America’s China Policy Is Not Working
The Dangers of a Broad Decoupling
A Premature Treaty
IT WAS INEVITABLE that the Maastricht treaty on European union would run into difficulty. The pact was premature in conception and too ambitious to survive intact. It had been signed in December 1991 when a mood of "Europhoria" held sway. With spirits boosted by a surge of economic growth the 12-nation European Community (EC) pledged to build a lasting union. It was to be the successor to both the Common Market launched in 1958 and the integrated customs union created by the Single European Act of 1987. The historic Maastricht treaty was to take the next step: to create a far-reaching economic and political union that might one day become the United States of Europe.
European leaders realized nine months later that their conception was ill-timed. The EC-12 proved too divided to commit to a revolutionary compact on monetary integration by decade’s end or to surrender a major portion of power to federal authorities in Brussels. A failed referendum in Denmark, and later a marginally successful plebiscite in France, revealed unexpectedly low support across Europe for unification.
Europe’s financial markets cracked as uncertainty about Maastricht’s chances for ratification increased. Speculators drove the markets into a two-day panic in September, selling short on sterling and the lira until Britain and Italy were forced to drop out of the Community’s fixed exchange-rate mechanism (ERM). The attempt by the EC to impose a common financial discipline was undermined. The markets had gained power at the expense of the EC governments, and the Maastricht treaty was cast into peril.
Resistance on the Road to Union
WHY DID THE TREATY meet such stiff resistance? Three explanations have been offered. First, the EC lost its balance in the temporary breakdown of the ERM; it could not restore cohesion among the 12 stalled economies. Second, the ratification debates in Denmark and France exposed a lack of popular understanding and sympathy. Third, the union treaty fell victim to the financial and trade wars waged between the strong and weak currencies of Europe, Japan and the United States.
The strength of each explanation will be tested over time. For the moment it must be noted that the Maastricht treaty had a time bomb ticking amid its turgid legal prose. It had to be ratified by all 12 member nations before further progress could begin. Most states preferred to ratify through cautious parliamentary action rather than popular referendum, allowing them to evade popular scrutiny. But in June Denmark rejected the treaty by a 0.5 percent margin in a plebiscite, and Britain held up progress until the government led by Prime Minister John Major regained voters’ confidence. So far four of the EC-12 have ratified the treaty, five more are likely to do so. It may be difficult to negotiate amendments to the complex 250-page document, but the treaty will not win final acceptance in Britain and Germany without them. In a late-October emergency summit meeting in Birmingham, the EC leaders pledged to continue the drive for closer political and monetary union. They tried to win over the opposition among European voters by offering greater concessions to the "interests and diversity of member-states."
It would be wrong to assume that the momentum of European union is exhausted. The treaty might fail, but the Community will remain as a functioning body, and its goal of union will be preserved. The next stage of union will begin operating on schedule in January 1993. Most internal border controls will be suspended. The EC’s national markets will become closely knit in a barrier-free system that will serve an affluent population larger than the U.S. and Japanese markets combined. European leaders hope that integration will elevate the EC-12 out of a prolonged recession by joining their industrial strengths together. The EC’s ambition to build a federal union might be salvaged in years to come if a business recovery gains momentum.
The aim of the Maastricht treaty was to unify key elements of Europe’s strength. First, the economic and monetary union (EMU) was to develop over three stages. Between now and 1994 EMU was to strengthen the fixed-exchange-rate parity of currencies through the exchange-rate mechanism. Phase II would promote the "convergence" of monetary and fiscal policy among the EC-12, so that phase III could establish by 1999 a central bank and a joint currency, a modified version of today’s European Currency Unit (ECU). By century’s end each of the 12 nations would submit to conservative economic priorities; pledged to suppress inflation and deficit financing, each would restrict exchange-rate fluctuations and fiscal policy.
Equally as ambitious as the EMU is the design for the second agency, the European Political Union (EPU). It aims to harmonize the foreign policy interests of the 12 member nations and to "give the Community a voice in international affairs by establishing a common foreign and security policy." An ambiguous addendum to the Maastricht treaty noted that this might "include the eventual framing of a common defense policy . . . and in time lead to a common defense." It left open the question whether NATO was to remain the essential military alliance in a new Europe.
Third, ambitious policy objectives were designated under the treaty. Broad authority to regulate public health, education, agriculture and the environment was to be assumed by the European Commission, the EC’s executive. Its laws, or directives, would be approved by a qualified majority vote; the veto power that once had been a prized weapon of each member-nation would eventually disappear. In addition a Social Charter was adopted to standardize health and workers’ safety conditions. And a separate protocol committed the Community to narrow the gap between the poor states of the south and the rich in the north by channeling aid to the poorest regions.
The principal intent at Maastricht was to construct a federal union and to transfer portions of national power to the EC’s centralized agencies. France wanted to build the EMU first, principally to curtail deficit spending among the weaker trading members and to impose monetary discipline on the Community. Germany agreed, on condition that adequate authority be granted to the EPU and the EC Parliament. Britain and the smaller but richer countries in northern Europe dissented, fearing excessive German hegemony in Europe’s financial affairs. No one suspected that the monetary proposal would implode when trading (at a trillion dollars a day) in currency futures was rocked by speculative frenzy.
Provision was also made at Maastricht for revisions in the EC’s five-year budget and for the eventual admission of a dozen new nations. The first six to enter, perhaps as early as 1996, might include the wealthy Austrian, Swiss and Scandinavian members of the European Free Trade Association (EFTA). After a long delay the remaining six could consist of three poor nations in the Mediterranean (Turkey, Malta and Cyprus), and three struggling economies in eastern Europe (Hungary, Poland and the Czech state) that have aligned themselves together as the Visegrad group. It is unlikely that the latter six will be admitted in this century.
Lowering Expectations on Union
THE EC is now trying to shake off a malaise of false expectations. It had come to take success for granted in the halcyon days of the late 1980s. The decade had brought three triumphal changes: the EC’s market-driven economies had prospered, and their export income had doubled; most of the EC states had grown accustomed to strong leadership at home, often from popular conservative parties; and the end of the Cold War had uprooted the brutal regimes in the East and fostered German unification within the bonds of NATO and the EC. The enthusiasm generated in the annus mirabilis of 1989 was supposed to lead to the decisive and rapid integration of western Europe. Project ‘92 aimed to prepare the single market for a dramatic industrial and political blastoff.
The euphoria turned sour before 1992. An economic downturn simultaneously took hold in all three of the world’s regional trading blocs: North America, the EC and the Pacific rim. A wave of immigration from Africa and eastern Europe gathered force, and riots tore apart several European cities. Unemployment stalled at a painful ten percent, and violent turmoil in the former Yugoslav republics rattled Europe’s politicians. Fearing that the malaise would impair each nation’s authority, the EC governments questioned whether so much power should be ceded to the Council of Ministers and the Commission. It became popular to denounce the Eurocrats who issue imperious directives and hold midnight conclaves in the labyrinths of Brussels.
The first doubts emerged after Denmark’s referendum in June 1992. The stunning refusal to ratify the EC treaty suggested that, while government elites were committed to unification, a majority of voters harbored severe misgivings. Doubts increased during the bitterly argued debates in France. The extreme right, led by Jean-Marie Le Pen, and the communist left rejected the treaty, but their fringe protests were joined by a massive group in the middle that rejected the leadership of President François Mitterrand. Poll experts claimed that millions of French voters disliked the treaty but voted in favor of it simply to bind Germany closer to the Community. Others claimed they voted against it, not because they were opposed to European federalism but because they feared that France and its currency would be held in thrall to a united Germany.
The second set of doubts came from Germany itself. Opposition had mounted across Germany to the proposal for a single currency and a central bank. Seventy percent of Germans said they refused to trade off their national crown jewel, the strong deutschemark, for a dubious new unit, the ECU. Many spoke of a compelling national interest: to curb the alarming surge of the money supply and an inflation rate rising toward four percent. Germany was spending $100 billion a year to rebuild its eastern Länder and running a government deficit equal to four percent of GDP. It was therefore logical, in their view, to peg short-term interest rates at 9.75 percent to tighten the money supply and attract foreign capital. The Weimar Republic had collapsed when inflation had soared. If the remaining ERM members chose to follow the Bundesbank’s tight money policy it was not Germany’s fault; Bonn’s priority was to stabilize prices, not to assist the futile attempts of its neighbors to fend off inflation and currency devaluation.
Naturally Germany’s EC partners turned against the Bonn government and the Bundesbank’s force majeure. They criticized the Kohl government’s decision to invest a trillion dollars in eastern Germany over the next ten years, and they claimed that they were paying for it through the tight-money obsessions of the German central bank. Germany’s partners felt they had been pushed toward a forcible deflation at a time when they needed to expand their own money supply and deficit financing. It was neither just nor reasonable, they insisted, that Germany had stifled their economic recovery by hiking interest rates to placate its voters’ anxieties. If the EMU was to follow inexorably the edicts of the Bundesbank, Germany’s neighbors wanted to change the rules: the EMU had to serve a democratically governed union, not a national bank.
Germany emphatically disagreed. If the EMU was to discipline its members it could not allow them to realign their exchange rates whenever they ran into trouble. Germany set the ERM parity limits because it had the strongest economy and the hardest currency. If EC states could not reform their flagging economies, they could not stay in the ERM. Britain and Italy chose to drop out and devalue their money by 10 percent against the deutschemark. France managed to stay in, after drawing down half its reserves and receiving massive German assistance to prop up the franc. The forced march to monetary convergence and to a strong EMU was exhausted for the time being.
Summits Fail to Resolve Tensions
IT WOULD have been timely if a wave of optimism had crested as Europe entered a second stage of political and economic integration after Maastricht. The year 1992 was supposed to mark a mystical turning point in Europe’s glory. As in 1492 a voyage into the unknown was to begin. Centuries of patriotic violence and genocidal war were coming to an end. They were to be replaced by a union bringing lasting peace and a renaissance of industrial technology. A new era of history was to create a colossal superstate, anchoring Germany into the EC, fixing the troubled frontiers in the East and matching the global power of the United States and Japan.
The European union treaty envisaged the first transnational state of the nuclear era. Ancient frictions between Germany and France, between the industrial north and the Mediterranean south, were to be contained within the federal institutions of the union: a European parliament, a court of law and a powerful executive Commission. For all their objections the weaker EC nations would profit handsomely. An insular Britain, a fast developing Spain and Italy, as well as other Mediterranean states, would stabilize their shaky finances and share in the accelerated growth capacity of the continental union. Subsequently, the theory held, the federalists would publish their final constitutional draft for a United States of Europe. When completed the union would rank among the legends of world history.
Initially the accomplishments of the Maastricht negotiators were widely hailed. Twelve rival tribes of politicians had managed to broker constitutional differences and to reaffirm that the single market would start on time in January 1993. A raft of powerful laws assured the unrestricted flow of goods, capital, services and people within the EC. In the meantime two critical questions were left unresolved at Maastricht: whether to "widen" the Community and admit new members; and whether to "deepen" the Community, first by putting more federal power in the Brussels agencies, and second by extending judicial safeguards for wronged citizens and for democratic controls held by parliament. The omissions were to be fixed after the treaty was ratified. Unfortunately the move to ratification was overtaken by strange events.
It had been widely predicted that the removal of the EC’s internal barriers would unleash a great surge of business and confidence. Those expectations were not fulfilled. First, the Danes’ vote against the Maastricht treaty came as a shock. Denmark was one of the most devoted and wealthy members of the Community. Provision had not been made for the possibility of defeat. Were the Danes to be asked to vote a second time, or would all 12 states have to painfully revise the brokered treaty? As yet, this critical question remains unanswered.
The confusion doubled after France ratified the treaty with a minuscule majority. It was evident that voters resented discretionary power passing to the Commission in Brussels. A monster of a treaty had been drafted, and it defied popular understanding. European public opinion turned against the "federal dream" of Chancellor Kohl and the crafty technocrats reporting to the EC President, Jacques Delors.
As domestic debates grew noisier, opposition groups in Britain and Germany called for a referendum to ratify the treaty. They assumed that it would be easier to defeat the Maastricht accord in the streets than in quiet parliamentary committees. With ten million unemployed in western Europe and crowds rioting against refugees seeking asylum, EC governments were anxious about the treaty’s prospects. They doubted whether European union would move forward this century if the Maastricht negotiations had to resume from square one.
A second setback appeared in the drifting, futile sessions of the two summit meetings that convened in 1992. The EC summit in Lisbon failed to move forward from the positions staked out in Maastricht. Nothing was done to promote the widening or deepening of the Community. The entry of new members was put on hold. The five-year budget was once again delayed; so too was the integration of monetary and foreign policy arrangements. Worse, Europe’s recession dragged on, and the Yugoslav bloodletting intensified.
The annual economic summit of the Group of Seven (G-7) leading industrial nations in Munich was no more decisive. Nothing was done to stop the atrocities tearing apart the breakaway republics of Yugoslavia or to meet the request for massive capital outlays put forward by Russian President Boris Yeltsin. More to the point, the world’s foremost economic leaders bickered over strategic priorities to end the economic downturn: Germany refused to lower its punitive interest rates; Japan clung to its tight-money policy and its trade surplus; and the United States saw no reason in an election year to curb its deficits or reflate its money supply. Global growth was stuck at one percent of GDP, and no one in Europe dared to budge it.
Another matter was less dramatic but more worrisome. For a fifth year the G-7 leaders called for the completion of the Uruguay Round of negotiations under the General Agreement on Tariffs and Trade. They must have known that their arguments would fail. They picked the thorniest obstacle as the focus of dispute: the $100 billion in annual farm subsidies that distort world food prices and encourage surplus production by the richest nations. Little attention was paid to nearly $4 trillion of trade in services and manufactured goods that might be severely disrupted if the Uruguay Round were to collapse.
The United States held that the lavish price supports of the Community Agriculture Plan had to be curbed. As leading food importers Germany and Britain were inclined to accept slight cuts in the CAP’S price and output supports, but France refused. Japan continued its hefty rice subsidy, and the United States beat a retreat during the presidential election campaign, when President Bush handed sizable farm payments to U.S. cereal exporters.
A Two-speed Europe?
ONE BENEFICIAL trend lingered after the euphoria of the 1980s had evaporated. The seven members of EFTA chose to join forces with the EC-12 and establish a grand European Economic Area (EEA) by 1996. Some also promised to apply for associate status in the Community. The timing of the EFTA merger has not been settled, but the trade consequences are potentially significant.
As a 19-nation economic bloc the EEA would comprise a population base of 360 million people, generate a collective GNP of $6 trillion and account for 46 percent of world trade. Its industrial clout and its economies of scale would balance against the North American and the Pacific trade blocs. And if the dollar continues to lose value the ECU could become the major transaction and reserve currency of world trade.
It had been assumed that the EFTA entrants would link their currencies into the ERM and bind their monetary policy to its parity zones. At a later stage they would have to meet the convergence requirements set by the EMU, and their financial independence would disappear. That had been the formal plan until the ERM exploded and the pound and the lira were driven through the floor of the permitted exchange values.
It is possible that the exchange-rate mechanism linking the key EC currencies could split in two. A core of hard currency states could bring Germany, France and the Benelux countries into a single currency unit, while the remainder of the Community and the new entrants from EFTA would be condemned to float their currencies—at least until they reformed their inflation?prone and faltering economies. The ECU might be adopted as the inner?core denominator, but it would not achieve the global leverage to which the ERM had once aspired—since six of the EC-12 might be excluded from the EMU bloc. This resort to a two-speed system would leave urgent matters unresolved. Britain, Italy and other possible outsiders could enjoy a 12-15 percent price advantage if they traded freely in the single market while rejecting its rate?setting discipline. But if the insiders objected, the economic foundations of the Community could be imperiled.
The Community needs to cope with other forms of competition—internal and external—if it is to achieve a tighter union. The EC posts a growing deficit in its high-tech commerce and in its trade and capital flows with the United States and Japan. It has lost its lead in several strategic industries: computers, software, semiconductors, automobiles, air transport and financial services. Though the G-7 summit leaders invite President Delors to join them as an observer, he cannot speak for the EC with any forceful mandate. Once the EMU and EPU are established, it is argued, he could powerfully represent the union and its single-currency clout. But for now he only speaks for the 17 commissioners in Brussels.
Common Foreign Policy Elusive
IT WAS tentatively agreed at Maastricht that foreign policy and defense matters would eventually pass to the jurisdiction of the EPU. No one is quite sure what that means. For now there is little evidence of a cohesive foreign policy within the Community. Indeed it was obvious that discord during the Gulf War had been acute. Many EC members had distanced themselves from the American?led buildup for Desert Shield, and they had split from the NATO camp on other issues as well.
When it came to moving against Yugoslavia’s murderous strife and "ethnic cleansing" the EC again proved ineffective. Germany urged Slovenia and Croatia to declare independence. Britain and France were loath to move against Serbia. Britain argued that greater responsibility should be taken by NATO and the United Nations, but France disagreed. As a result, the EC’s ceasefire agreements and peace conferences collapsed, and the combatants ignored the good offices of the EC Commission. Matters were not helped when the Bush administration said the Balkans were "Europe’s area of responsibility."
As far as "collective security" hopes go for a new Europe, the concept of a European "defense identity" remains an empty phrase. France and Germany planned to raise a joint army corps to serve as a defense nucleus for a European army—or at least for the nine EC nations belonging to the Western European Union. But as the Yugoslav chaos intensified it was clear that neither the corps nor the WEU could ever replace NATO as the bedrock of European security. Germany, Britain and the "neutral" EFTA states agreed that a continuing U.S. presence in Europe was vital and that the NATO structure be left intact. France maintained its historical thrust of opposition, holding that Europe must eventually discard the familiar "umbrella" provided by U.S. nuclear hegemony.
Three further obstacles threaten to block movement toward European unity in 1992. The poorer nations in the Community, relapsing into economic stagnation, demand more money for regional aid and structural assistance from the richer north and from the new applicants in EFTA. That is their price to negotiate an enlargement of the EC. Spain, Greece, Portugal and Ireland report a GNP per capita less than half that of the northern members of the Community. They are in no hurry to admit the poorer countries of eastern Europe and the Mediterranean, or to sacrifice their slice of the perennially contested EC budget.
The budget has been the cause of determined infighting for twenty years, and there is little prospect for peace. Currently limited to 1.3 percent of the Community GNP (a sum of 66 billion ECUS or $85 billion), it is due to rise to 1.4 percent if GNP growth resumes. Half the budget goes to the CAP, especially to the richest farms in the north, and a quarter goes to regional assistance. But radical changes will have to be made. The EC cannot borrow or run a deficit, and its revenues largely come from value-added taxes and customs duties. The problem remains: wealthy states in the north are unwilling to hike Community?wide taxes and spending, while the poor states demand increased aid as the price for straightening out the budget mess and admitting new members.
A third obstacle appears in the form of mounting distrust of EC bureaucracy. To counter it President Delors announced a novel principle: "subsidiarity." His aim was to answer objections raised by Britain, Denmark and others. They claimed that ceding power to Brussels would lead to a dangerous centralization. Delors offered a timely compromise: to preserve national diversity and the widest local autonomy, the EC would limit executive jurisdiction only to "appropriate levels" where states cannot act alone.
"Subsidiarity" became the weapon of choice for governments fighting off the Commission’s power drive. The EC had asserted the right to issue regulations that could unify financial services and professional standards, environmental protection guidelines and public health requirements, and to guarantee access to national markets. But the Brussels bureaucracy was too zealous in rule-making and triggered costly litigation before the European Court. First it tried to harmonize the "Euro-sausage" and then to limit the noise level of lawn mowers. Germany was censured for shutting out French beer and bottled water with absurd medieval laws; France was told to modify its best cheeses and Italy to close its beaches.
It was a shrewd move by President Delors to restore the principle of local power, but it is not at all certain that he can counter the growing hostility to a Brussels-led Europe. Public opinion polls in the EC indicate mounting disenchantment with the pan-European treaty. More than two-thirds of Britons polled recently were opposed to the Maastricht pact, and former Prime Minister Margaret Thatcher continues to provide a powerful voice of criticism from the House of Lords. Prime Minister Major has resisted the call for a referendum from his own party, insisting that parliament will eventually ratify the treaty. His political fortunes are closely tied to the European cause and his economic strategy to the ERM. Both stand in considerable danger.
Admission of New Members Delayed
THE IMPASSE over the EMU and EPU is not as shattering as it might seem. A spirit of cooperation has survived among EC governments, and progress could be made at forthcoming summit sessions to liberalize the operations of the single market. Decisions to widen or deepen the Community will clearly have to be put on hold, and timetables to implement EMU phases II and III will most likely have to be scrapped. The deadlock over the GATT Uruguay Round and CAP will stretch into a sixth year unless the G-7 leaders can spur the world credit markets into action. No member state, however, is likely to reject the statement of principles that holds the Community together. It would be a pointless gesture at a time when economic recovery is desperately awaited.
The admission of new members will be delayed until the five-year budget is resolved and possibly until the treaty is revised in 1996. Most of the states that have or will request admission will not be considered until the year 2000. In the meantime discrepancies between the rich applicants from EFTA and the rest of the EC aspirants are embarrassingly visible. Per capita GDP ranges from $33,000 a year in Switzerland and $23,000 in Scandinavia, to a low of $1,600 in both Poland and Turkey. The present EC average is almost $17,000, though Portugal and Greece earn far less. More important the EC population of 325 million would grow by only ten percent if the EFTA states joined, but it would swell immensely if the others entered: 65 million would be added by the Visegrad trio, and 50 million more by the Baltic and Balkan nations. And then there is Turkey, a loyal NATO member, with 56 million people now, but with 85 million in the next generation.
The impact on the EC economy could be equally drastic. If classic laws of comparative advantage were to hold, the non-EFTA applicants would undercut most of the farm prices and the low value-added manufacturing costs of the union. Eastern Europe could ship cheaper textiles and steel than any of the import-protected and state-run sectors of the west. To stress the contrast of factor costs: EC citizens pay roughly $400 per capita each year in farm supports, through tax transfers and rigged consumer prices; but those in EFTA pay $1,000 each, and the east Europeans zero. By comparison the United States subsidizes food by $300 per capita and Japan by $500.
The issues of subsidies and protectionism go to the core of the EC’S problem. If it ever rationalizes its economic resources a large number of unskilled workers in western coal mines, steel mills and farms would be displaced from declining industries and channeled into welfare or low-paid service jobs. EC farmers would become park keepers, and the unsubsidized economies of the east would overwhelm their high-cost Community competitors. Workers in the east would accelerate low-cost production at home rather than migrate to the west. These eastern European workers might well hope that the EC would bolster their fledgling democracies and free?market regimes—as the Community had done so effectively in Spain in the 1980s. For now they stand as outsiders hungrily tapping at the EC’s well?stocked windows.
Protectionist forces will surely challenge the EC’s future progress. They will influence decisions on enlargement and the thrust to extend environmental or industrial policy. EC states spend $100 billion a year on industrial subsidies, especially for coal, railways and labor-intensive industries. Public subsidies average 6 percent of GDP in Italy, 3.5 percent in France and 2.5 percent in Germany. In Greece the figure is nearly 15 percent. With millions of jobs funded by these subventions no state will surrender them just to liberalize the European economy. Nor will the EC admit a flood of unsubsidized food and goods coming from low-wage exporters in eastern Europe or the Mediterranean.
A More Realistic Union
IT IS IMPOSSIBLE to forecast which way the EC will move in the 1990s. The Maastricht treaty left member-states intact as sovereign agencies, but it forced unity on their economic life. Their material destiny was cast into an integrated economic mold while political conflicts kept them angrily apart. This might prove to be the treaty’s undoing. The EC could possibly rectify the current impasse by splitting itself into a two-speed entity. Some of the EC-12 could, theoretically, join together at the core and later entrants could circle in outer orbits of power. Or the Community could simply resign itself to its current status as a common market and customs union—remaining a loose association of states, free of internal tariff barriers. None of these options is appealing. Each would involve the scrapping of the popular aspiration to unify Europe in this century.
Arguably the dictates of European economics will weigh more heavily than political concerns. The EC cannot move to the next stage of political evolution until it improves on growth and productivity. It would be pointless to develop the EPU, the commission or the parliament or to admit new members if the Community fell behind in the scramble for world trade and industrial technology. The compelling need is not to curb national sovereignty but to improve industrial productivity and living standards across the Community.
Europe’s gift for pragmatism and compromise will surely help as it experiments with new forms of organization. It has served well in the past. It may be that proposals for a two-speed Europe will be tried. That would probably lead to the development of a deutschemark currency bloc. But Germany would be troubled if it ever succeeded. Its alliance with France and the Benelux countries is of critical importance: both Chancellor Kohl and President Mitterrand insist that Europe should not succumb to political paralysis or division, and both aim to keep the Community intact. Moreover Germany needs to preserve its ties to Britain and Italy, and, no less, to the Atlantic world. It is not ready to sever its close relations in order to build a two-speed Europe with a minority rump at the core. It will strive aggressively to block the changes that a bifurcated, two-speed union would entail.
Whatever happens, appeals within the EC for public sector intervention and for trade protection will tax the patience of industrial and political leaders as unification proceeds. Practical choices will have to replace the free trade versus dirigiste arguments that now clog the airwaves. Welfare policy, as well, will require closer attention as the population ages and the availability of resources declines. Ultimately Europe cannot afford to ignore market pressures: it has an uncomfortable surplus of labor and farm products and an inadequate purchasing power to fuel its drive for prosperity.
The political forecast is more troubling. The EPU will not easily cope with the security and diplomatic threats that Europe faces. If the union can be gradually widened or deepened it may survive. But it will remain divided by ethnic and nationalist tensions. Eastern Europe is no longer sealed off by an iron curtain. The broad continent cannot ignore turbulence in Yugoslavia, in central Europe and in Russia, or in the world’s industrial markets. A self-limiting enterprise, to build an inner club or a multi?speed political union, will be futile if economic dynamism lags or security fears escalate.
No matter what course the movement to union takes it is unlikely that the United States will be excluded from an emerging Europe. If economic and political uncertainty intensifies the EC will have to strengthen its global links. It may not become a harmoniously united Europe; but at a minimum it will have to mobilize its scarce resources with greater efficiency. The North American Free Trade Agreement will offer vital opportunities to extend the EC’s trading reach and economies of scale. Similarly, a resurgent and unified Europe will repudiate fortress?like barriers to foreign competition as it strives for export expansion. Liberalizing of trade, moreover, will present major opportunities for U.S exporters and, hence, better prospects for U.S. recovery.
The cause of European union is not dead but it has experienced a severe setback. If the Maastricht treaty is not ratified or revised it may need another surge of economic growth before the constitution writers revive their former mood of enthusiasm. It would be better if the revival came quickly. Nationalism too often fires enthusiasms among groups who seek prosperity by beggaring their neighbors, and its containment in Europe is long overdue.
One of the founding fathers of a united Europe, Jean Monnet, wrote a thoughtful warning in his memoirs nearly forty years ago. It is highly pertinent today: "The construction of Europe, like all peaceful revolutions, needs time—time to convince, time to adapt people’s thinking and time to adjust to great transformations."
The Maastricht treaty attempted to do too much too soon. A renewed effort toward the cause of European unity could succeed if it were to follow a more realistic path in the next few years.