Orchestrating Europe (Text Only). Keith Middlemas

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СКАЧАТЬ 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 СКАЧАТЬ