European Economic Integration

Limits and Prospects

Miroslav Jovanovic

• Publisher: Routledge
• Year: 2002
• ISBN:
  9781134866564
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

In this major new text, Miroslav N.Jovanovic presents an analysis of all the major aspects of economic integration in the European Union. Beginning with an overview of the origins of European integration, he moves on to discuss in detail all the main policy areas. These include:
*monetary policy
*competition policy
*industrial policy
*fiscal policy
*trade policy
*the Common Agricultural Policy
*foreign direct investment
*regional policy.
The volume also includes a discussion of less well-known policy areas, such as social policy, environmental policy and transport policy. Containing an excellent blend of theory and practice and presenting a highly complex issue in an accessible and non-technical way, this text will be an invaluable resource for students of international economics, international business and European studies.

1
THE ORIGIN OF THE EUROPEAN UNION

I INTRODUCTION¹

The concept of European integration has been a topic for discussion this century among European intellectuals since the early 1920s. Richard Coudenhove-Kalergi argued in 1923 for the creation of a pan-European union. An emerging ‘European movement’ assembled around 2,000 participants from 24 countries in a Congress in Vienna in 1926. They approved the pan-European Manifesto that was, among other things, in favour of a customs union, common currency, military alliance and the respect of national values. Aristide Briand, the French Foreign Minister, was in charge of the Government Memorandum on organization of the federal union in Europe in 1930, at the time when Adolf Hitler scored his first electoral victories. The Memorandum considered issues such as a common market; customs union; free movement of goods, capital and people; and a community of European people. Altiero Spinelli and Ernesto Rossi, although deported to the island of Ventotene in 1941, secretly circulated the Ventotene Manifesto in which they argued in favour of the creation of the European Federalist Movement. To avoid international anarchy and save the liberty in Europe, they claimed, one needs to establish a federal Europe to which nation states should transfer certain sovereign rights in the common interest of all Europeans (Sidjanski, 1992, pp. 19–26).

The Second World War left many deep scars in Europe. These included not only the destruction of a large part of the population and production potential, but also the position of foreign troops in many countries. There was also a danger that after the joint elimination of Nazism, the confronting forces of the Red Army and the armies of the west would develop into an open conflict between east and the west. That was clearly seen by Winston Churchill who called for a closing of the ranks in the west. In a speech in Zurich on 19 September 1946 he said: ‘I am going to say something that will astonish you. The first step in the recreation of the European family must be a partnership between France and Germany’ (Jansen, 1975, p. 7). It was a vision that cooperation between former adversaries could defuse potential conflicts in the future.

European intellectuals continued the development of the integration idea after the Second World War. The European Federalist Union was created in Paris in 1946. This multi-party movement was matched by the creation of similar partisan movements among the christian democrats and socialists. Political issues were supplemented by the establishment of the European League for Economic Cooperation on the initiative of Paul van Zeeland in 1947. The League prepared studies on issues such as capital mobility, monopolies, enterprises and currencies. In the same year, the Hague Congress considered two prominent reports dealing with possible ways for European integration. The first one was on federalist issues, by Denis de Rougemont, and the second on economic issues, by Maurice Allais. Those activities by European intellectuals and government officials point to the fact that ideas about European integration were genuine and the post-Second World War regional integration was not artificial.²

This chapter starts with a consideration of the Marshall Plan and the first moves towards European integration. That was followed by an expansion in the unity of western Europe and the creation of the European Coal and Steel Community. The next step in integration was the establishment of the European Economic Community and the European Free Trade Association. European integration led next to the enlargement of the European Economic Community. A period of Eurosclerosis (1974–1985) was changed by the Single European Act. The Maastricht Treaty was supposed to pave the way towards the (controversial) economic and monetary union. The intergovernmental Conference is supposed to revise the preceding Treaties of the European Union, make the Union more practical, prepare it for eastern enlargement and for the coming decades. The appendix outlines the structure and operation of the institutions of the European Union.

II THE MARSHALL PLAN

The mistrust and apprehension between the east and the west reduced contact between the two blocs. It was basically taking place only within the United Nations, in particular its regional organization, the Economic Commission for Europe, created in 1947, with the aim fostering contacts among all European countries that would help the economic reconstruction of the region. The cold war increased the gap between the two blocs, and their respective countries tried to find their own way in their political, military and economic recovery and development.

Poverty of a large part of the population is the instigator of social upheavals. Hence came the build-up of the left-wing parties in the post-war period in France, Italy and Greece. Harsh winter conditions (1946–7) and the following dry summer led to a shortage of food. The aggregate production in western Europe was small. Domestic consumption absorbed almost everything that was produced. There were little export surpluses that might have covered the growing demand for imports. The leader of the western world, the United States (US), realized that there ought to be a consolidation of the social system in western Europe by the means of a recovery programme. The programme would inject on a one-off basis a large amount of aid into the west European economies. The expectation was that it would help western Europe recover and grow as a significant market for American goods, services and interests.

In May 1947, three young economists that were working for the US Department of State, Harold van Cleveland, Ben Moore and Charles Kindleberger, sent a paper to George Kennan, Director of Policy Planning Staff. In that letter they called for a ‘Coordinated European Recovery Programme’ directed ‘toward a strong and economically integrated Europe’. Among the ‘top secret’ documents from that time, there was also a ‘Report of the Special “Ad Hoc” Committee of the State-War-Navy Coordinating Committee’, in April 1947, which sought a ‘reintegration of these countries into healthy regional and world trading and production systems’ (Machlup, 1979, p. 10). It was America’s strategic interest to have reliable partners in Europe, rather than unpredictable adversaries. All that was an introduction to the famous speech of George Marshall.

The US Secretary of State, George Marshall, gave a speech at Harvard University in June 1947 announcing the European Recovery Programme (known as the Marshall Plan). The plan basically revealed American readiness to help the reconstruction of all European countries under two conditions. First, the European countries had to prepare jointly a reconstruction programme. Second, they needed to agree about the volume of the financial-aid package, as well as the share of each country in it. The message of the plan to the Europeans was that they had to integrate in some way if they wanted to get aid from America. Such a stance by the US was based on the top secret documents that argued in favour of European integration (Machlup, 1979, pp. 10, 186), as the US did not have confidence in some 20 atomized states in western Europe. US aid was not offered on a bilateral, but rather on a continental basis.

In July 1947, the foreign ministers of France and Britain invited their counterparts from all European countries, with the exception of Spain, to a conference in Paris to discuss the drafting of a joint reconstruction programme. Poland and Czechoslovakia were the only countries from the East that initially accepted the invitation. Those two countries, however, subsequently declined because of Soviet fear that the Marshall aid programme was an American Trojan horse which would destabilize the Soviet zone of influence. The Paris conference consequently took place with the participation of 16 west European countries.³ These countries established a Committee of European Economic Cooperation (CEEC) which was supposed to prepare the principles of the Reconstruction Programme and suggest the necessary means for its implementation. The Programme was prepared and submitted to the US Government in September 1947.

In April 1948, the US Government approved the European Recovery Programme (the Marshall Plan). During the life of the Programme (1948–1952), the US spent around $15 billion. The biggest single users of the Programme funds were Britain (around 23 per cent), France (around 20 per cent) and the western zones of occupied Germany (around 10 per cent). The Marshall funds had an enormous stimulating effect on the recovery of west European countries from their post-war economic disarray. Marshall aid was not conditioned in any way, but in fact almost all the funds were spent by the recipients in the US because that was the only country able to provide the goods required.⁴

The member countries of the CEEC discussed the possibility of establishing a permanent organization with the aim of fostering economic cooperation among the member countries. Subsequently, they established the Organization for European Economic Cooperation (OEEC) in April 1948. During the negotiations there were, basically, two schools of thought. The British thought that the OEEC ought to be an organization with minimum authority, just enough to satisfy the American request. In contrast, the French argued that the OEEC needed to have a wider authority. The British approach prevailed in the final agreement as the balance of the European leadership tipped over to the British side. It should be remembered that Britain was still an important partner in the victory over the Nazis and one of the three parties that were dividing the world in Yalta, as well as a large colonial power. One may find here the first bone of contention between Britain (and, perhaps, the Scandinavian states), on the one hand, and France and the other continental European states (that would subsequently create the European Community) on the other.

III UNITY OF THE WEST

The creation of various economic, political and defence organizations in eastern and western Europe reinforced the division of Europe into two blocs. Britain, France and the Benelux countries treated questions of mutual assistance in the event of an attack on any of those countries. In March 1948 they⁵ established in Brussels the Western European Union (WEU) which obliges the high contracting parties to collectively defend themselves in the case of an armed attack.⁶ Fearing that western Europe might in the long term become too independent (or become communist) in the political and military field, the US decided to remain present in Europe with its military force. The US invited the Benelux countries, Britain, Canada, Denmark, France, Iceland, Italy, Norway and Portugal to unite in their defence efforts. Those countries established the North Atlantic Treaty Organization (NATO) in April 1949. An armed attack on any NATO member country would be taken as an attack on all NATO countries.⁷ West European countries accepted the American proposition since that meant a partial reduction in the tax burden on the domestic taxpayers.⁸ Italy was included in NATO from its inception, although it is not an Atlantic state. The US had a paramount vision about the question of defence. The Americans, as well as the French, wanted to include Italy in the family of west European states, although it was a member of the Axis, in order to avoid the isolation of Italy which would create fertile soil for the communist onslaught. In addition, Italy could provide strategic contribution to the south flank of the Alliance. The defence club of the west inherited an intercontinental dimension. The WEU fell into hibernation.

Economic cooperation of the west European countries in the post-war period took place within the OEEC. Defence was organized first by the Dunkirk Treaty (1947) of Britain and France (against Germany), then the WEU (against Germany and the Soviet Union), and next NATO (against the Soviet bloc). Political cooperation, as the third pillar of western unity was left aside. But not for long.

Political cooperation also started to develop in Europe. The Hague was the site of the European Congress in May 1948 for the consideration of issues linked with the creation of a united Europe. The Congress was, in essence, to take up two approaches to that issue. The first one was the unionists’ model. The British and the Scandinavians (the Protestants) argued that European unity could be achieved through inter-governmental consultations. The second, the federalist model, was favoured by the French (the Catholics). The federalists wanted a more formal organization of European political cooperation. They wanted a political institution with real and supranational powers. The subsequent debate led to the creation of the Council of Europe. The Statute of the Council, according to the British-Scandinavian model, was signed in London in 1949, but its site was and is in Strasbourg.

The Council of Europe is mainly occupied with issues relating to human rights, health, law and human mobility. The real basis for a political union within the Council of Europe was modest, since it excluded the defence issues, while the participation of neutral states precluded the possibility of a common foreign policy. The principle of unanimity in the Council made it difficult to agree on important problems.

The Yalta division of the world found a special partnership in the eastern part of Europe, too. The Soviet Union wanted to consolidate its grip in the east and created political (Cominform, 1947), economic (Comecon, 1949) and defence (Warsaw Pact, 1955)⁹ alliances in the east.

IV EUROPEAN COAL AND STEEL COMMUNITY

The rivalry between Germany and France brought about three open wars between the two countries in modern history.¹⁰ France wanted to take advantage of the favourable circumstances following the Second World War. After all, France was a part of the Allied forces that defeated the Nazis. Germany was occupied, and its discredited political and moral position gave France an opening to shape events in western Europe without Britain, albeit with some support from the US.

The occupation of West Germany could not last forever. Therefore, the western Allies established the International Ruhr Authority in 1949. Its aim was to control the production and distribution of coal, coke and steel in the Ruhr region, in order to take hold of West German heavy industry. The economy of West Germany started to recover, and there were certain signs that the country was looking for greater independence. The question that the Allies were facing was, on the one hand, how to permit the development of the mighty West German manufacturing base in order to create a strong shield to withstand the first blow in case of armed conflict with the eastern bloc and, on the other hand, how to prevent the situation of a powerful West Germany again destabilizing peace and security in western Europe. The solution was found in the Schuman Plan.¹¹

Robert Schuman, the French Foreign Minister, presented a plan for the establishment of the European Coal and Steel Community (ECSC) on 9 May 1950. Instead of opting for the first federalist action that would embrace all economic aspects, Schuman and Monnet were realistic since they selected a narrow scope: the production of coal and steel.¹² In Schuman’s words: ‘The solidarity in the production thus established will make it plain that any war between France and Germany becomes not merely unthinkable, but materially impossible’ (Jansen, 1975, p. 36). France was ready to sacrifice some of its sovereignty to a supranational body, the ECSC, which would manage a part of France’s economy in order to get partial control of West German heavy industry. Konrad Adenauer, the West German Chancellor, saw a chance for his country to improve its subordinate position in the post-war period and to regain equality with other states, so he accepted the plan.

The Schuman Plan was one of the biggest turning points in French history. In the past, France was always looking for allies against Germany. It was either in the east (Poland and Russia) or in the south (Serbia). After the Second World War any partnership with those countries was out of the question. Since coal and steel were the most important levers of economic growth and conventional warfare at the time, France decided to abandon a part of its sovereignty in those industries in order to penetrate the most important manufacturing industries in its former and secular mortal enemy, Germany.

Italy and the Benelux countries accepted the negotiations with France and West Germany about sectoral integration. Those nations signed the Treaty of Paris that created the ECSC on 18 April 1951. The only original text of the Treaty was written in French and deposited in the archives of the French Government (Bayliss, 1985, p. 212).

The objectives of the ECSC are stated in the Preamble of the Paris Treaty. They include the maintenance of peace (mentioned three times in the Preamble), a substitution of old rivalries, an avoidance of bloody conflicts and an anxiety to raise the standard of living. The ECSC ought to contribute to economic expansion, growth of employment and a rising standard of living in the member states (Article 2). The principles of the ECSC are given in Article 3. They include an orderly supply in the common market, equal access to the sources of production for consumers in the Community, the prohibition of price discrimination and the need for an orderly expansion and modernization of production.

The High Authority is in charge of the implementation of the Paris Treaty (Article 8). It may: facilitate investment programmes (Article 54), establish a system of production quotas in the case of manifest crisis (Article 58), influence prices (Article 60), outlaw agreements that prevent, restrict or distort competition within the common market and authorize in advance any transaction that might directly or indirectly bring about a consolidation of industry (Articles 65 and 66) inspired by the French desire to block a reconcentration of West German coal and steel industries. The Treaty was to last for a period of 50 years from its entry into force (Article 97). After ratification, the Paris Treaty became effective on 23 June 1952.

During the negotiations about the Paris Treaty, ther...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Foreword
• Preface
• Acknowledgements
• Abbreviations
• 1 The Origin of the European Union
• 2 Monetary Policy
• 3 Fiscal Policy and the Budget
• 4 Common Agricultural Policy
• 5 Competition Policy
• 6 Industrial Policy in Manufacturing and Services
• 7 Trade Policy
• 8 Regional Policy
• 9 Capital Mobility
• 10 Labour Mobility
• 11 Social Policy
• 12 Environment Policy
• 13 Transport Policy
• 14 Conclusion
• Bibliography