From the FT archive: The desirability of closer EC union

Ahead of Maastricht, Ian Davidson and Martin Wolf debate the desirability of closer EC union

Listen to this article

00:00
00:00

These articles were first published in the Financial Times of December 3, 1991.

Ian Davidson: New era for EC family

Despite the melodramatic posturing of the top negotiators in advance of next week's Maastricht summit, it is virtually certain that they will get an agreement. Indeed, so many conciliatory gestures are already being made, that some people think this could be a milk-and-water deal without dramatic consequence.

Do not be deceived. Whatever the last-minute compromises, the Treaty of Maastricht will be the biggest event in the history of western Europe since the foundation of the Coal and Steel Community over 40 years ago. If this is not properly perceived in Britain, then that is partly because of the way the issues have been presented by the UK government.

The European Community owes nothing to Britain; it has come this far only because political leaders on the continent have wanted it to. Successive British governments have consistently tried to prevent or escape the trend towards greater European integration; 40 years on, the government of Mr John Major is still running true to that form.

President Mitterrand tells the French that he wants the European Union to become a federation and the greatest power on earth; Chancellor Helmut Kohl tells the Germans that he must have political union. But Mr Major advertises his instinctive suspicion of the whole affair; he is determined not to be left out, but he will do his best to limit the damage.

Next week's treaty will launch the 12 into several colossally important new areas, starting with economic and monetary union, and foreign, security and defence policy. But almost as significant as the adoption of these specific domains is the fact that almost any policy area can now be discussed as a candidate for European competence.

Take, for example, the question of immigration. Most member states (though not, of course, Britain) accept that the Single European Act, which calls for the free movement of people inside the Community and the dismantling of internal frontiers, means what it says, and that there must be a common set of rules for treating people at the Community's external frontiers.

The German government, which is struggling to cope with large numbers of immigrants from eastern Europe and elsewhere, goes further and argues that the Community should become responsible for Europe's immigration policy. Even if the German proposal is excessive, it cannot be dismissed out of hand. Immigrant pressure on western Europe is vast and rising. If the 11 are to have any real hope of containing immigrant-fatigue, they will need three sets of co-ordinated policies: first for excluding unwanted immigrants, second for socially integrating those who cannot be excluded, third for developing the economies and reforming the societies of the countries exporting immigrants. Only the British government thinks its interests can be satisfied by posting extra policemen at the Channel Tunnel.

The British may crow that they have kept social policy out of the realm of majority voting; but theirs will be a hollow victory, and in any case it is not final. The underlying lesson, first of the single European market, and now of economic and monetary union, is that there are few areas of economic or social policy where there can be a neat dividing line between national interest and Community interest.

The anti-federalists think they have won a victory in the negotiations, by ensuring that the Maastricht treaty is split into structurally distinct parts. Some things, such as Emu, will be handled by the Community's ordinary institutions; other things, such as foreign policy and internal security policy, will be handled on an inter-governmental basis.

This institutional distinction seems to imply that on inter-governmental issues member states will be free to decide whether to co-operate with their partners or not. This victory will prove as illusory as previous attempts to circumscribe the Community process. Foreign policy will be an inter-governmental affair. Does that mean Britain can have an independent policy towards Russia? The idea is ridiculous.

In short, the Community is moving from an era of narrowly-defined and self-contained commercial bargains, to an era of potentially unlimited overlapping common interests; from the era of the cafeteria to that of the family. This does not mean that everything will be decided by the family. But from now on almost anything may legitimately be considered of common interest, and that is the real meaning of the treaty.

Even the functioning of democracy in EC member states may become a common concern. The general assumption of Euro-federalists is that the transfer of powers to the Community institutions opens up a 'democratic deficit', which requires a strengthening of the European Parliament.

But it is not obvious, at this primitive stage of European integration, that an undeveloped European Parliament can bear the full weight of making good the democratic deficit. The member states will continue, for decades or perhaps centuries, to provide the essential political structures for EC action, and it is their national institutions which will have to bear the main stresses of integration. And it is not clear that the political institutions in some member states are up to the job.

Some may ask whether we need to suffer the political stresses implied by next week's treaty at all. The answer to that question is written on the map of Europe. When the French first proposed the creation of a Community in 1950, their primary aim was to bring to an end 100 years of war in western Europe. Today that purpose has been so thoroughly accomplished that another military conflict between France and Germany seems quite unimaginable.

In the meantime, however, the disintegration of the rest of the continent has made the need for political integration in western Europe stronger than ever. The liberated economies to the east will depend crucially on the political and economic stability of an institutionally organised western Europe. And in the face of chaos in what used to be the Soviet Union, western Europe has little option but to develop the means of its own defence.

The difficulty of those tasks needs no underlining. But anyone who believes that they can be satisfactorily handled by a loose congress of independent European states has not measured the scale of the problem.

Martin Wolf: Federalism before a fall

Forget, for a moment, the missed trains, the two speeds and other Euro-cliches. Ignore suggestions that the new European treaties will make little difference. Forsake, too, those who suggest one can dine a la carte: monetary union, a soupcon of economic union, but no political union. Only two opinions on these treaties are to be taken seriously: those of the federalists and those of their irreconcilable opponents. The opposites agree where agreement is inescapable. These treaties matter because they will shift the balance between two visions of the European Community.

The first vision is that of a constitutionally entrenched liberal order. Europeans have good reason to be grateful for the prosperity and harmony brought them by the EC in this benevolent guise. Yet the EC has a dark side: harmonisation and collective management of day-to-day policies. It is not sufficient, people say, for the EC to be a constraint on states; it must be a state. The Common Agricultural Policy is a prime example of the EC’s actions in the latter guise.

Some argue that monetary union is a constraint on governments, like the late 19th century gold standard. So it is. But that is not all it is. Monetary union differs from the gold standard in five salient respects:

  • The gold standard was, like the weather, beyond praise or blame. The proposed monetary union, by contrast, will see discretionary control over monetary policy.
  • Under the gold standard, the costs of irresponsibility fell on the guilty state, which could be forced off gold. Under a monetary union, risks fall on all members of the union.
  • Under the gold standard, a country could choose to go off gold. Under monetary union, return to a domestic currency would amount to secession.
  • In the era of the gold standard, governments were not held responsible for the economic fortunes of their nations. But Europe is the home of the world’s most welfare-oriented states, with ‘cohesion’, ‘solidarity’ and ‘social protection’ emblazoned upon its banners.
  • The era of the gold standard was one of nominal and real wage flexibility. But Europe contains the industrial world’s most inflexible labour markets.

As a result of these differences, economic and monetary union means that:

  • the fiscal policies of individual member states would come under Community guidance;
  • attempts would ultimately be made to reach a collectively-determined EC fiscal stance;
  • fiscal transfers among member states would be demanded and, in the end, granted; and
  • finally, the impossibility of achieving desired objectives through fiscal policies controlled by member states would lead to direct EC taxation.

In time, Emu would turn the EC into a state. It is not that a minimum government version of Emu is logically inconceivable. But it could only survive, in practice, if income convergence and adjustments to economic change were to occur through the market. Given the nature of the EC’s labour market, the need for intrusive power would be greater than in the US. Meanwhile, the EC’s dirigiste ambitions for the labour market are bound to make already bad labour markets worse.

Those whom the gods wish to destroy, they first make mad. But the progenitors of these ideas are only mad north-north-west. If autonomous adjustment through the market is diminished, the stronger becomes the case for common policies, funded by common resources. No wonder then that a commonality of interest between the Commission, lobbies in rich states that wish to limit the competitiveness of poor ones, and lobbies in poor states that seek resources from rich ones has created a treaty on political union which, like a Christmas tree, has a bauble for everyone.

Against the exercise of new EC responsibilities the draft treaty on political union raises the fragile bulwark of ‘subsidiarity’: that ‘the Community shall take action . . . only if, and insofar as, these objectives can be better achieved by the Community than by the Member States acting separately’. What, one might ask, does ‘better’ mean; and who will decide?

To the often heard argument that the issue is not the powers left with member states, but liberalism, the reply is simple: power to member states is the guarantor of liberalism. Within the single market member states are subject to fierce regulatory competition. It is the resulting pressures for liberalisation that the introduction of ‘minimum standards’ by qualified majority voting is intended to thwart.

In short, the treaties on the table at Maastricht represent a decisive choice. The EC is to become a state. More, it is to be a multinational, multilingual, federal superpower, one with inadequate constitutional safeguards, dominated by largely unaccountable institutions and an elected parliamentary counterweight as remote as could be. If this thought does not give its proponents pause, it is difficult to imagine what might, for the auguries are inauspicious.

Neither the USSR nor the US suggests that this exalted status is conducive to happiness. Small trading powers obliged to compete in world markets run rings around such inward-looking colossi. Even a common currency, the one clear economic benefit of the treaties on offer, is far from an essential ingredient in economic progress. Will the benefits of monetary union outweigh the loss of flexibility attendant upon a single currency?

Protagonists of these treaties also stress the importance of eliminating conflict among the states of Europe. But will these treaties diminish conflicts, or increase them? Why should Germans welcome a replacement for the D-Mark that is likely to be worse? Why should Europeans acquiesce in the deflationary policies of a European super-bank? Why should citizens of smaller states be happy with dictates about their fiscal policies that are most unlikely to apply to the big ones?

Perhaps future historians will consider Maastricht a decisive step towards the emergence of a stable, European-wide power. Yet there is another, darker possibility. This may be when a noble assault on the arbitrary powers of the European nation states was buried within the banal attempt to create a new one. The effort to bind states together may lead, instead, to a huge increase in frictions among them. If so, the event would meet the classical definition of tragedy: hubris (arrogance), ate (folly); nemesis (destruction).

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.