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Foreign Affairs
Putting It Together: The Foibles and Future of the European Union
By Barry Eichengreen
European Integration 1950-2002: Superstate or New Market Economy?. John R. Gillingham. New York: Cambridge University Press, 2003, 544 pp. $25.00.
Barry Eichengreen is George C. Pardee and Helen N. Pardee Professor of Economics and Political Science and Director of the Institute of European Studies at the University of California, Berkeley. He is co-author of Built to Last: A Political Architecture for Europe.
For some, the process of European integration resembles nothing so much as a long-running Broadway play: the actors change, but the roles remain the same, the lines endlessly repeated, the action tightly scripted. So it is in John Gillingham's history of the European Union.
Gillingham's libretto revolves around the conflict between the champions of economic statism and proponents of economic liberalism. The lead roles are those of Jean Monnet, the charismatic French technocrat, and Friedrich Hayek, the bookish Austrian economist. Act I, which stretches from the late 1940s through the mid-1970s, is dominated by Monnet and his circle, who responded to the material and moral conditions of post-World War II Europe, which rendered the rapid restoration of liberal market arrangements infeasible, by making enterprise nationalization and indicative planning (whereby the government uses a combination of direct controls and financial incentives to encourage investment in particular sectors) the order of the day. Controls on international capital flows, retention of which was permitted under the Bretton Woods settlement, gave each government the leeway to elaborate a national economic plan. But capital controls did nothing to rebuild Europe's trade or to create confidence that Germany's economic might would be funneled in productive directions; if anything, financial restraints stood in the way. Monnet's response was to advocate the creation of a supranational entity, a union of European nations, through which state guidance of the economy could be formulated on a continental scale, intra-European trade could be liberalized, and Germany's economic energies could be reliably channeled. The economic constructs of the Monnetists, from the European Coal and Steel Community to the customs union, were all flawed to some degree. But together they gave birth to a basic set of institutions—a commission of technocrats, a representative assembly, and a court of justice—on the basis of which it became possible to organize transnational policies and create the European Union (EU).
Act II, commencing after an interlude of six years, sees the revenge of Hayek, with a helping hand from British Prime Minister Margaret Thatcher. By the early 1980s, the inefficiencies of state-led planning had become evident, and the special circumstances that had lent legitimacy to statism after World War II no longer animated European leaders. Moreover, the capital controls that gave European governments the freedom to pursue distinctive national policies had lost much of their bite. The expansion of trade, which even die-hard Monnetists acknowledged was necessary for prosperity, and the growth of the Eurodollar market, which they did not anticipate, destroyed the feasibility of economic planning in individual countries. The failed "Mitterrand Experiment" of 1981-83, which attempted unilateral budgetary expansion to overcome recession but only precipitated a financial crisis, drove home the point.
Enterprise privatization and market deregulation thus became the economic tools du choix. A single European market free of barriers to the internal movement of merchandise, capital, and labor— Hayek's vision— came to be seen as a solution to the problems of stagflation and high unemployment. A continental market would allow European firms to reap the benefits of economies of scale and scope, and the need to attract footloose factors of production would force national governments to remove barriers to production and innovation. A single currency, a creation with both symbolic and real value for integrating markets and intensifying competition, capped the process in 1999.
But this finale proved anticlimatic for the Hayekians, for it neither reduced the reach of the state nor led to the devolution of regulatory functions to regional and local governments. To the contrary, the creation of the single market starting in 1986 led to a greater role for the European Commission, the EU's proto-executive in Brussels. With the benefit of hindsight, this result is unsurprising. The cross-border spillovers of policies grow more pervasive as markets are integrated, creating a logic for centralizing the regulatory functions required for the operation of a single market. Even a classical liberal economy must have a trade policy and a competition policy, and an integrated international market can have only one of each. As Gillingham notes, Jacques Delors, the EU's head technocrat from the mid-1980s through the early 1990s, saw this as a convenient opportunity to expand the responsibilities of the European Commission and to turn it into the EU's central policymaking organ.
But conferring legitimacy on those responsible for these functions requires creating mechanisms for holding them accountable for their actions. As the powers of the European Commission increased, proposals spilled forth for enhancing the oversight of the European Parliament, strengthening the Council of Ministers, and even directly electing the president of the commission to redress the democratic deficit. In the ultimate irony, the economic triumph of the Hayekians gave new life to the political integration so fervently desired by the Monnetists.
The Best Defense
It is not surprising that Gillingham, author of the definitive history of the European Coal and Steel Community, should see the development of the EU as a contest between these rival economic models. Not that the author is unaware that others see the process of European integration first and foremost as political and only secondarily as an economic project. One cannot read his book and fail to be impressed, for example, with how long-standing is the French desire to use Europe as a platform for its foreign policy and for countering the military and diplomatic influence of the United States. Already in the early 1950s, Monnet sought to capitalize on this impulse with a scheme for a European Defense Community. He envisaged a European military headquarters and joint armaments production, ideas that are again circulating today. Revealingly, the idea foundered over the absence of political mechanisms to hold its leaders accountable. The European Political Community proposed by Monnet as a framework for the defense community was quickly rejected as a bridge too far.
Yet the French, embarrassed by the climb-down from Suez forced by the United States, refused to let the idea die. President Charles de Gaulle, however much he distrusted Monnet, saw his countryman's European project as a way of escaping the domination of the Americans. Subsequent French governments sought to advance this idea by making a Franco-German defense union part of the 1963 Elysee Treaty and by proposing the creation of the Eurocorps in 1992. Plus _a change, as they say.
Of course, a key difference now, when the idea of a European defense union is again being mooted, is the change in Germany's geopolitical circumstances. In 1963, with the Soviet army on the Federal Republic's doorstep, the Bundestag added to the Elysee Treaty a preamble stating that the new agreement should not be allowed to affect West Germany's NATO commitments. Three decades later a unified Germany similarly insisted that the Eurocorps be placed in the NATO framework. But today, with the Soviet threat long gone, NATO is perceived as less central to German security. Chancellor Gerhard Schröder can therefore more comfortably side with the French when they argue the need for European countries to act in concert to counterbalance the United States.
A theme of Gillingham's history is the role of the Cold War in shaping the process of European integration; it guaranteed U.S. support while both motivating and constraining the European response. As the Cold War becomes history, it is correspondingly less likely that the goals of U.S. foreign policy and European integration will dovetail and more likely that the European project will acquire its own distinctive geopolitical flavor.
No significant advance in the process of European integration has been possible, of course, without both French and German support, from the European Coal and Steel Community to the euro. And when France and Germany have set their minds on further integration, the rest of Europe has found the pressure to fall in line irresistible. Italy was always happy to have competent government from Brussels rather than something less from Rome, as Gillingham observes. Economically, Belgium, Luxembourg, and the Netherlands were too closely tied to their larger neighbors to do anything but go along. This makes the mini-summit to discuss closer defense cooperation, held at the end of April by the leaders of France and Germany together with their counterparts from Belgium and Luxembourg, a potentially portentous event.
New Members, New Rules
At the same time, the current cast is very different from the original production's. The United Kingdom is now firmly a member of the EU, and, just as de Gaulle feared, it has a different vision of European integration, one that allows fewer compromises on sovereignty and insists on closer ties to the United States. Political normalization allowed Greece, Portugal, and Spain to join the EU in the 1980s. The end of the Cold War allowed Finland, Sweden, and Austria to join in the 1990s. Next year, the greatest enlargement yet will expand the EU from 15 to 25 members. Already the new members are represented at the constitutional convention meeting in Brussels, and increasingly their shadow hangs over Europe's other deliberations.
Thus, France and Germany, even together with their Benelux friends, are now but a small minority of EU member states. The others do not form a cohesive bloc, but their views are increasingly difficult to ignore. Thus, 18 small current and future member states, predominantly central and eastern European, sought to capitalize on this fact by meeting in April prior to the Athens EU summit to agree on a common position on the institutional future of their union. Notwithstanding French President Jacques Chirac's rebuke of the new members when they expressed their support for U.S. policy toward Iraq, it is clear that their sheer number makes it difficult for Paris and Berlin to dictate decisions that must be taken by a qualified majority of member states, and even sometimes by unanimity, in an enlarged EU.
France and Germany, with cover from the Benelux countries, could still attempt to push ahead on their own. The euro and the Schengen passport agreement demonstrate the feasibility of some EU member states taking further integrationist steps in advance of others. Not surprisingly, the idea of "reinforced cooperation"—of some countries moving ahead more rapidly in areas such as defense and foreign policy—is in the air.
But to think that thorny issues can be addressed in this way is to misunderstand the problems that will occupy Europe's leaders in coming years. The pressing need will not be to establish a European military headquarters, an armaments agency, and a joint army so that Europe can match the military ability of the United States in an Iraq-like situation. There is unlikely to be consensus, even within what U.S. Secretary of Defense Donald Rumsfeld called "Old Europe," on the desirability of doing so. Germany may be a different place than it was before the end of the Cold War, but the country's history continues to shape and constrain its foreign policy. It remains understandably more reluctant than France to project military force abroad. France and Germany's shared opposition to the Bush administration's unilateralism on Iraq has done nothing to paper over this difference.
We Open In Venice
Homeland security is another matter. Here European countries do share a common interest, but there exists a particularly great imbalance between Europe and the United States in this matter. It is not that Europe lags in technology or administrative capacity. Rather, it lacks organization and incentives. The efficiency with which different U.S. federal agencies coordinate their efforts to enhance homeland security may be criticized, but at least those agencies are federal. Internal security is similarly a competence of the EU, having been recognized as the union's "third pillar," along with the first and second pillars of economic and foreign policies, in the Treaty of European Union, initialed in Maastricht in 1992. However, in practice, Europe's borders with the rest of the world are still controlled by the individual member states. A terrorist entering Europe via, say, Italy is free to move throughout western Europe courtesy of the Schengen agreement. Similarly, radioactive material concealed in a container unloaded in Naples can be freely transported throughout the continent, courtesy of the single-market agreement, which by design eliminates most inspections of trucks and their contents at Europe's internal borders.
Notwithstanding the best intentions of the Italian border police, decentralization creates a free-rider problem. Italy would suffer only some of the adverse consequences for European security if it cut spending on border inspection; the rest would be incurred by its partners in the EU. This is not to pick on Italy; it is the structure of incentives that creates a tendency to underinvest in internal security.
France and Germany cannot solve this problem by themselves so long as they value the internal market within which people and products circulate freely. Doing so requires the cooperation of all countries participating in the single market. Hence the only way to solve the free-rider problem and ensure an adequate investment in homeland security is to transfer responsibility for European security policy to the EU and to empower an EU agency to organize the relevant resources. This includes, if necessary, a single EU security service and border-control force.
The question is where to locate these responsibilities—specifically, whether to vest them in the president of the European Commission or the president of the Council of Ministers. Should this expanded executive authority be assigned to the president of the commission, who would derive authority from the EU as a whole? Or should it be assigned to the president of the council, who would serve a significantly longer term in office than the current six months and derive authority from the national governments that are the council's members? This is the fundamental question facing the constitutional convention.
The states of the EU have tended to divide on it along lines of country size. Most small countries prefer strengthening the president of the commission, an institution in which the tradition of a commissioner for every country has guaranteed them a voice. The large countries prefer strengthening the president of the council, since they anticipate that the nonrotating presidency will inevitably be filled by a former prime minister of a large country partial to their views. Valery Giscard d'Estaing, the president of the constitutional convention and former French president, has predictably sided with the large countries.
But there is no question of which option dominates if security is to be a European priority. Imagine some future European equivalent of the terrorist attacks of September 11, requiring a rapid response. It is hard to imagine that this could be organized by laboriously assembling 25 European heads of state and gaining their unanimous consent to a specific set of actions to be carried out by the president of the council. No council president would have the power to call an abrupt end to the discussions of the assembled heads of state and act unilaterally. Even the strengthened council presidency that Giscard d'Estaing has in mind would have powers only of "preparation and consultation"; the president could not take decisions on his or her own. Such capacity could, however, reside in a strengthened president of the commission, the EU's executive, who would have the ability to respond in the manner of the president of the United States. Jacques Delors recognized all this, according to Gillingham, when he slipped the third pillar into the Maastricht Treaty in 1992 as a rationale for strengthening the commission.
The constitutional convention could address worries about compromises of sovereignty by specifying the limited circumstances under which the commission president could exercise his new executive authority. It could give the council the right to switch on and off the president's powers to take unilateral steps to protect Europe's internal security. It could also reassure those afraid of a power grab by decisively assigning other responsibilities, such as the power to tax and redistribute income, to national governments, where they belong.
Ultimately, however, a commission president with new powers would be regarded as legitimate only if he or she was accountable to Europe's citizens. In their proposal to the convention, the small countries that favor strengthening the president of the commission recommend that a college of electors selected by the European Parliament and the national parliaments choose the candidate. Better still would be to let the individual member states decide how to choose their electors. Countries with a tradition of subjecting EU treaties to referendums might wish to select them by popular vote; others that regard matters involving the EU as more technical or obscure might wish to delegate this power to the national parliament or government. If and when a stronger European demos develops, more member states could opt to choose their electors by popular vote, as happened over time in the United States. Thus, the political basis for decision making in the EU could evolve at a pace chosen by Europe's citizens.
To be sure, there are obstacles to political reform along these lines. Most European countries have little experience with the presidential form of government. They have deep reservations about pooling their sovereignty even to this limited extent, as Gillingham emphasizes throughout his tome. The idea that 25 proud, sovereign states would suddenly see the need to counterbalance U.S. military might and foreign policy influence as sufficient grounds to abandon national prerogatives is naive. This is especially true given the long history of Europe's failed defense and foreign policy initiatives, not to mention the uncomfortable fact that there is no agreement on the nature of the European alternative.
But internal security is another matter. Security in one country is no more feasible than socialism in one country when the country in question is as small, open, and intimately linked to its neighbors as is the typical EU member state. Terrorist threats to the European homeland may yet provide a compelling rationale for the centralization of consequential policy functions and for the political integration necessary to lend legitimacy to those chosen to carry them out. If so, a common foreign policy may eventually enter the spotlight, after some period of time, from stage right.