In my frequent visits to the United States these days, I am asked most insistently two questions about Europe: "What will happen in 1992?" and "Can a united European market work?" Many Americans are either skeptical about the future of Europe or nervous about it. Some predict that when put to the test a united Europe will quickly splinter under national and local political pressures. Others fear that Europeans will drop their internal trade barriers only to erect a higher new external wall, creating a kind of "Fortress Europe."

I have reason to believe that neither of these doomsday scenarios will come to pass. My hope is not mere irrational optimism, but is rooted firmly in the history of the last forty years. Who would have believed that the very same nations that twice in this century nearly destroyed each other would be as closely united as they are now? If we are able to travel a similar distance in the next forty years, a truly united Europe is well within our grasp.

When I think of the progress we have made, I always remember the first trip I made to America in 1939-perhaps the most important journey of my life. Eighteen years old, having just graduated from high school, I was sent by my grandfather to learn as much as possible about the United States and the Detroit auto industry.

The world was so much larger and more divided then. My ocean voyage took four days; now such an excursion takes four hours by plane (and is often made entirely unnecessary by the multitude of electronic ties that bind us). The cultural distance was even greater than the physical divide. I felt then that I had left behind a small and badly split Europe, on the brink of war, and arrived in a country that was the world's center of finance and industry-and yet viewed itself as politically isolated from the rest of the globe.

At the time of that first trip, Italy was a small, largely agricultural nation and Fiat was almost exclusively an Italian company. Now Italy has grown into the world's fifth-largest industrial nation, and Fiat-the 34th-largest corporation in the world-is the largest in Europe and is traded on the New York, London and Frankfurt stock exchanges. My belief in the possibility-indeed the necessity-of a united European market comes directly out of this increasingly internationalized experience.

II

The current unity of Western Europe is not so much the result of a utopian dream as it is the political recognition of economic reality: the reality of global markets, the reality of economic interdependence and the reality of competitive pressures-all of which make cooperation essential.

Since the act creating a single European market was signed in 1986, progress has exceeded expectations. Some 279 directives must be put in place by 1992 for the common market to work as planned; agreement has already been reached on 107 of these. The reason that the project has continued to progress and defy the odds against it is that it does not depend entirely on political goodwill; 1992 was born for sound economic reasons and those forces continue to be its engine. Ironically, it was politicians who in 1957 first conceived the idea of a common market-often over objections from the business community. Now the situation has been reversed; it is the entrepreneurs and corporations who are keeping the pressure on politicians to transcend considerations of local and national interest. We believe that European unity is our best hope for stimulating growth and technological innovation, and for remaining an influential presence in the world.

Only a few years ago, Europe passed through a deeply pessimistic period, a time of gloomy soul-searching during which many believed that it was facing an inevitable decline as a world force. Looking at the future it seemed impossible for individual French, British or Italian companies to survive on their own, against much larger American or Japanese competitors. In order to make the kind of massive capital investment needed to keep up in the high-technology race, many European businesses looked to pool their resources with new partners from across the continent. The increased cooperation of recent years-among both private companies and nations-seemed to point the only way out of Europe's crisis. Now, with the prospect of creating an entity of 322 million people with a combined gross national product of $4.2 trillion, Europe has a legitimate hope of competing in the world market with resources roughly equal to those of the United States.

Because 1992 has grown out of a recognition of the advantages of a free market, I believe that its success will depend on strengthening Europe's traditional economic and political alliances, rather than excluding the rest of the world. In seeking to accomplish this goal, a host of problems great and small await resolution-from such major issues as the elimination of national border controls to seemingly minor ones such as the standardization of electrical plugs. Some countries are concerned that doing away with border checks will complicate efforts to combat terrorism. Unless every country is convinced that entry points throughout Europe are equally secure, their resistance on this issue will continue. Ironically, however, resolving this problem may prove easier than solving the mundane problem of adopting a standard electrical plug; standardization in this area alone would cost European countries an estimated $80 billion. For now the European Community (EC) has prudently decided to keep three different kinds of plugs. But in many other technical areas-the standardization of safety and pollution control devices, for example-considerable progress has already been made.

One of the toughest, and I believe most important questions remaining, is that of establishing a single currency. The Single European Act of 1986 makes no mention of a European currency. While resolution of this debate will certainly have to wait until after 1992, I believe it is an inevitable development. All of the 12 member nations, except Britain, have keyed their domestic currencies to a new European currency, the ECU, and this system has produced promising results. For example, during the last two years, Fiat has begun to calculate its balance sheet in terms of the ECU as well as in the currency of the various countries in which it operates.

The fact that 25 percent of Europe's combined total income comes from inter-Community trade should make it obvious that there is a limit to independent national monetary policies. Ultimately a truly continental market will demand a standard currency. And all member states-including Britain-officially gave their commitment to this idea at the EC leaders' meeting in Madrid last June.

The idea of defending national currencies seems inconsistent with a borderless Europe. The uncertainty of costs due to fluctuating currencies is a barrier to truly free trade. Imagine a California company worrying about the shifting value of different currencies when shipping to each of the other 49 states! The motivation to standardize is likely to come from within the business community; only a year and a half ago a handful of industrialists formed the Association for the Monetary Unification of Europe; since then membership has grown to 150 major corporations.

Europe's internal market cannot do for long without the power represented by a single currency. A European currency would represent a valid alternative to the dollar as a currency of reserve and of international payment, acting also as a stabilizing influence in the world monetary system. This is not a change that can occur immediately, but there are some interim steps that would help smooth the way. Italy, for example, must limit the range of oscillation of the lira with respect to the ECU, and Britain must enter the European Monetary System. We must overcome the pride that continues to see the defense of national currency as the defense of sovereignty. I think it is reasonable to expect the gradual establishment of a federal system of central banks in order to regulate the coordination between the various national currencies and the ECU.

Reforms of the EC's political system have made it much easier to tackle problems of this magnitude. For many years, the political process was made exceedingly cumbersome by the veto any single member of the EC could exercise. The Single European Act changed the rules of the European Parliament, making it impossible for one or even two countries to block changes voted by a large majority.

III

In the first years after 1992, there will be an intense period of competition and restructuring. Businesses that are now in a favorable position may not necessarily be so in the future. In the long run this competition will be a boon to both European businesses and consumers, but in the short term it is indeed possible that some businesses will lose out when national protection is removed. At the moment, European corporations are far from constituting the critical mass necessary to survive international competition on an equal footing.

The process of mergers and acquisitions that has already started in Europe in recent years will continue. When certain companies that have become national symbols become the object of mergers there will be strong protectionist reflexes on the part of local governments. (The battle for control of Belgium's Société Général is a case in point.) The EC has already begun modifying some anti-merger legislation in countries such as West Germany and Britain. It is inevitable, however, that mergers and hostile takeovers will remain under some type of regulation, provided this regulation does not hamper the growth of European businesses.

Mergers in the automobile industry present especially delicate political problems. Many of the major European automakers are their country's largest industry, their single largest employer and a source of national pride. But as our market opens up more to foreign competition, a greater degree of consolidation and cooperation is almost inevitable. While the U.S. auto industry is divided among three main manufacturers, in Europe there are more than a dozen, with the largest single automaker, Fiat, holding only 15 percent of all European sales. Cooperation, joint ventures, research consortia and various kinds of strategic alliances will be necessary for European car manufacturers to compete effectively with our larger American and Japanese rivals.

My experience at Fiat in recent years illustrates how one European company has sought to meet the challenge. Starting in 1974 one of our subsidiaries purchased several different European companies and became, in the process, one of Europe's largest manufacturers of industrial vehicles. Fiat expanded within the automobile business itself by buying another Italian automaker in 1986, and the acquisition of a French firm has helped another Fiat subsidiary become one of Europe's biggest manufacturers of auto parts. Then earlier this year, Fiat took the step of listing its stock on the New York Stock Exchange-part of our global strategy. In the process, Fiat has become a company with approximately $38 billion in annual revenues. Thus, I can look to my own experience to make my point: the future growth of Europe's industries lies in their improved access to a continent-wide, even worldwide, economy.

The transition to a truly free market-in the automobile industry and others-will not be instantaneous. At the moment, some nations, such as France and Italy, have import quotas on Japanese cars, while Germany, for example, does not. Because of the importance of various industries, there will clearly be an interim period in which such restrictions are lifted gradually and in a coordinated fashion. Along with strengthening our own position in this period, the EC, acting in unison, must guarantee true reciprocity from the Japanese.

This does not, however, imply the creation of a "Fortress Europe." Europe is today-and I believe will remain-the freest economic region in the world. Let us not forget that 45 percent of American capital currently invested overseas is in equity ownership within Europe. It is a very strange fortress indeed that welcomes its "enemies" to buy parts of its fortifications. The creation of a united Europe was inspired by a faith in the benefits of a free market. To close it off would defeat our main purpose: remaining in the vanguard of industry and technological innovation.

A united Europe with its 320 million consumers represents a great potential market for Japan and the United States. The United States should regard such a Europe as an opportunity rather than a problem, an opportunity to create new synergies in the areas of industrial production and technology. This can happen, assuming that free trade works both ways. Europeans are concerned, for example, that anti-dumping legislation pending in the U.S. Congress may camouflage a new wave of protectionism.

The strengthening of Europe as a united economic and political entity inevitably changes the current world equilibrium. A united European economy has not come about in a vacuum. It is, above all, the result of what is perhaps the chief political development of the twentieth century: the failure of state-controlled communism to fulfill man's hopes and the vindication of the free market system as the surest guarantee of both freedom and prosperity. The current plan for 1992 represents an extraordinarily broad consensus, supported by Socialist, Conservative and Christian Democratic governments. Even some West European Communist parties support the idea of European unity. Such a consensus would have been unthinkable even ten years ago when ideological conflicts polarized the continent.

In North America, the recent trade agreement between Canada and the United States reflects a similar view that both sides will be winners in an open market. And in the Soviet Union, the bastion of the Marxist-Leninist ideal, the Communist Party is abandoning the disastrous collectivization of agriculture (and other forms of state control) in order to restore some measure of private enterprise. It is hardly accidental that the momentum toward 1992 came just as Mikhail Gorbachev was attempting to institute his policy of perestroika.

IV

Some in the United States fear that the drive for European unity will widen the differences between the United States and Europe and weaken the NATO alliance. In some ways, the United States and Europe do appear to be growing apart. Ever since Europe recovered from the ravages of World War II and began to create its dream of unity, it has been pushing for a position of greater autonomy. As ideological tensions lessen, West Europeans have a new interest in normalizing relations with Eastern Europe.

The United States, for its part, is looking increasingly toward the Pacific and Latin America. As first Japan, and now Korea and Taiwan, have developed into formidable economic powers, many have begun to see America's future in the Pacific. California has replaced New York as the most populous and powerful state; Los Angeles has grown into an economic capital rivaling Wall Street. While for over 300 years the great bulk of the immigrants to North America came from Europe, the latest waves of immigrants have come principally from Mexico, Central America and Asia. This, too, has changed the country's orientation.

At the same time, there are tensions within NATO that flare up from time to time. The Europeans are alternately grateful for and resentful of American help; they are resistant to spending more on defense and yet become nervous when the United States talks of reducing its commitment to the alliance. The United States is tired of having to twist arms every time it wants to modernize a weapons system and resents having to pay such a high portion of the common defense of the West. Some Americans are concerned that a united Europe will drift away from the United States as it falls victim to Gorbachev's seductive charm.

The current state of U.S.-European relations is of particular concern to me-since contact with America has played such a vital part in my own education. I believe, however, that while NATO will have to undergo major changes, its basic strength and validity have been underscored in recent years. Europeans should not forget that the NATO alliance is the foundation on which we have built one of the most durable periods of peace and prosperity in our history, and we must be careful not to risk that for the intriguing but still hazy prospects of glasnost and perestroika.

Similarly, I do not believe that the United States will quickly erase its 400-year historical connection to Europe and 40-year military alliance with its friends there. As alluring as the markets of Asia look, Americans may find themselves more at home in a so-called Fortress Europe than in what are, in truth, the comparatively closed markets of Asia.

In many ways, the Europeans have their American allies to thank for their current unity. 1992 is the child of the Marshall Plan, and the cooperation fostered by a joint military alliance undoubtedly facilitated European political and economic cooperation. The farsighted American administrations of the postwar period understood that a strong, autonomous Europe was in the best long-term interests of the United States. That remains true today.

But Europe must be prepared to pay the price for its autonomy by assuming a greater share of the cost of its defense. The United States, on the other hand, must not try to force military decisions on a reluctant Europe.

Developments in the Soviet bloc may offer a way out of this standoff. The current negotiations in Vienna on conventional forces in Europe could achieve agreement to both significant reductions in and a redeployment of Soviet troops into a more defensive posture. If such a treaty provides adequate guarantees, it could allow the United States to lighten its defense burden and thus ease tensions within the alliance. President Bush's trip to Europe last summer and his willingness to discuss arms reductions on all levels-conventional, tactical and strategic-provides an excellent basis for reducing levels of defense spending while actually enhancing security.

In turn, these reductions may also help the Soviet Union relax its grip on Eastern Europe and allow it to view the westward drift of the East European nations as less threatening. While full of uncertainty, the current changes in the Soviet Union offer both Europe and the United States significant opportunities that should not be rejected out of hand. Although caution and skepticism are in order, it is clear that glasnost and perestroika are more than window dressing.

This thaw within the communist world has special meaning for a united Europe. First, if Gorbachev is serious about opening the Soviet economy, the prospect of an enormous and potentially lucrative new market may be offered. More important, the thaw has the potential of removing the artificial wall that has separated Western and Eastern Europe. Gorbachev may be engaging in good public relations when he refers to Europe as "our common home," but geographically and to some extent historically, he is correct.

This search for common ground between Eastern and Western Europe does not have to come at the expense of the NATO alliance. When Gorbachev began to introduce his reforms many saw them as little more than public relations gimmicks to "decouple" Europe from the United States. That split has clearly failed to materialize.

I am concerned, however, that both Americans and Europeans appear to regard the opportunities of perestroika in a competitive rather than a cooperative manner. Both parties seem to want to go it alone, looking to break into the new Eastern markets first, with the best contract possible.

Precisely because we do not know how the Gorbachev experiment will turn out, we are going to have to feel our way during the coming decades in a spirit of consultation and cooperation. At this moment, Europeans and Americans are debating the question of the extent to which we should grant the Soviets credits to help finance perestroika. This is exactly the kind of situation in which a common strategy is called for. If we each pursue a narrow competitive advantage, we will lose our collective leverage to ensure that reforms keep pace with trade and credit. In exchange for our economic cooperation, we must insist on the dismantling of the Berlin Wall, and with it other less visible but equally powerful barriers between East and West.

This need for cooperation is equally important when it comes to another important area, the Third World. War, tension, poverty, famine, environmental disasters are current and future problems that must be dealt with jointly. Until now, Europe has allowed the United States to shoulder most of the responsibility. The United States has been highly active in helping many Third World countries-and has also felt free to intervene in their affairs, sometimes with unhappy results. Europe has settled into the role of the armchair critic, offering its comments while bearing little of the actual responsibility. Europe has to accept greater responsibility toward the developing world, and unification will give it the means to make a greater difference in world affairs. The United States must abandon the posture of world policeman and explore a more multilateral approach. Despite skepticism in the United States, the United Nations has shown that it can play an effective role in resolving some international disputes.

The problems the world faces now and in the future are clearly ones that make close cooperation between the United States and Europe essential. Massive debt, growing poverty, famine, overpopulation, land erosion and other environmental deterioration-all are global problems demanding global solutions. Many are extremely threatening and some are growing more dangerous exponentially.

But whenever I start to worry that such problems of the world of tomorrow are beyond solution, I remember that teenager's first trip to America in 1939, when all of Europe was on the brink of disaster. Notions of a united Europe, a NATO alliance or a United Nations seemed inconceivable.

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