Taking a glass of champagne after signing the Draft Treaty on European Union, Cavaco Silva, President of European Parlament, Dutch Ruud Lubbers, German Hans-Dietrich Genscher and French Jaques Dalors in Maastricht, Netherlands on February 7, 1992. 
Jerry Lampen / Reuters

Not much attention was paid in March 1985, when the European Council, whose members include the chiefs of state and government of the 12 member states, decided that it should constitute a single market by 1992. After all, the European Community had been established in 1957 with the goal of a common market, and many people believed that the goal had been reached; tariffs within the Community had been abolished, a common external tariff put in place and a controversial common agricultural policy instituted.

Those who knew better realized that Europe remained a maze of border controls, government subsidies to national industries, closed national systems of procurement in military and other key public sectors, and national regulation of industrial standards, copyrights, transportation, banking, insurance and health requirements for the entry of goods. Thus, many were discouraged; after all, the goal of a full economic union had been proclaimed in the early 1970s but never met.

Americans in particular had been enthusiastic about European unity in the 1950s and 1960s-often more so than many Europeans-because they had a vision of a United States of Western Europe, symbolized by the name of Jean Monnet. They grew disheartened when Charles de Gaulle, in the 1960s, was able to destroy that dream and force his partners, in the so-called Luxembourg compromise of 1966, to stick in effect to the rule of unanimity. The Community settled down into one more international organization in which diplomats and bureaucrats haggled over technicalities. American curiosity moved to other parts of the world.

By 1988 it had become evident that this time, something new had indeed happened in Western Europe. Three months after the council's 1985 decision, the European Commission, which is the executive branch of the Community and consists of 17 officials selected by the national governments but independent of them, published a White Paper that listed no less than 300 areas for action, with deadlines for proposals by the commission to deal with them. Ever since, the commission has been turning out directives, and the Council of Ministers, which takes most of the final decisions, has examined and usually adopted them. It was the White Paper that set the deadline of 1992 for the achievement of a truly common market. By the middle of 1989 about half of the obstacles had been removed-or at least ordered to be removed.

The task undertaken by the Commission of the European Community (EC) is both gigantic and intensely technical. Progress so far has consisted of such measures as the replacement of the hundred-odd forms required of the members' citizens at European borders by a single administrative document; the directive of June 1983 that provides for the mutual recognition of professional qualifications-a measure that should allow engineers and doctors (although not lawyers, who will need to take an exam in the country into which they move) to settle anywhere in the Community; another decision to eliminate the remaining controls on capital movements; a directive that allows a bank, licensed in its home country, to operate throughout the Community; a decision to remove restrictions on road transportation; various moves aimed at the deregulation of European civil aviation (whose fares are much higher than U.S. fares); a 60-page directive on the regulation of engineering machinery, and another one that liberalizes the terminal equipment market-a sector each country had heavily protected. Funds that support the poorer countries of the Community have been doubled, and represent the equivalent of the Marshall Plan. The commission is also playing a very active role in antitrust cases, a role which entails opposing mergers that have anti-competition purposes or ordering governments to stop subsidizing firms illegally.

The ultimate beneficiaries of all these measures are likely to be both the producers and the consumers. Border controls alone cost between three and four percent of total trade in 1983. A truck that could travel 750 miles in Britain in 36 hours needed 58 hours to cover the same distance from the Channel to Milan. Changing money into local currencies would cost a traveler going to ten of the 12 member countries 47 percent of his money. The closed character of public procurement is another important cause of high prices, especially in computers and telecommunications. If the council and the commission continue their efforts, European industrialists will achieve economies of scale that will allow them to operate more efficiently than if they were confined to their domestic markets, and the consumers will gain from the commission's competition policy, which is strongly supported by the jurisprudence of the European Court of Justice.

II

What explains this sudden burst of activity? A few years ago, it was fashionable to lament about "Europessimism." Suddenly "1992" has become the symbol of a European renaissance. It can best be explained as the conjunction of a common experience and of key personalities.

The experience was that of the Community's dark age-roughly from 1973 to 1984. In 1972, three years after the resignation of General de Gaulle, who had opposed Britain's entry into the Community, Britain became a member. Many people had expected its very capable officials, many of whom were fervent "Europeans," to take the lead and inject new vigor into the Community. Instead, there followed more than ten years of quarreling about the amount of money Britain had to contribute to the EC's budget-Britain in essence asking for a renegotiation of the terms on which it had been allowed in.

Moreover, when the oil crisis of 1973 hit, the Community was incapable of agreeing on a common policy; most of its members followed America's leadership, with France dissenting. It suddenly appeared that many of the economic problems that plagued Western Europe could only be solved on a global level, and that the Community's regional framework was irrelevant. Finally, the economic slowdown of the 1970s, with the rise of massive unemployment, led the governments to ignore the Community and give priority to strictly national, and often divergent, attempts at coping with the crisis-through alternations of expansive and restrictive fiscal policies, and such measures as what the French called "the social treatment of unemployment": retraining, subsidies to firms willing to hire new workers, unemployment compensation and so forth.

The result was a sense of failure. The national policies had only limited success; there was little growth, excessive inflation and persistent unemployment. During these years Japan became a major economic actor, and the new industrial countries of Asia followed Japan. Europe witnessed the decline of many of its traditional industries, such as steel and shipbuilding, and discovered that in many areas of high technology it was being outpaced by Japan as well as by the United States. Attempts by governments (especially that of France) to promote mergers of firms so as to create "national champions" in such areas as telematics did not succeed in reversing the trend. Governments, after years of trying to improve their national economies through such attempts and through deals with unions and business organizations, became aware of the rigidities of the labor market as well as of the many other obstacles to industrial efficiency and technological progress. If national solutions did not work, there remained one way out: what the French often call a fuite en avant, an escape by a forward leap-into Europe. Competitiveness on the global market remained the main issue, but now it appeared that regional integration was, after all, the prerequisite.

Nonetheless, Europe would not now appear so promising if, during the "dark years," steps had not been taken to preserve the Community from decay and to strengthen it in some important areas. The most significant and successful effort was the establishment-after several false starts-of the European Monetary System (EMS) in 1978. It was the brainchild of West German Chancellor Helmut Schmidt and French President Valéry Giscard d'Estaing.

The abrupt American decision to scuttle the postwar system of fixed exchange rates and to replace it with floating rates had worried the Europeans, who were afraid of the effects of monetary instability on their trade and balance of payments. The EMS provided for a tighter system than the global one; fluctuations of exchange rates were to be contained within a narrow band (known as the "snake"). Even though Britain did not join, it cooperated with the EMS, which has tended to be a Deutschmark zone. The main merits of the EMS have been its contribution to the reduction of inflation and the pressure it puts on the governments, if not to coordinate their fiscal and economic policies, at least to follow similar ones, under the surveillance exerted by various Community committees. Bonn's policy of monetary stability has become the continental norm. When the Socialist government of France in 1981-83 tried to pursue a Keynesian policy of public spending to counter the recession, French balance-of-payments difficulties and the run on the franc quickly forced it to choose between quitting the EMS and reversing its policies-and it did the latter.

Another measure of progress during those years was the Esprit program, a scheme of industrial cooperation in information technology promoted by the very able Belgian Commissioner Etienne Davignon with the collaboration of the 12 major electronic companies of the Community, and with Community subsidies. Still another prerequisite for the future leap was the settlement of time-consuming disputes over British money, over the budget, and over the Common Agricultural Policy, the reform of which was finally undertaken in 1984 to make it less expensive (it absorbs 70 percent of the Community's budget) and less wasteful (the reduction of butter stocks and of the production of wine being the priorities).

Thus, by 1984, the members had overcome many obstacles. Moreover, disenchantment with Keynesian policies, the wave of economic liberalism spreading from Reagan's America (particularly the appeal of deregulation), the recognition by French and Spanish Socialists of the superiority of the market over a command economy, of the futility of nationalizations and of the virtues of competition-all this created the right climate for the European revival. Just as in the 1950s when the Christian Democrats of France, Italy and West Germany turned to "Europe" partly as an escape from the limits or frustrations of their domestic policies, the Socialists of France, Italy and Spain-followed in 1989 by Britain's-found in "Europe" a substitute for their traditional public policies at home.

However, general conditions only lead to the right results if the right people are in the right place at the right moment. This is what happened in 1984-85.

After the fiasco of his first economic and social policy, French President François Mitterrand, an old "European," was determined to use the six months of his presidency of the European Council in 1984 to make spectacular progress. The new German chancellor, Helmut Kohl, could only view with favor a plan that would, on the whole, benefit West Germany's strong industry. Prime Minister Margaret Thatcher, as an apostle of deregulation, had no reason to resist, and was also eager to prove that Britain was not the saboteur of the Community it had often seemed to be. The Single European Act-whose long-term effects, as the ratification debates showed, were probably underestimated by all the governments-was presented to the British Parliament as a treaty that would make it possible (by majority votes) to bring to Western Europe all the benefits of deregulation, while preserving (through the requirement of unanimity) national sovereignty in areas essential to Britain, such as taxation, the free circulation of individuals and the rights of workers.

Above all, the new president of the EC Commission-the person whose impetus can be decisive-was Mitterrand's former Minister of Finance Jacques Delors, who had been a key adviser to the reformist Gaullist Prime Minister Chaban-Delmas in 1969-72 and later became a moderate Socialist. He had been very influential in turning around the economic policies of Mitterrand's government in 1983. A former official of the French labor union inspired by progressive Catholic thought, he exemplifies the synthesis of Christian democracy and socialism on which the Community was built. His commitment to a United Europe is as strong as his obstinacy and energy. Delors, who was reappointed for a second four-year term last year, is as important to the enterprise today as Jean Monnet was in the 1950s.

III

This new enterprise builds on the institutions and achievements of the earlier one, but it is not a mere continuation. A comparison of the two efforts is instructive.

The Common Market of 1957 was limited to six neighbors: France, West Germany, Italy, Holland, Belgium and Luxembourg. The first European experiment was a reaction to what academics sometimes call "high politics"-considerations of national security and power. The Coal and Steel Community of 1951 was launched as a way of promoting the reconciliation of France and Germany and of anchoring the one-year-old Federal Republic in the Western alliance. The European Economic Community was established by the 1957 Treaty of Rome after the fiasco of the European Defense Community, which was scuttled by the French National Assembly in 1954, and after the humiliation of the British and French during the Suez crisis of 1956. In both instances, the six members chose economic means to reach political objectives-the ability to speak with one voice in world affairs-because these means prompted less internal resistance and because the whole realm of defense was dominated by the United States. Indeed, the main underlying issue-the one that de Gaulle, between 1958 and 1969, made brutally explicit-was the ability of the Six to stand up to, distinguish themselves from, and cooperate as an equal with the United States.

Throughout the 1950s and 1960s this issue became entangled with a quasi-theological debate about the Community's institutions. Jean Monnet, the "inspirer" (de Gaulle's rather hostile term) of the 1950 and 1957 enterprises, supported a sort of federal setup-limited to the economic sectors covered by the 1957 Treaty of Rome-with the independent EC Commission as its chief body. The Common Market of 1957 diluted Monnet's dream by making the council of state representatives the real decision-maker and by creating a parliament that was not elected by universal suffrage nor provided with any real powers (the switch to universal suffrage a few years later did little to enhance its authority). De Gaulle excommunicated federalism (called "supranationality" in Monnet's euphemistic jargon) by insisting on the primacy of the council and on the principle of unanimity for decisions. He saw in Monnet's design a danger that French sovereignty would be destroyed by irresponsible "European" bureaucrats, whom the United States could manipulate by exploiting the clashes of national interests among the six countries.

De Gaulle preferred a "Europe of states": a concert of governments that would build "Europe"-first in the West, ultimately in the East as well-on the basis of well-balanced bargains in areas of common or mutual interests. So did Britain, but de Gaulle kept it out of the Community on high politics grounds: Britain's closeness to Washington. Finally, the first European enterprise remained limited in scope (as well as geographically); agriculture and the removal of tariffs and quotas on trade were the only links forged among the Six.

The post-1984 undertaking is very different. Today the Community has 12 members and is far more heterogeneous. With Portugal, Greece, Spain and Ireland in the Community, 20 percent of the member countries have a per capita income inferior to 60 percent of the average; in other words, it has a "North" and a "South" of its own. The EC Commission-de Gaulle's target after 1958-has been a major actor, as has been the new European business elite fostered by the Common Market's removal of some barriers. In the 1950s many businessmen, especially in France, were very hostile and fearful of the project. The main goal now is not "high politics" but the competitiveness of Europe in a world in which the number of industrial and commercial players has multiplied; the stake is what Helmut Schmidt once called the struggle for the world product, rather than for traditional power (although wealth and power have become ever more closely tied together).

While the United States remains a major trading partner of the Community, the new effort is aimed much less at establishing a "partner" of equal weight to cooperate with, and to resist domination by, the United States than at resisting the challenge from Japan, whose aggressive external economic expansion and fierce protection of its own market the Europeans resent. This shift in emphasis reflects the relative decline of American power.

The theological battle about the Community's institutions is not dead-Jacques Delors is the new Monnet and Margaret Thatcher the new de Gaulle in this connection-but it has been suspended and replaced by a remarkable pragmatism. In 1985 Europe's statesmen did not follow the federal path favored by Alfiero Spinelli's draft treaty of European Union, which the European Parliament had endorsed in 1984. They preferred the goal of a single market to the straight path of political integration. To be sure, the Single European Act signed in 1986, which amends the Treaty of Rome and endorses the commitment to a unified market, allows for decisions in most areas to be taken by a qualified majority instead of unanimously, but the European Council remains the top decision-making body.

The earlier supranationalists often saw the states as the enemy; today's activists see them as indispensable partners, whose sovereignty is to be pooled rather than removed, and to whom enforcement of Community decisions is entrusted. There is also, now, an impressive network of national and transnational lobbies in Brussels and Strasbourg (where the European Parliament meets), of experts' and bureaucrats' committees advising the commission and the council, and of ties among cities, regions and enterprises. The scope of the Community is larger, thanks to the EMS and to the mass of joint ventures, cross-border mergers and direct investment abroad that now tie the members together.

Some things, however, have not changed. The political motor of the Community remains the Franco-German entente; when it sputters, progress stops; when it functions, advances are made (because Britain wants to avoid being isolated). As in the first effort, the members find it easier to agree on removing obstacles than on formulating common policies (which would require greater powers for the federal bodies-the commission and the parliament). The best example of this is the set of principles adopted for the unification of the market. One principle-stated by the Court of Justice in a 1978 case that pitted the French liqueur cassis de Dijon against West Germany-is that the members would grant each other "mutual recognition" of their regulations and standards, i.e., the conditions set in one country have to be accepted by the others. The other principle is home-country control: the right of a firm to operate throughout the Community if it is licensed in one of the member countries. These principles make it unnecessary for the commission and the council to spend too much energy on "harmonization"-the adoption of a single European set of standards-or on promoting "European" companies. There will be instead a kind of free market of competing national standards.

Another similarity between the earlier effort and the current one concerns the dynamics of unification. Neither effort has been accompanied by a popular, mass movement. In the first enterprise, there was often considerable domestic opposition (witness the fate of France's own brainchild, the European Defense Community, in France); the moves toward integration were the product of a small layer of key politicians and civil servants. Today, these actors and the business elite are driving the effort, and, as shown by the high rate of voter abstention (about 41 percent) in the June 1989 elections for the European Parliament, the general public is not very involved. This lack of interest may be because the European bureaucrats have been clever enough to bury the controversial issues under a mountain of 300 technical directives and because the parliament, despite its new powers (granted by the Single Act) of amending council decisions and approving agreements of association between the Community and other states, continues to appear remote and bogged down in technicalities. The election campaigns were much more about domestic politics than about Europe.

Furthermore, in neither effort has the nation-state necessarily "lost" whatever power was "gained" by Europe. The main winner has not been a supergovernment of Europe; the national governments and bureaucracies remain the chief players, for instance setting up and revising the Common Agricultural Policy and very actively taking part in the mergers and collaborative schemes devised (or merely executed) by firms.

A final similarity is that the European enterprise remains primarily economic. Efforts at coordinating foreign and defense policies-the former under the auspices of the European Council, the latter mainly through the West European Union, a sleepy organization set up in 1955 as a substitute for the Defense Community-have remained fitful and limited.

IV

To these limits must be added the other difficulties the new undertaking faces-difficulties which guarantee that the year 1992 will not see the full realization of a unified market. What has begun is a process that will go on for many years, and which is galvanized by but cannot be bound to the artificial deadline of 1992.

The method pursued in Brussels has the advantage of appealing to the desire of all groups for expanded production and trade at lower prices, and of leaving to the future the determination of the losers. Enormous interests are at stake, for this massive attempt at deregulation will provoke shifts in wealth and therefore power among nations, regions, classes and sectors that nobody can yet fully forecast, but that create anxieties and resistances galore. There is the fear that the results will amount to the victory of the richer countries over the poorer ones (hence the fierceness of the battles over the size and distribution of the funds granted to the poorer nations, such as Greece) and of the richer sectors over the poorer ones (hence the disgruntlement of farmers, whose income is falling despite the costly agricultural policy). There is also the fear that the new Europe will represent the triumph of the most efficient and powerful economies over the others.

The story of the EMS is one of West German preponderance; Bonn has preserved its trade surplus with its neighbors despite the upward movement of the Deutschmark because their currencies have moved up along with it. France and other members of the EMS often fear that having lost mastery over their monetary and foreign economic policy, they will have to take measures curtailing their economic growth (hence increasing unemployment) in order to remain within the EMS and preserve the equilibrium of their commercial balance. French industry, which has, on the whole, smaller firms and less available capital than West German industry, and which has begun playing the game of internationalizing itself rather late, worries that the removal of all barriers within Europe will flood the French market with foreign imports. On the other hand, the heavily protected and not very efficient West German transport and telecommunications industries may be the losers in the unified market. And Italy fears that Italian capital, when controls are lifted, will move to countries that provide higher returns on savings, and thus stop financing Italy's public debt.

Labor is afraid that the removal of barriers and increasing competition will lead to a large number of business failures and layoffs, and to businesses moving to countries with lower wages and social benefits such as Spain. The labor markets of Western Europe are far less integrated than the capital markets, and further integration would require a common social policy and collective bargaining on a Community-wide scale. But there is little governmental enthusiasm for such moves, which would disrupt delicate domestic balances and affect national competitiveness; policies for coping with this "social dimension" of Europe remain nebulous.

The attempt by the EC Commission to draft a statute for European companies has been plagued by disagreement over provisions for worker participation-West Germany objecting to anything less than the co-determination granted by its own law, and Prime Minister Thatcher rejecting any scheme that would boost the power of unions, which she fought so vigorously in Britain. Labor's sullenness contrasts with the frenzied activity of businessmen, who are engaged in formidable contests in the form of mergers, joint ventures, buyouts and takeover bids aimed at obtaining either the best position through transnational alliances in Europe or the best position in their country against the expected onslaught of competition from abroad.

These multiple fears and oppositions explain some of the setbacks and delays encountered by the pioneers of "1992." Attempts by the commission, prodded by Delors, to define a common social policy have not gone much beyond generalities and the recognition of diverse national practices, falling well short of the guaranteed minimum income that some labor organizations have called for. Plans for a Community-wide television broadcasting network have been stymied. Little progress has been made in matters of copyright and patents. Opening up procurement in the four traditionally protected "national" areas (energy, telecommunications, transportation and water supply) is only beginning.

The two most troublesome sectors among those covered by the White Paper have turned out to be border controls and indirect taxation (no attempt is being directed at unifying direct taxes).

The abolition of all border controls is fiercely resisted not only by customs employees but also by Prime Minister Thatcher, who believes these controls are indispensable in the fight against drugs and terrorism. Moreover, each country remains free to impose its own conditions on the admission of refugees and immigration-a very hot political issue, as the rise of Jean-Marie Le Pen in France has shown; the abolition of border controls would make the enforcement of such national policies far more difficult.

The unification of indirect taxes has hit a number of snags. One concerns the value-added tax; countries with low rates or very limited coverage for the tax (such as England) fear that raising the rate and increasing the coverage would be inflationary. On the other hand, France, which gets 40 percent of its public revenue from taxes on consumption, resists the loss of government income a lowering of its rates would entail. A compromise is now being negotiated; it would set only a common minimum rate, and Britain could retain its exemption of "social items" from the tax. Some members also oppose a reduction in the rates of "sin taxes" (on alcohol or tobacco). At the meeting of the European Council in December 1988 Mitterrand threatened to delay the lifting of controls on capital movements until a common scheme of taxation on interest and dividend payments was devised, so that French investors will not be tempted to send their money to countries where such taxes are low or applied only to residents. But after the Bonn government decided to scrap its domestically unpopular withholding tax on interest, the EC Commission's attempt to devise a common withholding tax collapsed.

In two important areas not covered by the White Paper, divisions persist, hindering progress. Many officials believe that the unified market will require a centralized monetary system, with a single currency (the European Currency Unit or ECU, which exists already but plays only a minor role in transactions) or at least fixed exchange rates between the national currencies, and a central bank. Otherwise, once capital movements are free, currency volatility might increase and put unbearable strains on the present European Monetary System. This drive is resisted both by Britain, eager to preserve some autonomy for the pound, and by the Bundesbank, which plays in fact the role of a central bank for the EMS and is, as a national bank, freer in its decisions than if it were transformed into the equivalent of the Federal Reserve for 12 countries. Moreover, the West Germans insist that any central bank would have to be independent of political authority-whereas the Bank of France is an instrument of government policy.

In April 1989 a committee headed by Delors proposed a three-stage plan toward full monetary union, but the European Council, meeting in Madrid in June, avoided a showdown with Prime Minister Thatcher by agreeing only to proceed with the first stage-reinforced cooperation in economic and monetary policy. It agreed to plan an intergovernmental conference to prepare the later stages (and to revise the Treaty of Rome to allow for the transfers of state power that monetary union would require). Such a conference would require unanimity to succeed. Ultimately, unless Britain's position changes, its partners will have to choose between a highly diluted version of the Delors plan and a union without Britain.

The other area in which sharp disagreements persist is "political cooperation," the code name for diplomatic coordination. At the council meeting in Rhodes in 1988 the 12 leaders were not able to agree on a common response to the new position of the PLO, even though, in the late 1970s, some progress had been made in establishing a common West European stand on the Arab-Israeli conflict. Nor has there been a unified response to Soviet leader Mikhail Gorbachev's initiatives and calls for a "common European house": French distrust, British caution and the West German wish for a new and generalized détente do not blend. Indeed, the desire of all three countries for some diplomatic autonomy will continue to set limits to diplomatic harmonization, and keep this area from being as successful as the path to the single market. But the increasing importance of economic issues in world affairs is likely to reduce the difference between the Community's well-established foreign economic policy and its shakier political coordination, as in the case of its relations with Eastern Europe.

V

These hesitations and divisions show not only that "1992" is going to be a long and difficult process, but also that the shape of the future European entity remains uncertain, dependent on the personalities of the main statesmen, on the economic situation of Europe and on the international political climate. The enterprise can proceed as long as there is, if not a common purpose, at least sufficient ambiguity to accommodate a variety of national purposes: Bonn's desire to find in the Community both a field of economic power and a legitimation of its links with the German Democratic Republic and of its Ostpolitik, France's intention of tying the Federal Republic solidly to Western Europe (in exchange for the reduction of French economic and monetary autonomy), Spain's will to become a major player in European affairs and to pressure its economy into efficient modernization, and Britain's enthusiasm for deregulation. But sooner or later these ambiguities will have to be clarified. At present there are two sets of uncertainties: internal and external.

The first internal one is the main object of debate between Thatcher and Delors. The British Conservative leader sees the new enterprise in the perspective of economic liberalism, as an exercise in removing obstacles to the free movement of people, goods, capital and services. Her Europe is a true common market, with as little governmental intervention as possible. In this respect, she is the heir of British policy in the 1950s, which aimed at the creation of a vast free trade area in Europe and established the European Free Trade Association (EFTA) with those continental West European states that had not joined the Six, precisely because the latter wanted to build a common entity.

Delors acknowledges that economic integration must precede social harmonization and that deregulation must come first. However, the French Socialist leader, who has devoted most of his public life to issues of social policy, emphasizes the need for joint actions, for a framework of European rules and institutions to guide and discipline the market and to prevent the social and regional injustices that unfettered competition-especially among gigantic firms and conglomerates-could produce. As he has often put it, "savage capitalism" is not his ideal; cooperation must temper competition and harmonization must complement the destruction of barriers. What is at stake is the extent to which the new Europe will be the preserve of businessmen and of the market-oriented conservatives, rather than a more social-democratic Europe in which public power will have a major role and workers will feel protected.

The second, and connected, internal issue concerns the institutions of the new entity. The deregulated market dear to Thatcher needs no other institutions than the present ones, and, indeed, requires that the central bureaucracy in Brussels remain weak. The trouble is that the main actors in this market, the business elites, may end up being accountable to no one, and in a position to manipulate both the national and the central bureaucracies that try, often competitively, to control them. Delors' vision is far more institutional; he wants if not greater powers for the European Parliament at least a more energetic supervision of Community decisions by the national parliaments, and above all more powers of enforcement for the EC Commission, so that its directives will not be disregarded by states with very strong bureaucracies (France) or states with very messy ones (Italy). He also wants increased independence for members of the commission; when a government doesn't like the activities of the commissioner it has designated, it can simply refuse to reappoint him, as Thatcher did in the case of Lord Cockfield, the author of the White Paper.

Against such a conception, Prime Minister Thatcher invokes the defense of British sovereignty, just as de Gaulle insisted on French sovereignty. (But he was more consistent: he believed in a highly interventionist state, whereas she believes both in the British state and in an open, unfettered market.)

What is at stake is the future of the nation-state in Western Europe. Delors' logic is ultimately that of the construction of a federal state, albeit one that would deal only with issues that the member states cannot resolve by themselves (this is the "principle of subsidiarity"). The transnational market would be accountable to the federal government. Member states would have extensive residual powers in areas such as education or justice, but the central institutions would regulate and supervise the common economy and ultimately the common defense and diplomacy. Legitimacy would be provided by universal suffrage, expressed in the election of the European Parliament.

Other "Europeans" who reject Thatcher's stand nevertheless hesitate to follow Delors. In truth, most governments find it easier to cede powers to the market than to a central government above them. If they prevail, the new entity will be a very original experiment indeed, a construction in which there will be extensive common functions, but functions carried out through bargains negotiated among and enforced by the member states, and where loyalty will remain centered in the nation, as it is today. (Open any European newspaper: national issues, and particularly the distinctive features of national politics, dominate the daily news.) At best loyalty will be split, unevenly, between the nation and a Europe with rather weak central institutions.

Whether such a confederal model could last is a fascinating question. Both the United States and the Swiss Confederation have moved from such a condition to a more federal, which means more centralized, state. But the differences among the 12 members go much deeper than those among the Swiss cantons and the states of the United States of America.

Some believe that the more the members are willing to pool and to share their theoretical sovereignty, the stronger will be the need to build up the central institutions, especially after Prime Minister Thatcher is gone. In this view, she represents, like de Gaulle, a transition between the imperial past and the European future, during which nationalism-combined with a pragmatic albeit distrustful view of European cooperation-serves to restore national self-esteem, a necessary prelude to any abandonment of sovereignty.

But others argue that the more the states' effective sovereignty shrinks, the stronger will be their determination to protect what is left of it, and to find ways of controlling the growth and direction of the institutions in Brussels. Some believe that the demands of the disadvantaged or victims of economic integration will lead to action at the Community level, others fear a strong national backlash-especially if redistributive efforts at the Community level are limited both by the size of its budget and by the constraints of the EMS.

The differences among the members will be even greater if the Community expands further and admits Turkey, the most recent candidate, and such possible new applicants as Norway and Austria. This raises the questions concerning the Community's relation to the outside world, the second set of uncertainties. Already, the Community has a wide and complex network of agreements with external associates in Europe, the Middle East, North Africa and a large number of former colonies in Africa, the Pacific and the Caribbean. The move toward a single market has placed on the agenda the problem of the Community's relations with the EFTA countries, with which it would like to make new arrangements collectively rather than having to deal with the separate demands (or applications) of the six members. The Community's members are reluctant to admit Austria because Austria's neutrality is seen as a handicap for the common diplomatic and defense policy of the future. Also, the European Parliament is on record against the admission of Turkey, whose demographic growth is deemed unmanageable in a Europe whose people could circulate freely.

The issues that excite Americans most are those of the external economic orientation of the enterprise. Will it be "Fortress Europe," a protected market, or will it be an open Europe? Clearly, the purpose of the whole effort is not merely to increase wealth by removing obstacles to production and technological progress, but also to increase Europe's power in a world in which economic and financial clout is as important as military might. The current transformation is aimed at making the penetration of external markets, through trade and investment, easier for European countries, many of which depend on exports for their growth and have capital available for placement abroad. It is also aimed at minimizing the penetration of the Community by forces deemed unfriendly. American entrepreneurs or officials are not the main targets (although France wants to curb U.S. programs on European television), but it is difficult to devise external barriers against Japan or South Korea that do not affect U.S. investors and companies as well.

The main bones of contention (in addition to such hardy perennials as the Common Agricultural Policy, which favors European farmers at the expense of American farm exports) are found in two sectors-neither of which is covered by the rules of the General Agreement on Tariffs and Trade, that somewhat graying Bible of free commerce (from which recent U.S. trade legislation departs considerably).

One is the domain of financial services. Foreign banks and insurance companies will be allowed to set up branches in the EC if reciprocity is granted by their country to European banks and companies. Americans are not justified in believing that this means the exclusion of American establishments because the legislation of certain states of the United States is restrictive. The Community has moved toward a very lax definition of post-1992 reciprocity; banks and insurance companies already operating in EC countries before 1992 will be treated as European.

Access of foreign companies to key sectors of public procurement is likely to remain restricted, however, even though American companies established in Europe qualify as European companies.

A third area of possible contention is the automobile industry. The Europeans want to keep Japanese car imports down as long as the Japanese market is closed to their cars, and they might impose a quota on cars produced in the United States with predominantly Japanese capital or a high content of Japanese parts.

A protectionist Europe remains unlikely, however, not only because of international legal obligations, but above all because of West Germany's and Britain's opposition, the many alliances between EC and non-EC (American, Swiss and Swedish) enterprises and the high level of European investments abroad. (In 1987, European companies invested $37 billion in the United States, but American ones invested less than $2.5 billion in Europe.) However, much will ultimately depend on the state of the world economy and on the behavior of the United States and Japan. All one can see at present is a tendency both in the United States and in Europe to give a more restrictive interpretation to the notion of reciprocity-one that looks at outcomes in specific sectors rather than at the fairness of procedures and at overall bargains. Also likely is the continuation, in Japan, of a strategy aimed at maximizing the global power of the industries in which it has the lead. A world economic recession could not only turn the world economy into a contest of protected regional blocs, but could also slow down the dismantling of barriers and definition of joint policies within the Community.

VI

The external economic orientation of Europe will also depend on the international political context. Until now, the cold war and the importance of the Atlantic alliance to the United States and its European allies have had a dampening effect on trade quarrels. The United States has tolerated what it sees as European protectionist measures because the prosperity of Western Europe was an overriding American goal, and the need to preserve the American military protection of Europe has often caused the Europeans to react with moderation to American economic demands or restrictions.

If the Soviet-American contest should cease being the most important issue in world affairs, conflicts of economic interest among allies might well escalate, and both sides might behave more like blocs competing for economic and financial preponderance than like partners submitting to the same rules of fair competition, free trade and monetary cooperation. This would be the case especially if the Community progresses far beyond the present stage of the EMS and begins to pool its foreign exchange reserves, to oversee the creation of national money and to use the ECU more widely.

The other external uncertainty is precisely the one that concerns the role of Europe on the world's diplomatic and strategic stage. The cold war has dominated that stage and the United States has felt strong enough to maintain its forces in Europe, its nuclear guarantee and the structure of NATO. In this situation, the different strategic priorities of France and West Germany, the different weapon systems of the British and French nuclear forces, the different assessments of the Soviet threat and of the perils and benefits of arms control among European countries, the institutional split between those that are part of the military organization of NATO and France, which insists on its autonomy-all condemned the European undertaking to remaining what is sometimes called a mere civilian power, or a merchants' enterprise.

If the cold war continues to fade and the United States shifts its priorities to other issues and other continents, the West Europeans-still too close to the Red Army for comfort, but less dependent on American presence and protection against a clearly more defensive Soviet Union whose own priority had shifted to internal reform-would find it easier to build, over time, a common defense scheme with joint weapons procurement, a respectable conventional army (largely West German), a Franco-British nuclear shield and a predominantly deterrent strategy. We have not reached that stage yet; at present the negotiations on conventional force reductions are a NATO affair, and the West Germans are eager for military cuts, economic cooperation with the Warsaw Pact countries and political détente-rather than for a new West European security system. But the moment might arrive later, after conventional reductions have begun and the presence of both superpowers in Europe has shrunk.

In the more relaxed international climate of recent months, an economically powerful European Community has already begun to exert strong attraction on the countries of Eastern Europe, and to help the gradual transformation of two former Soviet satellites, Poland and Hungary, into states whose relation to Moscow would be comparable to Finland's. The new role of the Community in coordinating assistance-even from the United States-for Poland and Hungary was recognized by the leaders of the seven major industrialized nations in Paris on July 15. In the past, when the cold war heated up, the Federal Republic's allegiances to NATO and to Europe increasingly conflicted with the desire, not for German reunification, but for a rapprochement between the two Germanys, even though the Western orientation always prevailed. In a climate of détente, the two directions become far less divergent, and a strongly European Germany can have more influence on its neighbors to the East.

Thus, in the diplomatic and strategic realm, much depends on the fate of Gorbachev and on American policy toward him; here, unlike in the economic realm, Europe is not a full-fledged actor yet, and whether it becomes one will be settled by those very outside forces that have, since the Second World War, divided the old continent and dominated their respective halves.

The will to build a European entity, spurred by the ineffectiveness of purely national solutions, exists without a doubt in the economic domain, but the devaluation of the nation-state does not mean its demise, even in this area. In the traditional domain of power politics, paradoxically, the progress of European unity depends on the devaluation of power politics-something that has often been prophesied, but has never in the past lasted for very long. Will the logic of economic efficiency and the fear of modern war combine to make the future radically different from the past?

The answer will depend, in part, on the lifting of a last uncertainty, which is both internal and external, and which could affect the Community even-indeed especially-if the future is different and if the fears of military insecurity in Western Europe diminish. It concerns West Germany.

There can be no European Community without Bonn and Paris. In Paris a new generation of politicians and high civil servants appears to have come to the conclusion that France's national objectives-except, perhaps, in the realm of nuclear weapons-can only be reached through European means. But some Europeans fear that the Federal Republic, now the dominant economy in Western Europe and (largely thanks to this) the central player in East-West relations in Europe, might in coming years reach exactly the opposite conclusion. They fear that Bonn might find excessive the burdens imposed by the Community (for instance, German contributions to the costly Common Agricultural Policy and to the structural funds that subsidize the poorer members), that Bonn might decide that West German industry is sufficiently strong, and that West German interests in Eastern Europe are sufficiently distinctive and important to make further ties between Bonn and the other Community members unnecessary, rendering obsolete the function of legitimation that the Community provided when Bonn was weak and widely distrusted.

Until now, in truth, the balance of benefits and burdens imposed by the Community on West Germany has been very favorable (e.g., West German farmers are admirably protected by the Community). While the recent behavior of West German officials and businessmen (such as Foreign Minister Hans-Dietrich Genscher's enthusiasm for Gorbachev, Kohl's about-face on the taxation of interest, and West German refusal to buy the superior French technology for fast railways) and the prospect of a Socialist-Green coalition government in the future have awakened such fears in France, the nightmare of Bonn's emancipation from its Western orientation appears unwarranted. However, the need to provide West Germany with sufficient benefits to keep this orientation worthwhile may itself create tensions in other countries (for example France, whose population is growing faster than Germany's, may want greater possibilities of economic growth than the Deutschmark-dominated EMS allows). Will France and others be willing to tolerate West German hegemony in the Community under any circumstances or in every field?

Such a predicament might well never occur, however. Each of the major West European players might continue to display enough of a mix of strengths and weaknesses to rule out the preponderance of any one of them. In the near future the Community is likely to keep progressing, although more laboriously as the tougher issues, long postponed, have to be faced; it is also likely to serve at least as a common shelter against an eventual recession, unlike in the 1970s. Ultimately, as in the 1950s and 1960s, the European Community's capacity to unite and its limits will be shaped by the events in, and the moves of, the other major countries of the world at least as much as by the patchwork of ties established among the interest groups, the parties and the people and by the domestic politics and economic performances of its member nations.

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  • Stanley Hoffmann is Douglas Dillon Professor of The Civilization of France and Chairman of the Center for European Studies at Harvard University.
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