Orchestrating Europe (Text Only). Keith Middlemas

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      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.

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