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The Development of the European Union

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The Development of the European Union
Lucy Lyons * and Hendrik Spruyt *
Arizona State University
October 2001

The Development of the European Union (Full Text, PDF, 41 pages, 58 KB)

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Introduction: A critical point in time?.

I. Introduction.

The European continent has now been at peace for more than 50 years. Economic cooperation and tranquility have transformed the West and Central European landscapes, which for centuries had been dominated by competition and war. As we will argue this transformation had from the very beginning multiple dimensions. Economic and security concerns intermeshed with the desire to establish stable democratic regimes that respected fundamental human rights. Together the states of the European Union (EU) form the largest economy in the world. The formation of the EU thus warrants our attention in its own right. But an analysis of how cooperation has emerged in this region also contains insights into how cooperation might emerge in other areas.


II. Up From the Rubble: New Unity and Purpose (1945-1965)

A. Historical Origins

Before 1939, the European powers could still bask in the light of several centuries of European expansion and preeminence on the world scene. They ruled vast empires and held the fate of nations across the globe in sway. Six years later, war, foreign occupation, and utter destruction had changed the political landscape forever. The colonies had taken the opportunity to seek independence, domestic economies were in shambles, and governments were starved for resources.

For a while delusions compounded material destruction. France, occupied for five years, challenged in its East Asian and Middle East possessions, and split by domestic cleavages during the war, nevertheless still claimed to be one of the foremost global powers. Indeed, it even sought to reduce Germany by bringing key areas under French control in a manner reminiscent of the Versailles Treaty of 1918. England too believed it would still play a global role, even if it had to do so in a reconstructed Commonwealth rather than outright empire. Even small powers, as the Netherlands and Belgium, imagined they still had an extra-European role to play in the East Indies and Africa.

Such delusions soon faced harsh realities. French economic revival hinged on American support, but Washington had vastly different plans than Paris regarding German revival and the future of the French Empire. The other powers would similarly have to recognize that in the incipient Cold War, America could dictate its divergent preferences on empire, the European role abroad, and economic protectionism. Moreover, in the Cold War of nuclear superpowers, it was clear that England, France, and Germany could only be minor players. They lacked the forces for conventional deterrence against a Soviet attack and had no nuclear capabilities of their own in the late 1940s and early 50s.

Several concerns thus came to inform the preferences of the greater powers in Europe. Mindful that another great war would seal their fate, political leaders were willing to entertain a variety of strategies to mitigate the chances of such a war breaking out. Intra-European conflict and the gross violations of human rights that accompanied the war needed to be avoided at all costs. Economic and military cooperation thus became inextricably linked and were deemed necessary to vouchsafe democracy and the welfare of citizens. France, moreover, unable to block German rearmament, wanted an organization that would credibly bind Germany and curtail potential ambitions. All states also wanted some American military guarantee to defend Europe, as well as American financial support for reconstruction. The answer to such quandaries increasingly seemed to lie in a more Eurocentric focus rather than global orientation and in closer cooperation between Europeans in economic and military affairs.

B. Early and Related Organizations

European cooperation in the immediate post-war years took a wide variety of institutional forms of which we mention merely a few. Belgium, the Netherlands, and Luxembourg forged an economic organization in 1947 (BENELUX) aimed at the reduction of internal tariffs and a common external tariff — a principle that would inform later integration at a larger scale. The Organization for European Economic Cooperation (OEEC) created in 1948 provided another forum for managing economic affairs. The OEEC was largely created to restore free trade and international payments as well as to channel Marshall Plan aid to sixteen states.

But the first steps towards European integration were not oriented to economic gains alone. The massive suffering inflicted by genocide and human rights violations of an unprecedented scale inspired governments to seek means to prevent any recurrence of such events. The Council of Europe, formed with ten states in 1949 established a Convention of Human Rights and a European Court of Human Rights to monitor and adjudicate grievances. 1 The novelty of the institutional arrangement lay in the supranational standing of the Court and the direct effect of the Convention. That is, individuals, once they had exhausted domestic remedies, could directly initiate proceedings through the Council of Europe institutions.

Security concerns moved in tandem. Soviet encroachment on Czechoslovakia in 1948 and pressure on Poland, Hungary, Romania, and Bulgaria, propelled England, France and the Benelux countries to sign the Brussels Treaty promising mutual aid against a common enemy. The Korean War accelerated American and European responses to prepare for the eventuality of a hot war on the European continent. Colonial commitments, however, particularly of France in Indochina and British deployments in their overseas areas, overstretched their capabilities. Two views emerged in reaction. One perspective favored the integration of Germany into a West-European defense system, the European Defense Community (EDC), together with France, the Benelux, and Italy. An alternative view advocated incorporation of Germany into the North Atlantic Treaty Organization (NATO). The French National Assembly failed to ratify the EDC agreement in 1954 thus foreclosing the first option. The Federal Republic of Germany and Italy thereupon signed the Brussels Treaty (creating the West European Union—WEU), and German membership in NATO followed.

European integration thus constituted from the beginning a multi-dimensional process, driven by a variety of motives besides prospects of economic gains. The desire for economic cooperation and pursuit of efficiencies of scale meshed with the desire to create stable democracies that respected inviolable rights. Common security concerns about the USSR, the need to tie Germany to West European defense, and (initially) the desire to prevent any revival of German militarism, created an environment of mutual reliance and growing trust.

C. The Founding Institutions of the European Community

While a variety of institutional arrangements emerged during the post-war period that facilitated closer integration, the actual European Union (initially called the European Economic Community) traces its roots to three organizations in particular. Their varied functions and institutional arrangements reflected the variety of objectives that the advocates of integration had in mind.

The European Coal and Steel Community (ECSC), created by the Treaty of Paris in 1951, included six states: the three Benelux countries, France, West Germany, and Italy. It aimed to regulate coal and steel production; reduce the internal tariffs hindering the trade in these products across borders; limit subsidies to these sectors; and establish a common external tariff. A supranational authority (the High Authority) would supervise the process. The idea of regulating coal and steel production meshed well with the French penchant for Dirigisme, government planning and intervention. Moreover, once again reflecting the security dimensions of the process, coal and steel were considered essential elements for any potential military buildup, suggesting the benefits for supranational monitoring of these sectors.

The Treaty of Rome established the European Atomic Energy Community (Euratom) in 1957. Euratom established a joint effort to develop the peaceful use of nuclear energy within the six, although France and Germany largely drove the project. France wished to mobilize German capital and know-how. The Federal Republic, conversely, wished to develop nuclear energy use, but could only do so within an international context so as to avoid the concerns with its wartime past. Efficiencies of scale also provided a sound economic rationale for cooperation. And without entrenched domestic bureaucracies, international cooperation was easier to come by than in other more established sectors of the economy.

The Rome treaty also established the European Economic Community (EEC) proper, which would later become synonymous with the entire integration project. It aimed to achieve, first, a customs union—the reduction of internal tariffs and the creation of a common external tariff. It, second, targeted the means of unfair competition and subsidies, and thus tried to start the process towards a true common market.


III. Expanding the Membership But Not a Deepening of the Union (1965-1981)

A. Supranationality versus Veto Prerogative

The Merger Treaty of 1965 brought Euratom, the ECSC, and the EEC together under the same Commission and Council of Ministers. The European Commission members sit independently of their national governments (as we will discuss shortly). The Commission is thus considered the more supranational of the two bodies. The Council of Ministers, by contrast, represents the member states. Ministerial representatives give voice to the their own national preferences on the particular issue area at hand. The Council thus operates as an intergovernmental institution, a forum to debate and hopefully reconcile the various national preferences.

The Merger Treaty not only brought various institutions together but also intended to advance the move to greater supranationality by expanding the authority of the Commission. Furthermore, a larger number of issues were to be decided by majority voting rather than consensus. In other words, countries might not be able to unilaterally preclude certain policy outcomes.

The French government, however, balked at the prospect of losing such veto rights. French insistence on national prerogative and autonomy clashed head on with the supranational tendencies that some of the other EEC members were starting to display. The tensions between France and the other states reached a fever pitch with France walking out of European deliberations for a period of six months (the policy of the empty chair). Without one of the founding states and one of the premier economies the European project faced collapse.

A compromise solution emerged which was dubbed the Luxembourg Compromise (January 1966). In reality though the compromise reflected a French victory. Majority voting would be practiced except on "important matters." The individual states, however, would determine what issues should be labeled as "important" and hence individual states retained a de facto veto right. In this sense vertical integration, the move to greater supranationality rather than intergovernmental decision making, suffered a serious setback.

B. The Accession of New Members

Horizontal expansion, that is, the enlargement of Community membership proceeded in subsequent years. Most importantly, the United Kingdom now wished to join the organization. Initially, Britain's potential entry into the European organization had run into a variety of obstacles. First, with de Gaulle's return to politics Britain had not gained an ally on the continent. De Gaulle's animosity to the British went back to the tension filled wartime alliance between the Free French, Britain and the U.S. Moreover, the new Fifth Republic, created in 1958 in part to deal with the instability of government since 1944 (France had 26 governments in that period) and the Algerian war, gave the executive considerably more power than its predecessor did.

Britain itself had its reservations. Some policy makers still saw England in a global role rather than a European one. Commonwealth connections were seen as a viable alternative to European enmeshment, and Britain perceived that it had special ties as well as responsibilities to its member states. Additionally, the special relationship with the U.S. gave Britain greater access to American security technology — a feature which at once oriented England towards the other side of the Atlantic and simultaneously irritated de Gaulle even more.

By the late 1960s, however, such conditions had changed markedly. Pompidou had succeeded de Gaulle in 1969. And, while a Gaullist, he did not have the same personal reservations about the British. The United Kingdom too had switched its preferences. The booming post-war reconstruction on the continent stood in stark contrast to the stagnating British economy. Ties to the Commonwealth could not substitute for greater access to European markets. Thus, by 1973 the United Kingdom together with Denmark and Ireland entered the European Community.

The democratic revolutions sweeping Southern Europe in the 1970s would provide another impetus for membership extension, demonstrating again that political motives as well as economic ones drove European integration. Greece led the way. Previously ruled by a military junta, Greece had renounced its membership in the Council of Europe, when it had been found guilty of egregious human rights violations. A democratic revolution in 1974 swept away the ruling dictatorship, a revolution partially inspired by pressure on the Junta by the EEC and the Council of Europe. Thus, although Greece was hardly economically compatible with the other 9 members, it was granted membership status in 1981 to lock-in the democratic transformation — a policy that would be repeated in the future, and which would have a bearing on later claims by post-communist countries for the same treatment.

C. The Key Importance of the Agricultural Compromise.

Aside from the agreements to liberalize trade among the member states, a key component of European integration hinged around the Common Agricultural Policy (CAP) that originated in 1962. The agricultural sector feared that integration would lead to job losses and expose farmers to greater external competition. Traditionally a well-organized interest group, the agricultural sector still employed about 8 % of the population, and in countries such as France, even more. Moreover, the farmers constituted a reliable constituency basis for the center-right parties, who were also the ones most inclined to favor greater liberalization for finished industrial goods. These parties could thus ill afford to affront their loyal supporters by reducing protectionist measures in agriculture.

The cause of regional integration required thus a quid pro quo. Further integration and liberalization would particularly favor industrial leaders, such as Germany, which were world competitive. In exchange, European Community funds would be allocated to guarantee fixed prices for certain agricultural products. This would allow relatively inefficient small farmers to stay in business. The vast majority of the budget for the European Community (about three quarters) went to this purpose.

The CAP, while politically attractive, of course created perverse economic effects. With guaranteed prices, producers had no incentive to take their cue from market signals, since governments would purchase products at fixed prices and create an artificial demand. Furthermore, guaranteed prices provided particularly significant profit margins for large-scale efficient producers, whose costs of production were considerably lower than the fixed market rate. As a result, the supply of certain goods, such as butter, outpaced private demand (with warehouses full of the product constituting the infamous "butter mounds", some of which were subsequently dumped at one-sixth the price in the Eastern Bloc countries). Hence, because potential losers in the drive to integration needed to receive some compensation to make the European project politically viable, European cooperation led to undesirable economic outcomes in certain sectors.

D. The Role of the European Court in Moving Integration Along.

While French intransigence forestalled the move towards significant majority decision making, and thus halted the drift towards supranationality in the Commission, the European Court of Justice (ECJ) in a manner reminiscent of the American Supreme Court's extension of its powers, gradually started to assert itself more actively in the integration process. A few landmark cases, in particular, redefined the role of community law vis-à -vis national legislation.

In 1962 a Dutch transport company claimed that Dutch national tariffs infringed community law (Van Gend and Loos, case 26/62). The company claimed that such tariffs hindered the conduct of its business and that such legislation violated Article 12 of the Community Treaty that forbade EEC states to raise tariffs. The Dutch government argued that it was up to national courts to decide whether infringement of EEC law had taken place. In effect the dispute thus came to revolve around the question of judicial competence. The Dutch position followed traditional international law: it is up to the domestic court to decide the relation between domestic law and international law. The ECJ, however, ruled against that interpretation. It held instead that community law has direct applicability, the national courts need not interpret it. Individuals can directly appeal to community law if the content of that law gives individuals certain rights or obligations. The case thus established the principle of "direct effect."

A subsequent ruling (Costa v. Enel 1964, case 6/64) added another key component of European law: the principle of "supremacy." In this case the Italian government had nationalized a utility company, Edison Volta. A stockholder of the company opposed the nationalization and refused to pay his bill, arguing that the Italian action contravened Community law. The defendant, the Italian government, adhered to the dualist theory of international law: an international agreement needs to be transformed into national law by the government before it can have effect. Domestic law could supersede international law if it was of a more recent date. The ECJ held against the Italian government, and adopted the monist position. International law directly affects national law and is of a higher order. It supersedes national law even if the latter is of a later date.

Despite these rulings economic integration proved to be a long and arduous task. While formal barriers were being torn down, informal barriers prevented the creation of a truly integrated market. Article 30, for example, forbade the use of technical barriers to prevent entry of other states' products, but Article 36 allowed for domestic standards to be applied in cases that affected health and safety. A little creativity thus allowed governments to limit entry of foreign goods by invoking health and safety standards that differed from the exporting country. Such non-tariff barriers (NTBs) forestalled any hopes to expedite the movement of goods. Harmonization seemed to require either greater involvement by community institutions, dictating in detail what should become the common standard, or case by case intervention by the Court to establish in which cases standards had violated the Treaty. Either solution would demand an incredible investment of time and workload and retard the move towards a common market and eventual economic union.

A landmark decision by the Court in 1979 (usually referred to as the Cassis de Dijon case, nr. 120/78) changed this situation by choosing a third option: mutual recognition. In this case, German authorities had prohibited the sale of Cassis, a French beverage, because it contained less alcohol than German strong liquor, but more alcohol than German beer. Citing health concerns, the German national courts sided with their government's position. The aggrieved German importer of Cassis then brought the case to the European Court. The Court held against the German government and applied "the rule of reason". In the absence of community law the Court would accept national standards regulation if they could be considered "reasonable." Thus it did not rule out the possibility of divergence between standards applied in different countries. However, constraints on the free movement of goods would only be permissible if there were "urgent needs" to do so. In this case the German government did not act reasonably given that information on the label would have sufficed to inform the consumer. Moreover, the rationale of the standards would have to be measured against the importance of the free transport of goods in the Community. In essence this put the burden on the state imposing the constraints. When such constraints were not justified governments had to mutually recognize fellow member's standards. Consequently, if a producer had satisfied standards in one country the product would satisfy the standards of the other EEC members as well.



Note 1: The council now has 40 members.Back.

Note *: Lucy E. Lyons is Coordinator for Social Sciences in the Collection Development Division of the University Libraries of Arizona State University. She is authoress of several articles, including bibliographical works in military and political sciences. Prior to her present position, she was a bibliographer and reference librarian at the Central Research Library of the New York Public Library.  Back.

Note **: Hendrik Spruyt is Associate Professor in the Department of Political Science, Arizona State University. His book The Sovereign State and Its Competitors won the J.David Greenstone Prize for best book in history and politics, 1996. He has published more than a dozen chapters and articles in, a.o., International Organization, The Review of International Political Economy, The International Studies Review, and The Review of International Studies. He was formerly Associate Professor at Columbia University and a Member of the Institute for Advanced Study in Princeton. He is currently working on a book explaining the various modes of territorial dissolution in the post-war period.  Back.

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