Orchestrating Europe (Text Only)

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.