Putting It Together: The Foibles and Future of the European Union

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Author John Gillingham

Publisher Cambridge University Press

Year 2003

Pages 608 pp.

Price $70.00

For some, the process of European integration resembles nothing so much as a long-running Broadway play: the actors change, but the roles remain the same, the lines endlessly repeated, the action tightly scripted. So it is in John Gillingham's history of the European Union.

Gillingham's libretto revolves around the conflict between the champions of economic statism and proponents of economic liberalism. The lead roles are those of Jean Monnet, the charismatic French technocrat, and Friedrich Hayek, the bookish Austrian economist. Act I, which stretches from the late 1940s through the mid-1970s, is dominated by Monnet and his circle, who responded to the material and moral conditions of post-World War II Europe, which rendered the rapid restoration of liberal market arrangements infeasible, by making enterprise nationalization and indicative planning (whereby the government uses a combination of direct controls and financial incentives to encourage investment in particular sectors) the order of the day. Controls on international capital flows, retention of which was permitted under the Bretton Woods settlement, gave each government the leeway to elaborate a national economic plan. But capital controls did nothing to rebuild Europe's trade or to create confidence that Germany's economic might would be funneled in productive directions; if anything, financial restraints stood in the way. Monnet's response was to advocate the creation of a supranational entity, a union of European nations, through which state guidance of the economy could be formulated on a continental scale, intra-European trade could be liberalized, and Germany's economic energies could be reliably channeled. The economic constructs of the Monnetists, from the European Coal and Steel Community to the customs union, were all flawed to some degree. But together they gave birth to a basic set of institutions -- a commission of technocrats, a representative assembly, and a court of justice -- on the basis of which it became possible to organize transnational policies and create the European Union (EU).

Act II, commencing after an interlude of six years, sees the revenge of Hayek, with a helping hand from British Prime Minister Margaret Thatcher. By the early 1980s, the inefficiencies of state-led planning had become evident, and the special circumstances that had lent legitimacy to statism after World War II no longer animated European leaders. Moreover, the capital controls that gave European governments the freedom to pursue distinctive national policies had lost much of their bite. The expansion of trade, which even die-hard Monnetists acknowledged was necessary for prosperity, and the growth of the Eurodollar market, which they did not anticipate, destroyed the feasibility of economic planning in individual countries. The failed "Mitterrand Experiment" of 1981-83, which attempted unilateral budgetary expansion to overcome recession but only precipitated a financial crisis, drove home the point.

Enterprise privatization and market deregulation thus became the economic tools du choix. A single European market free of barriers to the internal movement of merchandise, capital, and labor -- Hayek's vision -- came to be seen as a solution to the problems of stagflation and high unemployment. A continental market would allow European firms to reap the benefits of economies of scale and scope, and the need to attract footloose factors of production would force national governments to remove barriers to production and innovation. A single currency, a creation with both symbolic and real value for integrating markets and intensifying competition, capped the process in 1999.

But this finale proved anticlimatic for the Hayekians, for it neither reduced the reach of the state nor led to the devolution of regulatory functions to regional and local governments. To the contrary, the creation of the single market starting in 1986 led to a greater role for the European Commission, the EU's proto-executive in Brussels. With the benefit of hindsight, this result is unsurprising. The cross-border spillovers of policies grow more pervasive as markets are integrated, creating a logic for centralizing the regulatory functions required for the operation of a single market. Even a classical liberal economy must have a trade policy and a competition policy, and an integrated international market can have only one of each. As Gillingham notes, Jacques Delors, the EU's head technocrat from the mid-1980s through the early 1990s, saw this as a convenient opportunity to expand the responsibilities of the European Commission and to turn it into the EU's central policymaking organ.

But conferring legitimacy on those responsible for these functions requires creating mechanisms for holding them accountable for their actions. As the powers of the European Commission increased, proposals spilled forth for enhancing the oversight of the European Parliament, strengthening the Council of Ministers, and even directly electing the president of the commission to redress the democratic deficit. In the ultimate irony, the economic triumph of the Hayekians gave new life to the political integration so fervently desired by the Monnetists.

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