coherent such as motorcars and consumer electronics, firstly because it is almost impossible for a large firm not to play in the EU market, secondly because the extensive range of modes available ensures that relative advantage can be defended on other levels – for example by utilizing group pressures on those perceived as playing only for their own interests, or deprecating what they do to Commission officials in order to ensure their partial exclusion or downgrading.

Given such a plethora of activities, there are substantial problems not only in deciding who influences whom but in discriminating between significant and unimportant activity. It is not much use measuring the numbers of lobbyists employed, the size of federation memberships, or the numbers of MEPs’ signatures on proposed amendments; it would be better to ask what is their quality, how coherent is their representation, on which committees do they sit? Few players, from member states to SMEs, focus all their existence in the Community context; we need to know if they have changed emphasis in the spectrum running from national capitals through Europe to global markets; whether the man in Brussels reports direct to the managing director, whether players with widely different interests are adopting similar tactics.³

Formality and informality are not part of a syllogism, thesis and antithesis because, like ying and yang, they complement each other. All social scientists understand what informal politics is, but find its essence hard to define formally. But if they too often reduce it to formal abstractions, historians tend to avoid it altogether for lack of proper documentation. Logically, it does not constitute a system, because that would mark its clear separation from the formal: it can only be part of a system.

Two assumptions can be made about formal mechanisms: firstly, that they rely on their operators’ continual good behaviour; secondly that, without informal processes, they become more rigid or unworkable the more pressures build up in the societies which originated them. No mechanism is so perfect that it cannot be disturbed by dissidents or outsiders. None can be designed to alter itself over time to meet the challenges of which the originators can have had no conception, unless it has latitude built in. Combinations of the two have a better chance of preventing systemic failure than tight legal prescription does on its own.

But what is it? Almost any habitual, voluntary practice could be described as informal. It is not restricted to individuals who know each other – though nationality or language affinity, cultural rapport and shared professional ethos are important. Whatever it is must constitute the basis for continuous relations between the players, whether governments, officials or commercial organizations. It must include everything which does not appear in legal texts, all rules and conventions which may be policed but are not justiciable.

Informal politics are defined not so much by players’ status – any who wish and can establish credentials to the satisfaction of others can enter – as by the mode chosen to establish relationships. All players can choose between formal and informal modes and the shades of grey between them. There is no dividing line – only a spectrum. Rules and conventions are policed on both sides, with many nuanced penalties for infringement.

Inclusion depends on a player’s willingness to accept the rules and conventions of its own club or association. To a minimum extent, all players, like member states themselves, must demonstrate an element of altruism (European-mindedness) as well as basic self-interest, not only to be proper members of higher sectoral and European-wide groupings, but to make themselves acceptable to EU institutions and officials.

Informal politics exist wherever there are ‘grey areas’. As these are filled in and categorized over time, the informal may mutate, becoming, like the European Council, quasi-formal or ultimately fully formalized. But periodically new grey areas will open up as contexts or procedures change. Where interpretation is open to dispute, where there are margins of manoeuvre, where boundaries are imprecisely defined, where authorities have to exercise discretion, the informal will always flourish.

It exists most in conditions of plural bargaining where interdependence requires players to consort together to make agreements or risk losing the consensual base on which their status and the possibility of future agreements rests. It increases with the number of players, because none wishes to be isolated in the political marketplace; and it operates more easily and frequently in the Community than in nation states – whose modem forms of trilateral brokerage developed earlier in the twentieth century and have since grown older and more rigid; whose governments are also less open or willing to admit that it exists.

Its appearance is infinitely variable, but each aspect has certain common characteristics: impermanence, flexibility, subtlety. Inside groups and institutions it is disseminated as individuals are inducted, socialized and promoted, taking root most readily where there is professional training or practical experience. Political constructions damage it, for it is ultimately consensual, unlike the politics of politicians which tends to divide.

It evolves mechanisms for revision more easily than the formal system, and is closely compatible with the long Community tradition of setting markers in legal texts, to be implemented in riper circumstances at a later date. In that sense, it assumes both good faith and the continuity of ethos and convention among players, though not of course always in the same forms.

In what follows, I argue that this constitutes a distinct field with systemic characteristics, not merely a shadow or extension of the formal. But it is not a Manichean distinction: only at the ends of the spectrum are matters black and white. Unless the whole range is taken into account, analysis remains imperfect, since for want of it the strong probability is that the formal system will be less acceptable, flexible or efficient.

The formal and informal sides’ interactions are present in any known political system, since the only difference between them in a tyranny and a democracy is one of proportion: they exist in both. But in open systems the informal is far more pervasive, legitimate and well-grounded, even at the point of policy initiative. Looked at in this way, not only governments but the components of the modem state – ministries, civil servants, central banks, and the state as a whole – are players. Power is exercised through shifting alliances, depending on what is at stake in the polygonal activities which surround economic activity and the social life of individuals.

But its Community aspect is not the same as that in nation states, being more open, welcome, and effective to the point at which the formal might well silt up without informal mechanisms. As one very senior Brussels official put it, ‘if you were to stick to the formal procedures, it would take ten years every time … the more there is disagreement, the more the informal is necessary.’⁴ This argues that the EU’s slowly evolving statehood – which is a subtext throughout this book – will continue to differ in kind from the statehood of its members. Each player operates in a multinational range. Each of them has its own distinct global interests, its own concept of what is good for it within the European framework. It is this which it wants inserted, like a pacemaker, in the heart of Europe. No nation state has to contend with such a game, none is so much an artefact of the game.

What the EU will become is not something this book attempts to guess. Given the model of perpetual flux which the formula competitive symposium implies, that would depend on answering an impossible set of questions about the future of the nation state, which is at present still the EU’s main determinant. Yet that outcome will be affected by all the players, not just member states and Community institutions, in the double game in Brussels and national territories. How power is exercised in the Community is inseparable from the sum of all their transactions, a state of affairs which national governments would not permit at home but are powerless, because of their diversity, to prevent here.

By participating, players affect each other’s perceptions of one another and what each is doing. As a result, the European Union may be becoming more like a global market in political and economic terms, but not necessarily so in social or cultural respects since there is a wider assimilation at work, beyond the one that makes their behaviour patterns similar. As their perceptions change – faster with the onset of an internal market – so may their interests. Imperceptibly, the economic players may become European, whatever nation states do, whether or not a European public comes into existence to fulfil what, in national terms, remain ‘unnatural communities’. Yet the Community cannot be confined to the economic sphere because there are not even Chinese walls to separate economics from the political economy. If that makes the Community into a state, albeit of a different order from nation states, then the members of it must accept the outcome of what they have helped to create.

Sources

A book like this can only be written on the basis of elite oral history. Only one major archive, that of the Confederation of British Industry, was made available to us, from 1973 more or less to the present day. In amassing our own archive of over four hundred and forty interviews, we were able to hear the views of as complete a range of practitioners as seemed possible: Commission officials, Commissioners, member state administrators, politicians and Permanent Representatives, MEPs, judges and Advocates General, regional notables, representatives of peak institutions in the industrial, financial and labour sectors, and a considerable variety of firms’ and financial institutions’ executives.

We should emphasize that this selection was not Brussels-oriented, but incorporated a variety of standpoints: those of twelve member states, weighted according to size, four applicants for membership, five regions in the five largest member states, and a range of firms and sectoral organizations chosen to illustrate particular cases and their diversity of ethos and orientation. The choice of retired respondents as well as those in post enabled us to cover the period 1973 to 1994, and in particular to obtain insights into less-studied areas such as the Court of Justice, and the Committee of Central Bank Governors in Basel.

There were, inevitably, some arbitrary aspects to the selection, since not all those asked were willing or available to be interviewed. We concentrated more, for example, on the European Court of Justice than the European Parliament, whose powers and informal structures are still in the process of evolution; and on certain Commission Directorates, dealing with industries and the financial sector, rather than others. The interviews themselves naturally vary in quality, but at best constitute a significant weight of evidence. Copies have been lodged at the Sussex University European Institute, at the European University Institute in Florence, and at the Hoover Institution, Stanford, California.

These are in the form of notes, not verbatim transcripts, being the researcher’s record of what took place. This creates problems of attribution. Some of the material would not have been given if the sources were to be made plain so soon after the event; in other cases, where many of the respondents agreed, footnotes would have been unmanageably long. Where a choice is made between different interpretations, attribution would have been invidious and unfair to those who spoke in good faith. Furthermore, no individual could be taken as representative of any firm or institution, let alone a whole sector of government. Hence they are referred to here, where direct quotation occurs from the notes, but only by indexed numbers; in the archives they are referred to by a general title such as ‘DG3 Official’ or ‘Executive of such-and-such a company’.

The problems connected with oral history are well known. They include lapses of memory, vindictiveness, falsification, excessive discretion, trivia, over-simplification, lack of perspective and various sorts of distortion and hindsight.⁵ The interviewer in turn has his or her limitations, ranging from choosing an unrepresentative sample to undue deference or bias in questions; not forgetting that the method is often so enticing that it may unwisely be preferred to official or other printed sources.

A distinction should of course be made between oral history, used predominantly to record memoirs of the less articulate (whose lifestyles rarely appear in documentary form), to construct alternative or ‘peoples’ histories’, and elite oral history, whose respondents are used to presenting themselves and their views fluently. Only the latter have been used here because they offer an unrivalled insight into motivations, interpretations, factors in policy-making, and the personal or group interchanges between those who belong to one or other of a number of elites.

The advantages clearly outweigh the risks, which prudence and practice can to a large extent mitigate, though never eliminate. Elite oral history, constructed from discussion with participants in the midst of the action, provides assessments of personalities and events which may not be recorded in documents even when these eventually become available for research. More important, it gives guidance on organizational relations which may well substantially modify observations found elsewhere. No organigram can be weighted sufficiently to show the informal channels or the difference between real and ritual communications.

Some institutions have only a limited effective life before becoming bureaucratized. Some are so informal as to leave no documentary record. All networks operate differently, depending on the question at issue and the level at which they relate to others. Vast as the flood of EC documentation is, ranging from formal reports to discussion documents, these alone cannot establish what on any given question is the place each player in each game merits. Interviewing gives insights into the assumptions or ethos of a group and its collective aims which, in the case of commercial organizations, may never otherwise be fully documented.

Presidents and principal Commissioners relevant to the main themes since 1981

President (81-84) | External relations | Econ. and finance
Gaston Thorn | Wilhelm Haferkamp (Lorenzo Natali) | Francois-Xavier Ortoli

Industry | Competition | Transport
Etienne Davignon | Frans Andriessen | Georgis Contogeorgis

Science/Research | Telecoms | Internal market/Financial institutions
Etienne Davignon |  | Karl-Heinz Narjes (int. market) Christopher Tugendhat (financial institutions)

Regional policy | DG XXIII (enterprise policy, tourism,…)
Antonio Giolitti | Antonio Giolitti

President (85-88) | External relations | Econ. and finance
Jacques Delors | Willy De Clercq (Claude Cheysson) | Alois Pfeiffer

Industry | Competition | Transport
Karl-Heinz Narjes | Peter Sutherland | Stanley Clinton Davis

Science/Research | Telecoms | Internal market/Financial institutions
Karl-Heinz Narjes |  | Arthur Cockfield

Regional policy | DG XXIII (enterprise policy, tourism,…)
Alois Pfeiffer | Carlo Ripa di Meana (Abel Matutes)

President (89–92) | External relations | Econ. and finance
Jacques Delors | Frans Andriessen (Abel Matutes) | Henning Christophersen

Industry | Competition | Transport
Martin Bangemann | Leon Brittan | Karel van Miert

Science/Research | Telecoms | Internal market/Financial institutions
Filippo Maria Pandolfi | Filippo Maria Pandolfi | Martin Bangemann (Leon Brittan)

Regional policy | DG XXIII (enterprise policy, tourism,…)
Bruce Millan | Antonio Cardoso e Cunha

President (93-94) | External relations | Econ. and finance
Jacques Delors | Leon Brittan Hans van den Broek (Manuel Marin) | Henning Christophersen

Industry | Competition | Transport
Martin Bangemann | Karel van Miert | Abel Matutes

Science/Research | Telecoms | Internal market/Financial institutions
Antonio Ruberti | Martin Bangemann | Raniero Vanni d’Archirafi

Regional policy | DG XXIII (enterprise policy, tourism,…)
Bruce Millan | Raniero Vanni d’Archirafi

President (95-99) | External relations | Econ. and finance
Jacques Santer | Hans van den Broek Leon Brittan (Manuel Marin) (Joao de Deus Pinheiro) | Yves-Thibault de Silguy

Industry | Competition | Transport
Martin Bangemann | Karel van Miert | Neil Kinnock

Science/Research | Telecoms | Internal market/Financial institutions
Edith Cresson | Martin Bangemann | Mario Monti

Regional policy | DG XXIII (enterprise policy, tourism,…)
Monika Wulf-Mathies | Christos Papoutsis

Presidencies of the Council of Ministers and Meetings of the European Council since 1970

The European Integration Experience

RICHARD T. GRIFFITHS

1

1945–58 ¹

In 1945 western Europe counted the cost of yet another continental conflict, the third in the space of seventy years involving France and Germany. Yet by 1958, these two countries had formed the core of a new supranational ‘community’, transforming intra-state relations in the space of thirteen years. It represented a development to which many in 1945 would have aspired but which few would have dared to hope would be realised so quickly. This evolution marked the beginning of what is commonly referred to as ‘the process of European integration’.

It is worth pausing to consider the double connotation of the word ‘integration’, since the expression is used to imply both a sequence of institutional changes (all involving the surrender of national sovereignty) and the enmeshing of economies and societies that it is intended should flow from these measures. To be more precise, ‘integration’ was one of the goals of the European Coal and Steel Community (ECSC), founded by France, Germany, Italy and the Benelux countries in 1952, and of the European Economic Community (EEC) and EURATOM, both founded by the same six states in 1958. Nonetheless, we should realize that this term intentionally excepts many other types of institutional change on the grounds that they are ‘inter-governmental’, and do not involve the surrender of sovereignty. It also marginalizes other sources, institutional or otherwise, of Europe’s growing ‘interdependence’.

The ‘process of integration’ is given pride of place in the memoirs of those most closely identified with it. This is because they were convinced of the historical importance of their achievements, but also because they were eager to win the propaganda war against the existing inter-governmental alternatives, which they perceived as weak and incapable of sustaining further development.² The institutions and workings of the new supranational communities were pushed further into the limelight by the writings of a generation of political scientists, attracted by the novelty of provisions in the Community and the dynamic inherent in their operations. Their attitudes have subsequently been projected backwards onto the past in a series of histories which concentrate on the struggle for supranational, even federal, institutions, but which mostly exclude developments elsewhere. Yet the EEC came onto the scene relatively late in the day and although the ECSC had been created six years earlier, it was limited in its economic impact. Insofar as the economic boom of the 1950s and the trade expansion that accompanied it had been caused by institutional changes, its origins lay elsewhere. The EEC’s creation witnessed the end of western Europe’s financial and commercial rehabilitation and not the beginning.

Since the late 1970s, a new generation of historians, trudging in the wake of the so-called ‘thirty year rule’ – the period before which some national governments grant access to their archives – have been rewriting the history of this period. Much of this work has still to be assimilated into mainstream accounts but, once it has been, its main achievement will have been to widen the perspective and context of analysis and to rediscover the complexity of the past. This, in itself, has often constituted an antidote to the simplistic ‘high politics’ analysis (and sometimes straight federalist propaganda) of existing accounts. However, thus far historians have been less than successful in agreeing on a coherent ‘alternative’ explanation to federalist accounts.

One casualty of the new history has been ‘American hegemony theory’, at least in its early chronology. The ‘hegemonic leadership’ theory argues that the existence of an American political hegemony allowed for the reconciliation of lesser, more localized national differences. Thus, at the height of its relative economic, political, military and moral power, the United States is supposed to have used its good offices to establish a liberal world order and, more particularly, to have supported ‘integrative’ solutions to world problems that mirrored its own history and that seemed to underpin its own success and prosperity. The new, revisionist literature has demonstrated the limits of hegemonic power and has raised awareness of the degree to which Europe has been able to resist American influence. Equally, it has underscored the ‘European’ as opposed to the American motives in seeking to ‘change the rules’ of European inter-state relations through institutional innovation and reform.

Secondly, historians have stumbled into the ‘actor-agency’ dilemma already familiar to political scientists. Initially, much of the literature focused on the actors: the ideas that drove them, the positions of political power they occupied and their role in the nexus of key players, together with the political processes which they adapted or invented to accomplish their ends. The need to find peace in western Europe and to build a bulwark against totalitarianism formed the ‘real world’ components in this analysis. Subsequently, historians working usually in governmental archives have found a more prosaic subtext to these events. Far from an heroic, visionary quest for a better future, they recount the story of an entrenched defence of perceived national interest. This version of history is often juxtaposed against the earlier approaches but the two are not necessarily irreconcilable. The international agreements that underpin the integration ‘process’ were usually submitted to parliamentary scrutiny and the threat of rejection placed constraints on too cavalier a surrender of sovereignty on issues of real public concern. Moreover, the whole idea of ‘supranationality’ is to adapt the rules of future political behaviour, to determine a new ‘how’ for the political process. It may remain a primary goal even if it requires a surrender of consistency or elegance in the short-term.

This version of ‘perceived national interest’ is itself the outcome of domestic political processes and is susceptible to changes in the balance both within governments and between governments. It is some way removed from the concept of national interest as formulated by ‘realist’ or ‘neo-realist’ scholars, who argue that the state is a unitary actor, intent on maximizing its interests, whose foreign policy behaviour can be understood from an objective reading of its relative geo-political position. Within the literature of integration this type of analysis made its appearance in the early 1960s³ and has recently been revived. In its current version, the viability or survival of post-War, democratic states lay in their ability to satisfy a ‘consensus’ built around comprehensive welfare provision, economic growth and agricultural protection. According to this critique, only when these goals can not be met in any other way do governments agree to surrender sovereignty, usually emerging stronger as a result.⁴ Aside from postulating an implausible degree of coherence in collective decision-making, this version of events both exaggerates the dangers confronting European states in what was, after all, the middle of the greatest economic boom in modem history, and the importance of supranational mechanisms in resolving residual commercial challenges.

Despite the awesome destructive power of the weaponry deployed during the Second World War, Europe’s post-War productive capacity was not as damaged as has often been claimed. Although the image of utter devastation still persists, the material damage was concentrated on areas of infrastructural investment (mainly transport and housing) and much less on productive capital. Most historians now accept that Europe’s industrial capacity was larger in the late 1940s than it had been in 1938 and, in some respects, better adapted to the needs of the post-War era. Without taking this into account, it is impossible to understand Europe’s rapid industrial recovery. Already by 1947, most western European countries had surpassed their pre-War levels of industrial output. Germany, the main exception, was not to do so until 1950, by which time western Europe as a whole was producing almost 25 per cent more than in the pre-War years. Although the expansion of manufacturing was remarkable, serious problems still remained. Basic industries, such as coal and steel, struggled to recapture pre-War levels and the neglect and destruction of transportation systems also caused major bottle-necks. Agricultural production was not as severely weakened within western Europe, but recovery was much slower than it had been for industry. Although a poor harvest in 1947 reinforced the negative image of the condition of European agriculture after the War, this was a serious but isolated incident and output rebounded quickly. Even so, it was not until 1950 that production recovered to its pre-War levels.⁵

The impact of all these changes was to widen the productivity gap between Europe and the USA. In industry alone, the USA had emerged from the War with double the output of 1938 and, despite the dislocation of adjusting to peacetime conditions (and a short-lived recession), had added further to this position by 1950. Without closing the gap, it was felt that Europe would be unable to repair the trade imbalance with the US and would be unable to sustain acceptable standards of welfare for its peoples. This problem was aggravated by the impact of the War on Europe’s trading relationships, both with each other and with the rest of the world.

American wartime planning had aspired to a world multilateral trade and payments system. The Bretton Woods conference, held in July 1944, decided in favour of the restoration of the gold-exchange standard (based on gold and convertible reserve currencies) but with two important safeguards. Firstly, it created the International Monetary Fund (IMF) to aid countries against speculative attack. Secondly, it agreed a set of ‘rules’ to govern international monetary behaviour. In December 1945, the US proposed complementing the arrangements for world monetary order by the creation of the International Trade Organisation (ITO) to ease trade conditions and to co-ordinate national countercyclical policies. Its constitution, in a much watered-down form, was agreed in Havana in 1948. However, the ITO never came into existence because the US Congress, unwilling to surrender so much control over its protectionist arsenal, refused its ratification. This left the temporary and far less comprehensive General Agreement on Tariffs and Trade (GATT), agreed in 1947, as the main regulatory body for commodity trade. It is important to note that in both areas, the agenda for action was a global one. There was little place for new regional discrimination and every intention to eradicate existing trade preference areas, usually between colonial and metropolitan powers.⁶

Instead of a multilateral trading system, Europe’s trade and payments had returned to the pattern of bilateralism and autarky that had characterized the 1930s. Indeed the pervasiveness of frontier controls between countries and across products surpassed anything that had been seen in peacetime since the start of the free trade movement a century earlier. Europe’s commercial problems stemmed from several different sources. The effect of the dislocation of the War on many economies made it difficult to divert production to exports at the expense of investment or already low levels of consumption. Moreover, the liquidation or destruction of foreign investments which, even by 1950, were still earning 75% less in real terms than they had been in 1938, removed an important source for covering import requirements. These two developments aggravated trade imbalances but the problem was further complicated by shifts in the direction of trade. Germany had provided many countries with imports of fuel and raw materials, semi-manufactured and investment goods upon which their own industries had depended. Because German recovery was inhibited by the occupying Allies, this source of supply was much diminished. Moreover, agricultural goods, and particularly grain, were no longer available in the same quantities from eastern Europe. Indeed the only area capable of compensating for this shortfall in supply was North America. Thus the trade deficit with the dollar area increased enormously compared with before the War, at a time when the disruption of colonial economies also meant that Europe was no longer able to earn dollars from triangular trade. The scarcity of hard currencies forced countries to restrict imports and control trade through bilateral agreements, augmented with quantitative restrictions and exchange controls. The effects of these problems, and the measures chosen to cope with them, reduced the relative levels of internal trade in peacetime in western Europe to possibly their lowest point in the twentieth century. The share of internal trade as a proportion of Europe’s total imports and exports fell from almost 48% in 1938 to under 35% ten years later.⁷

It was against this background that, early in 1947, there occurred a sharp deterioration in western Europe’s balance of payments. It was probably occasioned primarily by the ambitious inflationary investment plans initiated in pursuit of domestic reconstruction but was aggravated by the impact of poor harvests on Europe’s terms of trade. Yet it was this second factor, with its associated images of hunger, high prices and social discontent, that formed the prime means publicly to legitimize the massive dollar investment programme announced by the American secretary of state, General George Marshall, at a speech at Harvard University in June 1947. The announcement of the Marshall Plan has often been associated with the ‘Truman Doctrine’ of March 1947, which pledged American help to the Greek government in their struggle against the Communists in the civil war. Together, they have come to symbolize the start of the Cold War. Yet Marshall Aid marked another fundamental shift in American policy. It represented a recognition that Europe’s reconstruction could not be managed within a global, multilateral framework, but rather that the continent’s rehabilitation was a prerequisite for the functioning of wider arrangements.⁸

The failure of a global strategy was underlined within months of the announcement of Marshall Aid. When, in 1945, the Anglo-American loan agreement had been signed, one of its clauses had stipulated that the United Kingdom would reintroduce sterling convertibility by mid–1947. This would allow countries to use their sterling reserves for multilateral settlements and thus reduce the pressures on the dollar. On the appointed day, supported by new loans, the British government duly announced the return to convertibility and found itself immediately confronted with a run on reserves. Within seven weeks, the experiment was abruptly curtailed. Nothing else could have demonstrated so eloquently that it was not currency or liquidity that the system needed, but one currency in particular (the US dollar) and in one area (western Europe).

Of course there was a realization that special transient arrangements would be needed to assist recovery from wartime destruction. In November 1943, for example, forty-four governments created the United Nations Relief and Rehabilitation Administration (UNRRA) for the provision of immediate relief in the form of food, clothing and shelter, as well as the raw materials and machinery necessary to restart agricultural and industrial production. In mid–1946, the UNRRA decided to wind up its operations by the spring of 1947. Before then, in June 1946, another Bretton Woods institution, the International Bank for Reconstruction and Development (IBRD or World Bank) had commenced operations, although it was another full year before it made its first loan. Marshall Aid, however, was an implicit acknowledgment that IBRD funds would be no match for the task at hand.

The United States began its active intervention in Europe’s structural problems with the European Recovery Program (ERP). In comparison with the $4 billion that the United States had contributed to European reconstruction in the first two years since the War through the UNRRA and other programmes, over the four years of its operation Marshall aid allocated to Europe nearly $12.5 billion: $10 billion in grants, $1 billion in loans and $1.5 billion in ‘conditional aid’, which was used to lubricate the limited intra-European Payments Agreement of 1948. Not only were the sums contributed far larger than had previously been considered necessary, but ERP was important in enabling countries to adopt longer-term and more secure planning frameworks for their investment strategies, by giving recipient countries a commitment to provide financial aid and other assistance on a four-year, rather than an ad hoc, basis. On the American side, the Economic Cooperation Agency (ECA) administered the scheme. In Europe, sixteen states formed the Committee for European Economic Cooperation (CEEC) to decide on accepting the aid and, in 1948, continued their existence as the Organisation for European Economic Cooperation (OEEC).

The dollars were made available for vital import requirements. Only 17% was spent directly on imports of ‘machinery and vehicles’, the rest went on raw materials and agricultural products. The importers, however, paid the equivalent in domestic currency to their governments who were free to use the money on capital projects. This mechanism freed domestic funds for capital formation and, since ECA approval was required before the funds could be spent, it allowed US planners to influence directly the direction of economic change. In addition, for example by refusing funds to Italian firms that dealt with non-’free’ (i.e., communist) trade unions, it also permitted their intrusion into the politics and societies of European states.

The macroeconomic impact of the ERP on European economies has recently been questioned. Certainly it did not save the continent from ruin and starvation since, by the time its funds came on stream in mid–1948, that moment had long passed. Instead, it contributed to the maintenance of already high investment levels, with the greatest relative impact in the first two years. However, funding was not on a scale sufficient to explain the super-growth of the 1950s. It is true that in 1948 and 1949, the contribution of ERP funds to gross domestic capital formation touched 30% in Germany and Italy, but in both countries the global figures were particularly low. The more usual level was around 10%, as it was also for Italy and Germany in 1950 and 1951; a useful but not decisive contribution. New calculations suggest that aid directly contributed only 0.5% per annum to annual growth in this period. Indirectly, the flow of funds for raw materials itself released resources for investment and the secure planning horizons might also have contributed to raising investment and output targets. The ERP also reduced the tension of the said structural adjustment. At a time when demand exceeded supply by 7.5%, an addition of 2.5% to GNP reduced the potential conflict about how wealth should be distributed between labour and capital.⁹

Not unnaturally, the Americans were reluctant to see their funds siphoned off into competing national schemes, each presumably demanding further measures of national protection. They insisted from the start that the funds be allocated according to pan-European criteria and in the service of a pan-European plan. The European criterion for aid assessment was adopted. It was taken as the size of the dollar gap rather than any estimate of size of income or degree of damage. A European plan also emerged, aimed at the previously prescribed goal of balance of payments equilibrium by 1952. However, a closer reading of the European plan demonstrates that it was little more than the aggregation of separate national plans. The Americans had more success in encouraging measures for the freeing of trade and payments from national constraints and protectionism. Although the causes of the economic growth of the 1950s, and the even more spectacular expansion of trade that accompanied it, are many and complex, at an institutional level it was the ERP, through the OEEC, that laid the foundations.

In October 1949, the ECA administrator, Paul Hoffman, made a major speech to the OEEC in which he called repeatedly for ‘integration’ as the price for a continued, generous level of dollar aid. ‘The substance of such integration’, he went on, ‘would be the formation of a single large market in which quantitative restriction on the movement of goods, monetary barriers to the flow of payments and, eventually, all tariffs are permanently swept away.’ Although the OEEC had experimented in 1948 and 1949 with some limited multilateral payments schemes and was at that moment considering a (modest) start to a programme of quota removal, Hoffman’s speech had the effect of concentrating minds wonderfully.

In case the OEEC was in doubt about the direction of American thinking, another ECA official, Richard Bissel, produced an outline for a European Payments Union (EPU), a discriminatory soft-currency zone, which in its detail went far beyond the usual policy advice. The Americans also pledged themselves to providing a sum of $350 million for the EPU’s working capital. It is interesting to note that the EPU was a recognition that another American creation, the IMF, was incapable of supervising Europe’s transition to convertibility. However, its rules and objectives were oriented towards the attainment of full, non-discriminatory currency convertibility. The sterling crisis of 1947 had demonstrated that any such move would rapidly have drained the IMF of its loanable funds. All the IMF could do was to recognize the serious structural problems facing the continent and sanction the discriminatory currency practices that were already commonplace.

The European Payments Union (EPU) embraced all OEEC members and came into operation in September 1950, its structure being an interesting innovation in the OEEC, which is commonly known as an ‘inter-governmental’ institution. In order to resolve conflicts, the EPU included a Special Restricted Committee of five persons chosen by lot from a list of nominees proposed by the member states, with the proviso that none of the committee members could be citizens of the countries involved in the dispute. The committee reported to the OEEC Council which then pronounced judgement. The Managing Board of the EPU, comprising seven representatives and one American observer, adjudicated using majority voting. This, too, was at odds with standard OEEC procedure, but since the Board was responsible to the OEEC Council, serious disputes were likely to end up before them anyway.

Of the initial $350 million granted to the EPU, some $80 million was immediately allocated to countries with ‘structural’ payments problems, while the remainder provided the working capital of the Union. This money was necessary to bridge the gap in the arrangements for debtors and those for creditors. The system worked thus: for each country, a margin of deficit was calculated (equivalent to 15% of the value of trade) that would receive some automatic credit on its intra-European transactions. This figure was demarcated according to five steps. In the first step, the debtor received 100% credit; in the second, he received 80% credit but had to pay the rest in gold or dollars. The amount of hard currency payable was increased until the fifth step, when only 20% was covered by credit and the rest in hard currency. Beyond that, all transactions took effect in hard currency. Overall, within the EPU allocation, a debtor could rely on a credit covering 60% of any deficit. A similar situation prevailed for creditors within the Union but although the overall position was the same (60:40), the steps were not synchronized, with the effect that creditors received hard currency from the Union earlier than the debtors were paying it in. It was to cover this gap that the dollar funding was intended.¹⁰

No sooner had the EPU been installed than it was put to the test. The German economy already had a huge deficit in autumn 1950 and the situation was rapidly deteriorating. With the exhaustion of its quota in sight, the EPU extended an extra credit line and, in February 1951 acknowledged the need for a reintroduction of quotas and the creation of state monopoly import agencies. By the summer of 1952, the crisis had been weathered and an upturn in exports allowed Germany to reopen its markets. Similar, though less violent, crises hit the United Kingdom and France in these early years and it was the EPU that provided the means whereby countries were not forced to adopt violent deflationary measures. Moreover, although in every case there was some backsliding in the commitment to hold back levels of import quotas, the fact that EPU and the OEEC’s ‘trade liberalization’ scheme (of which more below) were in existence, acted as a control over a more drastic and dislocating return to temporary protection.

From a low point in June 1952, when the combined reserves of the OEEC states stood at $7.8 billion, the position steadily improved until mid–1955 when they reached $13.4 billion. Against this background, the conditions within the EPU gradually ‘hardened’. In place of a ratio 60:40 between credit and gold, in mid–1954 the coverage was changed to 50:50 and in 1955 only 25:75. By this stage much of the EPU’s work had been done and many countries had introduced de facto convertibility on current account transactions (though this step was not formally taken until December 1958). Meanwhile, the EPU’s main customer was France and, although the job could equally have been done by the IMF, the operation held France within the European institutional orbit at a time of political upheaval fuelled by colonial unrest, and when more ‘integrationist’ experiments were being discussed.

The mirror of American concern on payments was its determination to remove quotas on intra-European trade. The obvious multilateral forum for dealing with the issue was the General Agreement on Tariffs and Trade (GATT) agreed in Havana in 1947. Yet GATT was fatally flawed. It was dependent for its existence on regular renewal by its members. Moreover, the rejection of the ITO had signalled that the US Congress was wary about agreeing to anything that might affect levels of protection for US industry. At a time when the major dysfunctional element in the world economy was seen to be the inability to pay for dollar imports through the sale of goods on the American market, it was inconceivable to envisage a reciprocal tariff negotiation that did not require for its success concessions by the United States. Although at Geneva, in 1947, GATT partners negotiated cuts of 19% in their registered tariffs on manufactured goods, at Annecy, only two years later, the meagre harvest was estimated at 2% while at Torquay, in 1950–51, it climbed marginally to reach 3%. In both these latter cases, a major factor was the reluctance of the USA to negotiate reciprocal tariff reductions. With success on tariffs beyond them, the members of GATT refrained, perhaps wisely, from tackling the enforcement of prohibitions on quotas, which were seen as even more harmful to trade than tariffs. It was for this reason that the USA accepted a regional solution to the removal of quantitative restrictions (QRs) or quotas on intra-European trade.¹¹

At the end of 1949, the OEEC adopted the target for removing import quotas directed against each other, on 50% of their ‘private’ trade, by the end of the year. This target also applied separately to each of the three groups: food and food stuffs, raw materials and manufactured goods. Under prompting from ECA officials, who argued that something a little more spectacular was necessary to convince Congress to continue aid at the present high level, the target was raised first to 60% and subsequently to 75%. The ‘trade liberalization scheme’, as it became known, had several drawbacks that made the commitments, and the achievements, less than at first sight. Firstly, the operation referred to ‘private trade’ and exempted, therefore, imports on government account. This had been done so as not to interfere in ‘domestic’ political decisions but the effect was to remove from the operation of the scheme entire swathes of trade, mostly in agriculture but sometimes also in fuel, controlled by monopoly government purchasing agencies. Secondly this bias in the operation was compounded by the fact that the initial obligation to remove QRs evenly over broad product categories was dropped once the targets were further raised. An over-performance in raw materials, for example, could and usually did compensate for an under-achievement in agriculture. Furthermore, the Liberalization Code allowed a country with balance-of-payments difficulties unilaterally to reimpose restrictions if necessary, causing a rebound effect on its trading partners and undermining the EPU’s ‘discipline’ in the process. Finally, the whole operation excluded tariffs, which were considered the preserve of GATT, so that QR removal was often accompanied by the re-imposition of (partially) suspended tariffs. The initial agreement bore all the hall-marks of the compromises necessary to secure its passage through the OEEC Council.

In October 1950, the OEEC Council agreed that by February 1951, members should remove QRs on 75% of imports from other members, but it was there that further progress stalled. The crisis atmosphere engendered by the payments problems in Germany, the UK and France meant that for them even the 75% target had to be temporarily shelved. Such circumstances obviously inhibited the pressure for further advances. Discussions were also constrained by increasing disenchantment by the ‘low tariff’ countries of the Benelux, Scandinavia and Switzerland towards the failure to tackle tariffs, and therefore to deal with all frontier barriers to trade. Finally, as QR removal advanced, it threatened to touch the hard core of protectionism in sectors deemed by governments to be politically, socially or strategically vital to the national interest.

By the mid–1950s, reflecting their less strained balance of payments positions, most OEEC countries had satisfied their 75% targets. Many had also relaxed their quota regimes towards the dollar area, although not to the same extent. Yet when the decision was taken, in January 1955, to progress towards 90 per cent liberalization, the ‘low tariff’ countries made their agreement conditional upon action being taken by the Organisation to deal with high tariffs. Although they did not get their way, the target was nonetheless renewed and when, in December 1958, France finally attained it, private trading within western Europe had, to all intents and purposes, been purged of quantitative restrictions. There remained residual quota discrimination against the USA and, of course, state trading in agriculture was widespread. Nonetheless, for an experiment with such tentative beginnings, the achievement in reducing tariffs was remarkable.

Hoffman’s call for ‘integration’ back in October 1949 acted as a catalyst for a pan-European programme of action on trade and payments. Yet, even at the time, there was an awareness that there existed another path to ‘integration’ and that it might even be preferable. Whereas Hoffman sought to increase Europe’s degree of multilateral cooperation in carefully defined but meaningful areas, secretary of state Dean Acheson preferred a strengthening of political mechanisms that would weaken the ability of national veto-rights to prevent desirable initiatives. In fairness, one should add that he preferred this path because he considered that it would be easier for European countries to comply than it would be for them to accept a more concrete programme. For both men, the ultimate goal was a ‘Europe’ that mirrored more closely the political model of the United States of America. The ‘new’ continent could still show the old how to throw off the last shackles of its ancien régime.

The concept of ‘integration’ in political or institutional terms had also entered the mainstream of debate in western Europe. During the Second World War, Resistance movements had been forced, partly by the pan-European model espoused by the fascists and the Third Reich, to produce a cogent alternative that also transcended national frontiers. Their thinking was shaped by several factors that pointed the way towards international institutional reform. The failure of the Versailles Treaty and the League of Nations to prevent the reassertion of aggressive nationalism suggested that the foreign policies of nation states required stronger constraints. Similarly, the ‘beggar-thy-neighbour’ policies that characterized separate national responses towards the Great Depression suggested that there, too, some higher disciplinary force was necessary. These ideas had inspired the original surge of post-War institution-building, but for many observers the strengthening of inter-governmental organizations was not enough. They argued that national units were too small to guarantee security and prosperity in the modem world and too recalcitrant to guarantee freedom from assault. Solutions lay in the pooling of national sovereignties, thereby effectively proscribing the use of national means for economic or military aggression.

After the War almost every country witnessed the creation of national ‘European’ movements, even though they often disagreed on both aims and tactics. Some dedicated themselves to the task of leading opinion, while others had more populist aspirations. Some saw progress as incremental, like a ripple effect from a core of commitment; others wanted a swift adoption of new political structures; some took a view that it was good for others but not necessarily for themselves. Various national federalist groups, more geared towards mobilizing mass opinion and characterized in their approach by a certain ‘constitutionalism’, formed the European Union of Federalists in 1946. Another organization formed at this time, intent on mobilizing support for a new form of European political organisation, was the Socialist Movement for a United States of Europe. However, the lead in galvanizing public opinion was the United Europe Movement, inspired by Winston Churchill’s Zürich speech in September 1946, calling for a United States of Europe, and founded by his son-in-law, Duncan Sandys. It was this body that, in May 1948, sponsored the Congress of the European Movement, held in the Hague.¹²

The Hague Congress, which created the Council of Europe, was supposed to create a new momentum towards higher federalist goals. Instead, its creation was its own greatest achievement. Whether the British government, or Churchill in opposition, had ever held more than a fleeting interest in actively associating themselves with the construction of a European federation is highly questionable. Embroiled in an organization with a federation as its goal, the government rapidly proceeded to distance itself from other countries’ impulses towards ‘integration’, and in the process became the focus of opposition. The Council of Europe became tom between the ‘federalists’, who wanted to move quickly towards new constitutional arrangements, and the ‘functionalists’, who believed that new arrangements would be workable only if the surrender of sovereignty were a functional necessity. The latter envisaged that progress would take place cautiously, on a step-by-step basis, but since the UK was the leading exponent of the functionalist school, the position boiled down to one of no progress at all.

These developments quickly paralysed developments in the Council of Europe and certainly robbed the European movement, in its various guises, of direct political influence. Only in Italy, under the leadership of Altiero Spinelli, was there an attempt to convert the federalist cause into a mass movement, the Movimento Federalista Europeo. Spinelli soon became disenchanted with the MFE, but his enthusiasm for supranationalism remained undiminished. When the head of the Italian government, Alcide de Gasperi, asked him to draft a federalist plan for controlling European institutions, Spinelli seized the chance. His efforts resulted in the introduction of the ‘federalist’ clause 38 into the European Defence Community treaty (see below). This, however, represented the pinnacle of the MFE’s achievements. As the EDC faded, so the movement’s influence began to ebb.¹³

Whilst popular movements cannot claim credit for initiating ‘the process of integration’, they nonetheless provided a pool of new ideas and a vocabulary that decision makers could draw upon when confronted by immediate political problems. This occurred most dramatically when, in May 1950, the French foreign minister, Robert Schuman, announced his plan to form a coal and steel pool which embraced Germany. When this call was answered by the Benelux countries and Italy as well, the way was cleared for the ‘Six’ to embark upon a series of institutional experiments built around the concepts of supranationality and surrender of sovereignty.

It was by no means preordained that six countries would become irrevocably associated with each other in a series of supranational communities, nor that those six would be France, Germany, Italy, the Netherlands, Belgium and Luxembourg. To appreciate how ‘the Six’ reached that stage, we have to go back to the creation of Benelux, and the reaction of France, especially, to that development.

Benelux was the oldest of the post-War experiments in regional integration in western Europe. It linked Belgium and Luxembourg (whose own economic union, the BLEU, dated back to 1921) to the Netherlands, first through a monetary agreement concluded in 1943, and then by a customs union treaty signed a year later by the three governments-in-exile in London. Before the War the BLEU and the Netherlands had conducted approximately 10% of their trade with each other, although there had increasingly been an imbalance in favour of the former. The greater wartime damage in the Netherlands served to accentuate the Dutch deficit, which doubled between 1947 and 1951. Despite the manifold difficulties, the customs union came into force in January 1948, when all tariffs were abolished to be replaced by a common external tariff. However, trade was still impeded by the widespread imposition of quotas, especially on the side of the Dutch. To remove these, even if only towards the BLEU, threatened to aggravate the deficit. Progress was only made possible by two further measures. Firstly, Belgium granted ever greater credit extensions (which it was willing to do if it meant securing the Dutch market from Germany, while the latter’s industry was still operating at artificially low levels) and eventually the problem was subsumed into the European Payments Union. Secondly, the Dutch were able to secure preferential access to the Belgian agricultural market. They had wanted completely free access, since this would have helped remedy their trade deficit, but they had to make do with a provision which left Belgium’s domestic protectionism intact.¹⁴

From its inception, the Benelux experiment attracted considerable attention from policy-makers in France. This should be no surprise since before the War Belgium had been France’s largest European trading partner. Just as Belgium hoped to supplant Germany in Dutch markets, so France to needed to expand into the German vacuum to fund its own modernization plans. However, whereas the Benelux tariffs lay close to each other at the lower end of the range when they agreed to a common external tariff, it was realized that any union with France would be behind highly protectionist walls. Moreover, the Netherlands required the German market for its agrarian exports and its traditional shipping services. This required a reciprocal ability to purchase German imports; something that would be impossible if the Netherlands agreed to the arrangements proposed by the French.

From 1944 onwards there was continuous French pressure to break open the Benelux. It was headed off by the creation of a joint consultative body, known as the Conseil Tripartite, which arranged swaps of raw materials in the early post-War months, attempted to co-ordinate policy towards Germany (difficult given the different national provisions) and provided a forum for French attempts for a customs union. These efforts to break open the Benelux were countered by a demand that the move could only be considered if West Germany were to be included; a demand that ran counter to the reason for the French wanting the union in the first place. In 1947 the French used the CEEC conference in Paris to bluff the Benelux partners into daring to turn down the option of a customs union. They had hoped to use American leverage, who themselves wanted to use dollar aid as a way of securing their goal of closer regional integration.

Instead the study group for a pan-European customs union was created to deflect some of the pressure. They deliberated until the end of 1948 but ultimately failed because no decision had yet been taken on the German economy and its position in any future schemes. More immediately, the French found their challenge to move to the immediate formation of a customs union accepted only by the Italians. The fact that France’s primary goal remained the Benelux was reflected in two further approaches in 1948 to persuade them to join. Both were refused.¹⁵

By December 1947 the first feasibility study for the Franco-Italian Customs Union was ready. It was surprisingly optimistic and a second commission was established to investigate how it could be implemented. In March 1949, Sforza and Schuman signed a treaty that would effectuate a customs union in a number of stages. A tariff union was already envisaged for 1950 and full economic union about six years later, but through fear of Italian competition, in particular in agriculture, the French Conseil Economique (a tripartite advisory body representing labour, industry and agriculture) thrice rejected the treaty. The government drew the inevitable conclusion and demurred from presenting it to parliament for ratification.¹⁶

It was whilst the issue of the Franco-Italian customs union was still alive that the French economy was confronted by a highly localized but serious problem; a balance-of-payments deficit with Belgium. From such unpromising beginnings was born FRITALUX, the name given to the grouping of France, Italy and the Benelux. The French solution to this trade imbalance had been a devaluation against the Belgian franc, with all the help from the Belgians in managing these ‘broken exchange rates’ that this move implied. From there the idea developed to a ‘mini payments union’ with a flexible exchange rate mechanism. Thinking in this direction was reinforced by the prospect that US dollars would be available to sponsor regional integration initiatives, which served to lubricate the discussions long after the exchange rate realignments of September 1949 had resolved France’s original problems. Given the advanced stage that the talks between France, Italy and Belgium had reached and the implications all of this would have had for Benelux, it is amazing that it was only in September 1949 that the Dutch were actually informed of what had been happening. They immediately declared that they disliked the idea and would only consider it if it were supplemented by a customs union, which would also embrace the newly sovereign West German state. The French, whilst not rejecting the idea out of hand, argued that the union would better be created first and that Germany could join later. The Dutch feared this would never materialize and that entry, if it were ever agreed, would be surrounded by so many exemptions and escape clauses that Germany might not be willing, or even able, to join. There the negotiations stuck until the spring of 1950, when it became clear that the Americans had decided to do something else with their cash – provide the initial capital for the EPU.¹⁷

With the exception of the Benelux itself, the episodes discussed in this section all ended in failure. Yet they reveal several imperatives guiding policy in the immediate post-War period. The first was the motivation in all the modernization programs to utilize the breathing space created by Allied control over the post-War German recovery, to supplant the German position in both domestic and in foreign markets. The second was the fear of unrestricted German competition. Towards the end of 1949, Allied controls were already being relaxed; yet the powers of the new supervisory authorities were ill-defined and as yet untested. With or without the complication of the Dutch insistence on surrendering frontier controls against Germany, which a customs union would imply, the re-emergence of German industry was already a certainty. It was upon meeting that challenge, either politically or economically, that the entire commercial future of Europe depended.

The coal and steel sectors of western Europe took time to recover from the War. These key industries figured prominently in governmental recovery programs, such as the Monnet Plan in France. It was not accidental that the first major broad-based plan to integrate a specific industrial sector was the European Coal and Steel Community (ECSC). Coal and steel were important traded goods and essential industrial resources. Since they were largely similar products, they were easy to control and had a long history of being subjects of international cooperation. However, neither the timing nor the authorship of the first proposals for integration was accidental. The French initiative stemmed from an acceptance that this plan would, realistically, be their only method of establishing any control over German re-industrialization. French plans for the reconstruction of their steel industry had been based on an attempt to secure markets which had previously been German and also upon guaranteed access to German coal supplies. In 1950, the US policy of relaxing controls threatened to release excess German steel capacity upon a market that was already showing signs of becoming glutted. If, at the same time, German coal was redirected towards German mills, and coal supplies to France were priced relatively unfavourably, the adverse effects on France would be compounded. The Benelux countries, and to a lesser extent Italy, were pulled into the arrangements because they could not afford to remain aloof from a powerful producer bloc being created on their borders.

The Schuman Plan, as it was known, had been prepared in the French Planning Commission by Jean Monnet’s staff. It was launched on 9 May 1950, on the eve of talks with the Americans and the British on future controls of the Ruhr’s industry, and was clearly aimed at seizing the policy agenda. The British had been neither consulted nor informed of the proposals beforehand, but quickly ascertained that the organizational form implied too great a surrender of sovereignty, and that they required an entanglement in continental Europe of a nature that was inconsistent with their other foreign obligations. French attempts to persuade them to participate, the sincerity of which has been questioned, were quickly abandoned and, in the summer of 1950, negotiations began. The treaty of Paris, establishing the European Coal and Steel Community, was signed in March 1951 and came into effect in July 1952.¹⁸

The stated goal of the treaty was to rationalize the production and sale of coal and steel. To this end, all import and export duties, subsidies and other discriminatory measures on the trade of coal and steel were immediately abolished. Although rules for pricing were established, in ‘normal’ circumstances the market was supposed to be competitive. The Community also managed funds for subsidizing firms hurt by the creation of the ECSC and for retraining workers. These were aimed particularly at the Belgian coal industry, some sectors of which were penalized by a combination of thin seams and high labour costs. Over a transitional period, efficient producers paid a levy to enable Belgian mines to adjust to the lower prices. Moreover, because of the heavy weight of fixed costs, the industry was extremely vulnerable to fluctuations in demand and therefore many of the remaining provisions were intended to come into effect in ‘abnormal’ circumstances; namely, to mitigate the impact of price falls in times of recession. It is curious that although cartel practices were prohibited within the community, the ECSC’s marketing policy in the rest of the world was identical to those that would have been followed by a private cartel.

The innovation in the treaty, and the reason why it inspired such interest among proponents of deeper ‘integration’, lay not in the settlement of a potential political and commercial problem but in the manner of its resolution. The ECSC was administered by an organizational structure which bore many outward similarities to that of the future EEC. It was controlled by the High Authority (HA), a supranational organization comprised of nine independent members assigned by each of the participating nations, which was free to initiate reaction where it had competence and rights to do so at extremes of the business cycle.

The HA co-operated with a Consultative Committee recruited from producer, labour, consumer and distributive interests. It also worked closely with a Special Council of Ministers, in which each country would have one vote, whose role was designed to increase as decisions on coal and steel impinged on wider economic and security issues. The HA was ultimately responsible to the Common Assembly comprising 78 members drawn from national parliaments. Although the HA was the most powerful governing body, the Council could block certain decisions and the Assembly could force the resignation of HA members.¹⁹

It is hard to judge the immediate economic impact of the ECSC. The overnight removal of trade controls, without the transitional periods common to most European agreements, was certainly a success. However, for coal and steel, traditional barriers were less important as regulators of trade than they had been in the past or than they were for other sectors of the economy. The coal trade was covered by international agreements in which tariffs did not really play a role; Italy, with a rate of 15%, was something of an exception. For steel, both France and Germany had already suspended tariffs before the treaty was signed and the Benelux tariff had long been fairly low. Again, only in Italy, where an ad valorem tariff of 11–23% had been levied (and which was allowed to remain intact over a transition period) did tariffs have a protectionist intent.

More important was the impact of the ECSC on pricing. The ECSC eliminated the practice of dual pricing and created a base-point pricing system. Although price controls and subsidies were not fully abolished, even small progress on this front eased trade. Moreover, the discriminatory transport-pricing policies of ECSC members were eliminated. By volume, coal and steel were among the most important traded goods, so reduction of cross-border rates of about 30% made a major impact in deregulating transportation. The opening of the coal and steel trade also expanded imports of steel products into France and the Saar, which jumped from 27,700 tons in 1952 to 117,600 in 1953 – a period of low demand with trade barriers in effect for the first few months. In fact, throughout the 1950s, total intra-community trade grew much faster than production or trade with non-members; intra-ECSC trade in treaty products increased 171% from 1952–7, while production increased only 43% and extra-ECSC trade only 51%. In addition to these concrete effects, the ECSC defined the pace and structure of the debate over future initiatives undertaken by the Six. The next initiative took place in the area of defence and security policy.

Although they were soon to be overshadowed by the Cold War with the Soviet Union and its satellites, it is important to remember that security and defence policies had initially focused on the need to inhibit future German aggression. The Treaty of Dunkirk, signed in March 1947, was a long-term Franco-British alliance directed against Germany. When the Brussels Pact was signed a year later and the Benelux countries joined the alliance, they modified its exclusive orientation against Germany by a commitment to ward off aggression from whatever source.²⁰ In the intervening twelve months, the announcement of the Truman Doctrine had highlighted a more immediate and dangerous threat to peace and security from the Soviet Union in the east. Yet the fact remained that had the Soviets invaded, the new alliances were ill-placed to stand in their way. Some have even argued that their very frailty was intended to demonstrate the necessity for American troops and equipment, backed by nuclear weapons if necessary, to be committed to Europe’s defence. Indeed, the secret so-called ‘Pentagon Talks’, which embraced the USA and Canada, started soon afterwards. These discussions came into the open in the summer of 1948 and were widened in their scope, culminating in April 1949 with the signature of the Atlantic Pact, forming the North Atlantic Treaty Organisation (NATO).²¹

American strategic planning in this period recognized that it would be impossible, even with US troops already on the ground, to defend Europe from Soviet aggression. In the event of an attack, the best scenario was a withdrawal behind the Pyrenees to Spain and across the Channel to the United Kingdom, from which points the reconquest of Europe could begin. A defence line at the Rhine or the Alps was not considered to be plausible before 1957 at the earliest. The only way to bring that date forward was to increase the European defence effort, and to employ the latent military strength of West Germany. Two events accelerated thinking in this direction: the victory of the Communists in China and, more importantly, the loss of the nuclear monopoly signified by the detection of the first Soviet atomic test in autumn 1949. These plans were made public in the crisis atmosphere surrounding the Communist invasion of South Korea which triggered the start of the Korean War. In September 1950, Acheson demanded the rearming of West Germany within NATO whilst pledging both an increase in the number of US troops stationed in Europe, and assistance for an arms buildup elsewhere.

The European reaction to events in eastern Asia was rather more sanguine than that in the USA, and few really saw any link between the Korean war and an increased threat to security in Europe. Given the fact that the rise in raw material prices which had accompanied the outbreak of war had undermined ECSC members’ balance-of-payments positions and weakened their recoveries, they were reluctant to undermine progress further by increasing defence budgets. Still less did they see any immediate necessity for German rearmament. In France especially, this reaction was acute. If the idea of facing a resurgent German industry had filled French policy-makers with dismay, their alarm at the prospect of a reconstituted German army was even greater. Since much of the French army was involved in Indo-China, Germany would soon have the largest army in western Europe.

Within the French planning ministry, an alternative strategy was hurriedly put together. If supranationality had provided a vehicle for controlling German industry, could it not serve to control its rearmament as well? In October 1950, the prime minister René Pleven announced that France would accept German rearmament only in the context of a European army, under the control of a single minister of defence. Initially, the Americans were horrified at the delay to the formation of German divisions that acceptance of the French proposals would imply. Although talks on the Pleven Plan started in February 1951, parallel efforts continued to find a formula for the integration of the German army into NATO. When these failed, in summer 1951, the US not only tolerated the French scheme but became an enthusiastic advocate. A European Defence Community (EDC) would become the agent for carrying forward the process of integration in Europe.²²

At this point, only five of the six ECSC countries were involved as full participants in the negotiations. After the switch in the American position, the Netherlands finally joined too, its change of heart prompted by a fear of losing American cash and goodwill and the hope of securing a defensive line (the Rhine-Ijssel line) that would not abandon most of the country to advancing Soviet forces. In May 1952, the treaty establishing the EDC was signed in Paris. It was not particularly elegant in design, nor particularly egalitarian in intent. To neutralize the danger of independent German military adventure, the army was to be made up of national units of battalion size only. Having thus fragmented German military capacity, the French then went on to remove their own colonial armed forces from Community control. By defining Germany as a potential war zone, the treaty also proscribed the manufacture of certain war equipment on German soil. Despite the modifications made during the negotiations, the EDC did not make much military sense. Nor did it much appeal to the other members of the Six. But the treaty’s greatest failure lay in its primary task of making German remilitarization acceptable to French public opinion. Successive French governments shrank from presenting the treaty to parliament for ratification and when they eventually did so, in August 1954, it was rejected.

The EDC is an interesting example of the limits of American hegemonic leadership. American pressure was instrumental in securing a higher priority for European defence spending and for obtaining recognition that German troops were necessary. Yet, ultimately, the American administration had to defer to the French political agenda. Moreover, having done so, they failed to secure French acceptance of its own government’s creation, despite the fact that Europe’s defence was impossible without the USA. Certainly, this point was repeatedly made and never more clearly than when secretary of state John Foster Dulles threatened an ‘agonizing reappraisal’ of the American defence commitments to Europe if the issue were not resolved quickly. Moreover, French security objectives in their colonies were utterly dependent on US assistance. From 1950 to the fall of Dien Bien Phu, the United States covered 70% of the costs of France’s colonial war in Indo-China.

Despite all the possibilities for leverage that this dependence implied, the Americans still failed to secure the acceptance of a policy with which it had become increasingly identified.²³

Part of the problem with the EDC was the question of control: to whom would a European minister of defence be responsible, who would decide how and when the European army would be used and who would decide the foreign policy that the existence of the army was supposed to support? The treaty had indeed envisaged an assembly and its first task would be to design a new, democratic model for political control. The existence of these clauses had been introduced on the insistence of Alcide de Gasperi and were a triumph for Altiero Spinelli’s federalist movement. In September 1952, the foreign ministers decided not to wait for the ratification of the EDC treaty but to move ahead immediately with the preparations for a ‘European Political Community’ (EPC). Six months later, right on schedule, the ad hoc assembly produced a draft treaty for the EPC. Meanwhile the increase in Gaullist representation in the French parliament had led to the coalition government dispensing with the services of Schuman as its foreign minister. This, more than anything, symbolized the abandonment of supranationality as the leitmotif of French foreign policy. Within the new environment, however, the EPC merely complicated an already difficult situation. For French socialists, the EDC was acceptable only if the elements of democratic control were strengthened. But any concessions in this direction would antagonize the Gaullists and others for whom the treaty was acceptable (if still unpalatable) only if the elements of national control were reinforced. Thus the French made desperate efforts to add protocols to the EDC treaty in the vain hope of finding the magic combination that would allow their parliament to ratify it.²⁴

Within the Netherlands, the EDC had created problems of a different nature. The European army had been accepted only reluctantly and the government was not interested in increasing its entanglement with premature experiments in political federation. Thus, when the EPC was launched, the Dutch made their acceptance conditional on its being given specific economic tasks. Their foreign minister, Jan Willem Beyen, attempted to get the EPC treaty to include provisions for the automatic creation of a customs union. In the subsequent inter-governmental talks on the EPC, which lasted from the autumn of 1953 until the summer of 1954, the Beyen Plan received only qualified endorsement. In theory, it was acceptable to Belgium and Germany only if it were widened to embrace a complete common market and only if provisions were added for economic policy coordination. The Italians, however, were willing to accept the idea that the creation of a common market was one of the tasks of the EPC (which left open the option that the EPC might do nothing) but were not willing to countenance it as a separate protocol. But the French were unwilling to accept it at all. With an economy lurching into deficit because of colonial wars, while government abandoned many of the ‘liberalization’ measures that had previously been adopted, the time was evidently not ripe for discussing the automatic removal of protectionism.²⁵

The EDC was never a very stable construction. It was also utterly inadequate to carry either the ambitions of the European federalists or Dutch designs for a permanent and fair removal of trade barriers. When the EDC collapsed in August 1954 on the French refusal to move to ratification, it seemed at the same time to dash all hopes that the Six might move towards further integration.

In the wake of the EDC’s collapse, there was an intense surge of diplomatic activity to resolve outstanding sources of Franco-German conflict. One success of this was the decision, based on a British initiative, to create a German army under the umbrella of NATO and under the auspices of the Western European Union (WEU) which was now to embrace all six ECSC countries, as well as the UK itself (ironically, this was a solution that could have been reached almost four years earlier). Another potentially thorny issue in relations between the two countries had been the disputed status of the Saar, pre-War German territory under French administration, later incorporated into a customs union with France. The French government had wanted to give this area ‘European’ status but, under a new agreement, France accepted that it would be bound by a plebiscite to be held in October 1955. In the event, the populace rejected the European option and the territory was transferred back to Germany in January 1957.

Another source of inconvenience, if not tension, had been the French desire to secure markets for its agricultural produce in Germany. This question had become trapped into the so-called ‘green pool’ negotiations for the creation of some form of European agricultural organization but, after their failure and the transfer of the agricultural brief to the OEEC in January 1955, the first bilateral agreement to emerge was the Franco-German wheat agreement. Among the other agreements dating from this period, possibly the next in importance was that to canalize the Moselle river, thereby improving trade between the two countries. France’s partners reacted to this flurry of activity with some ambivalence. Whilst they could see the potential gains in easing relations between the two countries, they could also see the danger that if France no longer needed ‘integration’ to control Germany, their own interests could easily be ignored in the ensuing rounds of bilateral dealing. Under these circumstances, the Benelux governments began to consider ways of relaunching the ‘European agenda’.

At the headquarters of the ECSC in Luxembourg, Jean Monnet was also concerned at the drift in events. Unaware that the French government was indifferent to his fate, he decided to make his continuance as chairman of the High Authority contingent upon progress on the European front. Rather than start afresh, or pick over the wreckage of the EDC disaster to see what could be salvaged, he considered that the best approach would be to build outwards from the existing community. This could be extended into inland transport in general, into other classical energy forms (particularly electricity generation) or, and this was to be the key to its success, into atomic power. Nuclear energy was seen as an exciting new prospect where there had been little time for entrenched interests to emerge; yet the costs of developing it were too heavy for a single country to bear. This last consideration, however, had not prevented most industrial nations from embarking on experimental programmes of their own. The French government, especially, was extremely keen on developing nuclear cooperation and particularly wanted jointly to construct an isotope separation plant, a necessary but expensive component in developing enriched uranium for future reactors and nuclear bombs. Unknown at the time, it was in December 1954 that the French nuclear energy agency began to implement a five-year programme to manufacture a French nuclear bomb.²⁶

The question of a nuclear community, EURATOM, was one of the items on the agenda when the foreign ministers of the Six met in Messina in June 1955 and it was adopted for further study alongside a patchwork of other initiatives (the main one of which was a common market, which we will return to below). The first results of this study envisaged that EURATOM would acquire a monopoly of all nuclear material and its transformation into products for fission. EURATOM would also build and control its own nuclear installations, including an isotope separation plant, financed from a common budget. Finally, it would administer a common market in all these materials and equipment. The one point it did not touch on was the relation of this structure to national military programmes, such as the one already underway in France. At this juncture the French suggested a moratorium on the manufacture and testing of nuclear weapons for five years, which did not affect the French programme because it would not be ready for such tests until after this period. The military problem was part of a wider one that, mid–way through the negotiations, was beginning to sap EURATOM’s rationale. It was never envisaged that EURATOM would be the sole European nuclear programme, merely that it would assist and facilitate (and to some extent control) parallel national programmes.²⁷

EURATOM’s future was further enfeebled by the intervention of the United States. Back in 1946, the McMahon Act had tried to limit the spread of nuclear technology by classifying the fruits of US atomic research as secret. Paradoxically, by prohibiting collaboration of any kind, it had effectively prevented the Americans from exercising any control over developments that were already taking place. In his famous ‘atoms for peace’ speech to the United Nations in December 1953, Eisenhower had signalled a change in US policy which held out the prospect of the United States providing ‘fissionable material’ for projects designed to promote the peaceful use of nuclear energy. In February 1956, it offered 20 tons of enriched uranium to EURATOM at half the cost at which any European venture could hope to supply it. Aside from the noble aim of promoting peace (and deflecting attention from the fact that the ‘new look’ strategy could turn much of central and western Europe into a nuclear battlefield), the offer would displace UK competition and provide an outlet for the surplus of three US separator plants. It would also demonstrate American backing for a new supranational initiative. Finally, it would ensure that EURATOM would not build its own separation plant.

If EURATOM was not to build a separation plant (and right to the bitter end France tried to ensure that it should), then the French were determined to retain a separate national programme, keeping both peaceful and military options open. Moreover, France was only willing to surrender the sovereignty necessary to run a parallel operation, which in reality was not very much. The only limitation on its freedom of action was a four-year moratorium on testing. Parallel to these developments was a move in the OEEC for nuclear cooperation. Thus when EURATOM was formed, robbed already of most its substance and denuded of much supranational responsibility, one of its first acts was to pay the subscription of the six for joining the OEEC’s ‘Dragon’ scheme, to build an experimental reactor, an act which also absorbed much of its operational budget.

EURATOM had carried all the hopes of – and been the target of favourable propaganda by – the Action Committee for a United States of Europe, founded by Monnet in October 1955. It was only a ‘success’ in the sense that a treaty was signed at all. The other treaty signed in Rome in March 1957 was that establishing the European Economic Community (EEC). It was lucky to get onto the Messina agenda in the first place and, ironically, it was EURATOM that helped keep it there.

During the EDC negotiations, the Beyen Plan for the creation of a customs union had received varying degrees of support from five of the six governments. The Beyen Plan had at its core the creation of a customs union according to a rigid timetable over a period of 10–12 years. In order to accommodate countries in economic difficulties, the plan contained provisions for temporary escape clauses whose implementation and execution rested with the institutions of the EPC. There would also be an adjustment fund to assist countries with structural problems. Although the Beyen Plan failed because the French Assembly rejected the EDC treaty, the discussions about its merits had served to test the range of political opinion and to anticipate many of the technical problems. Firstly, the step-by-step approach to tariff cuts was condemned as too inflexible, making it more likely that countries would have difficulties in following the schedules. A less rigid programme, albeit with intermediate and final targets, was preferable. Secondly, the safeguard clauses were thoroughly disliked, by Germany and Belgium in particular. They argued that repeated backsliding followed by justification and appeals procedures would eventually destroy the community. Instead they urged far-reaching measures of policy coordination to prevent economies moving too far out of step, thereby removing the occasions for invoking these clauses. Thirdly, although the Dutch were heavily preoccupied with commodity trade, it became apparent to all that progress would be impossible unless capital and labour mobility were also dealt with. These were valuable insights, and all would eventually find their way into the Treaty of Rome. But there was one more factor in the summer of 1954: French politicians were implacably opposed to the idea of the EEC in whatever shape or form.²⁸

The Dutch government was inclined, rightly or wrongly, to ascribe trenchant French opposition to the complexion of the government then in power. Once the Mendès-France cabinet had fallen, the Dutch considered that the main obstacle to persisting with the initiative (or indeed to expanding it by incorporating agriculture) had been removed. Thus, when the idea of a ‘relaunch’ of European integration gathered momentum, the Dutch government made its support for the Benelux memorandum conditional upon the inclusion of a customs union in the list of demands presented at Messina. However Monnet, especially, was reluctant to risk a prompt rejection of a new European initiative because it introduced an immediate challenge to French protectionism. Curiously, the German government had had similar reservations and its delegation to Messina came armed with negative instructions on the customs union in order not to isolate the French. In the event, after a particularly indecisive meeting, an agreement was reached to establish study groups, under the overall direction of Henri Spaak, to investigate all the components of the Benelux memorandum.²⁹

Once the talks commenced, it became obvious that the French were primarily interested in atomic energy. However, the Germans, having been willing to back the French at a critical moment, entered the common market negotiations with conviction, as did the Belgians. Various pointers to the moment at which France decided to take the common market issue seriously have been offered by historians, but the most credible seems to be January 1956, when a new Socialist coalition led by Guy Mollet came to power. To dispel any tendency towards backsliding, from that moment the German delegation insisted that, whenever it was appropriate, there should be a ‘Junktim’ between the common market treaty and that for atomic energy.

The second revelation during this early phase of negotiations concerned the position of the United Kingdom. Surprised at having been invited at all, the UK had joined the initial talks without a prepared position, other than to express a loose preference for a free trade area over a customs union. Opinion within the cabinet soon afterwards veered towards a rejection of a closer European entanglement and when, in November 1955, Spaak announced that the talks had proceeded sufficiently to start preparing a final report, the UK delegation elected not to take any further part, but to judge the report when it appeared. In reality, the decision had already been taken to reject the common market option and, at the prompting of the Americans (and to avoid being saddled with any blame when the negotiations failed), the announcement was made the following month. But the common market negotiations did not collapse.³⁰

The ‘Spaak Report’ was approved by the ministers of the Six in May 1956 and negotiations proper were then able to start. But the French government’s conversion to the common market did not mean that it did not have to placate significant parliamentary opposition when the treaty came up for ratification. Thus a great deal of time and emotion was expended on what were ultimately peripheral items in the treaty. For example, France demanded that elements of its own expensive social legislation (equal pay for men and women, overtime pay for work beyond forty hours a week) be incorporated into the treaty to equalize competitive conditions. Once these demands had been conceded, the French delegation returned with a proposal for sharing some of its current colonial development costs in return for access to these countries’ markets. Even with such concessions in place, the government negotiated special provisions to allow France to commence lowering its tariff barriers later than the rest whilst still enjoying the benefits of market access elsewhere. None of these provisions added to the elegance of the treaty, but they all helped to condition acceptance by the French Assembly.

A second circumstance also helped to shape the negotiations, although not as decisively as some authors have suggested. In October 1956, together with the British and in collusion with the Israelis, the French launched an attack on Egypt in order to wrest control of the Suez canal from Arab nationalists. The invasion outraged public opinion and attracted the condemnation of both the USSR and the USA. On the brink of achieving their military objectives, the British cancelled operations, leaving both powers tasting the bitter ashes of political defeat. In a gesture loaded with symbolism, Adenauer travelled to Paris for talks with Mollet in the course of which both leaders announced the outlines of the compromise (largely agreed before the Suez crisis) that would set the common market treaty back on its tracks. Suez did not rescue the common market, nor did it finally convince the French government to accept it, but it did convince Spaak that the days of the current French government were numbered. If any treaty were to be certain of ratification, it had to be concluded and presented quickly. As a result, many questions that had not been resolved or that looked unlikely to be resolved quickly were left for the community itself to work out later. This accounts for the odd mixture in the treaty between detailed provisions on some issues and more procedural outlines on others.

At the core of the common market treaty lay the creation of a customs union in three steps, each of four years, with the possibility of a three-year overrun. Spelled out in precise detail, each phase would be marked by the completion of part of the removal of tariffs on intra-area trade and the erection of a common external tariff. With the exception of some troublesome items (list G), the new tariff schedule had also been calculated. By contrast, the details of the agricultural clauses concerned the way in which the steps towards a common policy were to be achieved but said little about the shape of the policy itself. This reflected a realization by the Dutch that if they pressed for more concrete clauses, they would be unlikely to be happy with the outcome. Yet the move was also viewed favourably by federalists, who saw the entrusting of future tasks to community institutions as a positive step towards supranationality. Few at the time paid much attention to the clause at the beginning of the treaty linking progress towards a common agricultural policy at each stage to further progress towards the common market. Yet this link was to form a ‘Junktim’ of its own and to underpin the implementation of both elements in the treaty.

In order to manage the community and steer its future development, the Treaty of Rome modified the supranational structure agreed for the ECSC. A European Commission, headed by independent commissioners chosen by the member states, would have sole rights of initiative across a wide range of policy issues. Only when these had been approved by the European parliament could the Council of Ministers take decisions. Moreover, after the second stage, the Treaty foresaw that the ministers would reach decisions by majority vote rather than by unanimity.

The Treaty of Rome, signed in March 1957, was the product of a society that had already reduced many of the cruder barriers to international trade, that wished to get rid of them altogether and that wanted to ensure they would not re-emerge in the event of a subsequent recession. In addition it reflected an ambition to deal with other competitive distortions (state aid to industry, restrictive practices and other invisible trade barriers) by eliminating them at source. This required a more sophisticated institutional structure than previous inter-governmental organizations. This implication was willingly accepted because the Treaty was seen as more than a simple economic agreement; for some, at least, it carried the hopes for a future federal European state.

2

1958–73 ¹

The explicitly federal implications of the EEC made it superficially unattractive for the rest of Europe.² A variety of political, economic or security reasons confined the supranational course initially to a limited group of countries, albeit a group that comprised more than half of western Europe’s output and foreign trade. Nonetheless the outsiders still constituted a sizeable market of considerable sophistication, one that had shared with the Six the same pan-European movement towards commercial liberalization and growing interdependence. Among these smaller trading economies, in particular Denmark, Sweden and Switzerland, there existed the same drive towards a further relaxation of protectionism that had motivated the Benelux countries, and this drive was reinforced by the fear of what might happen once the mutual preferences, implied by the formation of the customs union by the Six, began to take effect. The government of the United Kingdom was particularly concerned about the possibility of an economic division of Europe and, at the end of 1956, tried to neutralize the effect of EEC preferences with a proposal for a wider industrial free trade area to be constructed inside the OEEC.

The initiative was launched at a particularly testing moment for the Six, since the common market negotiations had still to be concluded and then ratified by national parliaments. The Commission of the EC itself did not begin work until January 1958. If the free trade area offered non-member states a solution to their dilemmas, for the Six it posed a distinct threat. Distrust of British motives suffused the following negotiations but there were more prosaic reasons why the Six were reluctant to embrace the UK initiative. For example, the French, in the final stages of the common market negotiations, obtained a set of favourable conditions and safeguards that they could not replicate in the free trade area. Moreover, the French, Italians and the Dutch had obtained some ‘compensation’ for the opening of their industrial markets through the prospect of a common agricultural policy, but agriculture was exempted from the British plan. Finally, those who hoped that the Community institutions would rapidly develop in a federalist direction were worried that their energies might be dissipated by the Free Trade Area.

The Free Trade Area negotiations dragged on for nearly two years, before finally being terminated by the French in November 1958. Under de Gaulle, France had decided to embrace the Treaty of Rome without recourse to its opt-out provisions. This commitment was worth infinitely more to Adenauer than the dubious prospect of a free trade area and thus the move received German acquiesence, if not support. The Commission, especially under its first president Walter Hallstein, had never liked the British plan and was generally pleased to see the back of it. Indeed by the end of the year, among the Six, only the Dutch government and the German economics minister, Ludwig Erhardt, could be numbered amongst its supporters. In the face of the opposing coalition there was little they could do.³

The failure of the free trade area negotiations left the UK without any coherent strategy towards the Common Market. In the absence of an alternative, the idea of forming a smaller free trade area amongst the ‘outer Seven’ (Britain, Denmark, Norway, Sweden, Switzerland, Austria and Portugal) rapidly took over. With the exception of Austria and Portugal, these were already relatively low tariff countries which shared a desire to maintain tariff autonomy towards third countries. They therefore preferred the concept of a free trade area to solve Europe’s trading problems, rather than the more restrictive principle of a customs union. Formal negotiations started in June 1959 and culminated, in January 1960, in the Stockholm Convention establishing the European Free Trade Association (EFTA).⁴

EFTA’s ambitions and its structures were simpler from the start than those adopted by the EEC. It was essentially designed to ‘build a bridge’ to the EEC, thereby obtaining through bilateral negotiations en bloc what the previous multilateral negotiations had failed to deliver. The differences can be summarized as follows:

* The EEC wanted a customs union, EFTA did not.

* The EEC had to build a common external tariff, EFTA did not, but did require instead a ‘certificates of origin’ regime. The common external tariff meant that the EEC needed a common commercial policy, whereas EFTA did not.

* The EEC wanted to eliminate the cause of trade distortions at source and required the machinery to do so; EFTA instituted a procedure to deal with complaints if and when different national practices were felt to have distorted trade.

* The EEC wanted a common agricultural policy; EFTA excluded agriculture but relied instead on bilateral agreements to expand agrarian trade.

In a way, EFTA was almost designed to disappear in the form in which it had been cast. It was only the subsequent failure of the ‘bridge-building’ strategy that forced it to assume the identity of an individual trading organization in its own right.⁵

Even before the establishment of EFTA, the Macmillan government had begun to consider applying for full membership of the European Community. By late 1959, it had become increasingly apparent that the UK would be unable to negotiate a settlement which aimed at a parallel removal of barriers within the EEC and EFTA and between the two blocs. The ‘Hallstein Report’ of 1959 which outlined the EEC’s foreign policy perspectives left little room for a purely commercial settlement in Europe. Moreover, the United States, faced with a mounting balance of payments problem, made clear that it would not accept the discrimination implied by an interim settlement unless it conformed with GATT rules. That meant that any solution ended in a forseeable time and according to a fixed schedule, with the complete abolition of trade barriers. At the time the most that was on offer was a Benelux plan for the mutual exchange of the next scheduled tariff cut.⁶

Throughout 1960, the number of voices from the press, business circles, and certain politicians calling for a reappraisal of the UK’s relations with the Six, grew considerably. However, the strongest statement seeking a drastic change in course came in May 1960, from an interdepartmental committee headed by Sir Frank Lee. It advanced the view that Britain should abandon attempts to negotiate loose economic agreements with the Six and instead seek full membership of the EEC. The Committee’s arguments, based more on political than economic considerations, can be summarized as follows:

* The offer of a purely commercial ‘bridge’ between the EEC and EFTA would never be acceptable to the Six.

* The UK would face a relative decline in its political significance if it remained outside the EEC.

* The danger of a European federation would be mitigated if the UK joined while de Gaulle, who was notoriously anti-federalist, was still in power in France.

* Special arrangements for UK problems, such as Commonwealth trade and domestic agriculture, could be negotiated.

Macmillan was anyway predisposed to accept these arguments. Although he had been its victim, he had been impressed by the power and influence of France and Germany within the EEC. He saw in it the reinforcement of traditional great power diplomacy within which Britain could easily function, somewhat missing the point that the attraction of these arrangements to both Adenauer and de Gaulle was their exclusivity. Yet it was more than a year later before a formal application was made. This was primarily because of the daunting array of individuals and organizations which had to be persuaded of the desirability of EEC membership (from the party to the parliament, the press and public, not to mention the Commonwealth and EFTA). Macmillan also faced the ‘presentational difficulty of explaining why a policy which had been repudiated inflexibly since 1948 had now become both desirable and necessary’.⁷

In July 1960, Macmillan appointed Edward Heath as lord privy seal, with special responsibilities for Europe. His major task in the ensuing year was to appraise the attitude of the Six, and France in particular, to the prospect of British entry. There would be little point in even considering a membership application if the French remained determined to keep Britain out. However, by summer 1961, it was evident that the French would not discuss possible concessions to UK interests prior to a formal commitment to negotiate. Indeed many, including President Kennedy, felt that de Gaulle had no desire whatsoever to share French leadership of the Six with Britain.

This placed the Macmillan government in an extremely difficult position. Speculation in the press and business circles had already anticipated an announcement on Britain and Europe. Thus, rather than make an open commitment to EEC membership, it was decided to open negotiations with the Six to see whether suitable arrangements could be made. It was hoped that this fine distinction would put an end to public uncertainty, and keep Britain’s options open in Europe. The formal announcement was made in the House of Commons on 31 July 1961.⁸

The three major problem areas of negotiation with Brussels were the Commonwealth, EFTA, and British agriculture. In each case, Britain held outstanding commitments which, in the absence of special arrangements, were incompatible with EEC membership. The negotiations that opened in October 1961 proceeded extremely slowly due to a mutual unwillingness to offer concessions. It was not until May 1962 that the first specific agreement was reached on Commonwealth industrial goods. By the end of July, arrangements for most Commonwealth countries had virtually been finalized, although these often fell short of Commonwealth demands. However, it was the issue of agriculture which finally brought the negotiations into deadlock. The British system of guaranteed prices and deficiency payments to farmers was manifestly incompatible with the artificially inflated prices of the Common Agricultural Policy (CAP). Disagreement on the best means to reconcile the two dragged on into December 1962, when the EEC Commission appointed a committee under the direction of Commission vice-president, Sicco Mansholt, to explore possible solutions.

In the meantime, de Gaulle had become increasingly concerned about the political consequences of British membership. Although Macmillan was aware of these views, neither he nor any of the delegations in Brussels anticipated de Gaulle’s unilateral statement, at a press conference on 14 January 1963, that Britain was not yet ready for the full commitment of EEC membership and that therefore there was no point in prolonging the negotiations. De Gaulle referred to the deal with the United States on Polaris nuclear weapons as evidence of Britain’s ‘special links’ outside the Community structure. However, it is now clear that such objections were used to mask underlying fears of a British challenge to French leadership of the Six. The veto came as a monumental blow to British aspirations in continental Europe and the wider world. It also generated considerable illwill and mistrust between the Six, which in turn impaired the prospects of further political initiatives. Finally, it also served to repudiate the approaches of other states for membership or association with the EEC.

The applications of Denmark, Norway and Ireland⁹ for EEC membership had been essentially a reaction to Macmillan’s decision to negotiate with the Six. Denmark was the strongest supporter of this decision, as it provided the opportunity to bring its two largest customers, the United Kingdom and West Germany, together in a single market. The breakdown of the British negotiations was crucial to the Danish position. Although de Gaulle had offered prime-minister Otto Jens Krag membership for Denmark separately, this was turned down after consultations with the British.

Norway was somewhat less enthusiastic in applying for EEC membership. Einar Gerhardsen’s goverment was uneasy about opening Norwegian fisheries and agriculture to foreign competition but the simultaneous application of important trading partners like Denmark and Britain led many to the view that Norway could not afford to remain outside. Before any application could be made, the constitution had to be amended to provide for the transfer of sovereign powers to an international organization. This amendment was passed without difficulty by the Storting in March 1962, followed soon after by the EEC announcement opening negotiations. Only one meeting at ministerial level had taken place, however, when the collapse of the UK application brought the Norwegian case to an equally abrupt end.

Ireland’s membership application was perhaps even more closely linked with that of the United Kingdom. Ireland had not taken part in the EEC/EFTA split of the late 1950s, but had special trading arrangements with Britain dating back to the time when it formed part of the United Kingdom. Edward Heath specifically mentioned Ireland in his opening speech to the EEC governments in October 1961, expressing the hope that their trading relationship would be ‘subsumed in the wider arrangements of the enlarged Community’. The EEC Council of Ministers signalled the start of negotiations with Ireland in October 1962 but, as in the case of Norway, substantial negotiations never actually opened.

The return of de Gaulle to power in France on 1 June 1958 was decisive for the EEC’s development. Given his long antipathy towards the integration efforts of the Six, nobody expected him to look favourably upon the new supranational organization emerging in Brussels. After all, he viewed France’s participation in the ECSC, the EEC and EURATOM as the humiliating policies of a previous regime ‘more concerned with pleasing others’. Thus it was with considerable relief that ‘Europeanists’ saw his early recognition of the Rome Treaties. In part, this reflected the support in French industrial and especially agrarian circles for the EEC. It also marked an appreciation of the usefulness of the Treaty, and its safeguards, for the liberalization of the French economy upon which the regime embarked at the end of 1958. However, it soon became evident that the General had his own concept of ‘Europe’ which differed markedly from the federalist ideal.

At a press conference in May 1960, de Gaulle launched his proposals to develop political cooperation among the Six. He announced his intention ‘to build western Europe into a political, economic, cultural and human grouping organised for action and self-defence … through organised cooperation between states, with the expectation of perhaps growing one day into an imposing confederation’. The use of the phrase ‘une cooperation organisée des Etats’ was particularly significant and reflected a desire to ensure that any future political integration of the Six would not be at the expense of French national sovereignty. De Gaulle obtained the support of Adenauer for this position on 29 July at a meeting at Rambouillet. Central to the plan was the establishment of a permanent political secretariat of the Six in Paris, responsible to a Council of the Heads of Government. It would comprise four permanent directorates; dealing with foreign policy, defence, economics and cultural affairs. There would also be an assembly of delegates from the national parliaments.¹⁰

The scheme ran into strong opposition from federalists such as Walter Hallstein and Paul-Henri Spaak who feared that the inclusion of defence and economics within the competence of the new organization would tend to undermine both NATO and the existing Economic Community in Brussels. These problems were discussed by the heads of government of the Six in Bonn in July 1961. The outcome of the meeting was the ‘Bonn Declaration’, which tried to allay doubts about the plan by including references to political union as a means for ‘strengthening the Atlantic Alliance’ as well as an affirmation of the intention to ‘continue at the same time the work already undertaken in the European Communities’. However, the Declaration had been cleverly drafted to conceal the many points of disagreement, and the illusion of consensus proved to be short lived.

The preparatory work was entrusted to a new commission, chaired by the French ambassador to Denmark, Christian Fouchet. Its brief was to submit ‘concrete proposals concerning meetings of the heads of state and the ministers of foreign affairs, as well as all other meetings that might appear desirable’. In November, the French government presented a draft Traité d’union d’Etats which became known as the Fouchet Plan. The Fouchet Plan adhered firmly to de Gaulle’s earlier position and, as such, represented some backsliding from the text of the Bonn Declaration. Most notably, the draft treaty included the key issues of defence and economics within the scope of the Political Union, despite the earlier protests by France’s partners. Negotiations among the Six on the Fouchet Plan commenced in early 1962, with numerous redrafts of the treaty submitted by the Five. However, as the negotiations progressed, a further point of disagreement emerged among the Six, over the issue of British participation in the Fouchet negotiations.

At this time, simultaneous negotiations were being held in Brussels on Britain’s application to the EEC. The Dutch, in particular, were adamant that the UK should also be included in the discussions on political union. Their foreign minster, Joseph Luns, saw British participation as essential to ensure the primacy of NATO and to keep a check on French ambitions. This was in stark contrast to the French position, that Britain would have to make a separate membership application to the Political Community, if and when it came into existence. Throughout the spring of 1962, this divergence of opinion became an ever greater source of antagonism among the Six. Meantime, the British themselves had begun to take a more active interest in the Fouchet negotiations, which, after all, coincided with Macmillan’s preferences for Europe’s organization. In April, at the Council of the Western European Union, Edward Heath made a long statement indicating Britain’s desire to participate directly in the discussions. Coming at a crucial stage in the Fouchet negotiations, his announcement had the effect of rallying Belgian support for the Dutch position. Spaak now declared that he would not sign any proposed treaty until after Britain had been admitted to the EEC. The negotiations were then formally ‘suspended’, and the Fouchet Plan was abandoned.

The failure of the Fouchet Plan represented the first of many political complications to emerge among the Six in the 1960s. Moreover, by stiffening French resistance to British intervention in continental affairs, it had a marked effect on the atmosphere of the Brussels negotiations on British accession. Four weeks after the suspension of the Fouchet discussions, de Gaulle held a press conference in which he defended the Fouchet Plan and delivered one of his most scathing attacks on European federalism. His response to Belgian and Dutch intransigence was to proceed with negotiations on a political treaty with Germany alone. The summer and autumn of 1962 were marked by a number of high profile meetings and state visits. This process culminated, a mere fortnight after the collapse of the first British membership application, in the signature of the Franco-German Treaty of Friendship and Cooperation – a treaty which has also been described as a ‘bilateral version of the Fouchet Plan’.

Despite these external threats, and perhaps partly even because of them, the early years of the EEC were startlingly successful. In 1958, it had yet to start its day-to-day operations and still had to recruit its staff. Although its president, Walter Hallstein, was welcomed in Washington almost as if he were a head of state, his position as the head of the secretariat of Europe’s smallest and newest international organization meant he was virtually shown the tradesmen’s entrance in the United Kingdom. Nonetheless, the Commission quickly became a formidable force in European politics. This was partly because it was remarkably well-staffed. For example, Walter Hallstein himself had been involved in European affairs since he had led the German delegation in the Schuman Plan negotiations. Sicco Mansholt, an ardent federalist, had served as an agricultural minister (not usually a post renowned for its length of political tenure) for over a decade. Hans von der Groeben had already served as his country’s representative to the High Authority of the ECSC. Each of these men recruited highly skilled and experienced personal staffs.

Its success, however, was more than a question of personnel. At an organizational level, the Commission was quickly able to establish its own priorities and, still more importantly, to implement them. This, in turn, was facilitated by the compactness of the Commission itself, as evidenced by its small number of portfolios. Only later, when the EEC was merged with the ECSC and EURATOM, did its focus become blurred; it was then further diluted by the addition of new commissioners to satisfy new members in 1973. It is also undeniable that political factors played an important part. Early support from the Americans had certainly helped to increase the legitimacy of the new organization. Additionally, foreign policy challenges, an area in which the Rome treaties had given the commission an important role, presented themselves in the form of GATT trade rounds and in preparing the response to UK initiatives. Finally, the favourable economic climate provided new opportunities in the shape of an accelerated creation of the common market and thus created new areas for the Commission to exercise its influence at an early stage.

I once asked a senior official with a lifetime of service in the Commission, what the difference was between an inter-governmental organization, with a large and efficient secretariat, and a supranational community, controlled by a Council of Ministers (often voting with unanimity) and a large and efficient Commission. He replied that often there was no discernible difference, especially if there were sources of disunity within the group. However, if the political or economic constellation were favourable, a supranational community could respond more quickly and effectively to issues to which an inter-governmental agency might not be able to respond at all. He argued that the first Hallstein Commission was fortunate to find itself in such a situation.¹¹ Small, uncertain, and untried, the new Community soon found itself basking in a golden age, and inspiring a whole branch of theorizing among political scientists into the bargain.

The Six’s first step in economic integration was the building of a customs union for industrial goods. All tariffs and quotas on trade between members were to be reduced gradually to zero and a Common External Tariff (CET) installed. The first 10 per cent tariff cut on intra-EEC trade took place in January 1959 and, according to schedule, bilateral quotas were multilateralized, while those quotas that were extremely restrictive (less than 3% of output) were expanded. At the same time, the benefits of the tariff cuts (other than those on tariffs already below the planned CET) were extended unilaterally to other GATT members. This was partly to anticipate criticism in the GATT that the EEC would develop into a closed organization and partly to cool the row that had erupted after the failure of the free trade area negotiations, which would have been aggravated had the Six immediately begun tariff discrimination against the rest of Europe.

The next two tariff cuts of 10% each were to take place in July 1960 and December 1961. Hallstein suggested accelerating the schedule, ostensibly to take advantage of the favourable economic climate but also to accentuate the EEC’s own identity at a time when there was still an active interest in subsuming its commercial arrangements into a wider European grouping. As a result, in May 1960 the Council of Ministers decided to proceed, on schedule, with the July reduction but to make the next cut a year early, in December 1960. Similarly, in May 1962, the Council decided that the state of the economy allowed the 10% cut scheduled for July 1963 to be brought forward a year. Due to these accelerations, tariffs between the EC members were dismantled completely by July 1968, two years ahead of schedule.¹²

The creation of a customs union by the Six also implied a common level of tariff protection towards the outside world. This too was completed ahead of time. The first problem was to define the tariff itself. The CET should have been calculated as the unweighted average of tariffs in four areas, but for a number of products (mostly in the semi-manufactured and petro-chemical sectors) this formula was opposed. Due to lack of time in the Treaty of Rome negotiations, these goods had been consigned to List G and left to be decided by January 1962. Because of the need for a complete tariff schedule before entering GATT negotiations, this operation was completed by March 1960 and the outcome, moreover, was far less protectionist than had originally been anticipated.¹³ Because the timetable of internal tariff cuts had been accelerated, so too was the realignment of national tariffs. In January 1961 and July 1963, the margin between national and projected rates was reduced by 30% each time, and the gap was finally closed in July 1968.

Although the Commission boasted that the level of the CET was moderate and its incidence considerably narrower than the British tariffs, Paxton stresses that ‘in practice, the common external tariff as originally fixed was higher and more restrictive than the average incidence of the 1957 tariffs.’ Germany had already in the mid–50s been concerned that their first post-War tariff had been fixed at too high a level and had already engaged in some unilateral reductions of their own. The Dutch too had been alarmed at the upward revision of tariffs on semi-manufactured goods especially. Neither country had been happy with the upward drift in protection that the CET implied. They therefore welcomed the call in 1958 by US under-secretary of state, Douglas Dillon, for a new multilateral tariff round in GATT. So too did the Commission. The Treaty of Rome had constituted a single bloc from four, already large, trading entities. Under GATT rules which applied to negotiations between major suppliers, this enhanced its importance and its international recognition, especially in relations with the United States. Moreover, since the Treaty also allocated the Commission a specific role in preparing and negotiating foreign commercial policy, the Dillon Round immediately promised it a prominent role in the national policies of the Six.¹⁴

The Dillon Round was delayed by the need firstly to construct the CET and then to get it approved by the GATT. Once underway, the Commission suggested a 20% ‘linear’ reduction in the CET, subject to reciprocal concessions by other countries. This idea foundered on the inability of the US to react to an offer framed in this way, but it is far from certain whether it would have been endorsed by the Six anyway. Thus the negotiations proceeded bilaterally on a product-by-product basis. No less than 4400 bilateral deals were made covering trade worth $4.9 billion and resulting in tariff cuts of about 7%. This outcome, however measured, was twice a good as that of the previous ‘round’ in Geneva in 1956 but was still considered disappointing. However the Dillon Round did have one important side-effect in that it convinced the Kennedy administration, in framing the 1962 Trade Expansion Act, not only to reopen tariff negotiations but to empower the US to negotiate across-the-board tariff cuts.

The Kennedy Round lasted from May 1963 to June 1967 and resulted in the largest tariff cuts in modern history, although the across-the-board method was not employed, since the EEC argued that the disparity in US tariffs, compared with those in Europe, would lead to inequitable results should that method be used. Nonetheless, over 8000 deals were made with a trade coverage of $40 billion and an average reduction of 35%. In over two thirds of cases, with the steel and chemical sectors especially heavily represented, tariffs were reduced by more than half. Textiles, on the other hand, recorded only minor gains. Equally, little progress was made in grains, meats and dairy produce which were rapidly being embraced by the Common Agricultural Policy (CAP) and where the French, especially, were reluctant to make concessions. The need to conclude the CAP, and the ‘crisis’ that had accompanied it, served to delay progress. More importantly, it prevented the tradeoffs that might have made deeper cuts possible elsewhere. Nonetheless, despite the tensions that inevitably accompanied the process of establishing a single position, the Commission emerged from the exercise with its international status considerably enhanced.

The Commission also suceeded in making the EEC the focus of international relations with the wide range of African territories that had made up the previous French and, to a lesser extent, Belgian and Dutch empires. These countries were overwhelmingly dependent on Community markets for both exports and imports, and on the metropolitan countries for much of their capital. Their future had been introduced at a late stage into the Treaty of Rome negotiations as a way of reducing the burden of their upkeep on the French budget in return for France’s renunciation of its bilateral preferences (or, more to the point, the multilateralization of those preferences). Thus the Six would remove tariffs and quotas on imports from these areas in the same way as those on intra-trade. By March 1963, tariffs had been reduced by 50% for manufactured products, by 30% for most of the liberalized agricultural products and 35% for the remaining agricultural products. It was not foreseen that these reductions would be strictly reciprocal, but protection retained by the overseas territories had to be applied equally to the Six.¹⁵

After a five-year period, the association agreements were put on a new basis with Yaoundé I, negotiations for which lasted from mid–1961 to July 1963. These negotiations were difficult insofar as many territories had ambivalent feelings towards their colonial and excolonial masters and towards the prospect of neo-colonialism on a European scale. Moreover, the European member states were far from identical in their views of these countries. Whilst France shared with the Commission a desire to renew and extend the association, the Dutch were rather critical. Large Dutch economic interests in Commonwealth Africa led them to demand an agreement that could accommodate these territories and they linked the outcome of Yaounde I to the question of British accession. Only when the French veto blocked this possibility could real progress be resumed. The principles of the agreement were:

* Free trade area, dismantling of tariffs and quotas

* Technical and financial aid payments and capital liberalization

* Freedom in rights of business establishment and services

In 1969, after only six months’ negotiations, Yaoundé II was concluded to govern the relationship for another five years. These talks were much easier since many of the earlier problems had passed, though not without traumas: in essence, France and Belgium had accepted their post-colonial status. The issue of widening the association had been resolved by the Arusha Convention of July 1968 which put relations with Kenya, Tanzania and Uganda on a new footing. Finally, and most tellingly, the agreements had had positive effects on the development of the African territories concerned.

The preferences established by the association clauses and by Yaoundé I and II have prompted much criticism. Non-associated countries in Africa, Asia and Latin America were opposed to the arrangements. So too were the United States and the United Kingdom. From the very beginning, the arrangements were condemned as incompatible with GATT and this discussion remained alive throughout the period. George Ball, then US secretary of state, suggested that it ‘tends to result in a poor use of world resources’. What he said was true, but efficiency in the global allocation of resources had not been the Commission’s main objective. Its first General Report defended its association policy in unambiguous terms:

It was the duty to promote the economic and social development of the Overseas countries and territories associated with them by letting these countries and territories share in the prosperity, the rise in the standard of living and the increase in production to be expected in the Community.

The trade-off between access to industrial and agricultural markets had been a central cornerstone in negotiating the EEC. Yet there was so little chance of agreeing on the form of the policy or the level of protection during the negotiations that, unlike the sections on the customs union, the clauses on the Common Agricultural Policy remained largely procedural. Ehrard, who was anyway opposed to much of the Treaty of Rome, argued that the vagueness of the clauses proved that they were designed to be forgotten. The key to ensuring that this did not happen lay not in the paragraphs concerning agriculture but in article 8 which made progress through the three stages towards the customs union contingent upon equivalent progress in agriculture.

As commissioner in charge of agriculture, Sicco Mansholt started his work by rallying national agricultural pressure groups behind a European policy. In June 1960 he submitted his first proposal to the Council of Ministers. This foresaw free trade in agricultural products within the Community but with uniform target prices and variable levies on imports. In addition there would be structural policies designed to raise productivity. In 1962, after intense negotiations, market unity, Community preference and financial solidarity emerged as the principles of a future CAP. However, this still left important issues such as the level of support prices and the financing of the system to be settled before the CAP could become operative. Meanwhile a regulation was passed establishing the FEOGA (Fonds Européen d’orientation et de garantie agricole) whose provisions extended until mid–1965.¹⁶

The level of common prices as well as the financing of the CAP proved to be very controversial and the fierce negotiations almost brought the EEC to the brink of collapse. It took until the end of 1964 before German reluctance to accept a target price for grain below their prevailing national level could be overcome and before a common price level for cereals could be introduced. Proposals for common financing of the CAP were submitted in March 1965. Since these envisaged augmenting the EEC’s institutional powers, through increasing the budgetary competences of the European Parliament and the introduction of majority voting, France flatly opposed the move. In summer 1965, it withdrew its representation from all EEC meetings and, with this ‘Empty Chair’ policy, precipitated a major crisis within the Community which was only resolved in January 1966 with the Luxembourg Compromise – usually described as an ‘agreement to disagree’.

The Luxembourg Compromise stipulated that the Commission would consult with governments before adopting any important proposal, notwithstanding its rights of initiative enshrined in the Treaty of Rome. More significantly, it stipulated that if a country felt its vital interests to be at stake, even on issues normally decided by majority, the Commission was bound to continue discussion until unanimous agreement was reached – or drop the proposal altogether. Although at the same time the financing of the CAP was resolved, with a fixed scale of contributions agreed to run until January 1970, these events emphasized that the balance of power lay not with the Commission, but with member states.

Relatively high price levels within the CAP soon led to serious problems. Besides raising the cost of living, high guaranteed prices contributed to a rapid growth of agricultural surpluses. By the beginning of the 1970s, the EEC had turned a deficit in wheat and barley into a surplus of 10% above requirements. An equilibrium in butter had been transformed into a surplus of 16%, and a 4% surplus in sugar beet had been bloated to closer to 20%. Mansholt responded in 1967 by calling for more emphasis on structural policies that would allow a reduction in prices, but this appeal foundered on violent oppostion from agricultural organizations. The Council of Ministers capitulated to pressure by rejecting any consideration of price cuts and by diluting considerably the proposals for structural policies.¹⁷

One of the principles of the CAP was that the same price and marketing conditions prevailed throughout the Community. Thus, when the CAP began, unified support prices were expressed in units of account (u/a), a measure of value equivalent to the US dollar. However, changes in exchange rates between currencies would also require an alteration in producer prices expressed in the national currencies concerned. Thus, when the French franc was devalued in 1969, domestic producer prices should have been raised by an equivalent percentage. Similarly, domestic returns for German producers should have been reduced to make allowance for the revaluation of the deutschmark. However, governments were reluctant to adjust farm prices in the direction of, and to the degree indicated by, fluctuations in exchange rates. As a temporary solution they therefore established a system of Monetary Compensation Amounts – i.e., subsidies and levies for imports and exports – to bridge the gaps that had emerged between domestic and ‘common’ European prices. Later this ad hoc provision was virtually institutionalized by the introduction of special exchange rates, the so-called ‘green’ rates, that applied exclusively to agriculture and allowed the agricultural support prices expressed in national currencies to diverge.¹⁸ This procedure increased the costs of the CAP, perpetuated and aggravated distortions in competitive conditions in national markets, returned effective control of agricultural prices to national governments and undermined the entire logic of having a ‘common’ policy. Indeed, divergences in national prices sometimes exceeded those experienced before efforts at price harmonization began in 1967.

On balance, the major achievement of the first fifteen years of the CAP was the removal of arbitrary quantitative controls that had characterized intra-European trade since the late 1920s and early 1930s. It also erected an external regime that created an EEC preference zone (although this could also have occurred without common policies). Finally, it attempted to implement a single system and level of protection throughout the Community. All these factors generated a sizeable increase in intra-European trade, but at considerable cost. Nobody in the post-War period questioned whether agriculture should be protected and all economic protection has to be paid for in some way. The ‘consumer pays’ principle chosen for the CAP was, in its nature, a regressive tax on food that augmented the cost of living. The effect of this was compounded by the increasingly high price levels that repressed domestic consumption whilst stimulating output. As production swung towards structural surpluses, so the costs of intervention, buying and storage increased and ate into the funds intended for structural renewal. The solution of disposing (or dumping) the surpluses on the world market also served to undermine relations with external trading partners who had already been disconcerted by being squeezed out of EEC markets and who now had to sustain the impact that the sporadic sale of large commodity stocks had on the fragile levels of world prices.

The removal of tariffs and quotas ahead of their original schedules was, as we have seen above, a milestone in the histories of both the EEC and EFTA. Since EFTA, too, had in 1961 and again in 1963 decided to accelerate its own timetable, within the blocs of the Six and the Seven tariffs had vanished completely by 1969.¹⁹ Yet, as it was understood at the time, the dismantling of tariffs and quotas was a necessary but not sufficient condition for ensuring free competition:

* Both organizations allowed the retention of some quotas for cultural and similar reasons.

* Both faced customs formalities for the restitution and reimposition of indirect taxes (and EFTA also had to contend with certificates of origin).

* Both saw individual administrative and technical obligations assume a more restrictive character.

* Both had to confront the effects of methods of levying taxes on business, incentives for investment and the granting of subsidies – which all acted to distort competition.

* Both still had to tackle the problem of cartels and restrictive practices.

EFTA ducked many of these issues by only investigating complaints made by governments (and there were not many), whereas the Commission dedicated itself to eliminating these sources of trade distortion in principle. Yet the EEC only really started to address these problems at the end of the 1960s and even then made very slow progress. Even discounting the new protectionist measures introduced after the 1973 oil crisis, the Commission’s own judgment in 1981 is revealing: ‘The customs union, the implementation of which is intended to ensure the internal market, is proving to be increasingly inadequate for the achievement of this aim.’

As tariffs and quotas were dismantled, so the impact of non-tariff barriers became more apparent. Some argue that their incidence became more prevalent as business turned to new protective devices to compensate for the loss of traditional forms of protection. However there have been no historical studies to substantiate or deny this. The Treaty of Rome stressed the need for a general system to protect competition from distortions (art.3(f)) and developed the areas of policy, the competences of the Commission and Council, and the rules and procedures in articles 85ff. Articles 85 and 86 declared that agreements between enterprises, together with dominant market positions capable of distorting trade, were incompatible with the Common Market. Furthermore, they prohibited dumping and state subsidies (though the latter came with a long list of exceptions). Lastly, state monopolies (art.37) should be reshaped, and fiscal as well as legal dispositions should be adjusted.

All these provisions remained sketchy, however, and it was the task of the EEC institutions and Commissioner, Hans von der Groeben, to flesh them out. Given the different interests and perceptions in this field, the problem was formidable, but it was by no means the only one. Competition policy was ambiguous as a concept, and the possible negative sides of a stringent competition policy were much resented. On the other hand, it could be articulated in more positive terms by suggesting that what Europe needed was more, rather than less, concentration in the interests of maximizing efficiency.²⁰

On the question of state monopolies, the Commission could, after the first stage, recommend measures for reshaping them, which it did in several cases, usually by proposing gradual modifications which increased imports, eliminated the disparity of margins and adjusted to market conditions. There is insufficient evidence available to judge the impact of these rulings but in some cases, such as tobacco, it was shown that imports from other member states increased considerably. Yet given the facts that the Commission tried to work with, rather than against, member states, and that these had often and publicly voiced firm opposition, analysts generally agree that the policy of the Commission in this field was rather cautious. Moreover, celebrated successes such as tobacco need to be counterbalanced by equally significant setbacks: the reintroduction of a French petroleum monopoly represented a de facto break of the standstill agreement of art.37, to the effect that no further state monopolies should be introduced.

State subsidies also presented a thorny and difficult problem, the more so since subsidies were poorly and ambiguously defined in the Treaty. Generally, subsidies were deemed incompatible with the Common Market since they could distort trade between member countries. Yet industrial or regional policies were seen as necessary adjuncts to a mixed economy – and this implied financial aids. Thus it was necessary to distinguish between ‘adjustment’ and ‘unfair government aid’ and the Commission had the power to scrutinize existing state subsidies. Should they distort trade, it could ask that they be abolished or amended. It could also rule that the subsidy was compatible or necessary. Similarily, new ‘other’ subsidies could be introduced with a qualified majority vote of the Council.

The Commission became active in this field early in 1959 and demanded information on the financial aids in use among the member states. Following this, it had some success in persuading governments to amend and/or end subsidies – as in the case of German synthetic rubber, or on the more rapid depreciation allowances for French producers buying French equipment – together with similar practices in Italy. Moreover, considerable progress was made in the early 1960s in completing the inventory of existing aids and agreeing on information procedures. Yet as late as 1974, so Cairncross and Giersch argue, the praxis of state aid was still not transparent and, on the whole, EC policy failed adequately to tackle the problems of state aid. Matters grew worse after the Luxembourg compromise, when the Commission’s attitude can best be described as pragmatic awareness of the difficulty of successfully challenging determined member governments. Difficulties with financing subsidies from the EEC’s own funds contributed, though this problem diminished over time. Not surprisingly, the level of government subsidies showed little inclination to decline. What is more, the Community had still failed to define uniform criteria and conditions for judging the admissibility of aid.

The Treaty of Rome empowered the Commission to submit proposals on restrictive business practices and dominant positions which were able to distort competition – i.e., cartels and imperfect competition. It did so in 1960, and in 1962 the Council adopted Regulation 17, which was called by Swann/McLachlan ‘an obscure legal document’. It reaffirmed the prohibition on restrictive business practices (art. 85 (1)) and ruled that they could be dissolved. It also subjected the firms concerned to a fine. First of all, though, it provided a notification of such agreements and a procedure to determine the action taken. This succeeded in attracting the notification of more than 35,000 restrictive agreements, most in the hope of securing acceptance and many involving fairly innocuous trading practices. By the end of 1962, however, Commission officials had isolated almost five hundred as constituting serious impediments to international trade.²¹ Even so, many of the ‘traditional’ cartels had not registered at all.

After some struggles with the Council, which initially refused to give the Commission regulating powers, a policy emerged via a combination of exemptions, rulings of the EJC and Decisions by the Commission; which tried to ban price fixing, market sharing, production quotas, vertical distribution agreements, certain aspects of the exploitation of commercial property rights, and collective exclusive dealing. Implementation of this policy, however, remained fraught with difficulties. Obviously, restrictive agreements which the participants felt unlikely to be accepted were rarely notified. The villains of the piece were secret, large, international, horizontal producer agreements where the Commission had problems in securing evidence and prosecuting cases. Progress on this front was halting and sporadic but, since there is still no assessment of the prevalence of cartels in the 1960s, it is difficult to assert the effectiveness of the Community’s efforts. The contemporary merger boom and the spread of multinationals in these same years complicated matters; and to some extent these new commercial arrangements built on tacit measures of cooperation existing earlier.

The Spaak Report (1956) had argued that the advantage of a Common Market ‘lies in the fact that it reconciles mass production with the absence of monopoly’. It was assumed – and hoped – that European enterprises would adapt to the new situation by becoming bigger entities, enjoying economies of scale and enhanced productivity. Herein lay the route to improved competitiveness, above all, through the example of US firms. Throughout the discussion on the ‘technological gap’ and the ‘American challenge’, the size of US enterprises was seen as the main reason for their superiority over their European counterparts. On the other hand, the Treaty of Rome hoped to avoid dominant positions – or at least their abuse (cf. art. 86) – and to ensure competition. The European Communities had to find some way through this dilemma to define their policy.

The Commission initially adopted a largely passive stance: in 1963, the question of ‘concentration’ was handed to a group of experts who produced a first memorandum in 1966. Although this reiterated the need to preserve competition, it laid more stress on the positive aspects of concentration. The Commission’s first aim was to reduce impediments to certain forms of merger. The reason may have been the poor results of cross-frontier mergers within the EEC (only 257 in the period 1961–9) compared with domestic mergers (1861) and those involving third countries (1035). At the same time, the Commission demanded powers to control mergers that threatened to acquire a dominant market position. It did not acquire these powers then, and when it did, in 1973, it was only in the form of rights to prior notification. The intervening years had been marked by complex legal arguments on the way in which the relevant articles were to be applied, arguments that could have been avoided, ‘if there had been any real political will amongst the member states for a merger policy’.

It was obvious that the dismantling of tariffs by both the EEC and EFTA, as well as the EEC’s introduction of a CET, was going to have some impact on the international pattern of trade. Modern customs union theory predicted two effects from the dismantling of tariffs and the introduction of a CET: trade creation, that is a shift from higher-cost producers to other EEC sources whose goods had become cheaper with the dismantling of tariffs; and secondly, trade diversion, that is a shift from lower-cost foreign sources to higher-cost EEC sources that benefited from tariff preferences whilst the external tariff was maintained. Intra-area trade would expand; in the first case because of a more optimal use of resources and in the second at the cost of less optimal sources. Much empirical research has been done to determine the balance of advantage.²²

Trade within the blocs rose considerably. That of the EEC increased from $7530m to $49,830m between 1958 and 1971 and within EFTA in the same period from $28oom to $ 11,190m. In both cases, trade between bloc members grew faster than their trade with the rest of the world. EEC exports to EEC countries rose from 32.1% to 49.4% in these years while the percentage share for EFTA exports to EFTA countries rose less dramatically from 17.5% to 24.3%. Before trying to apportion the balance of advantage, one has to consider that increased intra-bloc dependence is not exclusively a function of the manipulation of commercial conditions. In a period when the growth centre of world trade lay in the exchange of increasingly sophisticated manufactured goods, it would not be surprising to see developed economies in close geographical proximity doing particularly well. Equally, performance within groups may be determined by differential growth rates. EFTA, which included the relatively sluggish UK economy, may appear less ‘successful’ than the EEC, with the rapidly-expanding German economy at its core. For example, EC exports to EFTA fell from 21.1% to 16.6% whilst the share of EFTA exports to EEC countries rose from 22.8% to 25.4%, despite the maintainance of tariffs or the deflection of agricultural trade.

Singling out an EEC-effect is not easy and the various attempts that have been made to do so have been much discussed. The so-called ex-post models cover a period when the EEC was in operation, and try to find out what the world would have been like if the EEC had not existed. To estimate trade in such cases, one has to rely on some ceteribus-paribus assumptions, so that the findings are always problematic. Hence Sellekaerts’s warning ‘that all estimates of trade creation and trade diversion by the EEC are so much affected by ceteribus-paribus assumptions, by the choice of benchmark year (or years), by the method to compute income elasticities, by changes in relative shares and by structural changes not attributable to the EEC but which occurred during the pre- and post-integration periods (such as the trade liberalization among industrial countries and autonomous changes in relative prices), that the magnitude of no single estimate should be taken too seriously’. Notwithstanding this destructive comment, it has to be admitted at, despite the different methodologies employed, most studies suggest that trade creation outweighed trade diversion, so that a net gain was achieved. Furthermore, Davenport has stressed the fact that ‘the divergence in estimates is relatively limited, with the majority clustered in a range going from $7.5bn to $11.5bn for trade creation and from $0.5bn to $1bn for trade diversion.’

Very few estimates break this ‘gain’ down into individual national components. Two studies that do this come to broadly similar conclusions. The Benelux countries benefited least, since they already had the lowest tariffs and because the mutual Benelux preferences had to be diluted in the common market (a case of trade erosion). There is a noticeable gap between these countries and the other three. Despite having the next lowest tariffs, Germany benefited the most, reflecting both its export structure and its ability to make inroads into the markets of partner states. France and Italy followed close behind.²³

Some authors contend that these calculations underestimate the impact of trading blocs. They stress that increases in market size and the impact of certainties in irreversibly reduced frontier barriers to trade induced a favourable investment climate and economies of scale, at least in sectors engaged in trade. Indeed, in the Italian case, the difference between a hyper-efficient export sector and a more backward domestic sector had led to the economy being analysed in terms of ‘economic dualism’, even before the full impact of the EEC was felt.

Growing commercial interdependence especially among the EEC states prompted concern among their governments over whether or not to tie their currencies closer together. The implications of moving to convertibility in 1958 quickly became apparent because the US balance of payments deficit remained acute. In the 1950s, this had been the main source for replenishing reserves. By the early 1960s, however, central banks in the EEC member states held about all the dollars they wanted. Yet the inflow of dollars continued unabated, attracted by the investment opportunities offered by the rapidly expanding EEC economies, or seeking a quick return by exploiting the relatively high interest rates on offer in Europe. Some of these funds were exchanged for US gold, some remained in the vaults of European central banks, and some were held by the private banking system. The latter formed the basis for the so-called Eurodollar market and provided a growing wash of international liquidity highly responsive to changes in, or rumours of changes in, market conditions. International speculation in foreign currencies became a daily fact of life. In such circumstances the desire for some preemptive, collective defence mechanism assumed a higher place in the aspirations of the Six.²⁴

Unfortunately, as Tsoukalis has pointed out, the Treaty of Rome provided ‘very little, if any, guidance with respect to monetary policy’. This was hardly surprising since conventional wisdom at the time assumed that the multilateral arrangements enshrined in the Bretton Woods agreements could be fulfilled – and did not envisage their imminent demise. Expectations were high, but the Treaty’s provisions for monetary integration or cooperation (arts 104ff.) were rather pale and dim, stipulating the liberalization of payments on both current and capital accounts. Within a framework of overall equilibrium in the balance of payments, member states were enjoined to pursue policies directed at high employment and stable prices. To accomplish this, it was seen as necessary – and apparently sufficient – that there should be a loose coordination of economic policy accompanied by the creation of an advisory monetary committee to observe, report and comment on current problems. Although exchange rate policy fell within the purview of this body, it remained a national prerogative. Should countries face difficulties, the Community could offer financial assistance in addition to making recommendations, but no fund for this was created.

The first decade of the EEC’s existence brought various proposals but few achievements. It was characterized by almost uninterrupted balance of payments surpluses for the EEC-members and a parallel decline in the position of both reserve currencies, the dollar and sterling. After the devaluations of the French franc in 1958, the payments situation within the Community attained some equilibrium. The small, five-per-cent revaluations by the deutschmark and the guilder in 1961 stemmed largely from the size of their respective surpluses with non-members. The only internal EEC crisis was the Italian deficit in 1963–4 which was resolved by non-Community credits and without recourse to changes in exchange rates. Several initiatives for institutional change and closer monetary integration came from the European Parliament and the Commission.²⁵ Suggestions for closer consultations and the creation of a separate committee of central bankers were accepted in 1961 and 1964 respectively. However, more radical proposals, if not rejected outright, found little positive support among the member states, partly because monetary reform was seen as an issue that required the involvement of the USA and the UK, and partly because the ever-open question of British membership of the Community made several members reluctant to press ahead with more drastic schemes.

Nonetheless, the increasing outflow of dollars and the need for a common line by the ‘surplus’ countries (which included all the EEC states) kept the issue of regional monetary reform on the agenda. In 1964 the French finance minister Giscard d’Estaing proposed the creation of a new reserve unit to eliminate use of the dollar and to serve the needs of intra-European trade. This idea was killed by a combination of the point-blank refusal of the US to contemplate such arrangements, the reluctance of some EEC partners, and a policy conflict within the French government. Jacques Rueff, architect of the French reform programme of 1958, favoured instead an attack on the pre-eminence of the dollar, through using the ‘rules’ of the international system rather than through changing them. Since the dollar was convertible into gold, France decided in 1965 simply to do just that; a decision that provoked d’Estaing’s resignation. Although member states shared France’s underlying concern, they were uneasy about these tactics; and varied in their degree of susceptibility to American diplomatic pressure. On this last point, West Germany was particularly sensitive to US pressures, since the country depended upon the large American troop presence for its security.

A further impetus towards creating a Community attitude on monetary problems came from the decision in 1964 to adopt a common ‘unit of account’ for determining national prices. This implied that domestic prices would need to adjust proportionately to any future change in exchange rates. Although such adjustments were considered unlikely, the Commission wanted mechanisms to reduce the chances further still. At this point it faced opposition on the grounds that tying down one part of the monetary equation made no sense without tightening other components – a line of argument which had already been voiced by German delegations at various international gatherings for over a decade. They demanded economic policy coordination as a prerequisite for monetary union.

The essential underlying assumption that international parities were somehow immutable was punctured by the crises of 1967–8. When sterling devalued in November 1967, a two-tier gold market was introduced in March 1968. As speculation built up against the franc, France introduced exchange controls in spring 1968. Germany provided a safe haven for funds but the government denied that an overvalued DM had caused the problem. Instead, in autumn 1968, it imposed extra taxes on exports and took fiscal measures to encourage imports. The Bundesbank’s stubborn refusal to revalue, despite massive pressure, worried all concerned and pressure for a realignment of exchange rates could not be avoided. But it was a symptom of the depth of the conflict that when the decision was made, the action was not coordinated. France, unilaterally, devalued by 11.1% in September 1969. With German honour thus satisfied, the DM was allowed to float that same month and was formally revalued by 9.3% the following month.

These events produced a surge of interest in regional solutions. The Commission tabled two memoranda in the course of 1968, and in February 1969 the so-called ‘Barre Report’ was submitted. Although the reports differed in emphasis and tactics, they agreed on creating a new reserve unit, improving policy coordination and a establishing a mutual aid system. The Council of Ministers responded, since it also ‘recognized the need for fuller alignment of economic policies in the community and for an examination of the scope for intensifying monetary cooperation’. Even so, there was no immediate follow-up. Meanwhile, the need for some initiative was underlined by the situation created by the 1969 currency realignment. Since neither France nor Germany had wanted national farm prices to change in line with the new exchange rates, (rather than allow the CAP to collapse) the Commission had to produce a system of ‘green’ exchange rates to preserve the fiction of common price levels.

It was some relief when, prompted by the German chancellor, Willi Brandt, the Hague summit of December 1969 endorsed the aim of ‘Economic and Monetary Union’ (EMU) and set up the Werner Group. Although Brandt’s proposal seemed a major departure from the usual German line of insisting on the primacy of prior policy coordination, the Werner Group very soon found itself embroiled in old conflicts. Two schools of thought prevailed: the ‘monetarist’, which saw fixed exchange rates as a means of forcing policy coordination, and the ‘economist’ school, represented by Germany and the Netherlands, which saw the maintenance of fixed parities as impossible without convergent economic policies. The Werner Report, submitted in October 1970, adopted a compromise position. It called for the realization within ten years of complete and irreversible convertibility, closely aligned exchange rates, the full liberalization of capital movements and the creation of a common central banking system.

To achieve these ends it recommended a narrowing of the margins of fluctuation (from 1.5% either side of par) and a better organization of policy cooperation, especially in the area of foreign monetary policy. It took until March 1971 before the measures were approved. Although the French endorsed the monetarist approach, they wanted to avoid at all costs any discussion on the political and institutional aspects of EMU. But it was exactly a commitment on these aspects that Germany and the Netherlands saw as the price for their concessions. As a result, the resolution approving the goal of EMU left the questions of the transfer of power and institutional reform undecided.

Thus nothing was in place when the Bretton Woods system experienced its next, and ultimately terminal, crisis. In 1970 the USA, still experiencing mounting balance of payments deficits, had eased its monetary policy; consequently, speculative funds flowed back to Europe and, in particular, to Germany. The thinking of the German Bundesbank now moved quickly in the direction of a DM revaluation as a means of reducing the attraction for foreign funds, but there was still the question of how to reconcile this with maintaining parities within the EEC. In spring 1971, the German finance minister, K. Schiller, apparently against the feelings of the majority within the Bundesbank, proposed a joint flotation of all EEC currencies against the dollar. This was resisted by those countries that did not want their currencies dragged upwards in the slipstream of the DM. Instead something reminiscent of the 1966 Luxembourg ‘agreement to disagree’ was decided. The DM and the guilder floated, while other countries introduced capital controls. The decision by Nixon to suspend dollar convertibility in August 1971 only reinforced the divide. Italy now joined Germany and the Netherlands in advocating flexibility of exchange rates, while France, Belgium and Luxembourg preferred a system of exchange controls. Action was further delayed by a general agreement that the key to a global currency realignment lay in a dollar devaluation and not in a revaluation of other currencies. Thus another four months elapsed before the Smithsonian Agreement validated a change of most EEC rates against the dollar of between 7.5 and 16.9%.

The Smithsonian Agreement also allowed currencies to float by 2.25% on either side of the new central rates, which implied that EEC currencies could diverge by as much as 9% before triggering intervention to stabilize the exchange rate. This prospect produced a compromise whereby European currencies would maintain a tighter rein on their rates with each other, whilst moving jointly against the dollar: the so-called ‘snake in the tunnel’. The system was also briefly joined by the aspirant members. However, there was still no mechanism to produce convergent policies, nor were convergent policies adopted. Soon the new rates appeared as unrealistic as the old ones they had replaced. In June 1972, sterling left the snake and floated downwards. Ireland and Denmark, heavily reliant on the UK market, immediately followed suit, although Denmark rejoined after four months.

These mutations notwithstanding, the ‘success’ of the system prompted new moves, agreed in October 1972, to reinforce EMU but, significantly, no agreement was reached on the second step towards attaining the ultimate goal. Meanwhile divergent policies continued to exact their toll. Attempts to get the UK to rejoin the float in January 1973, when it joined the EEC, were rebuffed by a government that did not want to sacrifice recovery for exchange rate equilibrium. The following month, the Italian lira was forced out of the system. The fact that Sweden joined was little consolation. However, the final blow to the system (and to the chimera of economic and monetary union by 1980) was the fate of the French franc which in January 1974 was also left to float. As Tsoukalis comments, by this stage a group comprising Germany, Benelux and Scandinavia had to be understood as ‘little more than a DM Zone’.

The 1966 Luxembourg Compromise had allowed the Council, and thus the EEC, to resume its work by postponing the introduction of majority decision-making and allowing the right of national veto. For many observers who had looked for further progress towards supranationality and contributed to a body of neo-functionalist literature to rationalize their aspirations, the Community appeared interesting but no longer exciting. Moreover, the issue of UK membership again strained relations among the member states. The second British application in May 1967 – followed by applications from Norway, Ireland, Denmark and Sweden – was again aborted by a negative French vote in December 1967. It was clear that on this particular question France was immune to the feelings of its European partners. The Five tried to maintain pressure on France by using the WEU for initiatives to extend cooperation to the political as well as monetary field. This ‘rebellion’ could only be prevented by de Gaulle’s intervention, using the so-called ‘Soames Affair’ (in which the British had leaked details of confidential conversations with the General that suggested a revival of a free trade area to include agriculture) which produced another ‘Empty Chair’. The mood deteriorated further: if the Community were ever to be enlarged to embrace the UK, something in France itself would have to change.

In fact French attitudes shifted surprisingly fast. It is possible that there were objective factors behind the change. For example, new concern about German economic power emerged, especially as France’s balance of payments weakened. Germany’s refusal to revalue during the monetary crisis of 1968 reinforced the fear about the balance of power within the Community which may have produced a feeling that the UK could serve as a countervailing force. Secondly, the Warsaw Pact’s invasion of Czechoslovakia had led de Gaulle to repair relations with the USA. It has been argued that this made it senseless to persist in seeing the UK as an Anglo-Saxon ‘Trojan horse’ in the Community. Although both of these arguments are plausible, until evidence is provided to the contrary it seems most likely that the contemporary view, which attached the greatest importance to the shift in power from de Gaulle to Pompidou, was closest to the truth. Although the government was still ‘Gaullist’, under Pompidou it contained four ministers who were members of Monnet’s Action Committee for a United States of Europe. Whatever the ultimate reason, in July 1969 Maurice Schuman announced that France was willing to countenance some European rélance. Proposals linking the completion, strengthening and enlargement of the EEC would be forthcoming at the Hague summit in December.²⁶

The Commission quickly wrote the Hague summit into its hagiology calling it a ‘turning point in its history’ (EEC Bulletin, 1/1970). It would be churlish to deny that much was accomplished, although different countries laid different emphasis on different parts of the package. France was most interested in completion of the Community and, specifically, the financing of the CAP. The others were primarily committed to enlargement. Nevertheless the decisions at the Hague, taken together, represented an ambitious programme for future development. It was agreed to find a definitive financial arrangement for the CAP by the end of 1969. By July 1970, ministers had requested a report to deal with possible developments in the field of political unification. By December 1970, they wanted a further report on Economic and Monetary Union (EMU). Last, but undoubtedly not least, it was agreed to open negotiations with candidate-countries.

Implementation of the agenda began immediately after the conference. Between 19 and 22 December, agreement was reached on financing the CAP and on the EEC’s financial resources. The latter involved allocating to the Community all receipts from levies and customs duties, as well as national contributions to cover any deficits, and their gradual replacement by receipts to be calculated on the basis of an assessment of harmonized VAT. Committees were installed to draft the requested reports. Two major reports were published in 1970: July saw the publication of the Davignon Report on political unification, while October saw the Werner Report on Economic and Monetary Union. The fate of EMU has been dealt with in the previous section, but the cornerstone of Davignon’s recommendations was foreign policy coordination, described as ‘European Political Cooperation’ (EPC), which rested upon regular meetings of foreign ministers and high officials. Its first achievement was to produce a concerted position during the Conference on Security and Cooperation in Europe that produced the famous Helsinki Accord in 1975.

However, the Hague summit’s main achievement was to re-open enlargement negotiations. Within the UK, a range of studies had attempted to balance a calculable economic ‘loss’ (attributable entirely to the structure and funding of the CAP and the structure and direction of UK foreign trade) against potential economic gains (as the economy benefited from both the static and dynamic effects of customs union). Most managed to arrive at a favourable result. Nonetheless, the negotiations did result in the adoption of new policy areas, noticeably in the creation of a regional fund, from which the UK was likely to emerge as a net beneficiary, in an effort to redress at least part of the transfer problem. These measures, however, stopped short of any automatic redistributive mechanism. No such problems arose with Denmark or Ireland, which were expected to emerge as net beneficiaries from the system.

The membership negotiations were sucessfully concluded in June 1971, following a top level meeting between Edward Heath and Georges Pompidou the previous month. Negotiations for a series of industrial free trade agreements with the remaining EFTA states ran in parallel and were concluded in subsequent months. January 1973 thus represented not only the moment of the first Community enlargement but the closing of a passage of history that had begun in 1958 with the failure of efforts to secure industrial free trade in western Europe. The moment was marked by an optimism scarcely dented by nagging differences on monetary policy. However, 1973 was also the year in which the inflationary boom of 1971–3 was savagely punctured, one of the immediate casualties being the prospects for Economic and Monetary Union. But although it was not immediately apparent, other treasured assumptions that had marked the 1950s and 1960s were destined to be discarded: economic growth, full employment, efficacious Keynesian economic management, technological leadership, to name but a few. It was in these new conditions that the Community had to absorb its three new members.

PART ONE

HISTORY

3

The Stagnant Decade, 1973–83

There is a received picture in Britain of a Community slumping from the high point of optimism reached at the Hague in 1972 into a dismal decade of inertia, relieved only by fractious competition among its member states. Like all received pictures it contains truths. The aspirations of 1972, such as the Davignon Report’s attempt to address the issue of political cooperation for the first time since the mid–1960s,¹ and the Community’s first enlargement in 1973, did little to break the pattern of self-interested national bargaining vying with rare bursts of collective altruism. Worse, the recession set off in 1973–4, and renewed in 1980–82 after an uneasy remission, brought internal problems and a pan-European sense of relative decline. Yet EC institutions sustained the idea of integration with an often surprising momentum in the interstices, so that the astonishing regeneration of the mid–1980s has to be explained not only in terms of a sudden shift around 1984 but in an accumulation of long-planned strategies at different levels within the Community and among different categories of players in the game.

The accession of Britain, Denmark and Ireland on 1 January 1973 occurred while the optimistic mood survived, so that the immediate consequential processes of adapting EC institutions and negotiating the informal areas took place against a background of goodwill, buoyed up by affinity between Edward Heath’s government and that of Georges Pompidou. But ministers and officials in Brussels had also to adapt to – or frustrate – the expectation of two new small states (Denmark and Ireland), both with a high agricultural content to their economies, and one large one (Britain) whose predominantly industrial economy, currency and financial institutions were, by the end of 1973, manifestly in disarray, and its industrial relations close to civil disorder.

Yet in the years of Britain’s final negotiations, the climate of opinion both in the EC and in the Heath government had been optimistic, even euphoric. To French observers, Heath seemed not only willing to pay the full price of entry but to bring for the first – indeed in retrospect the only – time a genuine willingness to follow European models of industrial policy and industrial government. In turn, Heath saw his DTI and regional innovations as material for the EC to emulate.² The fact that an anti-EC wing already existed in his Conservative party seemed unimportant, for Enoch Powell, then the chief critic, was not to turn to outright hostility until 1974. The fact that all Britain’s initial advantage was subsequently lost should not obscure the possibility that, had the oil crisis not struck then, and had Heath not lost the February 1974 election, Britain might have fitted into a novel triangular relationship with Germany and France in a way quite different from its actual halting, semi-detached progress thereafter.

Denmark, in spite of some internal opposition, could take advantage of the experience of other small states in northern Europe, and its economic linkages with West Germany; Ireland (whose emergence from a long period of introspective isolation which stretched back to the late 1920s had now begun) increasingly found a political ally in France. But British entry posed questions for the future of the Franco-German entente, and since the accession terms represented an act of will by the Heath government, with the close support of business, banking and industry, rather than the nation as a whole, Britain’s long-term stance under the next Labour government remained problematic – something which not only French and German governments but those of Benelux and even Italy watched with trepidation.

The new entrants’ responses differed from the beginning. As the Commission recruited new staff, experts and linguists, the Irish took up the offers speedily and successfully, the Danes less so, and the British with marked reluctance. Whitehall’s resistance to transfers, and fears among expatriates for their promotion, lost a great potential advantage during the next decade.³ Due to the lack of full cooperation between ministries, for example, Britain found its former colonies losing out on the share of Yaoundé/Lomé aid even as late as 1981, when they gained only 11 % of the total despite the existence of an informal system of apportioning on a geographical basis, because the form had been shaped originally with Francophone Africa in mind, on which UK representations subsequently made small impression. The Labour party also refused to take the seats allotted to it in the Parliament, as trades unions did in the Economic and Social Committee (Ecosoc) – again in contrast to the other entrants, ensuring an illusory Tory parliamentary contingent at the first direct elections in 1979.

Meanwhile, the new Commission President, from France, Francois-Xavier Ortoli, encouraged the Paris Summit momentum on three broad fronts. As free trade agreements came into force with EFTA countries (Austria, Sweden and Switzerland, followed by Norway, Iceland, and Finland in January 1973, together with Portugal in 1974, newly liberated from dictatorship) it seemed for the first time since Messina that the ‘real Europe’ could be achieved. Discussion began with North African countries about long-term trading relationships, although nothing tangible was likely to emerge until the Council had agreed its own policy for the European side of the Mediterranean. By July 1973, EC and ACP countries started to negotiate both renewal and extension of the Yaoundé Convention, clearly necessary in terms of former British colonies, and despite this potent source of Anglo-French tension, what emerged as the Lomé Convention between the EC and forty-six Third World states was signed in February 1975.

Secondly, the Commission began serious planning for the Social Fund and the new European Regional Fund (which was to have an important impact on the British budgetary question in the early 1980s, and on the attitude of poorer member states who began to argue for what in the end became ‘cohesion’).⁴ July 1973 brought the ‘Social Action Programme’, with involvement by management and unions in all member states. Thirdly, using the EPC machinery, the Nine successfully aligned their national policies at the CSCE meetings in Helsinki, an essential precursor of the final accord with the USA and the Soviet Union in 1975.⁵

The era of détente in Europe seemed assured, not least because these three developments seemed to be an external sign of the ‘fundamental bargain’ made with the United States, that American firms which had already set up within the EC boundary should be treated as Community ones, offsetting the disadvantages of discrimination and trade diversion outside. But a currency crisis in January 1973 had forced the lira to float outside the ‘Snake’ (as sterling and the Irish punt had done since June 1972). The lira’s exit forced the remainder to stop supporting the dollar, then close to its floor against EC currencies. Despite French efforts to push Britain into the Snake,⁶ the Snake had, in effect, left the ‘tunnel’, and the last attempt to shore up the vestiges of Bretton Woods ceased, ushering in a dangerous era of violent fluctuations and huge capital movements, later styled ‘casino capitalism’ by Susan Strange. The crisis forced the EC to forgo plans for the first stage of monetary union. Nevertheless plans for a European Monetary Fund surfaced briefly and the Economic Policy Committee emerged at the end of 1973.

That summer, the Commission won Council support for its first industrial and technology policy. But Ortoli reported to Council in indignant terms on the lack of progress with the internal market, intra-EC trade being still obstructed by a mass of quantitative restrictions and technical barriers. Member states, he implied, were responsible for the bureaucratic delays which obfuscated the customs union and which, intentionally or not, had increased since enlargement. While the EC prepared for the next GATT talks in Tokyo, it was clear that its own commitment to total harmonization, lacking member states’ consensus on the means, had created a vast backlog of work. The Council however showed no disposition to take up Ortoli’s more flexible alternative, which threatened the physical and psychological barriers to free trade in which each state still had such vested interests.

On 6 October 1973 the Israeli-Arab War began, closely followed by the oil crisis and rampant monetary instability, leading to the first full-blown European recession since 1947. OPEC countries’ use of oil supply and price as weapons to deter Western support for Israel had not been entirely unforeseen (at least by the Heath government) but there was little short-term action that any EC state could take, certainly not to look for strategic energy alternatives unless, like the Netherlands, they possessed gas reserves. Italy suffered most (and received help with its oil supply from Holland and Britain) but none escaped the initial shock, and even when OPEC restored production levels, the price rise (initially from $5 to $11.65 a barrel, but finally $14) induced serious cost inflation and balance of payments problems, with lasting consequences for industry.

The sauve qui peut among member states in late autumn and winter was such that for many observers (unaware of the oil companies’ swap agreements) the EC seemed to have lost its rationale as an economic, let alone a political, organism. Commissioners argued for a common energy policy, but Council ministers demonstrated themselves quite unable to broker a solution. The IMF Committee of Twenty did no better: only Italy and Britain tried out its recommendation that members should accept their oil deficits and not shift payments problems onto each other at the world economy’s expense. The USA, West Germany and Japan all deflated, the latter most drastically. Meanwhile, EC-USA relations almost ruptured over ECOFIN’s agreement to borrow $6 billion from IMF facilities with Saudi Arabian-OPEC underpinning.⁷ Although ECOFIN eventually got its money, thanks largely to the UK delegation, the US Congress vetoed further funding and it became clear that, without American backing, the EC could stand alone only on a limited scale and then only if it were united, well-briefed and determined.

Such conditions proved rare during the next ten years as the Nine’s economies diverged sharply. Large reductions in output and working time occurred, and in Britain a three-day working week was introduced. Once the immediate crisis had passed, the underlying problems of meeting external deficits emerged, with almost insupportable consequences in Britain and Italy, together with contingent problems of recycling Arab petro-dollars into OECD investments. The effect was like that after an earthquake: a primary shock followed by disorientation, secondary shocks, immediate crisis responses, and then, at very different times, adaptation and reorganization.

Taking the decade as a whole, the far-reaching consequences of this ‘mid–70S crisis’ can be seen to have been decisive in re-shaping European nations’ ideas and policies for the remainder of the century. It shifted concern from full employment to inflation (with notable impact on the relative strength of unions as against management, and on the EC’s concept of a ‘social area’), and led to new power relations in each society’s major centres of economic activity: finance departments became dominant over those of trade and industry, central banks and the financial ethos superseded industrial priorities, and accountants gained ascendancy over both engineers and personnel managers. Finally, this crisis created a prolonged, pervasive questioning of the cost, priorities and effectiveness of state social service provision which, in the second oil-induced recession after 1980, brought about a revaluation of the state’s role itself. In this sense, (with the notable exception of France) it caused the end of that series of post-War settlements established in the late 1940s, and completed what the collapse of Bretton Woods in 1971–2 had begun: the Community’s severance from the long post-War boom.

Britain’s essay after 1979 in new-right economics and social politics – usually called ‘Thatcherism’ – thus turned out to be only the most urgent and extreme case of a wider trend that was to be replicated, in different national contexts, right across the Community and EFTA. The post-War corpus of ideas which had infused economic growth and political institutions since the 1950s ceased first to have absolute validity, and ended by being virtually obsolete – as the EC’s experience of prolonged high unemployment in the 1990s recession demonstrated.

Within the Community, it was soon clear that as currency cooperation in the OECD had been lost so had unlimited access to cheap energy and the belief in the automatic efficacy of neo-Keynesian macro-economic management. As the IMF’s Committee of Twenty noted, currency cooperation could not be restored until the USA resolved its trade imbalance, or until the surplus countries, Germany and Japan (which had restored themselves to surplus by mid–1975) reduced theirs. As the DM and yen rose, the dollar and sterling declined and, with the IMF’s relaxation of its rules in 1976 (to help out those with the severest problems), international coordination appeared lost in the impasse. France now floated the franc, leaving only four member states clustered around the DM in the ‘Snake’ from which the EFTA countries rapidly distanced themselves.

Certain industrial sectors suffered most: shipbuilding, textiles, above all steel. Car producers and consumer electronics did not escape and, in the general retrenchment of capital investment, a rapid loss of competitiveness ensued vis-à-vis Japan and the Pacific rim ‘tigers’ of South Korea, Taiwan, Singapore and Hong Kong. Low growth, low investment, inflation and unemployment were common to all, but in Europe, as elsewhere, responses varied widely, inhibiting any EC-wide industrial policy.

The West German economy readjusted faster than any other in Europe. After twenty-five years of holding the DM’s value down, to the benefit of trade and industry rather than of the consumer, the Bundesbank allowed the DM to rise, as did interest rates. The subsequent restrictive monetary policy, in conditions of restored price stability and independence from the dollar, made West Germany the natural basis for the ‘Snake’, but this was at the expense of domestic growth. Banks took the lead in the rationalizing process that followed, generally to the detriment of large overstretched firms such as AEG and Volkswagen. However, the harsh social consequences of this monetary policy were offset at government level by the SPD/FDP coalition, based on corporatist understandings with unions to cushion austerity measures.

Meanwhile, on the diplomatic front, and despite the fall of Willi Brandt in 1974, the ostpolitik survived under Helmut Schmidt, insuring stable relations with East Germany as well the Soviet Union, the USA and France. The Franco-German entente remained in place, since all three German parties accepted westpolitik as the only way to balance that in the East.

In France, after Pompidou’s death, despite the Gaullists’ preference for Chirac (RPR) rather than the UDF leader Giscard d’Estaing, it was the latter who succeeded as presidential candidate against the socialist challenge of François Mitterrand, in spring 1974. Giscard’s government held to the 6th plan, hoping to sustain both planned growth and industrial restructuring during the emergency. But being a liberal by inclination, Giscard also wished to diminish the Gaullist emphasis on state direction, while deflating the economy and reducing France’s dependence on external sources of energy. This was a policy which required heavy investment in civil nuclear development, yet which, for fear of a recurrence of the 1968 disorders, proceeded via monetary means rather than by direct wage cutting. It led first to negative growth, then, in 1975, to reflation, and ultimately to a 38 billion franc budget deficit, together with high unemployment accompanied by a weak currency.

In 1976, Giscard replaced Chirac with Raymond Barre (a former Commissioner) as prime minister, who had the more robust aim of cutting feather-bedded state industries down in size, reducing wages, and liberalizing prices. After strikes and much industrial conflict, the Plan Barre achieved surprisingly good results, notably with the rationalizing of steel production into two massive new holdings, Usinor and Sacilor.

In contrast with France, Italy, which had tried to avoid deflation, experienced 26% inflation in 1974 and suffered a steady fall in the lira. A period of political instability saw the regional electoral success of a much-reformed Communist party in 1976 (though it remained excluded from participating in the governing Christian Democrat-Socialist coalition). A strategy of terror mounted by the extreme left culminated in the murder of Aldo Moro, prime minister, in May 1978, and led to reinforcement of the right and extension of political warfare and corruption into almost every level of administration, finance and industry – with long-term repercussions through to the 1990s. Beset by crisis, with constant recourse to the IMF and West German support, Italy failed either to restore confidence in its institutions or to meet the external criteria for fiscal reform.

In Britain inflation continued to rise until it reached 23% in 1976,⁸ thanks to a period of drift under a Labour government with only a small majority, preoccupied with instituting its Social Contract with the trades unions and sorting out the aftermath of a massive secondary banking crisis. Only in 1976–8, after Britain’s referendum on EC membership, and under the direction of James Callaghan and Denis Healey, did Britain achieve some control of inflation and a sounder monetary policy, together with an industrial strategy which, by the late 1970s, had had some effect on micro-economic industrial adjustment. For economic and political reasons therefore neither Britain nor Italy took much part in determining EC-wide patterns before 1980.

Recovery across the Community was correspondingly varied and patchy, depending on the sector and the level of demand, and was nowhere so strong as in Japan or the United States.⁹ Currency fluctuations also fragmented agricultural markets and disrupted the CAP, so that the system of monetary compensation amounts (MCAs) grew ever more complex and had to be bolstered by export levies. Attempts by the Commission to reduce guaranteed prices were rejected by the main beneficiary states, so that MCAs, having been merely a temporary expedient, became an integral part of the CAP in six zones of varying price levels. This in turn caused a rift in the Franco-German entente, since the French government believed MCAs worked to the advantage of countries with stronger currencies.

Increased complexity reflected an institutional crisis. The oil shock and member states’ nationalistic responses produced in Brussels a mood of deep gloom: Ortoli declared that the Community had lost its vision and that its institutions were near collapse. Indeed at the OECD Energy Conference in Washington, in autumn 1975, the EC exposed all its differences, and the UK insisted on a separate seat. At home, members applied individual trade safeguards, many of which the Commission was forced unwillingly to accept. Collectively the EC turned protectionist, imposing a 15% anti-dumping duty on Japanese ball bearings. Of greater significance, it agreed to the Multi-Fibre Agreement’s cartel arrangements on September 1977 in order to keep the EC textile industries alive. There was infighting over fisheries, and a wine war between France and Italy which the Commission had to take to the European Court.

Whatever the language still used by EC institutions, the reality lay in national defensiveness, absence of a common energy policy, and inability to address new issues collectively. The EC’s outward appearances by 1976–7 had come to depend on the Franco-German understanding represented by Schmidt and Giscard, and on the DM core of the ‘Snake’. It was hardly surprising that, within the wider periphery, EFTA countries went their own ways, Austria for one set of reasons,¹⁰ and Sweden for another. (Norway’s electorate had of course already voted against its government’s entry application in 1972.) Only the two Iberian states and Greece showed signs of wishing to join: all three, unlike the EFTA countries, seemed on balance to be assets of doubtful value.

Nevertheless, the Community’s level of activity maintained a certain momentum with the Commission’s establishment of its science and technology policy, its social action programme (which included provisions for disabled workers and equal pay for women) in December 1975, and further limited advances in the free movement of goods in the few sectors, such as pharmaceuticals and medical services, that were still profitable. The Regional Fund took off in March 1975, albeit with smaller resources than were originally envisaged, thanks to disagreements between the main payer, West Germany, and Italy, Ireland and (for different reasons relating to budgetary adjustment) Britain. The ECJ handed down several important rulings on transport and demonstrated a clear commitment to integration which put it, in national governments’ eyes, on the same side as the Commission.¹¹ Political cooperation also broadened out after Helsinki into bilateral agreements with Comecon countries and Yugoslavia, and in a continuing commercial dialogue with the Mahgreb countries of North Africa.

Even these limited gains came about primarily not because the Commission initiated policy but because the Council of Ministers willed it.¹² When the heads of government, jockeyed by the French Presidency, agreed at the Paris Summit in December 1974 to establish the European Council, they went beyond the founding treaties to formalize the existing informal, occasional inter-governmental mode of regulating business, over and above the EC’s existing, and Treaty-based institutions. This Council’s subsequent request to the Commission, Parliament and Coreper to prepare one report on European Union, and to Leo Tindemans, Belgian prime minister, to produce another, together with the agreement by seven states to introduce direct European Parliament elections and to increase the Parliament’s powers, showed how priorities stood. Although the decision for direct elections had been very controversial in France, being referred on grounds of national sovereignty to the Constitutional Council, France had taken the political lead with German acquiescence and Italian support – the latter predicated on the assumption of political influence with France and economic support from Germany.

Meanwhile, without becoming any more communautaire, or any less hostile to harmonizing laws and taxation, the British won an acceptable (though actually useless) formula on their budget contribution at Dublin in March 1975, an apparent redress which probably helped Harold Wilson’s last government to gain its referendum on retaining EC membership in June, after which Labour MEPs at last took their seats.

This emphasis on inter-governmental supremacy, as the recession began to lift, indicated that European integration would proceed without fundamental alterations in the balance of power or the patterns of activity set in the mid–1960s. France returned the franc to the ‘Snake’ in July 1975, and at a minor but not unimportant level acquired some support from Ireland, during the Irish Presidency. The restructuring of basket case industries was to follow the EC pattern of crisis cartels, first set out by the Commission in the case of steel in April 1975, followed by textiles, then the aircraft industry (1977), and shipbuilding (1978). Only in the novel areas covered by the Regional Development Fund was the Commission able to extend its informal autonomy by remedying grosser inequalities between north and south, core and peripheral regions, so that what had earlier been only an attempt to recuperate the Italian Mezzogiorno, became a more general policy of aiding poorer and peripheral regions.

The interplay between the Council and the Commission led to a flurry of activity, ranging from harmonizing company law to reports on a passport union and special rights for EC citizens. Most Commission draft directives at this time derived from the twin themes of harmonization or the internal market, free of border restraints, but those on worker participation and company law were clearly intended to restore an earlier tripartite balance between the social partners which the recession had severely damaged.¹³ In a series of tripartite conferences, the Commission sought to inspire some sort of interdependence rather than sectoral competition, firstly between financial interests and secondly between management and labour – all to no effect. The Council rejected the directive on co-determination and the Vredeling Directive on worker consultation within large firms, and the ETUC discovered that the EC saw the ‘social question’ only in terms of markets and industrial survival.¹⁴

This failure of an earlier dream can be attributed both to the real loss of union influence, especially in labour-intensive industries such as engineering, metalworking and textiles, and to the implicit defensive alliance between management and union leaders to safeguard what employment still remained. But it also emphasized how the earlier consensus had been eroded, and how the Commission was now powerless to restore it.

As Etienne Davignon observed in his report on European Union, it was becoming increasingly difficult to resolve even apparently specific issues without reconstructing the general political conception of what Europe should become. What had appeared to exist in 1971–2 had largely disappeared. The McDougall Report, for example, recommended in 1977 that member states should concert macro-economic policy and structural adjustment, together with the Commission’s regional strategy. But what might in the 1960s have been the beginnings of a genuine attempt at redistribution between core and deprived periphery was rejected by a Council whose members could not agree on what macro-economic policy might be, and therefore refused either the powers or the money. The ERDF itself had become ‘a pawn in the debate over far wider issues’.¹⁵ At this stage, the total of 1.3 million units of account was split 40% for Italy, 28% UK, 15% France, 6% Ireland and 6% Germany. In 1981, Greece entered the arena with 13%.

Yet something more integrated could still be discerned, in direct suffrage for the European Parliament and the consequent distribution of seats (December 1975), in the strengthened budgetary system, backed now by the Court of Auditors with power to investigate members states’ spending practices, and in the institutional reports on EU, accompanied by the Tindemans document. Under the Dutch Presidency in November 1976, the European Council accepted a cautious statement about an incremental road to European Union. Six months earlier, under the Luxembourg Presidency, the Council had accepted no fewer than eighteen directives on the removal of technical barriers to trade, and resolved some of the fisheries disputes by extending EC limits to 200 miles in the North Sea and Atlantic.

But very many directives remained for approval, and the emergence of a common fisheries policy led to often violent disputes between members and with Nordic countries, which were not finally settled until 1983. At the same time, with the second Portuguese revolution¹⁶ and Franco’s death, the issue of extension surfaced again, in circumstances prejudiced rather than eased by the case of Greece.

Greece, freed of its military junta, had been encouraged to apply in mid–1975 by member governments who had backed the government-in-exile and who saw membership as a safeguard of the new democracy’s future. The implication at that point had been that similar support would extend to Spain and Portugal;¹⁷ and Spain’s centre-right government under Adolfo Suarez did indeed formally resume negotiations in mid–1977, after the first democratic elections, with the consent of the centre-left. The Socialist government in Portugal, led by Mario Soares, followed suit in 1978.

At this stage, Greece, liberated from military dictatorship in 1974, under prime minister Karamanlis, (who was widely liked in western Europe) stood furthest down the road to EC membership, untainted by the suspicions of member states, that the military might intervene as in Spain, or the Communist party return to power as in Portugal. The Commission on the other hand regarded all three rather more dispassionately, and recommended against early Greek entry, but the Council, mindful of the dangers of hostilities with Turkey’s military government in the Aegean, overrode it and opened negotiations in July 1976, ignoring Greece’s very different level of social, political and economic development.

Member states differed, depending on whether they looked at the political arguments or the economic ones: on the latter they were harder and more sceptical in the case of Spain, and by association Portugal. Spain also suffered from the outright opposition of French farmers in the south, some unease in Belgium and Holland, and uncertainty in Italy, tom between agricultural interests and Mediterranean solidarity.¹⁸ At a time when the largest entrants from 1973 had not still fully been assimilated, Spain represented too sizeable a risk, whereas the dangers of incorporating Greece seemed relatively small and apparently containable when it came to the CAP and regional funding.

Debate among member states had centred upon Spain’s potentially large new markets and the investments that could be made there, which seemed likely to offset the budgetary drain and to be especially profitable for Germany. But they also took account of the world strategic situation – in the tail end of Nixon’s presidency, the threat from the Greek Left to leave NATO and abrogate American air bases, and the economic conflict between France and Spain.¹⁹ In the end they compromised, agreeing to deal with Greece quickly and to delay the Iberians at a pace acceptable to France and Italy. Delay stretched into the 1980s, exacerbated by Greece’s own bout of factious campaigning to get more financial advantage before Spain and Portugal actually came in.

In the event, negotiations opened with Portugal in 1978, Spain a year later, and proceeded desultorily. In a speech in June 1980, Giscard linked Iberian entry to solution of the EC’s own problems – i.e., the Greek Kalends – an attitude which derived retrospective justification from an attempted coup by sections of the Spanish army in February 1981. Although the king’s firm stance and the rally by the great majority of senior commanders revealed that Franco’s ‘bunker’ had become obsolete, the excuse of unripe time continued, prolonged by Colonel Ynestrillas’s failed coup in October 1982, until Mitterrand’s political turnabout in 1983.

Sporadic moves towards a more comprehensive currency alignment revealed similar discords and inertia. Ideas about a European Monetary System had been aired even in de Gaulle’s day, when Giscard d’Estaing had been finance minister, with the support of the Banque de France. Additionally, EC central banks had always cooperated together, albeit secretively, both in the Governors Committee (established at Basel in 1964) and on the EC’s Monetary Committee where, with finance ministers, they provided advice to the Council. Monetary Union had been latent as an ultimate aim since 1957 and had been recommended by the Werner Committee in 1970 as an aim realisable by 1980.

Such dreams had faded fast after the end of Bretton Woods. But French re-entry to the ‘Snake’ and the evolution of a system of managed rates around the DM anchor encouraged hopes of a zone in which, crucially, the franc and lira might be stabilized. The liberal Giscard’s long intent was to abandon the policy of habitual devaluations as acts of French policy. France was, in fact, forced out of the ‘Snake’ again early in 1976 and the DM had to be revalued later that year. But in the face of continued, variable rates of inflation, the new Commissioners of 1977, and above all the President, Roy Jenkins, were avid to restart the immobile machine and again set their sights on EMU.

Jenkins’s proposal for a European Monetary System (EMS) reached Council at a moment in late 1977 when Japan’s trade surplus and its aggressive competitive edge seemed only too clear to a Community locked into a pattern of weak growth and high unemployment. Among member states, Britain was now far more amenable to the imposition of an external discipline, its chancellor, Denis Healey, having imposed a measure of budgetary restraint and money supply control after the IMF’s intervention in November 1976. There is evidence of consultation between the UK Treasury, Bonn and Paris, at ECOFIN meetings. But at this stage both Banque de France and Bundesbank opposed it. Among bank governors, only Gordon Richardson and Paolo Boffi of the Banca d’Italia supported it (the latter seeing progress to EMU as a restraint on his own reckless political class). These two however drew indirect support from German industrialists who wanted a lower DM – as in fact occurred in the early 1980s.²⁰

They would have got nowhere without Franco-German concertation. Initially sympathetic to the Bundesbank’s view, put by Otmar Emminger, that EMS would weaken the Bundesbank’s independence and its capacity to control inflation through domestic price levels, as well as impose stresses on the DM as core currency that would ultimately force West Germany to become a leading political force,²¹ Helmut Schmidt tried at first to share the burden with France, Italy and if possible Britain. Callaghan declined, but Giscard accepted, taking this as a first step towards EMU. The Italian government hesitated. But for three months the scheme stalled on France’s unwillingness to accept what looked like a West German initiative.

Schmidt finally accepted the DM’s anchor role in February 1978 during the French elections, but since it was a political-economic initiative rather than a fiscal discipline, it was agreed that EMS should be handled by the Council, not the Commission.²² Germany’s conversion owed much to Schmidt’s perception that, as the dollar fell steadily during 1978, President Carter had abdicated the role of Western leadership and that something had to be found to fill the gap. Thus at the Bonn Summit in July 1978 (before the Bremen Meeting where EMS was given its final shape by heads of government, with bank governors filling in the details), West Germany reluctantly agreed to reflate, under US pressure.²³ A stimulus of 1% of GDP was thus given, with some success. But Germany met massive retribution later, when the second oil crisis seriously weakened the DM and aroused a new surge of inflation.

On the macro-economic level, German unease at a rising DM coincided with the Plan Barre’s anti-inflationary aims. But EMS was intended by the Commission and the main participants to lead on to a full exchange rate mechanism (ERM) from which would emerge a European Monetary Fund or pan-European Central Bank with pooled reserves – with the ecu acting as a reserve currency.²⁴ Delayed because of objections, by Ireland among others, it finally came into force on 1 March 1979. Britain, though a member of the EMS, refused to join the ERM. By 1981, despite severe balance of payments problems, worst in Belgium, Denmark and Ireland, all had regrouped except sterling and the drachma, hoping to enforce discipline on their unruly domestic economies. (In the event, since sterling rapidly became a petrocurrency when North Sea oil came on stream, only massive EC intervention could have sustained Britain as a member, even if its new Conservative government had been willing at first to measure sterling against the DM rather than the dollar.)

Yet despite the appearance of stability guaranteed by EMS, German reflation, and Carter’s new energy policy, the second oil shock initiated another recession and four realignments more occurred before 1982. Since West Germany would not revalue, the weaker currencies had to fall, causing growing resentment among their governments. Central bankers, led by the ever-reluctant Bundesbank and with Council assent, postponed the Monetary Fund indefinitely.

In the brief period of renewed optimism however, and before the French Presidency of the Community opened in January 1979, Giscard determined that French political leadership should be reestablished lest West Germany fulfil the role that Emminger feared, or the Commission take advantage of its enhanced status.²⁵ In French terms, reform of EC institutions, crucial to preparations for the next stage of enlargement, therefore implied reducing the Commission’s initiating role, subordinating the European Parliament’s ambitions, and putting the Council firmly and formally in control. This involved a revival of de Gaulle’s early concept of a Directoire, with greater sway for the larger member states.²⁶ Hence the appointment of the Comité des Sages set up under the French Presidency, with a brief to examine the reform of institutions, while retaining the Council’s role, together with the Luxembourg Compromise, except in cases where qualified majority voting (QMV) had been unanimously accepted.

The three ‘wise men’, Berend Biesheuvel (NL), Robert Marjolin (Franee) and Edmund Dell (UK) could not but be influenced by the inter-governmentalism of the time: the way the EMS had been instituted, the impact of Franco-German leadership on smaller members, and the Atlanticist dimension set by the Group of Five.²⁷ Moreover, their report in October 1979 reached a Europe in which members were either self-absorbed, like Italy and Britain, or on the defensive like Belgium. It was not a time for visionary thinking outside the limits set by France and West Germany.

Nevertheless, despite the French Presidency’s leverage, the Committee did not simply follow Giscard’s agenda, but tried to measure the validity of small states’ complaints (Luxembourg, Denmark and Ireland) against the larger ones. In particular, they examined the methods used to operate the European Council, and the suggestion of a two-tier Presidency in which large states would serve for longer periods. In the end, the three accepted the logic that the Council should give ‘overall direction’, setting out the EC’s priorities, but that the Presidency should not be extended beyond the existing six months for each member state in rotation.

This report was a symptom of the prevalent malaise rather than a factor in what followed. The Commission had not, despite Jenkins’s attempts, recovered its old influence as it had existed under Hallstein. It now suffered criticism from West German leaders as much as French ones – often directed at individual Commissioners for their national partiality – criticism whose validity both Jenkins and Emile Noël, Secretary General since 1958, had to admit, yet could not easily remedy, and from the European Parliament President, Emilio Colombo, who saw it becoming ‘renationalized’. The Spierenberg Committee claimed that it had become too large and recommended that the number of members of the Commission should not increase pro rata with future accessions from Mediterranean countries.²⁸ Worse, from Brussels’ point of view, despite manifest delays, some of the big states were not prepared to ease their veto powers under the Luxembourg Compromise, even though some of the smaller ones, led by Belgium, might have been.

The conflict between the Council and the Commission, latent ever since 1965, produced a condition of immobility, on which the diversity of reforming ideas made little impact – hence the lourdeur of which Giscard frequently complained. In practice, most initiatives were decided by the leading member states, even if the initiative came from the Commission or outside: EMS, Greece’s accession, and responses to the Tokyo/GATT round. Such CAP reforms as occurred were possible only because of Franco-German agreement: the Three Wise Men could not have operated without this backing. And whenever the European Parliament asked for more competence, it aroused deep antipathies among both Gaullists and British Conservatives.

But the European Parliament could and did play successfully on West German Länder aspirations, and those of Italian regions whose politics had sprung vigorously into life in the 1976 local elections. Even before the Parliament used its single, ultimate weapon and rejected the EC’s budget in December 1979,²⁹ it had induced the Council of Ministers to address three important issues: economic disparities, convergence, especially of the regions, and the EC’s transport infrastructure – with a future common transport policy in mind. The European Parliament’s sense of its own dignity and tactical responsiveness increased with direct elections, while some sense of common identity on EC matters also developed between parties in certain countries. This had long been true in West Germany and Benelux and it became so under Italy’s pentapartito governments, before and after Aldo Moro’s death. Karamanlis’s creation of New Democracy can be seen as a bid to create a similar centrist governing philosophy in Greece. What may be called ‘insider parties’ tended during the 1980s to find similar affinities inside the Parliament, while the ‘outsiders’ (all communist parties save in Italy,³⁰ both main parties in Britain, many French socialists and the majority of Gaullists) emphasized inter-governmentalism at the European Parliament’s expense.

Meanwhile the ECJ began to accumulate a body of judgments which increasingly underpinned the Commission’s initiating role. In Kramer (July 1976) it ruled that EC institutions’ competences within the EC extended under the treaties to the international engagements required to fulfil them. In March 1976 came the Simmenthal judgment that defined direct applicability to mean that EC legislation had to be implemented uniformly in all member states, not only through transposition but implementation and enforcement – which implied a direct obligation by governments towards individuals to implement directives. This had a stringent effect not only on backsliding states (Italy being already notorious) but also gave recourse to individuals or firms prejudiced by their own government’s failure. The Court’s 1978 judgment against Distillers’ policy of pricing one brand of whisky differently in different countries forced the company to withdraw from the UK market altogether. And in the area of state aids, where member states had frequently disobeyed rulings with impunity, especially in declining industries such as steel and shipbuilding, the legal revolution begun in the 1960s continued, leading to a sharp increase in the number of instances where the Commission dared to intervene.³¹

By giving effet utile, that is interpreting the treaties to give the law its fullest and most efficient effect, with consequences often not obvious in the original texts, the ECJ thus widened the scope of EC law and extended Commission or other competences. Its continuous activity thoughout the 1970s was probably the most important single factor in keeping the sense of ‘Community’ alive in an era of inter-governmentalism.

Simmenthal was perhaps inherent in the Treaties, but Kramer seems in retrospect a more creative interpretation, as does the ECJ’s October 1978 opinion in the ‘foreign policy arena’, that the Commission had competence to use international trade sanctions or embargoes to achieve the EC’s agreed aim. In the Roquette judgment (October 1980) the ECJ laid an obligation on the Council of Ministers to ask Parliament’s opinion – and to wait for it. But all these were overshadowed by the consequences of Cassis de Dijon 1979,³² which established the principle of mutual recognition of members’ own national standards and health or other regulations. The court ruled that a product which was lawfully produced, subject to minimum standards, and distributed in one member state could not be banned from sale in another unless it constituted a clear risk to public health.

The political extent of this battle was not won immediately. In the always contentious area of foods, exclusions and evasions continued, even though the criteria were outside the food standards arena: France ignored both the rules and the ECJ’s judgments by banning lamb imports in 1980, Germany restricted beer under its ancient production regime, and non-fizzy mineral water,³³ Denmark for ecological reasons prohibited beer and soft drinks unless sold in recyclable containers, Italy rejected German pasta, not being made with grano duro, Belgian margarine was to be sold only in cubes not rectangles, and so on. Whatever its logical consequences for the generic harmonization policy, the Cassis de Dijon judgment and its sequel, the pressure vessels case which Arthur Cockfield used in the mid–1980s, could not solve all cases. Indeed similar obstacles survive today, in complicated, obscure forms (such as the effects of the German waste and recycling law) requiring in most cases to be abolished one by one.

Yet it is hard to overestimate the significance of the new approach in which the establishment of basic standards and mutual recognition replaced harmonization. From that point on, the Commission sought to collaborate more effectively with member states’ own technical departments and standards agencies, and to relegate Article 100 (harmonization) only to areas essential for the EC as a whole. By insisting on the overriding aims of the Treaty, the ECJ had given the Commission a powerful instrument to break up the huge log-jam of draft legislation stacked up by a decade of unsuccessful detailed harmonization. It may even have saved the EC’s original ethos from the delays for which the Council and its members were to blame; it certainly helped to recover momentum and renewed the internal market’s attractiveness. It also established a golden rule: that future directives and rules should be simpler, less specific, and aimed at setting basic standards in a general context within which national agencies could operate: if they wished, more but not less strictly.³⁴ A long search for general EC competences thus led to an early definition of what subsidiarity (a phrase harking back to 1957 if not the 1890s) might eventually mean.

The second OPEC oil shock forced the crude oil price to over $20 a barrel at the end of 1979, helping to precipitate a severe and prolonged recession. Domestically, the EC’s endemic budgetary crisis was reinforced by the new British Conservative government’s determination to revise downwards its net contribution. Margaret Thatcher’s single-minded advocacy of ‘our money’ galvanized the next Dublin Council in November, so that the fractious disputes about the EC’s budget overran into farm prices and the common fisheries policy. Thatcher took the subsequent compromise solution with ill grace, letting it be seen as merely a temporary expedient.

In that same, particularly gloomy, year, the EC’s international context was disrupted, firstly by events in Iran (the Shah’s fall, the seizure of American hostages, and the end of Carter’s presidency), then by the Soviet invasion of Afghanistan (roundly condemned by all EC members in January 1980) and thirdly by the new Reagan presidency’s apparent intention (with Thatcher’s support) to revert to an arms race in order to counter and if possible permanently impair Soviet superpower capacity. Tensions rose at the same time in the Middle East and in Poland, where Solidarity’s early successes – though partially reversed by General Jaruzelski’s military dictatorship – exposed both the limits of Soviet power in eastern Europe and the unstable nature of Comecon, the state trading system linking Soviet and satellite states.

The EC coordinated its responses to these crises rather more successfully than it had done in 1974, though the EC’s London Report pointed out the shortcomings in its political cooperation processes.³⁵ But the possibilities of cooperation were limited both by the recession and the ‘sovereign debtors’ crisis (Mexico, Brazil, Argentina, Poland) which lasted well into 1982 with consequences lasting to the present day (Brazil’s debt, for example, had increased from $63.5 billion in 1980 to $116.5 billion in 1991). The recession laid serious, long-lasting burdens on European industries which found themselves at the same time exposed as inefficient, overmanned and technologically backward in competition with Japan and the new Asian ‘tigers’, while the debtors’ crisis tested the banking systems almost as severely as the 1974 liquidity crisis. Steel suffered worst of the industries: this time, however, the British steel strike, and its outcome – defeat for the unions and harsh rationalization – provided a contrast with the EC’s crisis cartel solution, following the 1975–6 model, which was instituted in October 1980.

Such a conjunction of severe economic and strategic problems encouraged EC governments to respond in a piecemeal fashion and inhibited their feelings of commonalty, except in the most defensive, protectionist sense.³⁶ Germany’s earlier attempt to reflate and act as the EC’s motor led to pressure on the DM, a deficit and high interest rates. French policy in 1981–3 moved rapidly in the other direction. A period of frequent realignments followed in which, given the existence of capital controls in most member states, domestic players rather than world markets set interest rates, allowing France until March 1983, together with Italy and Ireland, to devalue apparently without penalty, whereas Germany, Belgium and Denmark emphasized currency stability. But when France reversed its policy in March 1983, it become clear that Italy and Ireland would have to follow. Even the Netherlands, which had stuck with the DM, would have to switch from neo-Keynesianism to the disinflation, industrial adjustment and supply-side policies already being put into effect in Germany by the Kohl administration.

It was hard for the Commission, whatever its responsibility for macro-economic guidance, to check such defensive, protectionist activity during the recession despite the consequences for employment and the existing industrial base. They found it easier to maintain the EC’s coherence and integrity by brokering the lowest common denominator of member states’ most urgent needs, by sponsoring crisis cartels and national schemes for industrial support. The criteria for permitting state aids to industry were made less stringent, especially for shipbuilding, ship repairing and textiles: this despite the fact that state aids should have ceased altogether in the former case. On the industrial side, delays built up in establishing even the most urgent standards for TV systems, video-recorders, telephone systems and mobile telephones. In the computer field, despite demands from the ten or more world-ranking firms for the Commission to set an EC norm for interfaces, progress was painfully slow. It was not surprising that the Spinelli and Dahrendorf plans for scientific and technological policy also ossified.

The Community appeared to be reverting to national and inter-governmental activity. Yet at the same time, its weaknesses were emphasized, weaknesses which could only be remedied by collective action. The EC might have been able to limit the danger from Japan by ‘voluntary export restraints’ (VERs) for a time, but for all its protests, it had little leverage against the Reagan administration, high US interest rates, and the embargo imposed by the White House on EC equipment, first for the Siberian gas pipeline, and then on all high technology supplies for Comecon. Neither did it have a easy defence against US criticisms of the CAP or EC steel subsidies, which were avidly fostered by American producer lobbies, culminating in the imposition of countervailing duties on EC steel exports in June 1982.

In conditions of growing protectionism, not only between the EC and US, but between the US and Japan (which was, of the three, the most successfully impervious to liberal trade), the Community slipped away from its initial consensus on industrial policy³⁷ argued by Davignon and Willi Claes in 1977–8. This had defined goals for the emergency reconstruction of the most stagnant industrial sectors: steel, textiles, aeronautics and defence-related high technology (to which were added infrastructure development and large industrial projects under the ‘Ortoli Initiative’). In that period, a genuine attempt had taken place to break away from sustaining ‘national champions’ (mainly in Germany and France, but also in the Netherlands and Italy). Some of that legacy nevertheless survived as the recession threw the emphasis back onto those markets – electronics, telecoms and cars – most at risk. Davignon’s lead – at a time when his was the most vigorous in the Commission college – went into research and development arrangements such as ESPRIT (information technology), or RACE (communications), which had the effect of sharing the work among the twelve major telematics corporations, but also marked an important new stage in Commission-industry relations.

As for those mergers which came under competition policy because they implied abuse of market dominance, the ECJ gave an interpretation of Article 86, beginning with the Continental Can case in 1972, and extending it with Philip Morris in 1981, which was controversial but confirmed the Commission’s powers.³⁸ But for several years, member states blocked the Merger Regulation proposed by the Commission, being unwilling to see its competence confirmed in detail. The Commission’s struggle to define the nature of the European market and to curb state aids and illegitimate mergers led, however, towards liberalization and the internal market initiative, a contrast to the macro-industrial policy for structural adjustment embodied in the Commission’s other defensive measures or crisis cartels. The latter proved easier than the former, in contemporary conditions: at the request of France, backed by Britain and Benelux, and despite German reservations, the Council agreed unanimously in October 1980 that a ‘manifest crisis’ existed in the steel industry. It was easier to protect than to adjust and, as in the case of managed trade, temporary relief became semi-permanent accommodation (see below p.573).

Among member states there existed no single view of what industrial policy should be, and certainly very little common ground between traditional French and German standpoints. Neither was this surprising in the economic climate of the time. Lack of clarity here contrasted with the developments in competition policy, where most member states wished to retain competence for their national regulatory agencies. Thus the Commission had some ground on which to act in the general interest, declaring that there should be a European industrial outlook, even if it fell short of being a synoptic policy.

A cluster of hopes, in training and professional skilling, assistance for small and medium-sized enterprises (SMEs), transport, regional policy and social action continued to reappear in all Commission documents. Meanwhile ‘anti-trust cartels’ provided time and space for firms penalized beyond the average by the costs of modernizing to produce plans for reconstruction. At a deeper level, belief in the internal market and liberalization spread outwards from the crisis sectors and high technology industries, influencing firms’ behaviour and through them, national governments.

The Commission also proposed, in November 1981, that anti-trust cartels should be read as part of an EC-wide strategy and not confined to the cases in individual countries.³⁹ But this was not enough when set against the reality of member states’ defensiveness⁴⁰ or companies’ breaches of competition policy, even if the Commission was not opposed to stronger linkage between managed industrial decline and managed external trade – especially given the renewed US response to Japanese competition in a range of hi-tech areas. The EC had to respond to the structural challenge, had to modernize and adjust more quickly, even if the costs were high. The problem was to recapture member states’ conviction that this was best done on a Community rather than a national basis.⁴¹

For all these reasons, hopes seemed to lie in the concept of the single internal EC market, flanked by components in research and development, regional policy and sectoral adjustment – a concept which member states, racked by rising unemployment and a sombre awareness in 1983–4 that they could no longer keep all their national champions alive, seemed more prepared to accept than after the first 1973 oil shock. This could of course also be read as a fulfilment of the Commission’s original plan for industry in March 1970, put tentatively in the Colonna Report on harmonization and industrial change, coming to fruition a mere fourteen years after the event.

Nine elections also took place in the EC during the period 1980–83,⁴² causing substantial political changes, especially in France at a time when domestic conditions were overshadowed by deflation, rising unemployment, and industrial discontent. Meanwhile, in a number of countries, notably the Netherlands, West Germany and Italy, public protests grew about the installation of Cruise missiles and the effects on NATO of the American arms build-up. In a much longer timescale, and in various ways, most member states also followed Britain’s lead in profoundly questioning their welfare systems’ efficacy, relations between state and industry, and the state’s role itself.

How different the responses were can be seen by comparing Britain and France. Whereas the Thatcher government in 1980–83, beset by strikes in most basic industries, an over-valued currency, and historically high interest rates, abandoned thirty years of neo-Keynesian macro-economic management and instituted deflation and tight control of money supply, reducing state expenditure at the height of the recession, France embarked on what has been described as ‘socialism in one country’ after Mitterrand’s PS/PCF victory in the May 1981 presidential election. While the rest of the EC watched the Thatcher experiment with a mixture of horror and fascination, as market liberalism gave birth to the privatizing of state industries on an unprecedented scale, Mitterrand’s government abandoned the Plan Barre (whose austerity had been partly responsible for Giscard’s unpopularity) and introduced a new policy of widespread nationalization.

Pierre Mauroy’s government, a coalition of Socialists with four Communist ministers, sought to reflate the economy by redistributing wealth in order to generate higher spending among poorer groups, and hoped to increase employment by classic job-creation programmes, including reductions in working hours. The price was high in terms of currency instability, while the budget deficit multiplied seven-fold in two years. Inflation stayed stubbornly high and the trade deficit nearly doubled.

The crux in France came with the major currency crisis in March 1983, following two earlier deliberate devaluations. Whereas the Ceres left of the PS (like the British Labour party’s left in the mid–70s) had been advocating protection, regardless of what EC partners thought or would permit, Mitterrand and the new finance minister, Jacques Delors, after an initial reconsideration in June 1982, changed radically the government’s whole economic policy to one of increasing austerity. The second package included not only a substantial enforced devaluation, but a budget freeze, a stabilization of the franc, and an end to public sector recruitment.⁴³ Mauroy was replaced as Prime Minister by Laurent Fabius, and the remaining Communist ministers resigned.

France’s experience seemed to prove that no member state, even one with France’s record of political leadership, could act continuously contrary to the global trend – in contrast to the United States which, having first instituted ‘Reaganomics’ as the antithesis of New Deal interventionism, had actually arrested its industrial decline by an expansionist fiscal policy close to classic Keynesianism. But Mitterrand’s grand tournant also affected the EC’s political balance. In 1981, French socialism had consorted uneasily with Schmidt’s brand of social democracy in West Germany (even if some German commentators remained sceptical about its validity, assuming that Mitterrand was at the time finessing his own Socialist left and his Communist allies in the ‘common programme’). But once Mitterrand accepted failure in 1983, and adopted a policy closer to market liberalization and EC integration, revulsion from protection and isolation removed many of the French objections to EC enlargement, to solving the British budget problem, to reform of the CAP and EC institutions, and above all to completion of the internal market.

Mitterrand’s transition from a ‘worker’s Europe’ to ‘no Europe without a social Europe’⁴⁴ occurred as Helmut Kohl became chancellor, leading a CDU/FDP coalition. With Hans-Dietrich Genscher as more or less perpetual foreign minister, and continued domestic principles of low inflation and monetary stability, Germany’s EC position barely changed. Balancing the Ostpolitik in the framework of EC integration again took the form of a low profile foreign policy, acceptable to both centre-left and centre-right in Germany, which avoided any semblance of desire to lead the EC, and set increasing emphasis on integration – to be achieved by the same Franco-German entente as before (see chapter 7).

The fact that by 1983–4, political and economic conditions had been created which made France a willing collaborator, not only in economic but in all dimensions, provides one major explanation for the EC’s subsequent regeneration. In achieving that, Kohl’s personal support strengthened Mitterrand, especially during the crucial French Presidency in 1984, as Schmidt’s had Giscard in the late 1970s, while governmental and institutional linkages supplemented the rapprochements between individuals. But that this could happen was only clear by mid–1983. At that point, the British had to accept that there was no advantage in pursuing bilateral Anglo-German or Anglo-French alternatives, a point already demonstrated when the foreign secretary Geoffrey Howe played a Gaullist card in May 1982 and tried to use the veto to prevent a settlement on agricultural prices, only to fail for lack of a minimum number of allies in the Council of Ministers.

Taken together, the years 1980–83 were a period of fluctuation in the EMS,⁴⁵ nine elections, national defensiveness, distortion of competition, and the introduction of often blatant means to evade free movement of goods. All went far to undermine collective faith in the efficacy of EC legislation and rules. Trade rivalries and different responses to the Soviet Union seemed at the same time to align the continental EC states against Britain and the United States. Spanish entry to NATO in May 1982, and Greece’s factious game-play once Andreas Papandreou’s left-wing Pasok came to power in October 1981, suggested the existence of a new north-south cleavage in Europe, to add to the existing ones of large versus small states, socialist versus non-socialist governments, and the wealthy core versus peripheral regions.

At the centre, the Commission, under the genial but lightweight Luxembourger president Gaston Thorn, could find no obvious consensus about the EC’s future nature and functions. Some talked of a two-tier system and variable geometry or core-periphery models,⁴⁶ while others turned back to de Gaulle’s model of a Directoire.

On the other hand, some operations at Brussels were steadily becoming more collegial, if not among foreign ministers, at least among their finance colleagues on ECOFIN. The evolution of Coreper, the informal association of member states’ Permanent Representatives, into a flexible instrument preparing policy for the Council, together with increasing specialization in the Council and its Secretariat, ensured that majority voting was coming into more frequent use: 90 times in 1979–84, as against 35 in 1974–9 and a mere 10 in 1966–74.⁴⁷ Informal processes and pressures induced compromise and diminished the use of the veto: even France helped to vote the British down when they essayed the Luxembourg Compromise in May 1982. This represented a trend towards a philosophy of incremental momentum, of ‘getting things done’, about which Mitterrand and Thatcher, its foremost opponents, were evidently aware. The process long predated the 1980s revival, and owed much to the other, more integrationist states of Benelux, Italy, Ireland and Germany, albeit each for different reasons.

The pursuit of the internal market centred on three consequential proposals: firstly, the Commission’s own report on regenerating industry, reforming CAP, and solving the budget issue (June 1981), secondly, the committee set up by the Council to draft amendments to the Treaties, to which were added, thirdly, the topics of strengthening the internal market, energy policy, industrial innovation and research, together with proposals on Mediterranean agriculture and job creation, especially among the young. These can be seen as preparatory to the November Council Meeting in London under the British Presidency. But the French also put alternative proposals in October, and in a parallel action, Genscher and Emilio Colombo submitted independently to Parliament in November a draft European Act and statement on integration.

The London Summit might therefore have been the occasion for renewal. That it was not can be attributed partly to Britain’s budget problem and partly to the principle of unripe time.⁴⁸ Nevertheless, Mrs Thatcher became the first Prime Minister to address the Parliament, and a number of concessions were made to its demands for greater powers over the budget process. (These did not stop the Parliament threatening Council with ECJ proceedings in September 1982 for its failure to institute a common transport policy. The European Parliament now saw itself, conjoined with the Court, as one means eventually to subvert inter-governmental dominion.)

Meanwhile, exposed to the recession and confronted by the greater spectre of American and Japanese inroads into their markets, industries and businesses, especially the larger and multinational firms, began to campaign more publicly than in the past for a more effective industrial policy, and for the long-promised internal market. Until around 1981, these efforts had, with the exception of a small number of individual multinationals, largely been on a national scale, in the context of member states’ own industrial policies – or lack of them,⁴⁹ but such was the divergence between German policy and the French socialist experiment, or between Britain’s deflationary neo-liberalism and Italian support for the state sector, that in 1981–3 they began to involve themselves more directly. As a result, influence tended to slip away from ministers, downwards towards the interest groups.

Lobbying of the Commission by industrial players became a notable feature during the Thorn Presidency, encouraged by some of the Directorates’ entry into more specialized policy-mongering, and by the appearance of contentious issues such as the Vredeling Directive on worker participation which required of companies large expenditure and sophisticated rebuttal techniques. Sectoral institutions across Europe in the chemicals and car industries, and the varying national peak bodies – CBI, DVI, Confindustria and Patronat – had for some years secured a point of leverage in DG3 (responsible for industry), particularly in Davignon’s day, though rather less so with his somewhat hide-bound successor, Karl-Heinz Narjes. But this had never generally obtained with the Commission, and to judge from British sources (the only ones currently available),⁵⁰ they and their members had habitually resorted to their home governments, especially in Germany. They had enjoyed varying success. In France they were generally subordinated to an administrative definition of French interests. In Italy they had largely had to make their own way to Brussels. Furthermore, from a position of influence in the 1970s, in Britain after mid–1980 the CBI found itself isolated from government in a way unprecedented in post-War history – yet still having to defend UK membership on the UK political stage, as if it were an open issue.⁵¹ (Operations of these networks are considered in chapter 10.)

In spite of the problems which national peak organizations encountered at home, their European counterpart UNICE was not their preferred choice for activity when it came to trying to influence the Council of Ministers or the Commission.⁵² On the one hand, their members could use the sectoral bodies which already represented each industry; on the other, they could form new organizations of leading industrialists, such as the European Round Table or the group around Guido Carli, governor of the Bank of Italy, which included important heads of banks such as Alfred Herrhausen (Deutsche Bank). The heads of large companies, many of them French, members of AGREF, the association of larger, private sector companies, notably less protectionist and conservative in their own outlook after Mitterrand’s 1983 turnabout, now looked to links with MEPs in the Parliament, such as the Kangaroo group, or developed their own specific companies’ commercial strategies: of which the Albert Report and Wisse Dekker’s report on behalf of Philips (Netherlands) are prime examples.

But whatever the mode of activity (which in the case of national organizations frequently overlapped), the central issues remained the same: abolition of non-tariff barriers and establishment of the internal market. The CBI’s European Steering Committee had indeed held this in its sights continuously from as early as August 1974, and from March 1977 was working closely with the French Patronat. Again, if it is fair to generalize from CBI records, governments used these peak organizations to achieve similar national ends, which in itself encouraged them to address Brussels more directly.⁵³ But on the whole, these semi-public efforts took care to keep industry’s initiatives free of the political vortex during the confused infighting among member states in the period 1979–83.

Much of the industrialists’ work overlapped. Wisse Dekker remained a leading member of ERT while drafting his report, Europe 1990, with Philips’ backing. According to the CBI, 90% of their proposals coincided with his. Europe 1990 also foreshadowed the internal market White Paper in 1985, but since it was begun in the recession under the guidance of firms in the front line of exposure from American and Japanese competition, it was set in a defensive mode, tinged with protection. Fears of the social consequences of 10–12 million unemployed at a time when trades unions’ bargaining strengths in Brussels appeared to be reviving, conditioned its aims of reducing costs without hitting either wages or salaries. So many Ministries of Labour, Commission officials and MEPs felt soured by the way that the Vredeling Directive had been emasculated by a combination of industrial federations, UNICE, and the American Chamber of Commerce’s European Committee,⁵⁴ that they were prepared to listen to ETUC arguments about the ‘transaction costs’ of ignoring the social partners – that is, predisposed to avoid electoral unpopularity and industrial relations conflict.

The CBI (which had fought Vredeling all the way with support from its government and Conservative MEPs) could see that its 10% divergence from the Dekker Report lay not only in its labour market policy but in important questions about how to address all non-tariff barriers together, how to incorporate financial markets, and how far to liberalize and deregulate, rather than erect new barriers where the Euro-borders met the outside world. How effective all this was in the general array of influence bearing on the Single European Act in 1985 is a question for the next chapter: here it should be noted that it aroused the interest of all the allies against Vredeling, among American firms, in the long-established European Committee of AmCham, and also among Swiss firms such as Nestlé and Ciba-Geigy, which were already habituated to working in the EC.

Older pressure groups joined in, under new banners: Jean Monnet’s Action Committee, which he had dissolved in 1975, was refounded in 1979 by Leo Tindemans and Max Kohnstamm, primarily to campaign for European union, but it included industrialists whose main interest was the internal market. When in the second half of 1982 the European Parliament produced a resolution for European Union, the Commission responded with its own proposals for reinforcing the internal market. At the Copenhagen Summit in December, heads of government were finally persuaded to call on the Council of Ministers ‘to decide on the priority measures to reinforce the internal market’.⁵⁵

Of this, Arthur Cockfield would remind them, in his foreword to his White Paper on establishing the internal market, three years later. At the time, it led to a modestly constituted Internal Market Council and the beginnings of a concerted plan by DG3, together with officials of the largest member states, whose outward face could be read in a host of Commission papers arguing this as the only way to recover competitiveness;⁵⁶ and (since EMU was always a contingent matter) currency and monetary stability. Under the German Presidency the plan gathered momentum,⁵⁷ and at Council level culminated in the ‘solemn declaration’ on EC Unity at Stuttgart 19 June 1983.

Soon afterwards, in September, once the drama over French restraints on the entry of Japanese VCRs had been resolved, the French government produced a memorandum Vers une espace industrielle Européenne. A Commission mandate of sorts now existed to prepare something more specific for the Athens Summit in December. But too much Council time was being consumed by the acerbic British budget question (from which the French government took advantage to delay Spanish accession, reform of the CAP and structural funds). The hostilities which had attended the messy EMS general revaluation in March had also not entirely disappeared. The European Parliament was dissipating its energies on dreams of European Union inspired by Stuttgart (which Thatcher regarded as itself an illusion⁵⁸ and which Mauroy also condemned as eroding the national right of veto). Systemic reform depended that summer on three assumptions: that West Germany would not drop its opposition to increasing the Community’s revenue by 1 % on VAT until the reform process had actually started (even at the risk of the EC’s temporary bankruptcy), that the British would not shout too loudly, and that Greece would handle its first Presidency competently.

On these assumptions and inspired by Stuttgart, senior officials in the Commission such as Fernand Braun (DG3) and Paolo Cecchini, Maurice Carpentier, Peter Klein, and Riccardo Perissich, prepared something more dynamic and far-reaching than Commissioner Narjes’ long catalogue of directives-in-waiting since the mid–1970s (which was not actually published until mid–1984). They were able to capitalize on work done in some Departments of Industry, notably in Bonn, London and Paris and on the technical harmonization and the implications of Cassis de Dijon, so that by October, Narjes could outline ‘a more general common approach’ on mutual recognition, rather than total harmonization, to the Internal Market Council. Since Britain, France and Germany now had the clearest policies in this area, Cecchini invited top officials from the Economics Ministry in Bonn, the DTI, and the French Industry Ministry to meet him at the Chateau de Namur, 15–16 October, and here, under very informal Commission auspices, a text was agreed and immediately translated into the three languages. This was fed indirectly to the Steering Committee texts for Athens, as a prototype ‘declaration for the internal market’.⁵⁹ It was lost of course, in the Athens debacle, illustrating both the powers and limits of sub rosa Commission work. But its substance emerged eventually in the EC resolution, 7 May 1985, which indicates the strength of such little-seen trends.

There had been no reason before Athens to think these preparations inadequate. Greek demands had already apparently been appeased with a careful devaluation of the drachma and a scheme of transitional financial support. Greece now took 16% of the regional development fund budget. No fewer than seven special Council meetings took place to sort out in advance the reforms of CAP and the structural funds, together with forms of EC-wide cooperation on the technological challenge to competitiveness, a balanced package involving increased revenue, better budgetary discipline, and prevention of future imbalances to meet the British criticisms. Such a comprehensive package might conceivably have been steered between the British Scylla and the French Charybdis.

Instead a combination of Greek inexperience in the Presidency, and Pasok’s factious demands for yet more cash support, together with Papandreou’s erratic chairmanship, shattered Summit conventions and these tenuous agreements. But it should be added that other heads of government also played disingenuous roles:⁶⁰ with the French Presidency coming up, Greece was not to have the glory. Nevertheless the fiasco was so total that it proved impossible even to draft an agreed communiqué.

Confusion among member states did not necessarily imply total failure. Within six months, under the French Presidency, all these questions had been brought into line, largely by Mitterrand, now at his peak, yet ever conscious of the need for West German backing. France and Germany were finally able to meet even Britain’s demands. But the passage was hard despite the fact that Commission, Parliament and most member states were within reach of each other. After Mitterrand’s speech on federalism at Strasbourg in May 1984, and Lord Carrington’s swift riposte on the budget, it needed the spectre of EC bankruptcy in March and Mrs Thatcher’s refusal of the ‘best offer’,⁶¹ before ministers finally conceded guaranteed thresholds on CAP farm prices, in order to phase out slowly the onerous MCAs.

At the Fontainebleau Summit of 25–26 June (just after the European Parliament’s second direct election) the deadlock broke on the CAP and the budget reforms, together with Britain’s contributions.⁶² Germany, which was to pay most of the debit, won a special subvention for German farmers. ‘Own resources’ were increased to the necessary 1.4% on VAT revenues, leaving loose ends to be tied up in Dublin in December with a final cash subvention for Mediterranean agriculture and the acceptance of an – as yet unformulated – integrated Mediterranean programme.

That in turn removed the southern French farmers’ objection to Spanish accession.⁶³ Spain’s and Portugal’s negotiations, so long delayed by pretexts, were rapidly concluded in March 1985 and the Treaty of Accession was signed in June, providing for entry on 1 January 1986. Meanwhile meetings with EFTA ministers saw the beginning of negotiations on the European Economic Area which, however difficult at times, began what was to be a steady enhancement of mutual economic relations over the next five years. The EC itself came closer to a standards policy, and simpler border formalities with the adoption of a single Community Customs document. France and Germany declared that they would abolish border checks,⁶⁴ and set off on the road to what became the Schengen agreement.

But the impetus went further. The Council at Fontainebleau appointed two committees to examine the EC’s future: one chaired by James Dooge (an Irish senator) on institutional affairs, the other by Adonnino (an Italian parliamentarian) on the prospects for a ‘People’s Europe’. The latter – a sop to the Parliament and its draft Treaty of Union – implied, however vaguely and rhetorically, the existence of a European citizenship and European representation. Fontainebleau thus meant more than Mitterrand’s re-establishment of his own and French leadership in Europe: it cemented the Franco-German core, so that Spanish and Portuguese entry could at last be agreed, it ensured that Jacques Delors (though not Mitterrand’s first choice) would become Commission President from 1 January 1985, and it removed the barriers against Iberian extension by promoting a package of reforms acceptable to all (even to the Dutch who disapproved of Germany’s payoff). But above all it restored momentum to a more widespread European process.

What had begun in 1982 at several levels of individuals, firms, associations, member states, and Commission officials, had been brought into a conjunction. The aims of once-divergent bodies and their leaders coincided sufficiently, as a result of these accumulated trade-off and incremental agreements, to make possible the convening of an inter-governmental conference on the internal market in 1985.

It may not be possible until the documents are available to say certainly which of the actors was the prime mover or indeed whether the explanation should focus on circumstances rather than participants. Quite possibly it will depend on which segment of the wider process is examined. As can be seen from the next chapter, claims can be made for each of the main players. What matters more is that the combination of external challenges to the EC, the 1973 oil shock and strategic fears, the harsh recession and a pervasive disillusion with the system as it had stagnated, led to the entry of more and more players to the arena, while those already in it found a deeper commitment necessary. Their networks expanded and became denser, more continuously effective, notably in industries most threatened by foreign competition: cars, textiles, chemicals, electronics and steel producers. Similar developments, bringing in the same players, were taking place concurrently in many, if not most, national political systems.

Large and multinational firms had sought influence at the EC’s centre but had not been present on this scale before the 1970s, nor switched so much of their corporate resources from national to Community level. Financial institutions, which already watched the process, would follow once the internal market was seen to involve services and monetary union (EMU).⁶⁵ They did not of course outweigh member states or Community institutions because they were not competing on the same level, nor usually for the same ends, but as the temporary failure at Athens demonstrated, the conjunction of all these was needed before regeneration could take place in the annus mirabilis of 1985.

New linkages were growing among the states; between France and Italy, France and Ireland, Germany and Italy, and in the core of those countries whose currencies followed the DM. Some even believed it possible that Britain might become a normal partner. A new world economic boom had started, which seemed matched in political terms by the arrival in power of Mikhail Gorbachev in March 1985: Gorbachev, whose aims had been hinted at earlier, both by his own speeches in England in December 1984, and in Russia by the fact that he had been manifestly the candidate of Yuri Andropov and those reformers who envisaged regeneration arising from a reborn Soviet state.

When President-Designate of the Commission Delors visited each of the other nine members’ capitals in the late autumn of 1984, he put four proposals (rather in the Monnet manner, ‘Europe is in a mess – where do we start?’) Only on the internal market were there signs of general consensus. Whatever conjunction existed at the EC centre (i.e., whenever ministers and heads of government met) was not yet matched in their domestic contexts. The process was neither secret nor predetermined: it operated on many levels with disjunctions, and moved like evolution itself, in fits and starts – more fits at IG level, more starts at official. Some hopes turned into dead-ends, like the Adonnino report; others, like the Dooge Report or the new language of ‘cohesion’⁶⁶ proved unexpectedly fruitful. There was no prime mover, and there were no obvious state boundaries within which the game could take place. But the players, wittingly or not, had begun to create them.

4

Making the Market: The Single European Act, 1980–88

Like cooling steel, recent history sets easily into patterns which then resist remoulding. The combination of media reports, expert and specialized commentaries, interviews, articles and memoirs, leads to a received wisdom which successive generations of political scientists, contemporary historians and biographers advance piecemeal. Some seek for a synthesis from which to theorize, others highlight what they take to be particularly significant episodes or individuals. At present, the consensus suggests that the Community experienced a great regeneration around 1985 with the Single Market White Paper serving as its dynamo; then, in a mood of euphoria, member states and the Commission took a leap at Maastricht, which they knew to be contingent on the internal market, only to find themselves isolated from their national publics and from each other. Recession and political disarray followed hand in hand.

Chapter 3 suggested that a variety of players at different levels of activity were engaged, as early as 1980–81, in a struggle to break out of the inertia which had blanketed EC activity since the first oil shock. But what were the aims of each of these, and who contributed most, in that exuberant period after Fontainebleau?

The fact that EC archives are not yet available is not an insuperable difficulty, but it makes it harder to separate underlying trends from less significant details. It is not clear, for example, whether the oligopolistic tendencies among firms in this stagnant decade were caused by the failure of small and medium companies to adapt quickly enough, or by large ones exercising their advantage through concentration and monopoly power, often in collusion with their national governments. Yet the internal market was advocated by players who took the latter assumption for granted, together with its logical extension to the concept of a single currency. Nor is it obvious that the Single European Act was the only way to remedy the collusive, anti-competitive state of mind which appeared to envelop European business and industry in the face of the American and Japanese challenges.

The account given here takes a historical perspective on a very complex and still-continuing process; and is intended to show not only the relative importance of the players (the Commission, member states, the European Parliament, industrial or financial bodies) but their motivation at the time. Seen in this way, the significant points in the narrative are those where the greatest measure of agreement was reached between them, prior to more public action.

In the second half of 1984, following the breakthrough at Fontainebleau, the British budgetary question had apparently been resolved, the EC’s financial system had been unblocked, aspects of the CAP, such as the wine market, had been reformed, and the Regional Development Fund expanded. The Esprit Programme introduced a more coherent policy on technology, while the single customs document launched a substantial assault on frontier barriers. Jacques Delors, an ardent integrationist with a considerable reputation as former French finance minister, had been chosen as the new President of the Commission. He could in turn be expected to demand a higher standard of Commissioners and overall competence than had been the case in the previous ten years.

The recession had also ended, providing a two-fold spur to activity: firstly because of the upturn in global demand and secondly because so little had been done since the mid–70s crisis to improve European industry’s competitive performance vis-à-vis the United States and Japan. General economic convergence led member states towards a common awareness of the likelihood of takeovers looming from outside the EC, and the continuing loss of EC companies’ share of world and European markets. Meanwhile, as international trade recovered, the EC’s defensive strategies and member states’ endemic lapses into protectionism came under fiercer scrutiny, particularly from the USA, where American trade negotiators in the Reagan administration began to use much rougher language towards both the EC and Japan than they had under President Carter; but also from Britain, where inflation control, privatization of state industries, and widespread assaults on the labour market were becoming the keynotes of a novel sort of industrial regime – one which Mitterrand’s 1983 turnabout suggested other EC states might conceivably follow. On a more general level, the development of competition law and its enforcement, mainly in Germany (for France and Italy barely had a competition policy other than the one the Commission tried to police),¹ led to a climate in which linkages became possible between what the German government was trying to achieve and the Commission’s long-term industrial policy. American and Swiss companies in the EC soon became aware of this new climate, generally earlier than their EC national counterparts.

At the same time, the ERM moved into its ‘classic’ phase, being transformed after March 1983 into a de facto DM zone with a core of currencies (those of Denmark, the Netherlands, Belgium and Luxembourg) linked to the DM, matched by an increasingly hard French franc. Realignments were still possible, but within progressively narrower limits, less frequently, and on principles established by the anchor country – in effect by the Bundesbank. This system served better those states which embarked on new, more market-oriented economic policies than those who tried (as France had done briefly in 1981–3) to proceed on their own. (Germany had, after all, abolished exchange controls two decades earlier.) For roughly four years, the ERM acted as an external, neutral arbiter, which suited not only governments but industrial and financial interests, because it disciplined inflation and wages and also helped to wean governments away from what these players saw as endemic overspending in pursuit of electoral support.²

Because the British government believed it had already solved its problems, however, Margaret Thatcher saw no need to relinquish sterling’s greater margin of manoeuvre, and the more that ERM currencies converged, the less desirable entry seemed.³ Britain already had a free capital market, having abolished exchange controls in 1979, and the wild fluctuations of sterling in this period of increasingly deregulated financial markets suggested that the EMS would have little bearing on the four freedoms envisaged in the future single market; rather the reverse, for British Conservatives and many City economists expected that financial markets would force realignments, whatever governments did to prevent them. The ERM also seemed to inhibit policy flexibility towards interest rates (now the main, indeed the only monetary weapon used in London) and the supply side measures which the government believed were required to reduce labour restrictive practices and rigidities in wages. It seemed therefore that an historic cleavage inside the EC was being perpetuated, though not necessarily, as it was conceived in Britain, to the internal market’s disadvantage.

But member states aligned themselves on different axes in response to the other major feature (apart from global recovery) which encouraged ideas of regenerating the EC. Mikhail Gorbachev came to power in March 1985, after the brief Chernenko interregnum, evidently bearing a mandate from Yuri Andropov and the Soviet state institutions to reform the system from above. For France, Britain and Germany, this offered chances of playing novel roles, especially insofar as there would be trading prizes in the Comecon states. Yet at the same time the new gravitational pull eastwards imposed stresses on the Franco-German understanding. From France’s point of view, political leadership in the EC needed to be re-established to offset West Germany’s likely economic predominance in eastern Europe. Smaller member states, which had only reluctantly acceded to the French Presidency’s conduct at Fontainebleau, could be expected to take advantage of this shift in balance, and to assert themselves more in future.

In asking what each member state wanted of the internal market, and through what general framework they approached the problem of EC regeneration, it is simplest to take the largest first, according to their relative political weighting in the European Council which, growing up outside the treaties, had by now partly superseded the intergovernmental functions of the Council of Ministers.

FRANCE

Until 1981, France’s general interest had been to maintain the link with whatever government existed in West Germany, and the coherence of its worldwide policy (for example, in Africa with the Lomé II Agreement 1979), while preventing EC institutions – the directly elected Parliament and the ECJ, but above all the Commission – from acquiring power to deflect or subordinate French interests. Two years of Mitterrand’s socialist and counter-cyclical, counter-GATT programme, the first such essay since Leon Blum’s Popular Front in 1936, put in question not only the Socialist government’s economic standpoint but the nature of France’s polity and its existing relationships within the EC. After the grand tournant in 1983, however, the whole French state machine was realigned in a strongly deterministic European project, and Mitterrand assumed at Fontainebleau, as Giscard had done earlier, the role of ‘chef d’état de l’Europe’.⁴

The new ‘grand project’ of integration and European Union was not immediately accepted by the Socialist party, despite the Communist ministers’ withdrawal: Jean-Pierre Chevenement and the Ceres radicals represented a powerful strand whose influence was not easily downgraded – although in the end, once the Socialist programme proved to be unrealizable, they adopted the European project with almost equal fervour. But the transformation was implemented directly from the Elysée through an increasingly well-coordinated state administration; and it received substantial backing from French industrialists, appalled at the economic consequences of the previous two years.

Its corollary, as in the 1960s, lay in modernizing French industry, banking and the economy, through the internal market and a stable exchange rate within the ERM. Mitterrand had two years in hand before the next parliamentary elections, four years before the presidential one, and he could rely on West German understanding that any attempt to break out of the ‘lourdeur des affaires communautaires’ could be successful only if France and Germany were conjoined.

In French eyes the project had four facets. Firstly, having accepted the ERM and the need for convergence, France should, if the ERM was to function properly, look beyond mere stabilization accompanied by periodic, often traumatic realignments, to a tight alignment of parities as the way to eventual Monetary Union and a single currency.⁵ Secondly, the social element should be enhanced but given an appropriate market-led ethos, more acceptable to West Germany and Britain than the original ‘workers’ Europe’.

Thirdly, the Parliament’s reopened debate on European Union should be assimilated – but by member states at Council level – in order to restore the EC’s institutional coherence. This ran counter to long-standing opposition to any increases in the Parliament’s competence by the Conseil d’Etat, Paris bureaucrats, and the Trésor. It even involved some support for the Spinelli initiative. Yet the problem of the indivisibility of French sovereignty, which had for years made prior acceptance of EC laws problematic, may well have been obviated by Delors’s 1985 coup de génie in putting forward simultaneously the means to satisfy both economic and political projects. Political union, which was West Germany’s major ambition, would thus become a complement to economic integration⁶ – in contra-distinction to the British dislike of both.

French defence policy provided a contingent element, since West Germany appeared willing at the same time to be associated with a revival of the 1963 Elysée Treaty and a renewed WEU. Geoffrey Howe’s alternative paper, put forward at Stresa, served as a further stimulus for launching the Franco-German proposed treaty on European Union in 1985, the fruit of what Simon Bulmer calls their ‘complex interdependence’, before the British initiative could acquire allies.⁷ Finally, having relinquished his earlier dreams of a Europe wider than the EC, Mitterrand now seemed content to see the EC as the core, to which EFTA, Mediterranean and even Comecon states could adjust. France’s role was to serve as mediator and adjudicator, a motor for scientific and technological advance, and a liberalizing influence. There was even talk of extending QMV and Commission (but not Parliamentary) competences.

Yet Mitterrand gave no direct indication which of these four should predominate.⁸ A substantial part of the entire project design depended on how far he could recreate a centre-left governing party at home and undermine the right, utilizing the deep divisions between Giscard’s UDC and the Gaullists. Ambiguity served also to disguise the extent to which the project required West Germany and the EC itself to be shaped according to French terms.

WEST GERMANY

From its inception, the EC had formed an essential framework for West Germany’s process of political and economic rehabilitation, until in due course it became the precondition for whatever followed. Since Adenauer’s time, federal governments, usually in coalition, had used it as part of their increasingly elaborate balancing act between Ost- and Westpolitik, between the USA and Russia, West and East Germany and between West Germany and France. On the basis that this would prevent German isolation in the future, they had developed the EC’s most technologically resilient and efficient industrial economy. That secure basis helped determine the German vision of an ideal EC: a community to ensure peace and security in Europe, an economic entity based on free trade, and a community of values and common action (Werte-und Handlungsgemeinschaft).

Each of these principles reinforced the more general balance of West Germany’s other external relations: whatever German unity emerged in the future was to be understood in its European dimension, not as a purely national phenomenon. Public opinion seemed benign; no anti-EC party existed, nor was there any serious questioning in public of these aims – rather, there was a consensus in West Germany that their country represented the very model of an EC state. The price, that West Germany would always be the largest contributor to EC funds, was – not always unanimously – accepted but it was extended with each new state’s accession, in 1973, 1981, and later with Spain in 1986; each time, the justification to domestic objectors being put in terms of German manufacturers’ access to these lucrative new markets.

But the Federal Republic as a whole was not notably integrationist, and suspicions existed in Bonn, and even more in some Länder such as the CSU-dominated Bavaria, about the use that Free Democrats and their leader, Genscher, made of their long hold on the Foreign Ministry. The Christian Democratic majority of ministers in Bonn did not directly take up the Genscher-Colombo initiative (see above, p. 102), as if remembering Schmidt’s phrase (in a speech in 1977) that ‘Germany did not want to be in the front row’.⁹ German governments went only so far as this complex web of interests dictated. Indeed, the Federal administration often acted as a brake so that, following the 1970s experience, if France were to induce Germany to follow, the deals had to be made via the Chancellery.

Germany’s tenure of the Presidency in the first half of 1983 indicated that the reactive, formal and legalistic approach to eventual European Union, based on experience of Federal government, decentralization, and citizenship rights, would continue under Helmut Kohl’s Christian Democrats. No one, least of all the Bundesbank, had forgotten Germany’s ill-fated reflation initiative, taken under American pressure in 1978–9, with its inflationary consequences. Thus the West German interpretation of Stuttgart’s ‘solemn declaration’ did not represent full endorsement of what the French government currently desired.

Any estimate of West Germany’s overall aims depends on which source is chosen: Chancellery, government, Bundesbank, Länder governments, or the conjunction of chancellor with the core of foreign, economic and agricultural ministries. As far as industrial policy was concerned, the view of the Economics Ministry (BMWi) and Bundeskartellamt (BKartA) favoured free trade, open competition, and completion of the internal market, starting preferably with deregulation in transport, energy and telecoms, in preference to a single overall initiative. Informally however, the outcome depended on an intricate process of cohabitation and bargaining between the Bonn bureaucracy, leading industrial firms, and the banking system, which was to be brokered at all levels in the Federal Republic. (So content were German companies with this system of ‘patronage government’ that few bothered to open offices in Brussels until the late 1980s.)

The Bundesbank wished monetary policy to come within the Treaties but strongly opposed EMU (as Otmar Emminger’s letter of protest had shown in 1979) even at the level of a future Treaty preamble, it being a matter for member states to safeguard their monetary sovereignty, whilst at the same time taking account of the EC’s common interest. Issues relating to foreign policy or defence which required positive responses were treated cautiously; like Schmidt before him, Kohl showed himself willing to accept a steer, either from the European Council, or from France acting in lieu.

The principal weakness of this complicated, decentralized policy-making was that it inhibited German initiatives and thus disguised Germany’s latent strength (which was, paradoxically, German politicians’ intention). It also put the onus informally on the Chancellor either to concert policy in advance with France, or simply to acquiesce in what French governments did (the case of Schmidt’s decisiveness over EMS is unusual). Finally, it tended to irritate British ministers, making any closer relationship with them unlikely, even if that had not already been excluded in the 1980s by personal antipathy between their two leaders.

BRITAIN

The case is apparently simple, especially as expounded in Margaret Thatcher’s memoir, The Downing Street Years. In fact it was ambiguous, full of nuances, and hidden passages reflected in contrasting accounts.¹⁰ In an assessment of the economic significance of membership, made in 1979, the Treasury had noted that Britain had become a European country visited by 7 million EC tourists, with 42% of its export trade to, and 44% of its exports from, Europe and 2.5 million jobs directly dependent on the EC.¹¹ Free trade within the Community, after deducting the costs of the CAP (£250 million) and the common fisheries policy (£150 million) added a net total of £120 million to the British economy; furthermore, 59% of United States foreign direct investment went to Britain and the EC – a matter of the greatest significance also for Scotland and Northern Ireland.

By 1984, on the other hand, Britain’s post-War settlement, expressed over three decades of neo-Keynesian macroeconomic management and tripartite industrial and labour policies, had been largely replaced by a deflationary fiscal and monetary policy, and what may be called the obverse of an industrial one, concerned with privatizing the state sector and forcing flexibility into the labour market. Contested with little success by a demoralized Labour party and a trade union movement suffering rapid membership decline, the new values in politics, finance and industry contrasted sharply with EC social initiatives such as Vredeling, or the defensive industrial cartels associated with Davignon. Britain had long been hostile to the CAP and was to remain so. Whenever ‘own resources’ or institutional reforms surfaced, Thatcherite politicians tended to read the worst into Commission initiatives.¹²

Assuming that the imbalance in the British budget contribution and the CAP’S iniquities represented the EC’s true face, Margaret Thatcher tended always to present herself as the purveyor of financial discipline and sound book-keeping. She publicly construed Stuttgart’s ‘solemn declaration’ as meaningless and attacked the Spinelli Report for absurd idealism. But she was determined to increase Britain’s share of world trade and financial services after decades of decline, and therefore endorsed the internal market as a free trade landmark.¹³ So, for more complex reasons of inward investment and new technology, did the DTI: thus the core of civil servants in Whitehall were encouraged to assist the Commission in its 1983 harmonization plan (see p) and later in preparing the government paper Europe and the Future.

Nigel Lawson, chancellor of the exchequer 1983–8, realized that Britain’s ERM entry would add the exchange rate weapon to his very limited armoury, once the strict monetary policy based on £M3 had been abandoned in 1983.¹⁴ But the Bank of England’s support for entry, which had been strong up to July 1983 under the Governor, Gordon Richardson, evaporated under his successor, Robin Leigh Pemberton. Lawson’s failure on his own to convince the prime minister that sterling should join the ERM led, after the 1984–5 sterling crisis, to sterling’s ‘shadowing’ of the DM, an irregular and informal policy about which Thatcher later claimed not to have known.¹⁵

The Conservative party had failed to evolve a coherent EC strategy when in opposition in the late 1970s and its leadership remained obsessed with Britain’s contentious budget contribution until mid–1984. Nothing of note therefore appeared in the 1983 election manifesto. Geoffrey Howe’s growing interest, which led to what in Conservative party terms was a surprisingly open paper, Europe and the Future (July 1984, defended by Howe at the party’s autumn conference) dated only from Stuttgart. Meanwhile, beyond Whitehall and Westminister, layers of antipathy remained in both political parties. The popular press reflected the adversarial mood and helped to shape perceptions in a very different way from 1972–5, so that the level of public ignorance actually increased.

Industry, which had strong interests in the internal market, could make no impact on this political combination. The CBI monitored EC developments closely but had lost much of its earlier influence with the prime minister in the early 1980s; City markets showed little interest at that stage (though the Bank of England soon picked up its significance for financial services and insurance). Even in Parliament it was the House of Lords Select Committee that investigated rather more than committees in the Commons. Meanwhile, whatever civil servants and diplomats thought, ministers’ policies were effectively defended during the British Presidency in 1981, so that Labour’s poor handling of the office in 1977 was forgotten. But Britain’s partisan nationalism nevertheless antagonized other member states.

Up to 1985, the Conservative political animus lay not primarily against the Commission (indeed Thatcher supported Delors for the Presidency) so much as the EC’s integrationist ethos, so that the second Thatcher government saw no merit in moving beyond free trade and the internal market. Stronger supporters of the latter, such as Geoffrey Howe, Leon Brittan, and Michael Heseltine, thought in terms of detailed legislation and constitutional conventions, rather than the prevalent EC way of operational texts to be interpreted later. Yet there was evidence of change at the top of the Conservative party in 1983, and again at the Dublin Summit in December 1984, even on the subject of QMV. Probably as a result of the Athens debacle, Thatcher herself prepared to concede some extension, though preferably only after prior inter-governmental agreement.¹⁶

As French and West German politicians saw the future in terms of their own recent history, so did British leaders, who envisaged a market-led project in which they, like the Americans, could hold on to their early deregulatory lead. They opposed not only the idea of a two tier EC but what was later styled ‘variable geometry’; and they construed the single market itself as the only important aim, unconnected to EMU or political union. But they were realistic and prepared to concede trade-offs such as QMV to attain that primary aim.

ITALY

Since 1957, Italy’s relationship with the EC had reflected an underlying formalism, a largely juridical approach, so that by the 1980s several distinct government institutions existed, each with a separate function, joined neither by political coordination nor synoptic thinking, apart from what was provided by a governing majority led usually by successive factions in the Christian Democratic party (DC). Despite political society’s apparently widespread enthusiasm for the EC idea, there had been little continuous involvement over the years – hence the importance of a few individuals and interest groups, together with giant firms which, for lack of government support, maintained direct links in Brussels. Except in the industrial north, and on the left (mainly in the unusually open Communist party), political and civil society rarely engaged with each other. In default of a coherent, incorrupt and efficient policy-mongering bureaucracy (as existed more obviously in northern Europe), sustained policy depended on the vagaries of political brokerage which sustained the pentapartito, the long-running coalition.

Thus what appeared to be Italy’s prompt responsiveness to EC thinking compared badly with the Rome government’s actual implementation of legislation (highlighted by the high number of ECJ judgments against Italy). This indicated that Italian institutions had not been permeated by EC values, even when the Commission or Council tried specifically to do so, as they did in reclaiming the endlessly backward Mezzogiorno administration. Because the Italian parliament had in effect been excluded from the EU coordination process as a result of party bargains, a substantial democratic deficit existed. An uninterested public and an inward-looking bureaucracy confronted a tiny elite of insiders in the Foreign Ministry and the Italian Permanent Representation in Brussels. But the most effective of these were usually not party men. Those with a career in Rome in mind tended to stay apart from Commission colleagues who in turn found them deficient in European ideals.

Italy’s initiatives therefore tended to come from a few leading politicians in the Foreign Ministry such as Emilio Colombo. If the activists were outside government, like the Independent MEP Altiero Spinelli, their work had little resonance in political life. Even if the evolution of increasingly powerful regional administrations (often run by the PCI in a relatively incorrupt and efficient way after the 1976 elections) produced regional linkages to Brussels (see below, chapter 9), this led to significant conflicts over competence with the Italian Constitutional Court and, in the 1980s, a renewed bout of government centralization. Any hopes that EC membership might be a means to reform Rome itself could not yet be fulfilled.

Italian reformers however welcomed the Parliament’s attempt to relaunch political union. The undoubted effect of the EMS in curbing Italian inflation, together with the firm support of the Banca d’Italia and the heads of the largest industrial firms, ensured enthusiasm for the internal market project. Socialists as well as Christian Democrats concurred. Italian industrialists, members of the ERT, or Confindustria (which used the newspaper it owned, 24 Ore, selling 300,000 copies a day, as its advocate) took an active part. The only real opposition came from the banks and the insurance sector, both of which were deeply uneasy about the price of adjustment; and, in an ill-focused way, from Parliament whose MPs resented their exclusion from the process.

Foreign and Economic Ministries, Banca d’Italia (one of the few wholly untainted institutions), giant firms such as Fiat, Ferruzzi and Olivetti, and even small firms in the North eager to escape the state’s tainted bureaucracy, could agree that the internal market would bring opportunities, long overdue restructuring, and administrative reform. But there was no detailed plan, no prior decision as to whether to follow the Davignon or the ‘Anglo-Saxon’ interpretation, so that in no other member state were the practical details of the 1985 White Paper so far reaching in their effect on how the discussion would evolve. Meanwhile, on the way to the Single European Act, the byzantine games played out on the EC stage and under the Italian Presidency (including the crucial Milan Summit 1985), reflected both the sum of domestic political strategies and Italy’s bilateral bargaining with France and Germany. In short, Italy presented a genially positive face to the EC, excusing its shortcomings in implementing legislation or coordinating policy on the grounds of overload, while the political parties milked EC resources – not always for local advantage. This state of affairs was almost the exact antithesis of that in Britain.

THE NETHERLANDS

Since the 1950s, the EC had been a fundamental article of faith in Dutch political and public life. Seen originally as a means to contain Germany, it became, once post-War hostility had diminished, a larger replica of the Netherlands itself, a legally based form of collective rule. Given that Dutch involvement in Benelux’s economic integration pre-dated the Treaty of Rome, this worked well in the 1960s while the EC still behaved as a collective, and when two Dutch former prime ministers filled senior posts in Brussels. But it was threatened, firstly by de Gaulle’s intransigence, and secondly by the advent of the Franco-German entente, which Dutch leaders saw as inevitably prejudicial to the aspirations of small and medium-sized states.

The Netherlands was wholly opposed to the developing practice of settling issues between heads of government (inter-governmentalism) and its governments deliberately set themselves up to act as the guarantor of small states’ rights under the Treaties. In Dutch hands, the Presidency served as a means to help the collective machine run smoothly, with none of the directive tones supplied by Giscard or Schmidt. Many of late 1970s’ and early 1980s’ changes seemed, to the Dutch, undesirable: the Franco-German understanding, the advent of the European Council, the EMS, and the backlog of delay in dealing with Commission proposals. The Dutch therefore sought QMV on a wider scale. But unlike the Belgians, they stuck to a conception of the EC which had been implanted much earlier in the Beyen Plan (see p): they tended to accept whatever ideas the Commission proposed, believing that course of action to be a correct reading of the 1957 Treaty.

A few giant companies dominated industry and treated such initiatives as Wisse Dekker’s report (see p, above) as part of their corporate strategy. The VMO’s outlook paralleled the country’s ‘instinctive political attitude, never really discussed’; which envisaged the internal market in terms of controlled adjustment rather than full liberalization – though the VMO did lobby extensively for telecoms deregulation.

Further, progressive integration was taken for granted by Dutch public opinion, together with an increasing role for the European Parliament, while progress to EMU and political union ranked as high as abolishing trade barriers. Progress was to come according to agreed procedures and deadlines, beyond the capacity of larger governments to adjust. Given its open economy, the Netherlands strongly opposed protectionist tendencies and looked outwards to international as well as European trade. Successive governments supported NATO, were generally favourable to the USA, to liberal tax regimes, and FDI rules, and were adamantly against state intervention – thus coming closer to the British interpretation than that of Germany, despite having linked the guilder to the DM since 1973-

Long habituated to ideas about social harmony, decentralization of state power and tripartism, Dutch governments supported any Commission proposals to give organized labour greater advantage vis-à-vis capital and management, and still vested some hope in Ecosoc as the forum to discuss employment policy and the social dimension. In spite of a decentralized system of administration which required endless harmonization, the Dutch impetus was often effective on the European Council.

BELGIUM

As with the Netherlands, the EC was never a matter of dispute. Belgium received great economic benefits and a status which no small country could have achieved on its own. The price – if it was a price – had to be paid in terms of the impact of EC federalism in a country whose increasingly polarized ethnic divisions reflected its nineteenth-century social evolution and the creation of the state out of two distinct elements. Whether EC membership actually accentuated the process of transforming the unitary state of 1970 into a federal one in 1990, (‘a federal state composed of communities and regions’) is unclear, but all relations with the EC and its institutions became politicized, though not necessarily in a contentious way. Each Belgian Presidency had to replicate the domestic role of government in a sort of permanent arbitrage between decentralized units.

For the majority of Belgians, their polity pre-figured what the EC would eventually become: a cooperative framework of states and institutions with a strong regional dimension and a common citizenship. These assumptions underlay the Belgian Presidency’s conduct of EC crisis management in the case of Poland, Libya and the Falklands war in 1982. On the other hand, because of complex national competences and Flemish/Walloon rivalries, long delays in incorporating EC laws were inevitable – and much criticized by the ECJ.

All-party consensus prevailed on matters concerning the economy and integration, partly because 70% of Belgium’s trade lay within the EC and partly because the EC was taken for granted as the prime source of Belgian status in the world. Any moves towards reinvigorating it, including the internal market, were welcome. But on balance, Belgian governments followed the lines set by Davignon and recommended by Dekker, because of the relatively huge part still played by their declining steel, coal and textiles sectors.

LUXEMBOURG

Living in a tiny country with no pretensions to any of the usual connotations of power, Luxembourgeois had long held a deep fear of being swamped by their neighbours. They had always been eager to propagate the idea of integration, emphasizing that progress should be achieved by legal instruments and collective action. A long history of close cooperation with Belgium and the Netherlands, predating the EC itself, showed itself in the currency link with the former dating from 1922. Despite its small population, Luxembourg had no problem with all the roles required by its status as a member.

Precisely because it was so communautaire and disinterested in larger states’ rivalries, Luxembourg had been able shrewdly to manage its Presidencies. In 1976, it helped to institute the Troika, and in 1980 to stage manage the EC-Arab talks, the North-South dialogue, and the evolution of CSCE during the Solidarity crisis in Poland.

As a fully open and integrationist state, wedded to free trade (on which its industries had developed and its banking sector had become a leader in the EC in the 1970s), Luxembourg welcomed the internal market, especially the free movement of capital which greatly benefited its own financial services. It also sought EMU, after the 1982 currency crisis in which Belgium had devalued without joint consultation. (From then on it was clear that the Belgian franc would be tied to the DM inside the EMS.) Luxembourg had wisely reduced its dependency on the steel industry and expected unequivocal benefits from EC regeneration. Yet potential problems existed, chiefly in the field of harmonization, for its banks had no wish to fit in with German requirements on taxation – especially withholding tax – nor to change the laws on banking secrecy: the Luxembourg economy benefited too much to envisage a truly level playing field.

IRELAND

Entry to the EC had offered Ireland the chance to break out from its narrowly constructed, protectionist, rather bigoted provincial identity, to become a distinct European nation. By 1980, largely through its EC links, it had also escaped the long shadow of the United Kingdom and its poor and backward economy had experienced a greater recovery, and greater politico-cultural benefits than either of the other 1973 entrants. In the early 1980s, Ireland also enjoyed regular trade surpluses¹⁷ and financial transfer payments.¹⁸ In its economic aspect at least, the public was united: 83% had voted in favour of entry in the 1972 referendum and 68 7% were to vote for Maastricht in 1992, despite the fact that previously undreamt-of legal and constitutional implications had emerged.

New affinities with France began to replace the ancient ambiguity of cohabitation with Britain. In its first presidency in 1975, Ireland was able to stand up on the international stage as Garret FitzGerald addressed Commission-Council relations directly, having negotiated ably with the United States in Henry Kissinger’s day. It also subsequently played a mediating role during the second oil shock, despite problems with the European Parliament.

Agriculture benefited unequivocally from increasing specialization while industry drew in foreign investment, particularly from Germany, to replace its formerly sheltered sectors – though this came at the expense of local capacity. Despite the disruptions so caused, Irish governments retained their interests in liberalizing their domestic markets. But EMS membership, the only alternative to linking the punt to sterling, produced a hardening currency, welcome for its disinflationary effect but unwelcome in its impact on domestic production in the early 1980s. Some of this disadvantage was offset by transfers from the EC’s Regional Fund because all of Ireland still qualified for assistance.

Manufacturing and food processing would have suffered in any case from global changes. The prospect of a link between the internal market and structured funding helped to mediate this, and to curb any hankering for a repetition of the failed experiment in protection during the 1960s. Wisely, Irish governments used EC money and technology transfers to address structural failures. This was the overt reason for going forward to the single market, as the Dooge Committee recommended. But, as the Fine Gael party saw, structured change would be the real means to modernize the economy in the European dimension, to which a purely national market was an obstacle.¹⁹ This insight passed in due course to Charles Haughey’s Fianna Fáil government which, despite its historic tendency towards isolation, was content to accept that the country’s future lay wholly in the EC.

That there would be costs in unemployment, rising national debt, and disruption of rural society was not denied. The EC could moderate the pain, increase economic and social cohesion, and restore a measure of real independence to offset the surrender of formal sovereignty. This was a synoptic viewpoint, in sharp contrast with Britain’s, shared by farmers, trade unionists and most of industry, despite the predicted impact of EC imports on domestic market share: in the late 1980s and with the support of the Irish Labour party, it was to lead on to support for EMU and European Union.

DENMARK

Denmark, like Ireland, found itself faced by economic readjustments after entry in 1973, but without a basis of political consent. The EC had until then been presented as a superior sort of EFTA, a customs union with a few ‘political dreams’ attached. Membership was already a contentious subject and this was not alleviated by the first, unfortunate, Danish Presidency, which took office after only six months’ membership experience, at the time in 1973 when the oil shock hit the EC. The Social Democratic party remained as divided as the British Labour party, while fears persisted among the Six that the Danes would use the EC as a milch cow. These were dispelled during subsequent Presidencies: in 1978 by an unsuccessful Danish attempt to launch a growth programme, and in 1982 when, in Copenhagen in June, the odium for lack of progress fell on Britain.

Denmark’s complex and devolved decision-making processes ensured that in the absence of public consensus the passage to the internal market would be difficult. The White Paper’s mixture of economics and politics, and disputes between the government and the Folketing over whether EC affairs counted as foreign or domestic, made it hard for the government to take decisions and helped to produce an appearance of obstructionism.²⁰ At home, government usually won its case but at the price of later electoral retribution. To get the Single Act through, it had finally to by-pass the Folketing majority (80 to 75) with a national referendum (56.2% in favour, 43.8% against).

The internal market offered clear advantages to industry and consumers, yet morbid fears persisted about the EC’s bureaucratic centralization, and the portents of harmonization, as a threat to ecological purity from an overweening EC state. Without a clear mandate, the government confronted a range of domestic pressure groups which feared liberalization. But the Confederation of Danish Industries favoured the single market, in order to achieve a stable market for its few but globally oriented medium-sized companies. For them the EC was the home market, and although they disliked talk of industrial policy, they remained fiercely antiprotectionist. But the Confederation represented a small sector of the population with only 300,000 employees, fewer than Siemens employed in the EC.

Swayed by these pressures, and different oppositions, the government alternated between alliances with Britain (for example on aspects of the Dooge Report), and a claim similar to the Netherlands that institutional reform was essential to restore the EC’s dynamism. Denmark (whose currency link to the DM owed more to economic force majeure than political affinity) was seen therefore as contre: against inter-governmental action, political union, and EMU. It voted against an IGC in Milan in July 1985 but then later conceded, anxious not to be the only member state left out.

GREECE

Seven years after the end of the military dictatorship, the Karamanlis government from 1974 to 1981 attempted to modernize the Greek economy and transform Greek attitudes through the medium of the EC application. But this project (with intrinsically similar aims to those of Turkey) was undermined by the rapid rise of Andreas Papandreou’s ostensibly socialist but in practice populist-left party, Pasok, from 1977 to its election success in 1981.²¹ At once the Accession Treaty, hard won at home by Karamanlis with Franco-German backing in the Council of Ministers, came into question. It was the Pasok government and its leader, according to other members states’ opinions, who were responsible for the Athens debacle in December 1983 and, more persistently, for blocking the Commission’s new plans for standard-setting and mutual recognition.

Much of this could be ascribed to the inexperience of a small, relatively backward state emerging from a harsh military dictatorship; a measure of local demagoguery and political-administrative corruption was predictable. But Pasok’s ‘third world orientation’ and Greek reactions to the Turkish invasion of northern Cyprus in November 1983 estranged Greece from the EC’s mainstream, as could be seen from factious behaviour of large states during the Greek Presidency.²² Greece’s blatant exercises in renegotiation to gain maximum advantage early in 1982, and again before Spain was finally allowed entry, left Greek membership with few admirers and appeared to prove that Greece was prepared not only to milk the EC but to hold up its essential business in order to do so. Paradoxically, this helped to convince the waverers, notably Margaret Thatcher, that some measure of QMV was essential (see above, p. 122).

Yet the Greek government had serious problems to overcome at home, having to confront very inward-looking factions and an avowedly sensationalist press. There was good evidence of a will to do its EC duty, as the Pasok government eventually settled the quarrel over air bases with the USA and moved away from its third world policy, while the Turkish invasion helped eventually to introduce a period of learning on both sides. The appointment as secretary general of CEN (Centre Européen des Normes) of an able Greek engineer went some way to persuade the government of the internal market’s virtues. EC policy was managed by a small bureaucratic elite, running a weak, highly politicized state apparatus, often in confrontation with a volatile public opinion on which all opposition politicians capitalized. Greece’s final decision in favour of the Single European Act therefore represented acceptance not only of the internal market but of a change in Greece’s destiny, a western style of modernization rather than a traditional one, for which Pasok would have to educate their public.

Something should be added about Spain and Portugal, even though the internal market was to be part of the EC acquis that any new member would have to accept.

SPAIN

The small political elite who managed the long-delayed application process, firstly from Suarez’s centre-right basis, then after the 1982 election under the Socialist government of Felipe Gonzalez,²³ knew that entry would be a harsh challenge but that there was no alternative if the Spanish economy were to develop to EC levels and standards. (That there would be a second, more difficult, challenge with EMU/Maastricht in 1991 was not foreseen, although the peseta’s entry to EMS/ERM was always taken for granted, given the importance of creating an integrated financial sector). From the EC’s side, it was recognized that Spain needed a long period of transition before convergence could be completed, or there would be a balance of payments crisis, accompanied by devaluation and inflation.

Restructuring and upgrading the industrial base, together with banking and insurance, were the preconditions of adjustment, in which using not only EC support but attracting foreign direct investment from member states, the USA and Japan would be essential. Paradoxically, the Franco legacy lay less heavily on the economy than the effect of compromises made during the transition to democracy in the late 1970s, notably the Moncloa pacts made in October 1977 between the government and opposition parties acting variously on behalf of trades unions and management, which had accepted mild inflation, wage rigidity and employment security as the price of social peace. Trades unions’ growing powers, a highly restrictive labour code and index-linked wages soon produced much higher inflation which, despite the Banco de’ España’s austere monetary policy, stuck at 20–22% in the early 1980s, inhibiting inward investment, dividing the administration and setting the Bank against the Economics Ministry.

The Gonzalez government’s turnabout in 1984 (which can be compared to that of Mitterrand in 1983) made it possible to reduce money supply and public spending and to bring inflation down to 15%. Thereafter unemployment rose steeply, signifying that the Moncloa pacts’ legacy was dead. As the shocked unions wavered, a recovery began, leading to a boom which accompanied Spanish entry on 1 January 1986. Four years of rapid growth to 1990 brought high demand, high consumption, and a revolution in production – in which the long-sought foreign investment, led by West Germany, was a prime cause. That this policy mixture would lead to overheating became clear towards the end of the 1980s, but apart from joining the ERM no precautions were taken, despite pressure from the CEOE (Confederation of Spanish Employers) for matching supply side reforms,²⁴ which alone could make realistic Spain’s targets for 1992, open banking and free capital movements.

Since the accession negotiations were handled by the government, on the same basis of consent that occurred among the players on economic policy, Spain’s consequent acceptance of the internal market was taken for granted. The political parties, economic sectors (apart from agriculture which was seriously hit in the later and hasty stage of accession bargaining), and the Spanish public, increasingly well informed of the advantages by a liberated and lively press and television, accepted the package as a beneficial whole, so that there was no perceptible domestic opposition to the terms of the Accession Treaty. EC member states, however, could be in no doubt that Spain, with 8 votes on the Council of Ministers, would henceforward rank as a substantial European player, likely to be demanding on matters of regional funding, Mediterranean agriculture and social cohesion.

PORTUGAL

As the revolutionary years 1974–5 receded and memories of the forty-year dictatorship and the long preoccupation with African colonies rather than Europe faded,²⁵ Portugal looked to the EC to help it discover late twentieth-century normality. Shorn of imperial ambitions, the country had no future except in Europe: this much was a matter of agreement between centre-right (PSD) and centre-left (PS). Yet a still-strong Communist party and a nationalist Catholic right conditioned the balance of attitudes. Apart from the main banks (now state-owned) and a few large but declining industries such as shipbuilding and repairing, the Portuguese economy was still based in the south on Mediterranean agriculture and in the north on small firms, mainly concerned with textiles. A backward infrastructure, low levels of education, and a GDP per head of only $3500, below that of Greece (which most observers at the time expected to perform better), ensured that its transition would be prolonged and difficult.

But the small political elite had no difficulty in convincing a public tired of isolation and the heavy burden of having lost a colonial empire, that EC membership was the only way to avoid being relegated to the impoverished periphery and swamped by Spain. The problem lay in deciding between the primarily economic hopes of the minimalists (who included both the communists and the socialist left, as well as the nationalist right) and the centre, which accepted a broader measure of integration. Overall, apart from the ardent federalists, who included President Soares, a concern with sovereignty and national identity inhibited support for monetary union, as it did in Britain, though more so perhaps because of frequent escudo devaluations to aid exports. Living in the shadow of Spain, the Portuguese were jealous of small member states’ rights, yet conscious that, if they were to benefit and complete the process of modernization, they had to show themselves to be good Europeans.

Yet by 1985, Portugal possessed not only an open economy – partly as a result of the tough IMF-imposed programme in the mid–1980s – but an international awareness and important links with southern Africa and Brazil. Though few, its Brussels representatives were to prove themselves able and cooperative. Community decisions were all made at the centre, almost uninfluenced by civil servants and not at all by parliament. The public, conditioned by the ten-year-long liberal PDS government of Cavaco Silva, accepted integration and seem barely to have distinguished the EC from the world at large.²⁶ The influence of industry and farming interests, along with the small role assigned to consumers, can be compared with the situation in Ireland, but the survival of a strong Communist party ensured a stronger role for organized labour.

Like Spain, soon to be Portugal’s largest trading partner, the country was to experience boom years up to 1990, buoyed up by German and Spanish investment. But at the time when the date was set for completion of the internal market, there appears to have been more widespread awareness than in Spain of how far the abolition of tariffs, free movement of capital and transition to the CAP would affect all aspects of Portuguese economic and social life. Hence, while in favour of the internal market, the Portuguese government argued that it was not yet ready, and remained defensive, arguing for a higher levels of support for social cohesion, regional funds and Mediterranean agriculture, while at official and presidency level living up to the ‘good European’ expectation.

On the central issue of the internal market, all ten member states had thus come roughly into line – albeit for different reasons – by the end of 1984. So had the other major players across Europe, industry, finance, even labour – insofar as that had recaptured its European presence. But it needs to be asked to what extent these rather than governments actually determined the outcome.

Financial sectors certainly took little part in the internal market process. The Fédération Bancaire Européen (FBE) had had to react so far to only one major Commission proposal, the first banking Directive of 1977. So long as the quiet years continued neither side wished to stir things up. In the absence of Commission activity, there seemed no urgent need to react to competition from American and Japanese banks, while insurance companies and stock exchanges barely stirred. Even when banks did get their fingers burned in the ‘sovereign debtors’ crisis, they tended to seek global remedies via spreading and insuring risks.

Even central banks involved themselves only when the Single Market White Paper had been assimilated and monetary union come into focus as a consequence. But deregulation, particularly in Britain after 1983, led to an exuberant period of often ill-judged growth and acquisitions, followed in due course by competition in all markets for capital and financial services; excess capacity ensued, followed by retrenchment – and the same choice that had already faced key industries, between managed and market-led restructuring. Thus the market cycle, as much as changes in the formal financial environment, ensured that they would enter the EC game in the end.

Political scientists and contemporary historians dispute how far ‘industry’ can be seen as a coherent player in this game.²⁷ Up to the late 1970s there was certainly no consistent evidence that large or multinational firms, though they were regular players at official level, had been recognized in formal Community bargaining. Insofar as they operated informally, they did so at national government level or through personal links with officials in DG3, so that with the exception of American and Swiss MNCs, which tended to go direct to both the Commission and the Parliament, influence seeped almost imperceptibly into both member states and Commission plans. The results of what they did therefore varied, being at national level more effective in France, Germany and the Netherlands than in Italy and Denmark; and at Commission level, more with DG3 than DG4. Indeed a presumption existed in most of the sectoral federations that DG4’S competition brief inhibited informal links with corporate interests, and that any formal ones should run via UNICE. Since those directives which got through the early 1980s log-jam were still framed in terms of technical harmonization, usually in the food processing industry, and since DG3 perpetuated the industrial sponsorship ethos to their satisfaction, firms and federations themselves saw no need to do more.

But when Etienne Davignon rebuilt DG3 on the Spinelli model, adding to it technological development and foreign trade elements, together with rationalization of the steel industry, this complacent attitude changed rapidly. The twelve major information technology firms willingly took part in Davignon’s research initiative which led to the promulgation of ESPRIT in 1984. On a wider scale, European corporations who benefited substantially from it generally saw the grand structural adjustment plan as a benign way to offset otherwise unacceptable political and financial imperatives from the recession of the early 1980s: redundancies, real wage cuts, benefits reductions, and some of the heavy cost of high-technology capital investment.

Considerations such as these led inevitably to firms’ preoccupation with the internal market’s potential advantages, and complemented what was always in France, and also now in Spain, a thesis about general modernization. If CBI records are typical,²⁸ this recognition can be dated to 1980–81; that is, contemporary with Davignon’s initiative.²⁹ However, at first its impact was confused by the vigorous polemic over Vredeling. UNICE however was not to be the vehicle, but instead a ‘high level’ informal group, aiming directly at Brussels and heads of government.³⁰ Neither were sectors or peak organizations chosen for permeation: few of them were as yet so well based in Brussels as the Americans, and AmCham’s European Committee. But the informal groups, of which the European Round Table (ERT) became the most influential, had greater effect in the earlier period, 1982–4, when they operated informally, than afterwards. Having, as it were, gone public, they became animators, adjuncts to, rather than initiators of change. The influence of the firm has therefore to be measured in the interstices, in rivalry with louder views coming from the Parliament such as de Ferranti’s Kangaroo Group, and the 1981 Nicholson Report which claimed that the EC was ignoring industrial uncompetitiveness.

Yet this is to measure matters only on the EC stage. Some member states had gone down the Davignon road, much earlier – Britain with the Labour governments’ late 1970s Industrial Strategy, France with the Plan Barre, Germany with the Modell Deutschland. Though sectors of British government took a different view in the early 1980s, the DTI was still eager to engage the CBI’s services in its 1981 campaign for the internal market: clearly (despite the rupture between the Thatcher Cabinet and the CBI) a basis for general consensus still existed, at least in the high technology race. Something similar occurred in West Germany as the heads of much of industry came to a central standpoint on the internal market. Their French counterparts followed suit around 1983. AGREF (the Association des Grandes Enterprises Françaises), noted the conjuncture. The idea grew rapidly, according to one French company executive: ‘Europe is a kind of domestic market… the foreign markets are in America and south east Asia.’³¹ The CBI and DVI, together with support from the CNPF or Patronat and Confindustria, therefore took part in Delors’s later ‘vast consultation’ with heads of enterprises across Europe. Governments in effect used their giant firms and federations to influence the Commission, complementing what national representatives were already doing in the Council of Ministers. Who used whom, and who if any one actually set the agenda, is almost impossible to decide without access to EC archives.

What matters here is that in this game, private associations like ERT were encouraged by governments and the Commission to behave as privileged actors; individual industrialists, usually with their firms’ long-term strategic advantage in mind, willingly took up the roles. UNICE, which began to call for QMV as a solution to the log-jam problem in February 1984 came later, counted for less, and was used by the Commission rather as a source to disseminate information and Commission messages. (Even less can be ascribed to the ‘Jean Monnet Committee’, reborn at the end of that year.)

The European Round Table (ERT) stands out, firstly as a collection of industrialists who led firms that were highly important, being multinationals oriented towards investments (which the Community could hope to stimulate by incentives) in telecoms, road and rail transport, and research and development. Secondly, they acted as an influence personally on Jacques Delors before, and for a short time after, he took up the Commission Presidency in January 1985.³² It was first established with Pehr Gyllenhammer (Volvo) as chief executive – a useful non-EC catalyst – and its members included Umberto Agnelli (Fiat), Wisse Dekker (Philips), Pierre Defraigne (France), John Harvey-Jones (ICI), K. Durham (Unilever), H. Maucher (Nestlé), C. Nicolin (ASEA), A. Riboud (BSN France), D. Spethmann (Thyssen), Sir Peter Baxendale (UK Shell), R. Fauroux (St Gobain), B. Hanon (Renault), O. le Cerf (Lefarge Coppée), H. Merkle (Bosch), L. von Planta (Ciba-Geigy), W. Seelig (Siemens). It had valuable links with Davignon and his successor Narjes, Fernand Braun, and Ortoli, and in that sense furthered the Commission’s idea of a pan-European, synoptic approach which was neither socialist nor corporatist. Its main general proposal was for a ‘Marshall plan for Europe’ (January 1983), the result of much debate about how to achieve reindustrialization; its main special report was written by Wissi Dekker, on behalf of Philips, in 1984 and published in January 1985.

Private and informal influence had had most effect before these publications, during 1983, in particular on the Franco-German element in the Stuttgart Declaration.³³ Specifically, ERT focused directly on decision-makers (unlike the coordinating body, European Enterprise Group), proclaiming the importance of non-tariff barriers and the lack of standards, which the internal market was intended to remedy. Its suggested solutions – contained in slim, well-produced pamphlets, somewhat tinged with protectionism – were aimed at political leaders, in contrast to the more detailed literature from UNICE. What mattered most was its animator status, given the point already reached by the Commission and the German, British and French industry ministries. As Maria Green suggests, its influence was used in the direction of a unified rather than a common market, and to bring a much needed pragmatism to the debate;³⁴ however, its later, more formal work also fed back into those member states which had stimulated it in the first place, so that it tended to replicate national lines of thought, whether for defensive adjustment or free market openness. This probably explains the CBI’s 10% area of disagreement with the Dekker Report and the DTI’s rather greater degree of divergence, enhanced of course in Margaret Thatcher’s speeches. In its crudest form of differentiation, the British version embodied an unrest-cure with contingent unemployment and bankruptcies while the German and French ones propounded a state- and industry-managed restructuring at minimal social and economic cost.

Given the momentum among governments from mid–1984 onwards, ERT’s later contributions have to be seen as supererogatory, part of the heightened climate of awareness about venture capital, completion of ‘missing links’ in the infrastructure (such as the Channel Tunnel or the EC-Scandinavian road/rail bridge) and the individual projects such as the European Technology Institute, for high-grade postgraduate training.³⁵

As for the firms themselves, who in a mere three or four years were to flood into Brussels to establish influence in what now appeared to be the epicentre of commercial advantage, it is impossible to isolate their individual weighting.³⁶ Most had a vested interest in the process, as they demonstrated in the wave of mergers, joint ventures and takeovers – in consumer durables, office equipment, metals, agribusiness, airlines (though these mergers all failed), press and television and venture and finance capital – which occurred even in advance of the Single Act, 1985–6, usually with Commission support.³⁷ Firms in the lead here included Thomson, Zanussi, Olivetti, Pechiney, Ferruzzi, Cerus (Olivetti), and entrepreneurs such as de Benedetti, Maxwell, Berlusconi (several of which, as a result, became grievously overstretched by the early 1990s).

American firms, feeling themselves losing market share worldwide to the Japanese, especially in semi-conductors, banking and financial services, were meanwhile extracting special concessions in the United States and many varieties of protection from the compliant Republican administrations of Reagan and Bush. As a result, there emerged a barely veiled policy of trade through bilateral agreements which seemed to have become, by 1985–6, as great an impediment to the current GATT round as anything emerging from France or the EC. The situation generally worsened with the US Trade Bill of 1987. In the critical areas of cars, semi-conductors, telecoms, and consumer electronics, the EC reacted less stringently (since American companies, organized in AmCham’s European Committee, had long since operated within its borders)³⁸ than it did against Japan. Nevertheless, the Commission disliked the mid–8os regimes of VERs, quotas and tariffs, imposed by member governments acting together in Council, which officials believed only emphasized the bankruptcy of inter-governmentalism and the virtues of the Commission-led internal market process.

The Commission had developed its own scheme in 1983 in the limited field of mutual recognition and standards introduction: ‘limited’ (in DG3’s view) meaning the most that member states would permit. Thereafter, it seemed as if Stuttgart had produced only rhetoric, of little value in daily transactions. Narjes’s long summary of uncompleted items emphasized the backlog, without shaming the Council into advancing the project. Fontainebleau gave no particular encouragement to the internal market. As late as November 1984, when Delors put his four questions to the member governments, he himself was inclined towards institutional reform: it was the negative responses to that which convinced him that only the internal market could proceed.³⁹ His first speech to the Parliament, on 14 January 1985, with its call for ‘completion of a fully unified internal market by 1992 (with) a realistic timetable’ may have represented a Commission-led breakthrough.

But that ignores the fact that the 1983 efforts by officials had only been postponed. One close participant points to ‘the Commission’s internal dynamic which… used the multinationals; and also the pressures coming from the Parliament to get away from “non Europe”’, which pre-dated Delors’ activity. Allowance should also be made for the ECJ’s influence: what had begun with the Continental Can case 1972 (see above, p. 96) was renewed in the Philip Morris case of 1981, when the ECJ used Article 85 rather than 86 to lay down the considerations pertaining to cases of mergers and concentrations. The issues of merger regulation and limiting state aids did not disappear from the Commission’s agenda with the Council’s rejection of the Draft Merger Regulation; that this area of the internal market required the work of two far-sighted Commissioners, Peter Sutherland and Leon Brittan in 1986–92, may in fact be a tribute to the delaying capacity of certain governments and industries. Then, as later, the many-faceted interaction of President, college of Commissioners and Director-Generals, has to be seen as itself a competitive symposium operating on a much longer time cycle than those of national governments or firms.

Delors’ questions offered the twelve governments four choices of how to recapture the EC’s momentum: monetary union, foreign policy and defence cooperation, institutional reform, and the internal market. Apart from France, no member government chose anything but the latter; yet few supporters felt strongly about it. On the evidence of his own writings, Delors reckoned that it would take two full four-year terms of office: the first up to 1988 to get the Single European Act, the second to 1992 to complete it;⁴⁰ so his rélance to the European Parliament was to be read both as a proposal for a Europe without internal borders, and a long, politically radical project for what that Europe was to become.

The concept of a single market had by then been agreed between Delors and the key Commissioner, Arthur Cockfield, who had been appointed by Margaret Thatcher to succeed Christopher Tugend-hat who was now out of favour. That combination, and the greatly enlarged competence which Cockfield requested at DG3 (financial institutions, company law, VAT and indirect taxation) set him in a position of greater directive power than Davignon had ever possessed. Cockfield could therefore provide sole authorship as well as conceptual force for DG3’s work in preparing the White Paper, and a unique preponderance in the Commission college. Davignon’s pragmatism and Narjes’s preparatory work infused what was done, but the logic and intricate cooperation between Directorates owed most to their successor.

Thatcher had given Cockfield a brief ‘to make the internal market work’. His early investigations led him to agree with Delors that any target date before 1992 would be unrealistic. He had no illusions about the lukewarm involvement of most governments, even though the Luxembourg Council (following the Dooge Committee Report) endorsed the target. Consequently the White Paper had to contain a precise schedule of all the components, amounting to nearly 300 items for legislation, a deadline (1 January 1993), fully elaborated concepts of mutual recognition harking back to Cassis de Dijon, tax harmonization (a favourite of Cockfield’s) and some measure of supervision to keep member states in line during the process of implementation. The programme had to be coherent, interlocking, yet distinguished from the social, environmental, competition, investment and monetary issues which were contingent on it, but which, for political reasons to do with member states, could only be incorporated later.

Member state governments may have been unanimous in their welcome for some sort of internal market; but how much they foresaw of the White Paper’s actual details or its contingent elements is unclear. Cockfield took his tutorial mandate to the limit, composed the document as if the political will already existed (as the founding fathers had done in 1957) and wisely circulated it only ten days in advance, giving time for governments, civil servants and permanent representatives to evaluate it but not to draw up counter-proposals. He prefaced it by citing every endorsement that ministers had given, from Copenhagen and Stuttgart onwards: they had willed the ends, here were the means. Despite this care, and despite the low-key, almost bureaucratic tone, objections were at once raised, from other Directorates and from some of the industrialists, who sensed how far it reached beyond the Dekker Report. But Cockfield refused to tone it down. Indeed, being well aware of its impact on financial services, he used other industrialists and City of London figures to propagate what he claimed was the only way to end ‘this prolonged period of uncertainty’. He was rewarded when, at the Milan Summit, the Council instructed the Commission to prepare a plan of action, within the timescale which Cockfield had envisaged from the beginning in his critical path analysis. From this point on, ministers began also to come to terms with QMV, which had been evaded at Dublin the year before and which Cockfield and Delors knew would be essential.

During the French Presidency in 1984, President Mitterrand had also made a tour of European capitals with a ‘relaunch of the EC’ in mind. From this came two significant understandings, the first between Germany and France on institutional reform, (even though France still hesitated at the further powers for the European Parliament apparently required by both Germany and Italy), and secondly between Germany and Italy on market liberalization.⁴¹ The British government, secured temporarily in the Fontainebleau budget concessions, grew uneasy about suggestions in Paris about an EC of different speeds, if not necessarily a two-tier approach, especially when, addressing the European Parliament on 23 May, Mitterrand presented, with some panache, a view of Europe’s federal destiny and a mordant commentary on how to face le défi Américain – the US challenge.

Much detailed diplomacy was necessary before the Twelve could broker even the beginnings of a compromise, ready for the Milan meeting in October 1984. Mitterrand was now reforging the entente with Germany, hoping that Maurice Faure’s presence as rapporteur of the Dooge Committee (consisting of heads of governments’ personal representatives) would maintain France’s version of how institutions should be reformed during the Irish Presidency. Because of British preoccupations, QMV remained a central issue for the Dooge Committee, whose deliberations were mainly concerned with institutional and constitutional issues.⁴² But the Committee’s high-level membership, and its reluctance to discuss issues of detailed policy, made it an unsuitable vehicle for inter-governmental competition to set the social and political matrix of the internal market, which may well have influenced Margaret Thatcher to look to Cockfield for a more cautious and and empirical approach. In the end, after sifting the potential impact of various important consequences of the internal market, including the Luxembourg Compromise, the numbers divided seven to three on the key question of QMV.

The Dublin Summit which considered Dooge’s interim report had therefore to fudge the main issue for lack of a consensus; and gave a very nuanced, even contradictory line for Milan. But there was enough acceptance by the majority – which did not in fact exclude Britain – to indicate that the seven to three tally, reaffirmed in relation to the need for Treaty amendments and an IGC (during the March 1985 Council meeting in Luxembourg), could be adjusted. Britain was in the process of modifying its position and making overtures to France about a common front. Geoffrey Howe put an able defence of a British plan for QMV without an IGC, at Stresa, in May.⁴³ But his proposal was pre-empted when Mitterrand and Kohl drew up their ‘Treaty of European Unity’, to coincide with the fortieth anniversary of the end of the Second World War. What appeared in London to be fresh evidence of the Franco-German entente angered Thatcher and may have contributed to her being manoeuvred into opposition at Milan; she seems not to have been aware until too late that Kohl had also concerted his tactics before the Summit with fellow Christian Democrats in Rome and probably also indirectly with Craxi and the Italian Socialists.⁴⁴

The Milan Summit took place after assiduous lobbying by all the minor players. But Italy held the Presidency, and the leaders of the pentapartito, Giulio Andreotti (DC) the foreign minister, and Bettino Craxi (PSI) the prime minister, sought above all to have an IGC in order to ensure that political cooperation and wide-ranging institutional reforms were incorporated. This would have been impossible without amending the Treaties. The Italian proposals were intended to ensure better decision-making, more Commission power of initiative, a Court of First Instance to ease the ECJ’s overload, and larger powers for the Parliament – a substantial part of which went beyond what Kohl and Mitterrand had agreed. After a confused debate, Craxi called for. a vote under the simple majority procedure covered by QMV, and obtained the required and predicted seven to three result: Britain, Denmark and Greece being in the minority.

The British were scarcely surprised at this outcome. Later on, Thatcher argued that her willingness to cooperate had been misconstrued. But for the other heads of government, having an IGC was crucial. At the time, Thatcher accepted that her prior element of acquiescence in QMV (even on the basis that there was no need for an IGC), and the importance for Britain of limiting further progress to no more than the White Paper’s proposals, justified all-out participation once the IGC had been set up by the the majority. (As Howe put it: ‘member states had to be checked from hanging more baubles on a mobile Christmas tree.’)⁴⁵ But before the IGC opened at Luxembourg on 9 September, the White Paper was already being subsumed in the wider Commission design.

Cockfield had envisaged that his White Paper’s approach to the demolition of three sorts of barriers – frontier, technical and fiscal – should continue to guide the internal market’s evolution, whatever came out at the IGC. Only later would tax harmonization, for example, be incorporated. He had confined it deliberately to the industrial sectors to be liberalized and had not touched on competition, regional policy or the agricultural implications, since he did not intend it to serve as the basis for a more general (and potentially over-ambitious) policy. Nor did he imagine that the internal market would lead directly to EMU (though the Dooge Committee had considered reform of the EC’s monetary system). These dimensions became clear later, for example in his introduction to the Report of the Cecchini Committee, which had been set up to convince member states that the single market would produce not only great but quantifiable benefits.⁴⁶

How much was in fact afterwards made to seem contingent on the White Paper can be gauged from Cockfield’s later phraseology⁴⁷ and the fact that he responded to a question by Cecchini, whether or not to state flatly that the single market required monetary union, by asking him ‘not to overload the boat’ at that stage.⁴⁸ At the same time, other Directorate officials, looking ahead, were preparing their own complementary proposals in the fields of competition policy, mergers, state aids, and overseas trade.

But while pressing the White Paper on governments prior to the Milan meeting, the Commission Presidency and some member states were also engaged in widening the whole concept to include what they regarded as a more balanced programme, including socio-economic policy, environmental action, institutional reform and political integration (which Delors had already outlined to the European Parliament in January), together with social cohesion in the light of Spain’s and Portugal’s accessions. All this stood in clear contrast to the British interpretation, but in line with the opinions of Laurent Fabius and Elizabeth Guigou, who were in charge in Paris. In October, Delors criticized the British ‘supermarket approach’, and set out his own conception of a ‘real Common Market’ including political solidarity, EMU and cohesion. Here in essence lay the idea of a European developmental state and of an economic space not restricted to the Ten, because these had imagined from the start that it would, in due course, be extended to EFTA countries.⁴⁹

It was these proposals which Luxembourg’s Presidency, the next in line, set itself to implement, as an essential adjunct to fulfil the single market according to the contingency formula. Over time, through intricate negotiations in the IGC, Luxembourg’s subtle and neutral approach served to reduce the suspicions of both the Danes and the British. However, the Danish government promised its people a referendum (and Craxi in turn pledged that the Italian parliament would vote only after the European Parliament had given its approval, thereby conveying to the European Parliament a sort of informal competence).

The outcome owed something to cooperation within the ‘Troika’, as Luxembourg eased the agenda from drafts to final texts with few votes but always ‘noting where the majority lay’; But the primary momentum came from the fact that all twelve governments wished to see the internal market come to fruition. Some participants concluded that the British alternative scheme’s intention had come about and that in this area the national veto had already died.⁵⁰ Ireland’s assent (postponed for two years for legal reasons, to meet the Irish courts’ insistence and followed by a referendum) was actually taken for granted by the Belgian Presidency in 1986, as if QMV already existed.

Five IGC meetings sufficed to bring the documents to two Council meetings in December 1985. Divisions and alliances between states varied according to the issue being debated. Real disagreement however centred on four main questions: which single market decisions were to be taken by QMV? How far should cohesion extend, and in what form? How should cooperation and co-decision with the Parliament operate in foreign affairs? What place should be given to EMU?

None of these was susceptible to a simple solution and the wider implications of each ran on to Maastricht and beyond. The text on EMU divided France, Belgium, Italy and Ireland, all of which thought it too weak, from Germany and the Netherlands which wanted the relevant articles attached to but not incorporated as an integral part of the Treaty. Britain did not want either, or indeed any reference to EMU, certainly not before the internal market’s complete freedom of capital movements had been achieved.

The arguments had no empirical basis, except in current practice in running the EMS and ERM, Britain not being a member of the latter. But the eventual compromise rested on promises from France and Italy to liberalize their exchange control provisions – promises which were turned into a guarantee of abolition before the single market deadline came, at an ECOFIN meeting in June 1988, just prior to the Hannover Summit. Meanwhile, the preamble of the SEA was given three indents referring to the ‘objective of EMU’, together with a chapter stating that the member states should cooperate to ensure the convergence of economic and monetary policies.

On this somewhat ambiguous basis, EMU was to be included in the pre-Maastricht process. The Single European Act retained majority voting for all EMS decisions, so that Britain could still exercise a veto, even though it was not in the ERM. Nevertheless, two years later at Hannover, the UK government did concede that the Central Bank Governors Committee, chaired by Delors, might examine ways of setting up the future European central bank, and the ‘concrete steps’ towards EMU long sought by France.

An increase in structural funds (coherence policy) to appease Ireland’s and Greece’s fears about the impact on their economies, eased the Act’s passage, up to its ratification by nine governments in February 1986, and by Ireland more than a year later. Some member states seem not to have realized how large these sums would be, when measured afterwards in relation to Iberian needs. It also brought a trade-off between the German federal government and the Länder (led by the Bavarian and North Rhine Westphalia prime ministers, Franz-Josef Strauss and Johannes Rau, which gave the Länder increased rights of participation in decision-making in Bonn). These were to be a foretaste of the regional compromises made at Maastricht in 1991. Success in the IGC negotiations, reform of the CAP, and extension of QMV to financial services’ liberalization, satisfied British ambitions. The Italians got their extra powers for the Parliament,⁵¹ the Netherlands and Belgium achieved an extension of political cooperation, Germany a clearer definition of regional policy, and France its hopes of EMU. From all this stemmed the mood of euphoria leading on to Maastricht.

But that was only the legal framework: much space remained for Commission interpretation. Officials’ creativity during the next six years improved on what had actually been agreed, while members transposed what eventually became the 285 legislative enactments, in order to meet Cockfield’s deadline of 1st January 1993. Among the twelve governments, opinions inevitably varied. (Margaret Thatcher particularly resented the way the Commission used Articles 100 and 235 to obtain ECJ confirmation of its interpretation.⁵²) It was not clear until the Hannover Summit in June 1988 that all the heads of government had ‘irreversibly accepted’ the SEA: indeed the Act deliberately had not made the 1 January 1993 deadline a legal obligation, so that the internal market would not be final until all its provisions had been transposed and implemented. Whereas transposition had nearly been completed by the 1st January 1993, implementation still fell far short.

At the time of Hannover, 194 out of 285 legislative items remained to be completed. But the breakthrough on exchange control abolition had come. The legislative programme no longer depended on each six months’ Presidency (which was as well, since the Greek government attempted to turn the proceedings after Hannover in the direction of social policy, training and worker consultation, which would inevitably have aroused industrialists to make a renewed ‘Vredeling offensive’.⁵³) Member states’ mid–term failures to transpose legislation were already being remedied by an informal system of mediation, réunions paquets (see below, p. 628). Great as the delays were to be, even beyond 1992, the main technical problem after Hannover lay not with visible barriers but the implicit ones, created out of ‘exceptions’ through which member states continued to defend their chasses gardées long after they had conceded the former. Although Hannover represented a political landmark, ‘beneath its calm surface, the battle between liberals and interventionists for control of the 1992 project was at last launched.’⁵⁴

In the two and a half years after the IGC, the game between states, Commission and industrial players continued,⁵⁵ complicated by the entry of new players from Spain (which played a part in the second Banking Directive). Most of the advantage, however, accrued to the Commission, which did not seek to hide its wider design but only to nuance it for different audiences as the next stage – harmonization of VAT, excise and corporation tax – approached.⁵⁶ The Commission concentrated, for example, on reducing national restraints on air transport and the carriage of goods, and on the agreement over car imports with Japan. Officials accepted that some implementations would be delayed beyond 1 January 1993, particularly by Mediterranean countries (especially those concerning Spain’s financial services and Italy’s state industries), but relied on the states’ commitments, sealed at Hannover, to limit delays to an acceptable level.

Having been very largely excluded during the bargaining process from Milan to Luxembourg, the Parliament also increased its part during later stages of the single market negotiations, as Cockfield steered his enactments through. Some 260 legislative items remained after the Act’s second reading, together with a host of amendments, and in the process MEPs acquired a power through practice which they were later to consolidate at Maastricht. This extended informally to areas where MEPs had no direct competence at all.⁵⁷

The financial sector also emerged as a player, now that EMU’s shadow lay over the internal market. Banks and insurance companies, at least in the northern states, joined the various action groups and some even took part in public campaigns for 1992 through their domestic press and television. Huge financial gains were being made in these sectors by 1988, much greater than Cecchini had forecast; more in France and Germany than in Britain, but most of all in Italy and Spain, where the least open markets operated.⁵⁸ Harmonization affected all securities markets and stock exchanges, and Spain went through its own ‘big bang’ in 1989–90, as London had done eight years earlier. Nothing was invulnerable to foreign access, not even long-closed insurance and mortgage finance sectors.

Previously, these had been heavily protected areas: in Germany, insurance protection law meant that all policies were similar, with strict tariffs, so that innovation was impossible. This was in complete contrast to the competitive market in Britain, which regulated intermediaries, not policies. In France it remained a criminal offence for non-French companies to sell any sort of insurance. Some liberalizing had been achieved by the EC on life and non-life policies, but full market freedom was not actually achieved until 1990, after nearly twenty separate Commission drafts. Until then, the governments of Germany, France, Belgium, Italy, Denmark and Luxembourg resisted any change, to the unconcealed fury of German companies and all multinationals. It was no wonder that Cockfield avoided legislating for this sector, relying, as 1992 approached, on the single market’s momentum to do the job.⁵⁹

Talk about ‘Europe à la carte’ and ‘variable geometry’ during the Presidencies of the Netherlands, Britain, Belgium and Denmark in the years 1986–8 revealed how fortunate the EC had been in the previous year under Italy and Luxembourg. Britain was evidently keen to prevent the emergence of a contingent social policy dimension. As the Thatcher decade neared its end, and as she herself attempted to limit any broadening of the single market concept, Britain seemed once more to be at loggerheads with the rest. Among member states, it seemed as if the impetus had been lost.

The breakthrough under Germany’s Presidency at Hannover can be explained partly because of France’s occlusion, during the tense period of ‘cohabitation’ between Mitterrand (who during a long duel between Elysée and Matignon managed to retain power over foreign and EC affairs) and Jacques Chirac’s RPR government, and partly by a convergence of opinion between Bonn and German industry on the substantial opportunities for Germany offered by the internal market. The Hannover Summit also indicated that West Germany had committed itself to political, if not yet monetary, union.

Even then, some elements remained uncertain, such as harmonizing VAT, which was fought out between Cockfield (who sought a 17% rate) and the responsible Commissioner, Christiane Scrivener (who proposed a 12% one), at ECOFIN meetings under the Greek Presidency in late 1988. The British government again objected to the principle of harmonization, but in the long run, when Norman Lamont was at the Treasury in July 1992, accepted it as an irreversible matter – one essential for raising government revenue during the 1990s’ recession.

The years 1988–90 were good ones in the EC, which saw a rise in corporate profits, individuals’ living standards, and their expectations (at least for those in work, and above all in skilled or professional work), as the boom swept towards its crescendo. European directors of Ford, IBM or Exxon had long seen what Cockfield’s timetable presaged, as did some Japanese multinationals, and were now eager to set up inside the EC before the 1992 deadline. More and more giant firms such as Rhône-Poulenc (chemicals) and Philips (electronics), and Daimler-Benz (cars), opened offices in Brussels, where lobbyists multiplied, pari passu with the Commission’s output of SEM directives, giving greater complexity to the game. Many of the deals or joint ventures made in this period (British Leyland-Honda, Fiat-Sikorsky and Westland Helicopters, together with Siemens-GTE (USA), CGE-AT&T, and Telefonica-Fujitsu (in telecoms)) suggest that multinationals were actually demonstrating what a single market implied and perhaps defining what EC industrial policy and trade policy in the future should be.

But the most obvious result of Hannover was a renewed mood of optimism, and a determination to consolidate the entire project of monetary and political union. Cecchini had dealt largely with once-for-all benefits deriving from the original White Paper. But by 1989–90 it seemed that, if the single market did help to solve the underlying problems of the EC’s overall adjustment, the gains to be expected after 1993 would be vastly greater – at least for the northern European states – than he had predicted, not least because adjustment could provide means to counter US, Japanese and south-east Asian firms’ market penetration.

In that sense the achievement of an internal market, though the direct consequence of the Single European Act, cannot be isolated from the wider process which culminated at Maastricht in December 1991. For a relatively short period, member states accepted what had already become common sense in the business and financial communities, that the internal market’s likely gains offered greater advantage than earlier economic defensiveness. There could be no value in being the last to come in or the least conciliatory, since the game had ceased to be a zero sum matter; such defensive stances risked being overruled or gaining nothing, whereas the propensity to bargain represented an attractive alternative.

Yet member states’ ratification of the Single European Act hid a number of individual government reservations and, in the British case, perhaps also misconceptions about what had been accepted by the others and the Commission as logical corollaries. Hannover marked a point of political assent to the concept of a rule-based system in which sectional opting-out or evasion would become unprofitable, just as the pledge on EMU provided the necessary technical accompaniment (apart from Britain and Denmark) to avoid unmanageable distortions in the new market and the CAP. That in turn brought huge pressure on Britain and Spain to enter the ERM if they wished financial liberalization to reach its apogee.

The way the internal market was made cannot be isolated from the international context and the Gorbachev era of apparently ultimate détente, followed by the collapse of the Soviet empire in 1989–90, which opened up the countries of eastern Europe to new forms of exchange with the EC. West Germany’s leadership at Hannover prefigured its likely stance two years later as the Wall, and its accompanying psychological walls, came down.

Peter Sutherland, the Commissioner responsible for competition policy, had been appointed to lead the high-level Group on Operation of the internal market, in order to assess how best to achieve the full benefits Cecchini had promised. In his report, analysing post-1992 problems in managing the internal market, he pointed out that the Community’s main functions would now be to administer the rules, monitor member states’ compliance, improve their means of doing so, spread an understanding of the law to ensure consistency and transparency, and generally help to create a climate of shared responsibility in which the Commission would henceforward rely on member states’ competence and expertise, and on their courts for enforcement. The Single European Market was to become the core of a new EC geography which would in turn redefine the relative positions of Commission, member states and ultimately regions. But even in his chosen areas of goods and services, a great deal remained to do.

If this represented a new stage of partnership between them, it was clear from what Sutherland said that the Commission would have to accept some informal degree of diversity in practice among the Twelve, whatever its formal legal standpoint. The advance on the previous decade was nevertheless enormous, whether the Single European Act is depicted as the result of a tacit contract between all twelve member states or of a number of parallel decisions by each government about relative advantage. Either way, each player would respond to the rules, not because of the sanctions (which were negligible and had often enough been evaded in the past) but because of the severe and increasing costs of not doing so. Nevertheless, a number of substantive contingent questions remained to be settled, including the emphasis to be given to competition policy, and the Commission’s place in developing industrial and external trade policies, research and technology programmes. The Act nowhere stated that Article 115, which gave powers to take protective measures against non-European imports, would be removed; neither did it lay down details about progress towards monetary union – if it had, its passage would have been immeasurably harder.

Political problems also remained. When the British government argued for its own draft proposals for single market management before the Edinburgh Council in December 1992, several EC ministers contested the UK’s underlying philosophy, on the grounds that it reverted to the inter-governmental style and failed to acknowledge the Commission’s leading role.⁶⁰ Representing France, Elizabeth Guigou also objected to the UK’s unwillingness to face up to the free movement of people, without imposing passport formalities. Yet on this obstacle to the Act they had already signed, the UK, Denmark and Ireland stood fast against the rest. Single market issues thus ran on, into and beyond Maastricht, to be affected by the recession of the early 1990s and member states’ increasing unease at the consequences of events in eastern and south-eastern Europe.

Taking the process from the early 1980s as a whole, it is clear that the closer the internal market came to fruition, the more it suited both member states and the Commission to cooperate and enjoy the heady mood of harmony after so many debilitating, stagnant years. In this sense, the mid–1980s represented a turning point. Afterwards the Community showed itself better able to face up to extended competition, to direct American and, later, Japanese investment (US investment had decreased during the recession of the early 1980s, as had European companies’ own investments in the EC). The majority of governments, in sharp contrast to their behaviour in the 1970s, also began to turn away from the defensive, non-tariff barriers which they had erected earlier on to delay harmonization.

Four deep modifications occurred in this period. The quality of EC governance improved, thanks very largely to better implementation and enforcement of the law; the financial sector became freely involved; competition policy was made congruent to the assault on intangible barriers to the internal market; and officials began to conceive of policies for industry, trade, social affairs and competition as a whole. In this sense, the internal market cut off both commercial players and their governments from the frustrating recent past.

5

Maastricht and After, 1988–93

The West German Presidency in the first half of 1988, and especially the Hannover Summit in June, appears in retrospect even more significant than it did at the time. Not only did that Presidency oversee the conclusion of many of the EC’s long-running battles, such as that over the abolition of exchange controls by France, Italy and Spain, but it witnessed what Arthur Cockfield called ‘the irreversible acceptance’ by member states of the single market. It also settled the budget saga for the succeeding four years, after one of the most prolonged and divisive crisis in the EC’s history, which had ramified into the CAP, now that France had become a net payer; and this, despite protests by the Länder governments and German farmers that Germany was already paying too much, and would pay more once ‘cohesion’ had been incorporated by the coming Inter-Governmental Conference (IGC).¹

The Hannover Summit confirmed Delors’s second term of office from 1989–93, with British approval (Helmut Kohl having failed to put forward Martin Bangemann’s name, despite its being ‘Germany’s turn’, because of a political trade-off with the Free Democrats in Bonn). Delors would also chair the Central Bankers Committee which was to recommend rules for operating the future European Bank. Coming after a number of minor but irritating disputes over the CAP and the purity of beer, these achievements suggested that the Franco-German understanding had been enhanced. Insofar as there remained arguments, these were internal: the first being between Chancellor Kohl and Foreign Secretary Genscher about how to react to the Gorbachev reforms in Russia, and the second between the Bundesbank and the Bonn government over EMU.

But Hannover also demonstrated how consistently Germany (shortly to be reunited) would react when external events forced it to engage in the international domain. Whatever the different approaches to Ost- and Westpolitik advocated by Kohl and Genscher, Germany’s political elite was still agreed that ‘the coming Germany’ had to be embodied and understood in its European dimension, that is, within a European political union. From the 1985 IGC to the next, at Maastricht in 1991, this basic line did not change.

What did change was firstly that Germany’s advocacy of political union acquired a novel assertiveness, which tended to undermine French certainty of how the dual understanding would operate in future. Secondly the grounds on which the French, led strongly after an initial period of reluctance by Mitterrand, would seek to redefine the partnership also changed. It is perhaps necessary to emphasize the French government’s increasingly urgent search for monetary union, even more than the German desire for political union. The Mitterrand-Kohl agreement to balance the two, in order to retain their informal parity, despite Germany’s increase in size and status as a result of reunification, and to bind this new Germany firmly into a deeper, as well as larger Community, was to be the single most important phenomenon between the two IGCs. Neither that nor Maastricht would have happened without French fears of what a united Germany would otherwise become.

The price, on France’s side, was political union; on Germany’s it was monetary union. After Kohl’s about-turn on EMU to meet French demands in 1988, the German government (though not the Bundesbank) showed itself positive about the common currency even though it would involve losing the deutschmark – that is, so long as the new one was based solely on principles of economic stability and was managed only by the new Central Bank. Fluctuations in their relations continued, of course, at diplomatic levels: however these were repaired by the Kohl-Mitterrand proposal to have a second IGC on political union, made in April 1990 before the Dublin Summit, and strengthened during that IGC where foreign and security policy, and later European defence, were concerned. Much less consensus was obtained about EC institutions’ power, for elite German opinion valued an increase in the European Parliament’s democratic functioning so highly that the government tied it to its consent to EMU, as the only way to defuse domestic hostility to the impact of Monetary Union on the deutschmark.

From the French point of view, these attempts to tie EMU to Bundesbank management criteria, and to strengthen the Parliament, could be made acceptable if Germany were induced to accept a fixed schedule of progress leading from the ERM to complete monetary union on France’s terms. The French government also hoped that the Common Foreign and Security Policy (CFSP) could be extended to cover defence but on French, rather than NATO, terms: Mitterrand wisely gave instructions not to raise this question too early on. A substantial reordering of France’s domestic priorities would be involved in approaching the question of political union, but not of a size to require major or public changes in the machinery of French government.

All this contrasted sharply with the British case. Margaret Thatcher’s last two years were increasingly overshadowed by her belief that a grand conspiracy had come into existence, manoeuvred by Christian Democrats, renegade Socialists and the Commission led by Delors, with the aim of imposing Brussels’ sovereignty on a permanently embattled offshore island. But whatever her forays may have gained tactically in 1988 and 1989–90, they were mostly pyrrhic victories ending in acquiescence, for lack of allies. Meanwhile, on the domestic front, she was gradually manoeuvred towards acceptance that Britain should join the ERM by an entente between her chancellor, Nigel Lawson, and the foreign secretary, Geoffrey Howe, which, for lack of a true cabinet majority, she was unable to rupture.

On top of this came German reunification which she vigorously, and probably unwisely, attempted to delay by enlisting Mitterrand’s support during his period of uncertainty of how to react – as if a French president with his personal background had not been aware of its implications. Such tensions had already showed themselves in her speech at Bruges on 20 September 1988 – which became celebrated in retrospect for the tone of its delivery and its reception by the Conservative Eurosceptics rather than its actual content – accepting ‘Britain’s destiny is in Europe as part of the EC’ (but an EC that was imagined as a commonwealth of free independent nations working in harmony together, with a free trade policy covering the whole of Europe.) The text represented a modification of what she had herself accepted in 1985–6 but was consistent with a more general ‘Anglo-Saxon’ view that the EC was essentially an economic vehicle.

Like so many of Margaret Thatcher’s deep-rooted beliefs, these fears rested on a basis of evidence which was inevitably heightened and distorted by her personal perceptions, now ingrained in a long-running administration.² She encountered other EC heads of government only at summits, and had become isolated, largely because she no longer listened to the complex skeins of Whitehall advice. She was aware of this isolation, aware also of the strength of the EC majority, how her tactics often united them against her, and perhaps of how much less Britain counted with the United States under President Bush than it had done with Ronald Reagan. Yet she seemed unwilling or incapable of acting otherwise than Napoleon in his last campaign of 1814, winning many of the tactical battles but sliding to long, remorseless retreat. She was unwilling above all to examine her lifelong preconception about what ‘Germany’ really was.³

No such inhibitions restrained the Commission after Delors’s second term began, though he was to be dogged, in the press of several nations, by his assertion that by the year 1998, thanks to the Single Act, 80% of economic, and possibly fiscal and social, legislation would emanate from Brussels. This claim seemed to be heightened by Delors’s address to the Trade Union Conference in September 1988, which Thatcher used to justify her neo-Gaullist defence of national sovereignty – so long at least until the rest should have considered more carefully where all this would lead.⁴ The Commission, of course, had considered carefully, as the whole edifice built on the 1985 White Paper demonstrated. But it could not control how its proposals to the Council would be interpreted outside, in the press and on television in the twelve member states. British politicians could argue that in implementing the single market programme, the Commission often acted by stealth or resorted to rarely used powers such as Article 90, to force member states to open their telecoms markets to other EC competitors.

Views like this derived from evidence of various kinds: Commission documents such as the internal guide on how to infiltrate the mass of single market legislation through Coreper and the Council of Ministers; or the steadily increasing agenda of items contingent on the internal market. Delors’s campaign to represent the EC, not only at G7 meetings but at all functions dealing with external trade and GATT, appeared to aggrandize the Commission vis-à-vis member states. Indeed the Greek Presidency’s rather presumptuous initiation of direct talks with the Soviet Union in 1988, as if ‘representing the EC’, can be seen as a small state’s rejoinder; one that was reiterated by the Spanish Presidency early in 1989 over trade with Japan. That the Commission did retract, as it had done often in the past, on some of its more contentious positions in order to take a more emollient line, was less often remarked.

For example, concessions made by Delors and Christiane Scrivener, the Commissioner responsible for taxation, on VAT harmonization, which the British in particular had resisted, appeared in any case to accrue to the member state holding the Presidency, or to the European Parliament. In strategic terms, a grand design clearly did exist by 1989, on which the Hannover Summit’s accord allowed the Commission two priceless years to expand. But this might have happened in any case, without the Commission’s driving force, since preoccupation with Euro-sclerosis did not automatically vanish in 1988. It was certainly accelerated by the entry of financial institutions as significant players, and employers’ determination Europe-wide to use the internal market’s four freedoms firmly to re-establish managerial rights and enforce further deregulation of wages, security of employment and conditions of work, to the inevitable detriment and dismay of trades unions.

The Commission, led very strongly by Delors during the period 1988–91, provided a focus for what might otherwise have been diverse activities. Delors’s speeches and the agenda he outlined each January to the Parliament increasingly embodied a particular view of the inexorable unity of economic and social spheres; put simply, that EMU and the Social Charter should run in tandem. The argument that the EC needed a new deal (with undertones of Roosevelt’s New Deal) to safeguard concertation (as long as that had genuine economic content) and to give some hope of a return to full employment, required the Community to examine training and education, technology and structural cohesion, together with redress for unemployment and support for the areas of late 1980s industrial devastation.⁵

The embryo of an EC-wide supply side policy contained a built-in presumption that, while post-War neo-Keynesianism may have been misguided, the answers that Keynes had provided were not.⁶ Whether interpreted as a compromise between the requirements of financial and industrial capital or as an innovative response to the EC’s uncompetitiveness, the Commission set out a strategy in which industry, trade and social policies complemented each other in the search for adjustment in a guided, not a wholly open, market. Some of its manifestations are discussed later: industrial policy and trade, competition, and state aids, monetary union (which depended on member states reforming their public finances according to selected convergence criteria) and the Social Chapter.

The existence of such a massive agenda, unprecedented in the EC’s history, represented a drawing together of many disparate strands of policy-making within different Commission Directorates, by an unusually powerful and comprehensive direction. Given a second term of office as President, for the first time since Hallstein, Delors made clear what he intended in his speech in January 1989 to the European Parliament: ‘History’, he declared, was ‘knocking at the door … it will not be enough to create a large frontier-free market nor … a vast economic area. It is for us, in advance of 1993, to put some flesh on the Community’s bones and to give it a little more soul.’

Naturally enough, each Directorate strove for a greater role in this grand design,⁷ which in turn contributed to demands for greater competence by the Commission, and also by the Parliament. The appearance, as much as the reality, affected member states’ perceptions, so that ‘Delors II’ became for some a synonym for aggrandizement.

Answers to the question whether Delors did in reality overstate the grand design in the second Presidency, depend on when the estimate is made. At the time of Hannover, the build-up was incomplete. But in 1990–91, the run-up to Maastricht paralleled the final run-in of the single market programme, together with the waves of legislation from the Single Act itself, then going through every member state’s parliament. The popular press and public opinion in member states only woke up to this concatenation in 1991–2, and there was a very widespread reaction which fed through during the process of ratifying Maastricht and EMU (which was itself a follow-up to the SEA).

But for the political elites in each member state, and the Brussels milieu, the Delors peak came a year earlier; the factor which merited blame was that the IGC was ill-conceived, badly prepared and badly conducted, not on EMU, but on the political side. There was, for example, no central EU body like the Spaak Committee and no think-tank to prepare what actually went on at Maastricht; ministers went into the negotiating chambers often without full texts, in a changing set of circumstances. But the fault lay not only with the Commission’s excess of zeal to get everything included: ministers were equally over-ambitious, for instance in their desire to merge CFSP and defence.

Spain’s entry in 1986 also introduced a novel element, for Spain rapidly became not only a major beneficiary but an increasingly adept player. The Gonzalez government focused on a narrow set of aims, clearly intending to take its place alongside the existing big four⁸ – an outcome which seemed to have taken place after Spain joined the ERM in 1989, but above all in the triumphal year 1992 of Expo-Seville, Madrid’s tenure as Europe’s cultural capital, and the Barcelona Olympic Games.

The Spanish phenomenon also highlighted what was initially a less obvious part of the grand design: the extension of regional funding from a policy of subsidizing poor areas, such as Italy’s Mezzogiorno and most of Greece (often without tangible returns), to one by DG16 intended to raise the standards of infrastructure, production, investment and commerce to those of the rich core. This gave the well-organized, politically articulate regional governments in Catalonia and northern Italy their cue to ask for political as well as financial recognition when the IGCs began work.

Member states’ consent for the agenda and the Delors II agenda budget which was to pay for it depended on resolving a string of apparently unrelated issues in the two years before Maastricht. This was the harder to deliver since the Twelve no longer grouped in broad agreement, as they had on the Single Act, but divided into aggregations, northern or Mediterranean, large and small, rich and poor, those with great bargaining skills and those with less. Generally in this period it suited the ‘northern’ members to appease Mediterranean demands – in short for Germany to pay. Delors’s appointment of three liberal-minded Commissioners to the principal jobs in January 1989 (Leon Brittan to DG4, Martin Bangemann to DG3, Frans Andriessen to DG1, while keeping the protectionists Manuel Marin (Spain) at Fisheries, and Vasso Papandreou (Greece) at Social Affairs) may have encouraged them to do so.

The two principal issues need to be treated separately: monetary union first, then ‘political cooperation’ (foreign policy and defence), together with the whole area of the ‘interior ministry matters’ – policing of borders, cooperation on crime, terrorism, drugs and illegal immigration – which came together as a result of much wider developments in Europe and ‘near-Europe’. All were, of course, contingent on achievement of the single market. But the Commission could integrate the agenda and take a leading role only on the first of these; the other two touched on member states’ sovereignty far more directly and had to be argued out by ministers and heads of government in the context of a Europe that was changing, after the collapse of Soviet power, more rapidly than at any time since establishment of the ‘Peoples’ Democracies’ had cut old Europe in two in the late 1940s. Even France and Germany could not agree on the details of so wide a range.

On both aspects, the Commission lacked the force to recreate the coherent agenda that had been given it earlier by industrial and financial organizations in Brussels and member state’s capitals during the single market negotiations. These players did not lack interest, but they tended to dispute the agenda among themselves, with those expecting advantages in the internal market facing up to the still-protected national champions, secure for the present in their state aids and government procurement contracts. On the question of Japanese car imports for example, the old peak organization actually broke up, to reform itself under a new title and without one of France’s leading producers (see chapter 10). Apart from these relatively novel rivalries, firms and financial institutions were already deeply engaged in preparing for 1992’s consequences – to which monetary union seemed a remote adjunct; main boards were more concerned with the wave of mergers and acquisitions which reached its apogee in 1988–90.⁹

Organizations such as ERT and the European Committee of AmCham still argued the industrial point of view, especially on monetary union, but managements across Europe did not seek direct inputs to the IGC and appear not to have followed their course in detail. They reacted to the post-Maastricht crisis as if the world had changed little since the Single Act. The ERT, which did succeed in getting some of its ideas into the Maastricht texts, continued to publish pamphlets such as ‘Rebuilding confidence, an action plan for Europe’ (December 1992), which prescribed neo-Keynesian remedies for revival and employment, with talk of ‘concerted action’ and ‘strong leadership’ by governments in partnership with industry, as if the 1988–90 harmony between member states still existed.¹⁰

The agenda for the IGC was very much more complex than in 1985 because of the range of issues it had to consider, and the diversity – often incompatibility – of outlooks among member state governments. Heads of government and the Commission, often as rivals, therefore developed the agenda at one remove from the corporate players (who restricted themselves to monetary union and its consequences), and at several removes from national parliaments, media and the public. As a result, the long-running process was shaped by bargains, trade-offs and concessions which were different in kind from those of the internal market IGC in 1985. This may not have been intended to be an evasion of public debate, for many of the issues genuinely appeared too complex to explain in straightforward language, or were too confidential. But what, in retrospect, seems a clear failure of all those in the negotiations to educate their publics, meant that the new treaties, launched in 1992 in very altered circumstances, would shock public opinion – notably in Denmark, France and Britain.

There is no need to re-tell in any detail the Soviet Union’s collapse, the failure of former People’s Democracies (which began when Hungary opened its border with Austria to East Germans fleeing to the West and ended with the collapse of Communist authority in Prague and breach of the Berlin Wall on 9 November 1989), nor the reunification of the two Germanies. But all three events conditioned everything that happened in Europe thereafter. They affected EFTA, as Sweden and Finland reacted both to the removal of a forty-year-long threat and to the new-found independence of the Baltic States and Austria, with the return of growing normality, to what had once been Habsburg dominions. Above all they affected former West Germany and France, the EC’s central nexus, because the implications of a united Germany encompassed all the other eleven. The break-up of Yugoslavia, the collapse of Christian Democracy in Italy, and the undermining of the political right in Britain can be traced to the same origin, as can the growth of largely refugee immigration through east and south east Europe’s porous borders, with its direct consequences of racism and xenophobic nationalism.

In the years 1989–93, many of the vestiges of post-War settlements, in welfare programmes, industrial relations and state benefits, also died. Each country described its own parabola of declension: the new – or perhaps nineteenth-century Liberal – thought, first enunciated by the new right in Britain and the United States, passed through a sort of contagion, causing questioning, then fiscal and moral panics, and finally a scaling down of promises and expectations. The true fiscal crisis of European states, heralded in academic literature in the early 1980s, burst a decade later. Coinciding with disillusion after Maastricht, it had a corrosive effect on what remained of late-1980s’ aspirations.

Four Summit meetings stand out as markers on the road from Hannover to Maastricht. The first, in Madrid in June 1989, brought together the Delors Committee’s report on Monetary Union and the first draft of the Social Charter. The meeting was noted for Nigel Lawson’s attempt (speaking for a divided leadership) to be explicit about the terms for Britain to enter the ERM, though his government opposed both EMU at any point beyond stage I and the Social Charter. Defeated on the question of whether to have an IGC, and reduced to near-isolation by the accommodations between the Spanish Presidency, Germany and France (which had been made explicit in the Kohl-Mitterrand letter in favour of political union) Britain had to accept not only the IGC but EMU stage I in July 1990.

At the next Summit in Strasbourg in September 1989, with overwhelming support from the Parliament and smaller states such as Belgium, the French version of monetary union was accepted, with a date for that IGC (but not for the one on political union) after the West German elections and under the Italian Presidency at the end of 1990. Mitterrand had won his second seven-year term in 1988, and although his narrow Socialist majority forced him to govern with centrist approval, he had the firm support of his finance minister, Pierre Bérégovoy, in a period of stability, growth and falling unemployment – which he used to get the European Bank for Recovery and Development (EBRD) off the ground, with his protégé Jacques Attali as head. By then, the Commissioner for Social Affairs, Vasso Papandreou, had seventeen draft directives ready on all the aspects of industrial relations and conditions of work which had been stultified since the early 1970s.

The third meeting, in Dublin in June 1990, took place very much in the shadow of the Franco-German commitments to common foreign and security policy and to a second IGC on political union set out jointly by Kohl and Mitterand in April. The Irish prime minister Charles Haughey capitalized shrewdly on Ireland’s affinity with France, which was seeking to strengthen the European Council, extend QMV and inhibit the pretensions of the Commission and the Parliament. This also suited Helmut Kohl, whose government was prepared to pay the price so long as political union could be kept in tandem with its monetary counterpart.

Once again, the British Cabinet hesitated on the margins, its prime minister profoundly uneasy at the implications of the Kohl-Mitterrand agreement which had been made without consultation with either NATO or their EC partners. That lack of consultation had offended other governments as well: however the weight of the Franco-German entente lay heavy on them all, and was on the basis of this declaration that EC foreign ministers prepared for Dublin and its sequel, the summit in Rome, which to a large extent set the IGC’s agendas. All Thatcher could do, given Britain’s eleven to one minority, was – sensibly enough – to veto a Franco-German proposal for a large dollar loan intended to prop up the collapsing Soviet Union.

Italy took over the Presidency in July, before the Conference on Security and Cooperation in Europe (CSCE) meetings with the Soviet Union. Soon after, Giulio Andreotti became prime minister (Craxi having destroyed de Mita’s liberalizing government of 1989, together with the DC’s reformist programme which, in retrospect, was Christian Democracy’s last chance to save itself from shameful eclipse). Under his direction, the principle of two concurrent IGC’s for monetary and political union was established. After careful consultation with the German and French governments, Andreotti proposed a special ‘informal’ Council, to meet in Rome in October: his intention being to agree a target date for EMU stage II in 1994, with a further wide-ranging IGC the following year.

So hot was this pace that the Italian leader’s motives need analysis. It has been argued that, with the help of his own MEPs and other Christian Democratic parties, Andreotti set a truly Florentine trap for Margaret Thatcher, while her attention was diverted by the July G7 meeting in Houston and by GATT negotiations, so that she went largely unprepared into the October special Council.¹¹ Certainly her political nemesis was welcomed widely across the EC – in what one French diplomat described as a mood of soulagement. Yet there is no evidence among member states, whose policies were much more finely balanced than their leaders’ statements usually allowed to appear, of a desire to marginalize Britain. Concessions on stage II, and even some consideration of the chancellor of the exchequer John Major’s ‘hard ecu scheme’ had not been ruled out. But the Italian coalition was committed to transferring power to the Parliament. Andreotti may also genuinely have been concerned that the agenda for December was too vast for one meeting, since he attempted to agree much of it in advance at bilateral meetings and in the encounters of Christian Democratic parties in the late autumn. The German government had agreed not to bring forward the subject of the next set of GATT negotiations, hoping thereby to avoid antagonizing France (whose farming lobby passionately opposed the Blair House Agreement), while helping Andreotti’s fragile pentapartito administration. The German government’s concession of a firm date for EMU stage II, made during the October special Council, certainly strengthened France’s tentative acceptance that the two IGCs on monetary and political union should coincide.

Some of this can be ascribed to German and French governments’ calling in of past favours to Italy. But Italy also provided a skilful chairmanship which falsefooted British and Danish opposition. There was no discussion of GATT. Instead, proposals on political union and EMU stage II for January 1994 were confirmed, in advance of the IGCs. Thatcher had failed to seek alliances for her point of view and found no support except from Ruud Lubbers of the Netherlands.

France and Italy emerged with their governments’ main aims agreed. The real winner was Helmut Kohl who had been hoping for an uncontroversial reunification after the successful East German elections in March, and before public opinion during the West German elections began to question the terms. At the year’s end, Germany in effect paid for USSR approval of reunification and the new Germany’s continuing NATO membership with a massive hard currency sum to cover the withdrawal of Soviet troops from the former East Germany. In the same month, the five new Länder were absorbed in the enlarged Federal Republic, under Article 23 of the 1949 Basic Law; and once Kohl belatedly acknowledged the existing Polish border (cutting off the original pre-1914 East Germany for ever), the Soviet Union was excluded from central Europe for the first time since 1944.¹²

The fact that the two IGCs which began after the Rome meeting were to be concurrent, starting under the Luxembourg Presidency and ending under the Dutch one at Maastricht a year later, did not imply that they would resemble each other. The one on political union and Interior Ministry questions remained very largely a matter for inter-governmental negotiations. The question of monetary union involved the Commission to a far greater extent, and its influence permeated many of the texts. But the two were intimately linked, as Andreotti had argued; at the same time, the agenda was complicated by the issue of the reform of EC institutions, and by cohesion and the budget cycle after 1992 (which was essential for future cohesion funds), together with the Social Chapter, to which both were closely related.

I. EMU

The EMU IGC’s history is inextricably linked to that of the ERM.¹³ Even though the Single European Act stated the goal of eventual monetary union, nothing precise had been set down or accepted on the detailed matter of how transition to a single currency would take place, or when, or the shape and rules of the eventual European Central Bank which would administer it. The devil lay in precisely this detail, for which the ERM provided the only non-theoretical guide. Yet the ERM was the product of a very different conception, and had been disputed during its ten-year course between France and West Germany. The conclusions on which EMU’s architects would build were to become further confused by the entry of Spain and Britain.

The EMS had been created by decisions of the Council. But the ERM was formally an agreement between central banks (and therefore not part of the Community). Yet it had always had a high political content, whatever its economic effect on the economies of participants; and in that sense was to be compared not with the Gold Standard, as it had operated in Europe in the four decades up to 1914, but with the Gold Standard as governments rather than central banks had manipulated it in the 1920s.

Having been affected principally by movements of the French franc during the frequent realignments of the early 1980s, the ERM had been mistrusted by the Bundesbank for reasons expressed during Otmar Emminger’s tenure of office. But in the years after the French economic grand tournant of 1983, the ERM became a DM zone. Mitterrand and Delors, as his finance minister, took a decision which was politically strategic, as well as economic – a decision followed in due course by the Belgian and Danish governments and rather later by Italy and Ireland. For four years, in what can be seen as its ‘classic period’, the ERM rested on the Bundesbank’s credibility, together with West Germany’s willingness to behave as if the DM were indeed the anchor currency; and it achieved a generally accepted and widely welcomed reduction of inflation and state borrowing among members. It thus served as the monetary agency for what were becoming accepted concepts of prudence and discipline, necessary components of economic restructuring. Whether or not causation actually worked in this sequence is another matter: the gains appeared, at a time of rapid growth, to justify the sacrifices in output and employment that accompanied it.

France’s January 1987 devaluation however, which was forced on an unwilling government by the international markets as the American dollar fell steadily, altered this benign pattern.¹⁴ As Bernard Connolly observes, ‘the ERM had become an inescapable symbol of attachment to sound policies. But lack of complete credibility made it economically costly.’ French acceptance of the price for hard currency status was overtaken by a desire not to peg the franc to the DM, like the guilder or krone, which would have been politically unacceptable to French public opinion, but to fence the DM inside an increasingly rigid ERM structure which would lead logically and remorselessly to monetary union and a single currency – and thus to the disappearance of deutschmark primacy. French ministers evidently believed that this could be done, despite the global development of money markets where billions could flow across the exchanges in a matter of hours. They assumed continuation of the climate of opinion that had seen the G7 arrange the Louvre Accord in February 1987, in order to stabilize the dollar and yen against European currencies, whilst promoting world economic growth.

But the Bundesbank objected because of the implications for West Germany, and its criticisms carried great weight so long as the Reagan administration did nothing to remedy the dollar’s fall and the American budget imbalance. Having been pressed by Bonn to loosen its monetary stance, the Bundesbank reacted instead by raising interest rates in early October 1987, an action which helped to precipitate the New York Stock Exchange crash on ‘Black Monday’. The clash between Bonn and Frankfurt did not diminish until Hannover in July 1988, when the heads of government agreed on progressive reduction of interest rates. But this added new pressures to currencies in the ERM, since it had been agreed that capital would become fully mobile in France and Italy by 1990; so that it would cost their governments and central banks more and more, in each year before EMU took effect, to resist currency flows and speculation, particularly by the vast American ‘hedge funds’. Strengthening the ERM’s operations failed to limit these accumulating risks.¹⁵

Edouard Balladur had already proposed, in conjunction with Giscard, during the period of cohabitation, that a prototype of the European Central Bank (ECB) should start work before the final move to monetary union; and to plan it, the Committee of Central Bankers, under Delors’s chairmanship, was to be appointed at Hannover. But in the shorter term, two years of overshoot in West German money supply, together with signs of a speculative bubble in Japan, rapid overheating in Britain, and the Netherlands’ government’s unease about shadowing the deutschmark, presaged trouble which the G7’s pardonable overreaction on ‘Black Monday’ did nothing to allay.

With the Bundesbank apparently sulking on the fringe of a political vortex, stubbornly pushing up German and therefore ERM interest rates, the ERM’s deflationary classic phase ended in recrimination between Bonn and Frankfurt, and growing signs of inflation in Britain and Spain. (Denmark, isolated in its own peculiar cycle, experienced both inflation and stagnation, with repercussions on public opinion which were to be of great significance in 1992).

Meanwhile, the Committee of Central Bank governors, chaired by Delors, met between autumn 1988 and April 1989. They took part already having much common ground, both as professionals of a high order with a common discipline and as believers in the ERM’s proven effects on inflation, as well as the likely benefits of lower transaction costs and risks to be gained from monetary union. It is inherently unlikely that they ignored the political effects of a future ECB on members’ national sovereignty; but the possibility of national divergencies was offset by a measure of theoretical agreement: the conceptual ground had been well prepared in economic terms by the Padoa-Schioppa Report.¹⁶ This highlighted a basic inconsistency: following the completion of the internal market after 1992, which would be accompanied by full capital mobility and a more or less fixed exchange rates in the ERM, member states would still retain monetary autonomy in their national spheres.

Put simply, Padoa-Schioppa argued that it would not be in the interests of weaker economies to conform and bear the pain; instead they would act as backsliders or deviants, forcing the stronger partners to react, and thus prejudicing the whole. Prudent central bankers, inherently suspicious of what politicians would do to appease their electorates after the experience of the fifteen years since 1974, rated the collective good higher than national sovereignty. The fact that Karl-Otto Pöhl chaired the technical group and both he and Robin Leigh-Pemberton, governor of the Bank of England, signed the Delors Report seemed to indicate that unanimity had been achieved.¹⁷

To a large extent it had: all the governors accepted that a prototype ECB should start work, in order to begin the process of inducing equality of discipline and practice in reducing inflation as soon as possible. All could reasonably expect their governments to have accepted by then that no one country could bear the costs of doing this alone especially when taken together with contingent problems, such as wages and other labour market rigidities, and that if collective action were not initiated, at the next recession the EC might lapse into another sauve qui peut like 1974. The differences between them related mainly to highly technical problems. But the political issues of whether this new single currency, provisionally styled the ecu, would be too soft (as the Bundesbank feared) or too hard, as the British government suspected, and whether it would eventually be intended to stand up against the dollar and yen as an equivalent world currency, were not and probably could not be argued out.

The one fundamental disagreement in the Delors Committee concerned the mode of transition to EMU. It was finally concerted between Pohl and de Larosière (Banque de France) with some mediation from Carlo Ciampi, governor of the Banca d’ltalia, and help from the Netherlands and Spanish central banks, in time for Delors to present his report on 19 April 1989, in advance of the Madrid Summit. At that stage, it was sufficiently uncontentious to convince ‘respectable financial opinion’ in the EC, which in Britain included both The Economist and the CBI. But when Delors introduced it later that month to Ecofin, he added a timetable: there should be three stages, the first to begin as soon as possible. All twelve currencies should move within the ERM’s narrow bands by 1 January 1993, the date for completing the internal market. In stage two, exchange rates in the ERM should become almost rigid, and all central banks should be given the same degree of independence as the Bundesbank. Finally, in stage three, exchange rates would be permanently fixed, under an ECB entirely responsible for the monetary policy of the single currency. There would then be binding conventions on member states’ budgetary deficits, modulated – for example in the Spanish, Portuguese or Greek cases – by new EC cohesion funds.

Little debate took place in Ecofin, which had rarely been a forum for technical monetary matters, and the Spanish Presidency pushed ahead to start stage one on 1 July 1990. The governments of France, Germany, Spain, Italy and Belgium concurred in this timetable (though the Bundesbank held strong reservations); those of Italy, Greece and Portugal were appeased with cohesion promises. Finance ministers from Denmark, Netherlands and Luxembourg argued only over the detailed schedule. British delegates again were isolated. At Madrid, the whole package went through in the wake of Spain’s ERM entry within the 6% bands, (at a surprisingly low rate because Carlos Solchaga, the finance minister, had previously ‘talked the peseta down’). Meanwhile, as Lawson told in his autobiography, he and Howe jointly forced Margaret Thatcher to set out the conditions for British entry, despite her protests up to the last moment of arriving in Madrid.¹⁸ The Bundesbank gloomily went its way, raising West German interest rates further to contain domestic inflation.

Then the Berlin Wall came down. Very large numbers of East Germans had already escaped, mainly through Hungary’s unofficially opened border, raising the spectre of mass migration from East to West Germany. The situation could be compared with the strong, demand-led inflation experience before the Wall had been built in 1960–61. Bonn poured huge funds into East Germany to forestall such a threat to the DM, and later promised to exchange one deutschmark for each individual’s now almost worthless ostmark at a rate of one to one, a burden on West Germany which ensured high domestic interest rates for the foreseeable future.

Neither of the logical consequences, an ERM realignment or revaluation against the DM, or very high interest rates for all other member currencies, actually occurred. The first broke on French objections, since the franc fort policy had not yet acquired complete credibility, the second on German political reality. Karl-Otto Pöhl’s outspoken protests against the currency swap were ignored, being politically inconvenient before the crucial autumn elections. He was, in fact, threatened with constitutional revision of the Bank’s statutes if he did not give in. As a direct result, the DM’s credibility was impaired.

ERM partners in 1990, however, concerned themselves more with the effect of rising German interest rates on their own borrowing and their domestic economies, for while the German government expected to bear 80% of unification costs, it was not willing to internalize the consequences for other Community members. The result, if the Bundesbank held to its primary duty of monetary stability, could only be a steady rise in German rates to which the rest would have to adjust. Yet the British government – or rather its chancellor, John Major, fearful of losing the chance should Thatcher change her mind – chose this moment finally to enter the ERM in the narrow bands, on 5 October 1990. It was a bad time, with the dollar still falling and the ERM now nearly rigid, and a worse choice of parity. Yet the British chose not to take the advice of other member states which the ERM’s informal conventions prescribed – and which might perhaps have counselled caution.¹⁹

Meanwhile, despite these huge potential sources of tension, member governments concerned above all with passage to EMU went ahead, like Captain McWhirr in Conrad’s Typhoon, hoping to win through the storm to the hypothetical calm beyond. The German government’s price for accepting the principle of EMU in such conditions was to be France’s overt support for reunification and rapid progress to political union, so that the new, larger Germany could cement itself firmly into the Community. This can be read as the second stage of the Franco-German bargain made in 1987.

France’s government could accept this, whatever Mitterrand’s initial doubts about reunification, and whatever the impact on French public opinion, because few wished to unleash visceral images of Germany’s past being propounded at this time by Thatcher herself and Nicholas Ridley (except, that is, in languages such as Dutch and Danish which the international press agencies did not read). On that basis, Kohl and Mitterrand agreed their highly important joint declaration of April 1990. It followed, apparently naturally, that EMU would come about via the ERM-convergence path, and according to Delors’s timetable. Franco-German clarity of aim contrasted with Britain’s disarray at the top as Margaret Thatcher fell from power in November 1990, the result of a palace coup within her own Conservative party.

All this time the Bundesbank was constrained not only by its duty to the currency but by its charter obligation to support the Bonn government’s policy in the last resort. Whatever its Directorate felt about Kohl’s pre-election promise that reunification would cost the West German electorate nothing, the bank could not oppose the chancellor’s direction outright. In due course, with the CDU/CSU triumphant in the elections, Pöhl resigned. His lonely gesture and his subsequent explanation, though cogent, had less general effect on events than the new British prime minister’s tone; for John Major’s talk of bringing Britain to a more pro-EC orientation, and signs that his Conservative party might even align with Kohl’s CDU and the European People’s party parliamentary grouping, seemed remarkable after eleven years of marching in another direction.

It was widely assumed during the IGCs that year that the ERM had become the ‘glide path to Monetary Union’.²⁰ But that this represented a political as well as an economic judgment was not clear until after Maastricht, in spite of the most unwelcome paradox that developed shortly afterwards, when the peseta went to the top of its ERM range and the French franc to the bottom – the exact reverse of what their relative stabilities indicated should happen. France encountered the greatest economic pain, for despite inflation being almost as low as in Germany, interest rates stayed higher and contributed both to slow growth and persistent high unemployment, and to the government’s repeated attempts to reduce rates rather than let the franc rise.²¹

At the heart of the problem lay the fact that with reunification of Germany costs and prices would eventually rise; unless the Bundesbank permitted higher domestic inflation, France and the other members would pay the price via the ERM. Acceptable though the arrangement might be in 1990–91 while Bérégovoy pursued the franc fort, and while Mitterrand sought to reincorporate Germany coute qui coute, its long term survival could not be taken for granted during the next three years. It also depended entirely on monetary union remaining the agreed end. Yet twelve years of ERM practice offered no precedent for resolving such tension. Any realignment at this stage – even by Britain, now locked into its initial misjudgment – would imperil the ‘glide path’ thesis. As for the Spanish paradox, the others could neither ignore the thesis nor rethink the ERM’s logic. Only the Bundesbank’s council dreamed, as they had since 1987, of a different path to EMU through gradual evolution of a cluster of low-inflation currencies such as the guilder, Belgian franc, Danish krone, and now the French franc, linked to the DM.

Governments across the EC chose to ignore protests from industry and trade unions about high interest rates, and focused primarily on the IGCs. But the French and German finance ministers did induce the Spanish government, against the advice of the Bank of Spain, to depreciate the peseta (contrary to the ERM’s presumed doctrine that the government should not manipulate the exchange rate but content itself with cutting state spending, wages and public consumption). The Spanish government conformed, fearing to antagonize Germany, its main investor, suspecting that if it did not Spain might lose access to the cohesion funds which alone could help its economy fulfil the EMU convergence criteria. The Spanish government’s version of perceived national interests triumphed over its central bank’s fiscal prudence.

In order to bring EMU to the speediest conclusion, the French government and the Banque de France argued during 1990–91 for even more than Delors had: instead of achieving convergence first, according to generally-agreed criteria, a strict timescale should be imposed, pari passu with the IGC at Luxembourg. Margaret Thatcher’s replacement by the relatively inexperienced John Major facilitated this move, which was incorporated in the Commission’s draft treaty on EMU and the ECB’s draft statutes in December 1990. Thereafter, the two IGCs ran in parallel into a maelstrom where raison d’état, economic logic and deductions from very recent history surged inextricably around two conflicting propositions: on the one hand, that EMU would produce automatic convergence and was therefore a precondition for economic union (advocated especially by Italy and Belgium which most needed the external discipline); and on the other, the contention of the Bundesbank and Chicago monetarists, that convergence and completion of the internal market were themselves the preconditions.²²

Within this grand argument lay others, such as the shape of stage two and Britain’s proposal for a ‘hard ecu’ rather than an irreversible single currency. (This proposal originated with Sir Michael Butler, and was taken up by Major when he was chancellor. Like Howe’s scheme in 1984 for a Single European Act without an IGC (see p), it had certain advantages, one of which was that it made a rigid schedule unnecessary. But, like Howe’s earlier scheme, it came too late. In any case, it would have implied a long delay in stage three. Though acceptable to Spain and possibly others, it ran into outspoken German opposition on the grounds that the ‘hard ecu’ would constitute a ‘thirteenth currency’.

Inevitably a compromise emerged, even in such a Manichean struggle: the timetable should be absolute, but so should be stage two’s move to narrow bands and the convergence criteria themselves, the assumption being that each member state would thus be forced to adjust its own inflation, budget deficits and public debt ratios. To meet British objections, the Maastricht Treaty’s EMU sections added that the Commission should monitor member states’ performance, as it was already doing in their progress towards the internal market.

Governments’ various alignments in the EMU IGC were composed by a sort of logic outside time and public opinion, far from the actual recession which was beginning to affect industrial players in the second half of 1991.²³ Stage two was set to begin on 1 January 1994, stage three in January 1997 or up to two years later, a date from which John Major obtained his celebrated opt-out clause with Kohl’s direct assistance.

Only one event disturbed the tenor of compromise, when the Netherlands Presidency introduced a proposal that the four convergence principles should be achieved before making any move to set up an ECB. This was attacked both by the French and the Commission, with support from Italy and Greece, whose governments saw the external agency which was to help them reform their public finances evaporating. Yet this was what German ministers, primed by the Bundesbank, actually wanted. It also pleased the British whom at this stage the German government wished to carry with them. The ECB was not therefore to take its final form during stage two, but only a European Monetary Institute (EMI), whose precise relationship to the existing array of central banks was far from clear. Convergence seemed assured, and in fact developed most markedly at first among the more widely divergent members like Spain, Italy, Belgium and Britain. Commentators in the United States assumed parities already to have been fixed so that ‘hedge funds’, managed by men like George Soros, had a straight gamble on whether EC governments would hold to this resolve.

The denouement came quickly, as the Bundesbank pushed rates higher to cope with German domestic inflation in the second half of 1991. For the next year Pöhl’s successor, Helmut Schlesinger, pursued the lonely path of rectitude to maintain the bank’s reputation against manifestly political pressures from Bonn and other EC capitals, all of which watched the struggle between Frankfurt and Bonn with increasing dismay.²⁴ Speculators inevitably targeted those currencies, the peseta and the lira, whose governments had most to lose from the deflationary regime and were most likely to have to devalue long before 1997.

Substantial issues affecting members’ sovereignty had been traded, as British, Dutch and Danish ministers constantly pointed out. Yet the pass had been sold with the Central Bankers’ Report. All the more scrutiny was therefore imposed on the political union IGC, at a particularly fractious time of quarrels over agriculture and GATT, and the siting of the EC’s new institutions such as the EMI. Meanwhile the Commission’s interventions brought accusations of overbearing behaviour: a proposal in May 1991 to make detailed regulations within existing laws earned the criticism that Delors sought to make it the ‘thirteenth state’. Delors himself, nearing the end of his second term, needed to keep in line not only the IGCs – the second of which was largely outside the Commission’s scope – but the future budget on which the promised cohesion funds (and thus the acquiescence above all of Spain) depended. Yet in the second IGC, the Commission had to be a broker between member states whose tolerance had already worn thin.

The first IGC did nevertheless settle the fundamental issue of where power would lie: in Michael Artis’s phrase, ‘it was the culmination of an unparalleled effort to think through the implications of monetary union and to strike realistic bargains in the interests of realizing this good.’²⁵ Whether the Commission’s powers of enforcement, or the logic of convergence and the timescale, would be adequate to reach that point was another matter, when the ERM reached its foreseeable long crisis in 1992–3.²⁶

II. Contingencies

REGIONS

Although the aim of creating ‘a more favourable business environment through the dehnition of a common industrial policy as a whole’, which was set out by the Commission in its paper on industrial policy in 1990, belongs to a distinct history, it affected the IGCs in a very broad sense, since it touched on key matters like trans-European networks for research and development, initiatives for training, liberalizing civil aviation or telecoms, the differing competences of the Directorates concerned with industry and member states, and the attempts to iron out economic and social imbalances in the Community. Since the imbalances, especially in the infrastructure, had a strong regional formation, a leading managerial and supervisory role had to be envisaged for the Commission. DG16 already had a claim to be the residuary legatee of such a role, by virtue of its responsibility for the Regional Fund.

But the more politically salient regions, above all certain West German Länder, led by Bavaria and North Rhine Westphalia, wanted a more tangible sign, outside the Commission’s competence. So great was their influence on Bonn, in the sensitive period before the East German Länder were assimilated, that an argument developed for instituting an entirely new political structure, one avidly welcomed by Spanish, Belgian and Italian regions. The Maastricht Treaty therefore embodied a new Committee of Regions, similar to the old Economic and Social Committee. At the time of signature, what this committee would become remained speculative (see chapter 9). But that it could be a useful sounding-board for the ambitions of different sorts of regions, ranging from German Länder to the partly autonomous Spanish regions was not in doubt. Hence the interest of trade union confederations, now once again linked under a regenerated central body, the ETUC, across the north-south divide in order to further the Treaty’s Social Charter.

SOCIAL CHARTER

The Charter’s roots can be traced back to the previous period of trade union influence nearly two decades earlier; more directly to the report from the Commission working group in 1979. It was also influenced by the high levels of tripartite consultation in the EFTA countries which were already requesting membership, such as Austria, displayed in the 1989 Kreisky Report. If, as the Commission forecast, these states were soon to enter the EC, then the Community’s labour market arrangements should be compatible with the conditions they already enjoyed. So argued the Netherlands, who were the leaders in this particular field. Delors and leading members of the ETUC such as Ernst Breit (DGB), Bruno Trentin (CGIL), and Nicolas Redondo of Spain’s UGT drew up the Social Charter, which was then adopted as part of the IGC agenda by eleven member states to one in December 1989. Its intention was to renew the earlier ‘social dialogue’ and compensate for the deleterious impact of the internal market and industrial restructuring, of which rising unemployment – forecast to reach 13% across the EC by 1992–3 – was the first consequence.

The Charter itself set out twelve categories of workers’ rights, based usually on the West German model of mitbestimmung, which were presumed to facilitate the emergence of a single European labour market, more flexible and endowed with higher skills.²⁷ The Charter embodied the Vredeling directive under another, non-compulsory form, and was likely to arouse opposition from UNICE and the European Committee members of AmCham because of employers’ predictable fears about higher costs, restrictions on the rights of management to hire and fire, and the imposition of standard contracts of employment. Indeed Delors told one British chief executive that the Charter was meant to be ‘the instrument for levelling the (labour) field’.

In spite of a proposed directive linking progress on rights to the cross-border mergers on which large companies were now keen, the only coordinated opposition came from Britain and Denmark. With their higher labour costs and legally protected markets, the governments, and in many cases the trade and employers federations of France, Germany and the Benelux countries, saw the Charter as a way of balancing the ‘Anglo-Saxon advantage’ which was initially predicted to derive from the internal market. Italy and Spain also wished to avoid disruption from trades unions at a sensitive period while their governments pruned public finances. The Charter thus stimulated systemic conflict between very different approaches to industrial relations, labour law, social security, welfare and pensions.

Yet there existed a strong case for arguing that the Charter would actually facilitate the internal market transition of which, according to the Commission, it was now a component (just as Structural Funds – doubled in size to 50 million ecus in 1989–92 – would ease the problems of declining industry and long-term unemployment (including the British coal industry)). The case for harmonizing laws on health and safety had been agreed already and if there were to be derogations they would be for the poorer countries, not Britain or Denmark. Thus the issue rested on the legal weight to be given to rights such as adequate information for employees about company strategies.

On the European Companies Statute (the heir to Vredeling) the Commission set out three basic models: that of Germany, the Franco-Belgian factory council model, and the British tradition of voluntary arrangements or bargains. From the list, all large and medium-sized firms would have to select one. It was perhaps unfortunate that the Commissioner in charge was neither much liked nor diplomatically skilled, because the Commission college let Vasso Papandreou, with her forty-seven directives, take the brunt of UNICE’s attack,²⁸ while keeping in reserve a still-tripartite but more voluntarist alternative.

Much depended on the powers that trade union confederations still maintained at national level, in what was inevitably a subordinate part of the Maastricht arena, even for the more committed member states. Mitterrand’s phase ‘no Europe without a social Europe’ carried little weight even with social-democratic governments in 1991. During the IGC, the Dutch Presidency did its best for the Social Charter. But Britain, its government relatively united on Thatcherite principles, refused, on this matter, to accept QMV at all.

There being no choice, if the Charter were to be salvaged from a British veto, the other eleven governments proceeded with it as if it had been part of the Treaty, in a masterpiece of informal politics which the Netherlands Presidency then turned into a Protocol. John Major, taken aback by the long-term prospects if the Commission were to choose (under Article 100A of the Single European Act) to launch fresh legislation under a QMV heading, presented this optin by the majority of eleven to the House of Commons as if it had been a successful opt-out by the one.

REFORM OF INSTITUTIONS

Bargaining about the Commission’s competences surged up on these issues, often for financial reasons, because many of the trade-offs included compensation, through the proposed cohesion funds, for member states which expected to do badly out of EMU as well as the internal market. But behind disputes about the EC’s swelling budget rested issues of sovereignty and institutional reform. Insofar as the cost of regional equilibrium would rise, for example, the ‘northern’ member states who paid the most required supervision of the allocation and spending of both structural and cohesion funds.²⁹ At the same time, the collapse of Communist regimes in eastern Europe required a response. If there were not to be a rush by Western countries to take easy advantage of newly democratic, politically inexperienced states with weak economies overloaded with Comecon debts, the Community had to act together. So it did; but it was the Commission which coordinated the West’s rehabilitation and loan programme, first for Poland and Hungary, then for all of eastern Europe. Fears that the Commission would thus slip into defining a sort of Community foreign policy led Mitterrand at Strasbourg to sponsor the grand concept of a European economic entente, a case which – like the Kohl-Mitterrand declaration on EMU and EPU – revealed the Council’s increasing habit of reaching major decisions in principle, usually on a Franco-German basis, preempting in practice both the Commission and Parliament.

Even before the IGCs began, change and reform of institutions touched other spheres, such as the European Court of Justice.³⁰ Any extension of QMV proposed at Maastricht would also greatly complicate member states’ tactics, obliging them to calculate more carefully than they already had to, under the Single European Act, when constructing alliances or trading advantages if they wished to mobilize a blocking minority. But some power also adhered to the Parliament, as its President, Enrique Baron Crespo, with Kohl’s support, demanded that the political IGC should confer on it the right to initiate legislation, and amend more of, or reject, what was put before it. Italian, Dutch, and Luxembourg ministers, as well as those from Germany, supported this challenge to the prerogatives of the Commission and the Council.

The Parliament had already conducted its own attempt to set the IGC’s agenda, when its first ‘assizes’, held in Rome in November 1989, debated the proposals which Baron Crespo was later to advance in his semi-official meetings with ministers before and during Maastricht. These included not only greater rights to initiate, amend or reject legislation, but definitions of citizenship – basic rights on which might eventually be constructed the idea of a European public. In addition, it asked for enlarged competence for the Commission in social and environmental cases, and that European political cooperation (EPC) should be brought within the Treaties.

III. Political Union

The second IGC’s origins derived from two sources: member states’ long concerns with foreign policy from which, unlike EMU or the Social Chapter, Britain could not and did not wish to dissociate itself; and from the threats to their national security represented by cross-border crime, drug smuggling, terrorism and illegal immigration. Consciousness about the latter grew as the internal market and abolition of economic frontiers approached, and on the former with every stage in eastern Europe’s metamorphosis. Although the IGC had not been envisaged initially as having a defence element, events in 1989–91, including the incipient break-up of Yugoslavia, led that way, as did economic aspects of both the Community’s foreign and security policy (CFSP) and the internal market, via defence procurement, state aids to industry, and mergers such as the Siemens/GEC takeover of Plessey.³¹ Meanwhile, thirty-five years after the French Assembly had killed off the EDC, the French government wished to come back into the centre of European defence, even if that meant it had to reconsider aspects of NATO, so long as it did not have to rejoin NATO’s Military Committee. But defence as a separate theme could not be brought within the Treaties since it had been specifically excluded in 1957.

Mitterrand therefore sought an enlarged status for Western European Union (WEU) as the main plank of France’s CFSP proposals.³² But since the dilution of NATO was a highly sensitive subject, his proposals remained vague – as did their embodiment in the Treaty (see p). Not only did they have a direct impact on other member states in NATO, they invited an unpredictable Russian response. France’s defence industry, long the most successful of any EC exporters, also stood to gain substantially, to the dismay of British and German competitors and those parts of the Commission concerned with the single market and competition policy. If defence was to be touched on during the IGC, not only Britain’s fears about NATO but Germany’s concerns with its own new status and the problems of eastern Europe and Yugoslavia had to be addressed.

Interior Ministry issues were also brought into sharp focus by events in eastern Europe, above all the profound uncertainty about what would emerge from the former Soviet system after the onset of civil war in Yugoslavia. For the first time since 1961, the possibility of a flood of refugees and asylum seekers confused the patterns in which legal and illegal immigration had largely been contained. Unlike 1961, heavy structural unemployment in western Europe was beginning to change the outlook of governments which had previously been willing to accommodate large numbers of refugees. For the first time since the 1960s, the prospect of economic migrants, rather than refugees, from eastern Europe reappeared. In mid–1991, while the IGC was in progress, the International Labour Organization estimated that roughly eight million legitimate immigrants were living within the EC’s borders; on top of that had to be added the illegal ones, and asylum seekers whose numbers had risen from a mere 70,000 in 1983 to 350,000 in 1989 and nearly half a million by 1991 – even before the Yugoslav conflicts.

Refugees and asylum seekers were one thing, illegal migrants another. But the conditions of the time fostered confusion, so that the two easily became conflated, in certain political movements, and by the popular press. Nations’ rights to defend themselves against crime or drugs, recognized in Article 36 of the Rome Treaty, had been reaffirmed in the Single European Act. But the Schengen Agreement, made between France, West Germany and the three Benelux states in 1985, prefigured a Europe of open borders, where the southern and eastern members – Greece, Italy and Spain – would stand in effect as frontier guarantors for the rest against most sources of illegal immigration.

The political IGC therefore had to encompass a vast area, with no clear long-term aims, where member states argued not only over the practicalities of ID cards, data protection, and the so-called ‘right of hot pursuit’, but their likely impact on national public opinions. This was especially so in Britain and France, but became more so in parts of Germany and Spain; Italy felt the force of it once refugees began to pour in from Yugoslavia and Albania. Even among the Schengen countries, discords developed, for example over Dutch permissive policies on soft drugs, which French interior ministers referred to in outspokenly critical terms. Sentiments which had rarely been voiced in public now became commonplace, throwing doubt on the competence of other member states to keep out, variously, Moroccans and Algerians, Albanians, Yugoslavs or Somalis, and economic refugees from behind the fallen Iron Curtain.

Three main influences shaped this IGC: the efforts of the Parliament (by far the weakest); the Commission’s attempts to set the agenda, which dated back to 1986, if not 1985; and the aims and ambitions of member states. The well-attested tendency for EC states to grow more to resemble each other might have led the Maastricht negotiators to expect the same sort of consensus levels that had been obtained in 1985. Earlier frictions between Commission, Council and Parliament had indeed lessened during the late 1980s. But north-south differentiation seemed to have increased, as Spain’s successfully aggressive tone during the bargaining indicated, and the distinction between countries with sound fiscal regimes and others who were lax demonstrated. The ancient gulf between Britain and the majority, with all its philosophical undertones, remained, albeit softened by Major’s ‘Britain at the heart of Europe’ pretensions. Even subsidiarity, which for most states already meant devolution not to national but to regional capitals or even municipalities, meant something different to British Conservatives – though not to many Scots and Welsh.

How divergent the larger member states’ aims were can be gauged from the table of their desiderata compiled by the Economist in December.³³ But whereas smaller and Mediterranean states had more cause than they had had over the Single European Act to defend particular national interests, the activities of Germany, France and Britain were complicated by their adjustments to changing perceptions of the outside world.

As in the past, the German government supported a Common Foreign and Security Policy (CFSP) having, at that stage, no conceivable alternative. French foreign minister Dumas and his German colleague Genscher explained in their October 1990 proposals for a CFSP that they were prepared to include majority voting in the Council. In December 1990, they widened their approach to include a common European defence, building on what had been done in Western European Union (WEU) since 1984. The German-French paper of February 1991 spelled out the WEU’s function as a bridge between the European Union and NATO. For both Bonn and London it was also important to guarantee that any European defence pillar in the framework of the WEU would not undermine NATO. However, the Germans had the additional aim of tempting France back into full membership of NATO.

Conduct of this part of the negotiations, though in the hands of foreign ministers at their monthly meetings, and deputies or permanent representatives on more frequent special occasions, reverted in the last six weeks to heads of government level. In Paris, it was the responsibility of Dumas and Guigou, but never far from Mitterrand himself: in Bonn, rather less harmoniously, it lay between Kohl and Genscher.

For the French government, it was vital to reinforce the EC in French colours rather than allow the Dutch Presidency, aided by Belgium and Italy, to make EC transactions more accountable to the Parliament and more detrimental to national sovereignty. The French were playing for very high stakes: not only for EMU but for a French rather than a NATO-based version of CFSP – at variance, for example, with what the Netherlands required. If defence were also to be included, an alternative had to be found to the organic image of a tree from whose trunk all the branches would spring.

One of the French negotiators, Pierre de Boissieu, brought forward the idea of a temple, whose pediment would rest on three distinct pillars: EMU (which mattered above all other elements to France), foreign policy, and home and justice or Interior Ministry matters. This had the inestimable advantage that neither of the latter need add to Commission competences – negotiations between governments would suffice. Even so, it would need advance concertation with Germany if a move in foreign and defence policy apparently so at variance with France’s twenty-five year stance were to be accepted by French public opinion.

Germany’s representatives regarded strengthening Community institutions and a stronger position for the European Parliament as so important that they were prepared to link them to their consent to economic and monetary union. They were also well aware that EMU was subject to growing criticism inside Germany, and that public support for bringing new fields into the Treaties, such as asylum policy for refugees, combating terrorism and international crime, derived from Länder administrations, not Bonn. Länder governments, of course, sought a significantly stronger role for themselves, and the principle of subsidiarity. Remembering how their views had been ignored when the Single European Act was ratified five years earlier, and relying in part on the example of what Belgium’s ethnic regions had already achieved in the EU context, these sought confidently to replicate in the Community the division of powers between ‘Bund’ and ‘Land’ in the federal system itself.

Less obviously, fear motivated German leaders that if the new treaties were not signed quickly, conditions in the mid–1990s would deteriorate and encourage the rise of instability, fierce nationalism, and ethnic discord in central and eastern Europe. To avoid that, and the repercussions on those of German origin living in the former Soviet Union (and therefore entitled to citizenship of the reunited Germany), Kohl would be prepared to make substantial concessions.

It was not however clear that the British would even sign. One vital preliminary had been the ousting of Margaret Thatcher, for, in spite of an initially obdurate stance, John Major and Douglas Hurd skilfully let it be seen in private among the foreign ministers that they were not opposed à l’outrance to political union, but rather that they were men of goodwill as well as firm principles, shackled by the Thatcherite faction in their Conservative party. Such hints were reinforced at the personal level by links with the CDU between Chris Patten and Volker Rühe³⁴ and informally by Whitehall officials. By November, confronted with preparations by the other eleven governments for an ‘opt-in’ strategy on EMU, British ministers allowed it to be thought that they were prepared for concessions so long as they were permitted to opt out when stage three finally arrived. There was also some common ground with Germany, given British resistance to the Delors II budget package and demands for greater parliamentary audit over spending, as well as for the ECJ actually to be able to fine member states who ignored single market judgments.

In the end, Major was able to extract large, even remarkable concessions, partly because he was not Margaret Thatcher but more because it suited the other large state governments – principally Germany’s – to make deals which safeguarded essential interests before too much time elapsed. But this was done at what seemed a high price to the southern states then facing up not only to completing the single market but to the Community’s next extension in favour of EFTA countries which were already completing their political and economic reorientation.³⁵ Brokerage between governments conscious of the need to safeguard their national interests, rather than Commission control of the agenda, characterized the second IGC, together with a determination to get everything into texts, agreed and signed, before it was too late.

As the IGC ground remorselessly on, under enormous pressures from world events and domestic public reactions, a series of interlocking, contrapuntal elite bargains were made, by men and women who were often by now over-tired, working late at night in cabals and closets using an arcane jargon, assisted by increasingly exhausted officials. Although within each government’s apparatus, the issues appeared clear (and some of those engaged now admit that there was insufficient discussion by some national EC affairs coordination systems, leading to a lack of direction on essential questions),³⁶ their outcomes proved simply too complicated or obscure to explain in public language.

Yet since the web of alliances seemed to preclude national vetoes, while most participants believed the Luxembourg Compromise dead, national publics – or perhaps better, national media – came to feel that ‘their’ governments could do little to reverse the momentum. A pervasive sort of disillusionment spread, most strongly in Denmark, which may have been the first genuine expression of European-wide public opinion. It ramified in Britain and France, to say nothing of Italy, where the failure to educate or explain led (with good reason) to deep fears about higher taxes, sacrifices and assaults on work-place security as a result of fiscal reform.

Shifts of perception occurred, the results of a changing external environment, among the main players during the IGC. German diplomacy now had to operate in an entirely different way, given its borders with eastern and central Europe, a factor which explains President Bush’s transfer of interest as early as 1990 (and which disturbed Mrs Thatcher on her last visit to see Bush at Camp David). Her fall removed the principal – indeed the only – exponent of a bilateral diplomacy involving Britain and France, intended to contain a newly united Germany, but it did not alter Britain’s reliance on NATO and the CFSP framework; nor the fact that on matters such as Community support for Slovenes and Croats against Serbian claims to a greater Serbia, or EC extension to eastern Europe as well as EFTA, Germany would now insist on being heard.

The orientation of France towards the Community also changed, signified in 1991 when the Quai d’Orsay abandoned its line on ‘variable geometry’, even if the phenomenon was interpreted in a variety of ways by French analysts at the time. Under Mitterrand and Edith Cresson, France committed itself firmly to the internal market, not in the form of Anglo-Saxon liberalization – which Cresson, as a member of a Socialist government, frequently lampooned – but as a defence against Japanese competition and a means to adjust (an echo perhaps of how de Gaulle had assessed the EEC’s mid–60s harmonization policy). An element of protectionism grew, while unemployment rose in 1991–2. Yet as its one method of containing Germany, France set itself to become less particularist and more truly European, a step well beyond the already-significant turning point of 1983–4.

Documents flooded into the IGC, starting with the Commission’s agenda and member states’ own proposals. Others, with less formal status, included the Martin Reports and recommendations from the Parliamentary Assizes. Having been hyperactive in the preparatory period, the Commission appeared to miss several chances of imprinting its own agenda, possibly because Delors and the college were preoccupied with the many separate issues ranging from the early trade negotiations in eastern Europe to disputes over the budget. Whatever the reasons for the loss of focus, the proliferation of member states’ general plans, which varied from relatively ‘soft’ Spanish proposals to the more forthright German draft Treaty of March 1991, caused serious problems for the Luxembourg Presidency.

To contain the flood, and induce greater precision, the Presidency wrote what it styled a ‘non-paper’ in April, summarizing the state of play as if it had actually encompassed majority opinion. Later, on 20 June, in time for the Council Meeting, this was rendered into the negotiating text for a draft Treaty. As was normal in these circumstances, Council did little more than endorse what was going on, because actual progress was held up by three points of principle.

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