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Europe's rude awakening

Whatever happens to Maastricht, says Helen Simons, the dream of Euro-unity is over and things will never be the
same again

It is easy to forget that until very recently Europe was all the rage. Last December when the Maastricht treaty was signed by the 12 European Community governments, the possibilities seemed limitless. All but the most sceptical pundits and politicians agreed that the European train was on its way and only a fool would want to miss it. The single market was all but complete. A single European currency would be a reality before the decade was out. Who could tell, maybe even the United States of Europe was not far away.


Even within Britain, the European Community's most reluctant partner, the consensus was behind the project. British business backed Europe. Europe was chic, stylish and above all positive. No company report was complete without a piece on 1992 and no British newspaper was complete without its European section. In April's general election every major political party gave Europe the thumbs-up. In slump-ridden Britain, Europe appeared to many as the only positive way forward. Defence of the European Monetary System was the only economic policy that the Tories could come up with to solve Britain's ills. The adoption of Europe's social chapter was the only distinctive idea that Labour could muster. Even minor parties like the Scottish Nationalists hoped that a positive endorsement of Europe could lend legitimacy to their own rather feeble policies.

Just months later, the European dream lies in tatters. Today the columnists and editors have stopped waxing lyrical about the prospects of a unified Europe and started asking if the EC can survive. The tide has turned against the European ideal.


Perhaps such sentiment is not unexpected in Britain. When Norman Tebbit gets a standing ovation at the Tory Party conference for slagging off Europe it is hardly startling. But when the same kind of sentiment is evident elsewhere in Europe then clearly something new is afoot. The Danish rejection of the Maastricht treaty and the narrow defeat of the 'no' campaign in France demonstrate that Euroscepticism is not confined to the back benches of the British parliament. Indeed it seems as though all the European visionaries have vanished. Even Europhile Jacques Delors has toned down his pro-Brussels message. And when the 'yes' campaigners in France use the fear of German expansionism as their main argument for Maastricht, it is clear that European idealism has few supporters.

Many people now ask how things could have changed so dramatically, so fast. But the question misses the point. To ask why the European train has been derailed is to assume that it was really on track in the first place. In fact, as Living Marxism has always argued, the notion that Europe could be a harmonious, united entity with one market and a single currency was a pipe-dream that mystified the real processes at work.

The best way to make sense of the current crisis is to appreciate that the smokescreen of European idealism has been dispersed. What we are now seeing is the other Europe, or rather, the real Europe - warts and all.

Pulling together

Despite the lofty idealism of its treaties, the European Community was always a pragmatic political arrangement between nation states that was mutually beneficial. The establishment of the community in 1957 through the Treaty of Rome was spurred on by the promise of protected markets and preferential trade agreements. Given the weakness of the postwar European economies, it made sense to try to work together rather than pull one another apart. Europe's economic success in the past 30 years demonstrates that under certain circumstances such a strategy could work.

The success of the EC was, however, predicated on the specific conditions of the past three decades. In the sixties, Europe was able to enjoy the full effects of the postwar boom. European trade expanded and new industries were established. By the end of the decade, the success of the community meant that other European nations were fighting to get in.

In recent years Europe's success has had a different basis. When the world was thrown into recession in the eighties, the relative decline of the US economy meant that international competition became more cut-throat. The community enabled Europe to shield itself from some of these difficulties. Protectionist measures and state subsidies provided some cover for Europe's less competitive industries in the early eighties; and currency convergence and managed exchange rates within Europe softened the blow of a declining dollar as the eighties progressed. While all of Europe shared a common interest in managing the competition between member states, the EC could be an economic success story.

Altered landscape

But while the past achievements within Europe might have made unification seem inevitable, developments in the 1990s have altered the picture. The marriage of convenience which suited all the members so well in the past is now an inconvenience to some. The result is that the basis for compromise and political cooperation between European states has been undermined.

The end of the Cold War and the reunification of Germany changed the political landscape of Europe. In the past Germany was always seen as Europe's economic giant but political pygmy. In the Cold War years, growing German influence in Europe was masked by this perception. Despite the fact that Germany was the economic powerhouse of Europe, other leading European nations could at least make some pretence at an equal partnership with Germany. While Germany dominated economic affairs, France and Britain could console themselves by assuming the political leadership of Europe. For France, at least, this was a relatively successful strategy.

Germany's poodles

Today, however, the unified Germany calls the shots in Europe. As the recent role of the Bundesbank demonstrates, German economic policies already shape the entire EC. Increasingly, however, Germany is coming to dominate the political domain as well. When the EC recognised Croatia at the start of this year, it was an act inspired entirely by German foreign policy interests. In this climate, France and Britain are forced to swallow their political pride and act as Germany's 'poodles'. This is traumatic for nations which were once Germany's equals, and creates a potent source of tensions within the Community.

The other new development that has changed the harmonious European picture is the severity of the world economic slump. The present slump has had a differential impact on the European economies. Britain and Italy have been hit hard while Germany and France faced less of an onslaught. The effect has been to exacerbate tensions. While in the past the EC economies could in some respects cooperate against a common rival such as Japan or the USA, today the competitive pressure between nation states makes any degree of cooperation fraught with difficulties.

A closer examination of European industry reveals the problems. On the positive side, the sheer scale of cooperation in the postwar years reduced the competitive pressures within the community. For example, in some industries a division of labour has been established. So despite all the dazzling achievements of the German economy, it has no major telecommunications industry. Certainly Germany had the capacity to build one but, whether by accident or design, it allowed the French the space and back-up to develop hi-tech telecommunications . As a result the French industry faces no significant German rival. In return, France gave Germany a clear run in industries such as machine tools.

Friends fall out

As a result, the EC went some way in reducing competition between national economies. But the integration of Europe's economy was not an extensive process. In many instances the competition between EC members is fierce and hostile as industries struggle to survive in today's shrinking markets.

For a start, even where a division of labour was established in a specific industry, it was never extensively pursued throughout the modern community. So, while France and Germany cooperated in the establishment of the French telecommunications industry, Britain was developing a rival industry in British Telecom. Other industries such as car production never even established a limited division of labour.

Another problem stems from the different composition of the economies of Europe. A policy that ideally suits one EC member may cause disaster in another. The recent currency crisis illustrated the problem. In most of Europe it was possible to defend weak currencies by big increases in interest rates. In Britain, however, a massive hike in interest rates was politically problematic because of the peculiar fact that so many Britons buy their own homes. Such national differences make it hard for the European nations to continue to act as one.

Ultimately, however, the unavoidable problem is the wide variation in European productivity levels. The productivity of a nation shapes its competitive performance. If productivity is high then a nation's goods will be competitive in world markets - and vice versa. When recession bites, these differentials in productivity take effect. The most productive companies will be able to ride out the recession at the expense of the less productive ones. This explains the differential impact of the current slump.


If Europe were really to act as a single economy, much of European industry would be devastated in the dog-eat-dog conditions of the slump. For example, British industry has experienced little real growth in productivity levels over the past decade, and is highly uncompetitive in relation to its more productive rivals. If they were forced to fight it out in a unified, open economy, the present slump could see German economic might wipe out British manufacturing. Faced with such a prospect, the instinctive response of a weaker nation will be to pull away from the unified economy and try to use national measures to shield its interests.

The recent sterling crisis is a case in point. Sterling came under pressure at the end of September because of the feeble position of the British economy. As the slump has unfolded, British goods have been exposed as uncompetitive, and British industry threatened with extinction. In the past, in such situations, British governments have allowed sterling to devalue in order to make British goods cheaper abroad. This time the financial markets, believing that the weakness of the British economy made devaluation inevitable, forced the government's hand. Sterling was withdrawn from the Exchange Rate Mechanism (ERM) and the pound went into free fall. This process, of weaker economies being pushed outside established European frameworks, is likely to be repeated in the years ahead. It demonstrates the limits of cooperation and compromise within today's Europe.

All bets off

As Germany's emergence as a political power coincides with the arrival of economic slump, yesterday's European vision is no longer a useful guide. The idea that Europe can be a harmonious unified community is no longer credible. The amicable arrangements which European nations made in a different political and economic environment are not viable in the changed conditions of today. Instead, rows and tensions are set to characterise the new Europe.

All bets are off for a unified Europe. But neither is it possible for Europe simply to return to the arrangements of the past, or to rerun old conflicts. New alliances and rivalries are set to reshape the face of Europe.

The countries at the heart of Europe could be pulled closer together around Germany, as the German economy gains strength relative to its rivals, and the economic division of labour is extended. It is already evident that a tight deutschmark zone embraces the Benelux countries, Denmark, Austria, and Switzerland. There is no reason why these more integrated economies can't pull together while the rest of Europe spins apart.

Hardcore France?

Even France could become part of the 'hard' core, if the French establishment is prepared to swallow its pride and tail-end the Germans. The vigour with which both France and Germany defended the franc in September demonstrated the strength of the Franco-German alliance. What is more, voting patterns in the Maastricht referendum suggested that the French elite is behind such a project, along with regions of France which are traditionally most suspicious of German intentions, such as Alsace and Lorraine.

As to the rest of Europe, it is clear that it's already in the second division. While also-rans like Britain would like to pull together with their old partners, they will find themselves pushed to the margins when the going gets rough. The feared two-speed Europe is not a model of the future; it's already here. And regardless of the final fate of Maastricht, Britain has no chance of promotion to the premier league in the foreseeable future.
Reproduced from Living Marxism issue 49, November 1992

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