Battle Of Single European Market

Gilles Grin

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136201547
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

First published in 2004. This book studies the history of the single, or internal, market of the European Union since its beginnings after the Second World War until the end of 2000. The perspective is pluridisciplinary and incorporates several dimensions: historical, political, economic; legal and sociological.

PART ONE

ORIGINS OF THE BATTLE OF THE SINGLE EUROPEAN MARKET

CHAPTER ONE
ORIGINS OF THE SINGLE EUROPEAN MARKET 1945–1985

Towards the Treaty of Rome

Even if it was raining in Rome on March 25, 1957, the atmosphere was joyous. An important day in European history was taking place. The two treaties of Rome, creating respectively the European Atomic Energy Community (Euratom) and the European Economic Community (EEC) were signed by the official representatives of Belgium, the Federal Republic of Germany, France, Italy, Luxembourg, and the Netherlands. The creation of the EEC did not happen in a historical vacuum. The opposite was rather true: the Second World War in Europe had been terminated twelve years earlier by the capitulation of Nazi Germany; a gradual worsening of relations between Western powers and the Soviet bloc had led to the Cold War; the movement of decolonization was under way. Some degree of economic liberalization had already been achieved in Western Europe thanks to the Organization for European Economic Cooperation (OEEC), created in 1948 to administer the American Marshall Plan, and thanks to the European Payments Union, created in 1950 to get rid of bilateralism in monetary matters. Quantitative restrictions to the free flow of industrial goods between countries had been particularly tamed by the liberalization code of the OEEC. However, agriculture had been excluded from these liberalization measures and the arsenal of tariffs had hardly been emasculated. Economic growth in Western Europe had been bolstered in the postwar years by dual phenomena of catch-up from the Second World War and the Great Depression of the 1930s, and by a new process going beyond mere recovery, hence the expression ‘Golden Age’ to describe an era which was going to last until the beginning of the 1970s, when monetary turmoil and oil shocks put into shambles the economic order of the Western world.

Old classical economic liberalism had been discredited by the Great Depression and the blossoming of Keynesian thought, which ascribed a much more active role to the state in the economy. Even if in the wake of the Second World War Western countries aimed to reinstate a liberal international economic order, their policies were blurred by parallel efforts to develop their welfare states and to stabilize their domestic economies at a high level of growth and employment. This strange blend of liberalism and interventionism, sometimes called neo-mercantilism, was indeed very typical of the post-World War II era. France had a very willful attitude towards indicative planning, as exemplified in the Monnet Plan for economic reconstruction, named after Jean Monnet, commissioner for the French Plan and later a hero of European integration. Even the Soviet model did exercise a powerful attraction in the West; times of disillusion and of its discredit were yet to come. There is a strong case for arguing that European integration in the post-World War II era started thanks to the American Marshall Plan, a generous – and interested – mechanism which would provide help to the Europeans so long as the latter would help themselves by collaborating closely to reconstruct their economies. The Organization for European Economic Cooperation (OEEC), devised to administer Marshall aid, and the European Payments Union (EPU), which multilateralized European monetary relations after 1950, were two pan-West European institutions. However, European integration in the 1950s was also to take a different path based on deeper integration on a narrower geographical scale.

The first institution in that way was the European Coal and Steel Community (ECSC), created by the Treaty of Paris of 1951 signed between Belgium, the Federal Republic of Germany, France, Italy, Luxembourg, and the Netherlands – the same countries that were to sign the two Treaties of Rome in 1957. The ECSC was inspired by a sectoral approach to economic integration: the sectors of coal and steel were to be merged between the Six. As a matter of fact, the ECSC was a highly political project because it aimed to cement the Franco-German relationship and to render war between them impossible by putting the strategic sectors of coal and steel under supranational control. The failure of the European Defense Community (EDC) in front of the French Lower House of Parliament on August 30, 1954 led to a process of relaunching European integration. A conference between ministers of the ECSC members took place in Messina, in Sicily, on June 1, 1955. As discussions were stalled at the end of the day, the Italian foreign minister, Gaetano Martino, proposed to continue negotiations during the night in Taormina, close to the Etna volcano. Shortly after 5 o’clock in the morning of June 2, an agreement could be found: it was decided to create an Intergovernmental Committee of high-level officials chaired by Paul-Henri Spaak, foreign minister of Belgium, which would have the task to investigate the possible creation of an Atomic Energy Community and a general common market not limited to some sectors of the economy. The result of the work of the Intergovernmental Committee took the form of a report to foreign ministers in April 1956, commonly named the Spaak Report. This detailed report of more than 130 pages, nicely written by two officials of the ECSC, Pierre Uri and Hans von der Groeben, represented a common proposal of the members of the Committee to governments to take it as a future basis for negotiations. Negotiations started after the Venice Conference of May 29 and 30, 1956, and were eased by the quality and determination of negotiators, a strong Franco-German will to succeed and the tense international environment (Suez crisis, Soviet crackdown on Hungary), which showed West Europeans how weak and vulnerable they were. The result was the signature of the two Treaties of Rome on March 25, 1957. In this work, which is not intended to study Euratom, a reference to the Treaty of Rome will mean the Treaty establishing the EEC.

Treaty of Rome

Contrary to the ECSC and Euratom, the European Economic Community constituted a break with the building of a sectoral Europe. A general common market had to be built. As we have already seen in the introduction, a proper definition of the common market did not appear in the Treaty of Rome; it could be a synonym for the EEC itself or rather be more limited in scope. In a first possible definition, the common market can be said to consist of the general framework aiming to provide the four freedoms – free movement of goods, services, people and capital. Even if this definition makes a distinction between the four freedoms, reality is more complex in the sense that the four components are interrelated. First of all, the free movement of goods and services relates to the free provision of the outlets of economic activity regardless of internal borders, whereas the free movement of people and capital relates to the free use of factors of production regardless of internal borders. Then, the free movement of capital is not valuable just in itself; it underpins the other three freedoms. To take negative examples, there is no use in allowing the free flow of goods or the provision of services across borders if the convertibility of currencies to pay for these goods or services is not provided; or the free movement of people across borders without allowing them to move their savings with them would discourage them to do so – the same is true for the free movement of enterprises. A complete free flow of capital is also crucial to underpin a real single market for financial services. Services can be provided across borders or, with the use of the right of establishment, in the country where customers are located. In this second instance, the free provision of services depends on the free movement of people and firms across borders.

The free movement of goods inside the EEC was to be provided first of all with the establishment of a customs union – the abolition of customs duties and measures with equivalent effect to a customs duty with regard to intra-EEC trade, and the adoption of a common customs tariff for imports from outside the Community; and then the final abolition of quantitative restrictions and measures with equivalent effect in intra-EEC trade had to be secured. However, the provision of the free movement of goods went beyond the disappearance of internal quotas and the establishment of the customs union – not in itself essential as the creation of a free trade area with no common customs tariff would still have secured the disappearance of internal tariffs: approximation measures of laws, tax provisions and customs issues were also a component of the free movement of goods. This means that efforts in negative integration – the suppression of barriers by the mere repeal of tariffs, quotas, and some legal and administrative rules – were a necessary but insufficient condition to get free movement of goods. Measures of positive integration – adopting measures and building common policies – were also required. It is important to note that free movement of goods as a component of the common market in 1957 – whatever the latter means – did not ask for the abolition of internal frontiers. Checks on goods, animals and plants at the border were possible for health, safety or regulatory reasons; fiscal issues might justify interventions; the subsistence of national quotas towards third countries might justify in some circumstances controls at internal borders in order to avoid trade deflection. Beyond free movement of goods, borders enabled states to control people, whether to fight crime or to control immigration.

So far, we have dealt with the first – and most restrictive – possible definition of the common market in the Treaty of Rome. With this definition, the common market consists of the general framework aiming to provide the four freedoms; this framework is already complex as it includes measures of positive integration. A second possible definition of the common market adds to the first one competition policy, consisting of three sections in the Treaty of Rome: rules applying to undertakings, dumping, and aids granted by States. A justification of this inclusion is that competition policy concerns the regulation of the whole Community space and is cross-sectoral; competition policy aims to prevent that too much freedom of economic agents and States could jeopardize the maintenance of economic freedom, and a common market full of cartels, dominant powers abusing from their position and States distorting competition might look more like a common non-market. The third possible definition of the common market equates it with the scope of the European Economic Community itself, which means that it adds to the second definition the sectoral policies of agriculture and transport (outside the EEC one might also consider the European Coal and Steel Community and Euratom) plus economic and social policy. A first justification of this third definition is that sectoral policies prolong – or bring departures from – the general set of rules, hence they are complementary, whereas economic and social policy constitutes flanking measures to market integration. There is a second justification: the agreement on the various policies of the EEC was a package deal between the Six with reciprocal concessions, hence to lose sight of this facet of reality impoverishes our analysis. One could answer to these two arguments that the third definition under consideration has the weakness of blurring the picture by preventing a focus on the basic concept of the four freedoms and that in fact it is rather a definition of economic union. This work adopts the second definition of the common market (general framework aiming to provide the four freedoms with the inclusion of competition policy) and hence will just deal very briefly and casually with issues pertaining to broader economic union between Member States of the EEC. The hope is to reach a good compromise between a focus on the single market and a global perspective.

The Treaty establishing the European Economic Community was composed of a preamble and 248 articles divided up among six parts: principles, foundations of the Community, policy of the Community, association of the Overseas Countries and Territories, the institutions of the Community, and general and final provisions. Several annexes, protocols, conventions and declarations were enclosed to the Treaty. A determination to ‘lay the foundations of an ever closer union among the peoples of Europe’ was the first aim appearing in the preamble. This should remind us of the fact that political aims were always present behind economic issues. These political aims were not the same for all the actors of the process of European integration – a situation still true today. Other aims in the preamble were to ensure economic and social progress, to eliminate the barriers dividing Europe, to improve living and working conditions, to guarantee steady expansion, balanced trade and fair competition, to reduce the differences existing between the various regions and the backwardness of the less favored regions, to contribute to the progressive abolition of restrictions on international trade, to confirm the solidarity which bound Europe and the overseas countries, to ensure the development of the prosperity of the latter, and to preserve and strengthen peace and liberty. All these aims pointed to the search for a prosperous and peaceful Europe open to the world.

The task of the Community was more explicitly defined in Article 2; it aimed to promote throughout its space a harmonious development of economic activities, a continuous and balanced expansion, an increase in stability, an accelerated raising of the standard of living and closer relations between the States belonging to it. If we reformulate these aims, we can say that the Community wanted to increase economic integration and growth subject to some constraints of stability and equilibrium with regard to the balance of payments, to money and to regional concerns. The Treaty of Rome was of a liberal economic nature even if the range of covered substance did not encompass all issues of public regulation of the economy. The mechanism of economic policy coordination was weak, social provisions were not very developed, Member States kept control over money and regional policy, and the Treaty did not prejudice the national rules governing the system of property ownership. However, the aim to establish free movement of goods, services, people and capital was liberal – even if the Community did not give itself at the time all the tools necessary to obtain these four freedoms. The will to break barriers, to integrate more closely the economies of the Six and to regulate the new area in a way favoring competition and the establishment of a level playing field was based on liberal principles. The creation of strong Community institutions was also a way to guarantee that level playing field. The determining of a common customs tariff respecting Article XXIV of the General Agreement on Tariffs and Trade (GATT) meant that the level of protection of the new zone would not be higher after the entry into force of the Treaty of Rome than before – something not illiberal. Finally, even if there were several articles dealing with agriculture, the face of the common agricultural policy (CAP) was still blurred; it did not necessarily need to become the protectionist hydra it did later.

Article 8 of the Treaty stated that ‘the common market shall be progressively established during a transitional period of twelve years. This transitional period shall be divided into three stages of four years each.’ The...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• Acknowledgements
• Introduction to the Single European Market
• Part One: Origins of the Battle of the Single European Market
• Part Two. The Battle of the Single European Market and its Achievements
• Part Three. The Single European Market and the Battle of Economic Thought
• Conclusions
• Bibliography
• Index