Orchestrating Europe (Text Only)

Governments across the EC chose to ignore protests from industry and trade unions about high interest rates, and focused primarily on the IGCs. But the French and German finance ministers did induce the Spanish government, against the advice of the Bank of Spain, to depreciate the peseta (contrary to the ERM’s presumed doctrine that the government should not manipulate the exchange rate but content itself with cutting state spending, wages and public consumption). The Spanish government conformed, fearing to antagonize Germany, its main investor, suspecting that if it did not Spain might lose access to the cohesion funds which alone could help its economy fulfil the EMU convergence criteria. The Spanish government’s version of perceived national interests triumphed over its central bank’s fiscal prudence.

In order to bring EMU to the speediest conclusion, the French government and the Banque de France argued during 1990–91 for even more than Delors had: instead of achieving convergence first, according to generally-agreed criteria, a strict timescale should be imposed, pari passu with the IGC at Luxembourg. Margaret Thatcher’s replacement by the relatively inexperienced John Major facilitated this move, which was incorporated in the Commission’s draft treaty on EMU and the ECB’s draft statutes in December 1990. Thereafter, the two IGCs ran in parallel into a maelstrom where raison d’état, economic logic and deductions from very recent history surged inextricably around two conflicting propositions: on the one hand, that EMU would produce automatic convergence and was therefore a precondition for economic union (advocated especially by Italy and Belgium which most needed the external discipline); and on the other, the contention of the Bundesbank and Chicago monetarists, that convergence and completion of the internal market were themselves the preconditions.22

Within this grand argument lay others, such as the shape of stage two and Britain’s proposal for a ‘hard ecu’ rather than an irreversible single currency. (This proposal originated with Sir Michael Butler, and was taken up by Major when he was chancellor. Like Howe’s scheme in 1984 for a Single European Act without an IGC (see p), it had certain advantages, one of which was that it made a rigid schedule unnecessary. But, like Howe’s earlier scheme, it came too late. In any case, it would have implied a long delay in stage three. Though acceptable to Spain and possibly others, it ran into outspoken German opposition on the grounds that the ‘hard ecu’ would constitute a ‘thirteenth currency’.

Inevitably a compromise emerged, even in such a Manichean struggle: the timetable should be absolute, but so should be stage two’s move to narrow bands and the convergence criteria themselves, the assumption being that each member state would thus be forced to adjust its own inflation, budget deficits and public debt ratios. To meet British objections, the Maastricht Treaty’s EMU sections added that the Commission should monitor member states’ performance, as it was already doing in their progress towards the internal market.

Governments’ various alignments in the EMU IGC were composed by a sort of logic outside time and public opinion, far from the actual recession which was beginning to affect industrial players in the second half of 1991.23 Stage two was set to begin on 1 January 1994, stage three in January 1997 or up to two years later, a date from which John Major obtained his celebrated opt-out clause with Kohl’s direct assistance.

Only one event disturbed the tenor of compromise, when the Netherlands Presidency introduced a proposal that the four convergence principles should be achieved before making any move to set up an ECB. This was attacked both by the French and the Commission, with support from Italy and Greece, whose governments saw the external agency which was to help them reform their public finances evaporating. Yet this was what German ministers, primed by the Bundesbank, actually wanted. It also pleased the British whom at this stage the German government wished to carry with them. The ECB was not therefore to take its final form during stage two, but only a European Monetary Institute (EMI), whose precise relationship to the existing array of central banks was far from clear. Convergence seemed assured, and in fact developed most markedly at first among the more widely divergent members like Spain, Italy, Belgium and Britain. Commentators in the United States assumed parities already to have been fixed so that ‘hedge funds’, managed by men like George Soros, had a straight gamble on whether EC governments would hold to this resolve.

The denouement came quickly, as the Bundesbank pushed rates higher to cope with German domestic inflation in the second half of 1991. For the next year Pöhl’s successor, Helmut Schlesinger, pursued the lonely path of rectitude to maintain the bank’s reputation against manifestly political pressures from Bonn and other EC capitals, all of which watched the struggle between Frankfurt and Bonn with increasing dismay.24 Speculators inevitably targeted those currencies, the peseta and the lira, whose governments had most to lose from the deflationary regime and were most likely to have to devalue long before 1997.

Substantial issues affecting members’ sovereignty had been traded, as British, Dutch and Danish ministers constantly pointed out. Yet the pass had been sold with the Central Bankers’ Report. All the more scrutiny was therefore imposed on the political union IGC, at a particularly fractious time of quarrels over agriculture and GATT, and the siting of the EC’s new institutions such as the EMI. Meanwhile the Commission’s interventions brought accusations of overbearing behaviour: a proposal in May 1991 to make detailed regulations within existing laws earned the criticism that Delors sought to make it the ‘thirteenth state’. Delors himself, nearing the end of his second term, needed to keep in line not only the IGCs – the second of which was largely outside the Commission’s scope – but the future budget on which the promised cohesion funds (and thus the acquiescence above all of Spain) depended. Yet in the second IGC, the Commission had to be a broker between member states whose tolerance had already worn thin.

The first IGC did nevertheless settle the fundamental issue of where power would lie: in Michael Artis’s phrase, ‘it was the culmination of an unparalleled effort to think through the implications of monetary union and to strike realistic bargains in the interests of realizing this good.’25 Whether the Commission’s powers of enforcement, or the logic of convergence and the timescale, would be adequate to reach that point was another matter, when the ERM reached its foreseeable long crisis in 1992–3.26

II. Contingencies

REGIONS

Although the aim of creating ‘a more favourable business environment through the dehnition of a common industrial policy as a whole’, which was set out by the Commission in its paper on industrial policy in 1990, belongs to a distinct history, it affected the IGCs in a very broad sense, since it touched on key matters like trans-European networks for research and development, initiatives for training, liberalizing civil aviation or telecoms, the differing competences of the Directorates concerned with industry and member states, and the attempts to iron out economic and social imbalances in the Community. Since the imbalances, especially in the infrastructure, had a strong regional formation, a leading managerial and supervisory role had to be envisaged for the Commission. DG16 already had a claim to be the residuary legatee of such a role, by virtue of its responsibility for the Regional Fund.

But the more politically salient regions, above all certain West German Länder, led by Bavaria and North Rhine Westphalia, wanted a more tangible sign, outside the Commission’s competence. So great was their influence on Bonn, in the sensitive period before the East German Länder were assimilated, that an argument developed for instituting an entirely new political structure, one avidly welcomed by Spanish, Belgian and Italian regions. The Maastricht Treaty therefore embodied a new Committee of Regions, similar to the old Economic and Social Committee. At the time of signature, what this committee would become remained speculative (see chapter 9). But that it could be a useful sounding-board for the ambitions of different sorts of regions, ranging from German Länder to the partly autonomous Spanish regions was not in doubt. Hence the interest of trade union confederations, now once again linked under a regenerated central body, the ETUC, across the north-south divide in order to further the Treaty’s Social Charter.

SOCIAL CHARTER

The Charter’s roots can be traced back to the previous period of trade union influence nearly two decades earlier; more directly to the report from the Commission working group in 1979. It was also influenced by the high levels of tripartite consultation in the EFTA countries which were already requesting membership, such as Austria, displayed in the 1989 Kreisky Report. If, as the Commission forecast, these states were soon to enter the EC, then the Community’s labour market arrangements should be compatible with the conditions they already enjoyed. So argued the Netherlands, who were the leaders in this particular field. Delors and leading members of the ETUC such as Ernst Breit (DGB), Bruno Trentin (CGIL), and Nicolas Redondo of Spain’s UGT drew up the Social Charter, which was then adopted as part of the IGC agenda by eleven member states to one in December 1989. Its intention was to renew the earlier ‘social dialogue’ and compensate for the deleterious impact of the internal market and industrial restructuring, of which rising unemployment – forecast to reach 13% across the EC by 1992–3 – was the first consequence.

The Charter itself set out twelve categories of workers’ rights, based usually on the West German model of mitbestimmung, which were presumed to facilitate the emergence of a single European labour market, more flexible and endowed with higher skills.27 The Charter embodied the Vredeling directive under another, non-compulsory form, and was likely to arouse opposition from UNICE and the European Committee members of AmCham because of employers’ predictable fears about higher costs, restrictions on the rights of management to hire and fire, and the imposition of standard contracts of employment. Indeed Delors told one British chief executive that the Charter was meant to be ‘the instrument for levelling the (labour) field’.

In spite of a proposed directive linking progress on rights to the cross-border mergers on which large companies were now keen, the only coordinated opposition came from Britain and Denmark. With their higher labour costs and legally protected markets, the governments, and in many cases the trade and employers federations of France, Germany and the Benelux countries, saw the Charter as a way of balancing the ‘Anglo-Saxon advantage’ which was initially predicted to derive from the internal market. Italy and Spain also wished to avoid disruption from trades unions at a sensitive period while their governments pruned public finances. The Charter thus stimulated systemic conflict between very different approaches to industrial relations, labour law, social security, welfare and pensions.

Yet there existed a strong case for arguing that the Charter would actually facilitate the internal market transition of which, according to the Commission, it was now a component (just as Structural Funds – doubled in size to 50 million ecus in 1989–92 – would ease the problems of declining industry and long-term unemployment (including the British coal industry)). The case for harmonizing laws on health and safety had been agreed already and if there were to be derogations they would be for the poorer countries, not Britain or Denmark. Thus the issue rested on the legal weight to be given to rights such as adequate information for employees about company strategies.

On the European Companies Statute (the heir to Vredeling) the Commission set out three basic models: that of Germany, the Franco-Belgian factory council model, and the British tradition of voluntary arrangements or bargains. From the list, all large and medium-sized firms would have to select one. It was perhaps unfortunate that the Commissioner in charge was neither much liked nor diplomatically skilled, because the Commission college let Vasso Papandreou, with her forty-seven directives, take the brunt of UNICE’s attack,28 while keeping in reserve a still-tripartite but more voluntarist alternative.

Much depended on the powers that trade union confederations still maintained at national level, in what was inevitably a subordinate part of the Maastricht arena, even for the more committed member states. Mitterrand’s phase ‘no Europe without a social Europe’ carried little weight even with social-democratic governments in 1991. During the IGC, the Dutch Presidency did its best for the Social Charter. But Britain, its government relatively united on Thatcherite principles, refused, on this matter, to accept QMV at all.

There being no choice, if the Charter were to be salvaged from a British veto, the other eleven governments proceeded with it as if it had been part of the Treaty, in a masterpiece of informal politics which the Netherlands Presidency then turned into a Protocol. John Major, taken aback by the long-term prospects if the Commission were to choose (under Article 100A of the Single European Act) to launch fresh legislation under a QMV heading, presented this optin by the majority of eleven to the House of Commons as if it had been a successful opt-out by the one.

REFORM OF INSTITUTIONS

Bargaining about the Commission’s competences surged up on these issues, often for financial reasons, because many of the trade-offs included compensation, through the proposed cohesion funds, for member states which expected to do badly out of EMU as well as the internal market. But behind disputes about the EC’s swelling budget rested issues of sovereignty and institutional reform. Insofar as the cost of regional equilibrium would rise, for example, the ‘northern’ member states who paid the most required supervision of the allocation and spending of both structural and cohesion funds.29 At the same time, the collapse of Communist regimes in eastern Europe required a response. If there were not to be a rush by Western countries to take easy advantage of newly democratic, politically inexperienced states with weak economies overloaded with Comecon debts, the Community had to act together. So it did; but it was the Commission which coordinated the West’s rehabilitation and loan programme, first for Poland and Hungary, then for all of eastern Europe. Fears that the Commission would thus slip into defining a sort of Community foreign policy led Mitterrand at Strasbourg to sponsor the grand concept of a European economic entente, a case which – like the Kohl-Mitterrand declaration on EMU and EPU – revealed the Council’s increasing habit of reaching major decisions in principle, usually on a Franco-German basis, preempting in practice both the Commission and Parliament.

Even before the IGCs began, change and reform of institutions touched other spheres, such as the European Court of Justice.30 Any extension of QMV proposed at Maastricht would also greatly complicate member states’ tactics, obliging them to calculate more carefully than they already had to, under the Single European Act, when constructing alliances or trading advantages if they wished to mobilize a blocking minority. But some power also adhered to the Parliament, as its President, Enrique Baron Crespo, with Kohl’s support, demanded that the political IGC should confer on it the right to initiate legislation, and amend more of, or reject, what was put before it. Italian, Dutch, and Luxembourg ministers, as well as those from Germany, supported this challenge to the prerogatives of the Commission and the Council.

The Parliament had already conducted its own attempt to set the IGC’s agenda, when its first ‘assizes’, held in Rome in November 1989, debated the proposals which Baron Crespo was later to advance in his semi-official meetings with ministers before and during Maastricht. These included not only greater rights to initiate, amend or reject legislation, but definitions of citizenship – basic rights on which might eventually be constructed the idea of a European public. In addition, it asked for enlarged competence for the Commission in social and environmental cases, and that European political cooperation (EPC) should be brought within the Treaties.

III. Political Union

The second IGC’s origins derived from two sources: member states’ long concerns with foreign policy from which, unlike EMU or the Social Chapter, Britain could not and did not wish to dissociate itself; and from the threats to their national security represented by cross-border crime, drug smuggling, terrorism and illegal immigration. Consciousness about the latter grew as the internal market and abolition of economic frontiers approached, and on the former with every stage in eastern Europe’s metamorphosis. Although the IGC had not been envisaged initially as having a defence element, events in 1989–91, including the incipient break-up of Yugoslavia, led that way, as did economic aspects of both the Community’s foreign and security policy (CFSP) and the internal market, via defence procurement, state aids to industry, and mergers such as the Siemens/GEC takeover of Plessey.31 Meanwhile, thirty-five years after the French Assembly had killed off the EDC, the French government wished to come back into the centre of European defence, even if that meant it had to reconsider aspects of NATO, so long as it did not have to rejoin NATO’s Military Committee. But defence as a separate theme could not be brought within the Treaties since it had been specifically excluded in 1957.

Mitterrand therefore sought an enlarged status for Western European Union (WEU) as the main plank of France’s CFSP proposals.32 But since the dilution of NATO was a highly sensitive subject, his proposals remained vague – as did their embodiment in the Treaty (see p). Not only did they have a direct impact on other member states in NATO, they invited an unpredictable Russian response. France’s defence industry, long the most successful of any EC exporters, also stood to gain substantially, to the dismay of British and German competitors and those parts of the Commission concerned with the single market and competition policy. If defence was to be touched on during the IGC, not only Britain’s fears about NATO but Germany’s concerns with its own new status and the problems of eastern Europe and Yugoslavia had to be addressed.

Interior Ministry issues were also brought into sharp focus by events in eastern Europe, above all the profound uncertainty about what would emerge from the former Soviet system after the onset of civil war in Yugoslavia. For the first time since 1961, the possibility of a flood of refugees and asylum seekers confused the patterns in which legal and illegal immigration had largely been contained. Unlike 1961, heavy structural unemployment in western Europe was beginning to change the outlook of governments which had previously been willing to accommodate large numbers of refugees. For the first time since the 1960s, the prospect of economic migrants, rather than refugees, from eastern Europe reappeared. In mid–1991, while the IGC was in progress, the International Labour Organization estimated that roughly eight million legitimate immigrants were living within the EC’s borders; on top of that had to be added the illegal ones, and asylum seekers whose numbers had risen from a mere 70,000 in 1983 to 350,000 in 1989 and nearly half a million by 1991 – even before the Yugoslav conflicts.

Refugees and asylum seekers were one thing, illegal migrants another. But the conditions of the time fostered confusion, so that the two easily became conflated, in certain political movements, and by the popular press. Nations’ rights to defend themselves against crime or drugs, recognized in Article 36 of the Rome Treaty, had been reaffirmed in the Single European Act. But the Schengen Agreement, made between France, West Germany and the three Benelux states in 1985, prefigured a Europe of open borders, where the southern and eastern members – Greece, Italy and Spain – would stand in effect as frontier guarantors for the rest against most sources of illegal immigration.

The political IGC therefore had to encompass a vast area, with no clear long-term aims, where member states argued not only over the practicalities of ID cards, data protection, and the so-called ‘right of hot pursuit’, but their likely impact on national public opinions. This was especially so in Britain and France, but became more so in parts of Germany and Spain; Italy felt the force of it once refugees began to pour in from Yugoslavia and Albania. Even among the Schengen countries, discords developed, for example over Dutch permissive policies on soft drugs, which French interior ministers referred to in outspokenly critical terms. Sentiments which had rarely been voiced in public now became commonplace, throwing doubt on the competence of other member states to keep out, variously, Moroccans and Algerians, Albanians, Yugoslavs or Somalis, and economic refugees from behind the fallen Iron Curtain.

Three main influences shaped this IGC: the efforts of the Parliament (by far the weakest); the Commission’s attempts to set the agenda, which dated back to 1986, if not 1985; and the aims and ambitions of member states. The well-attested tendency for EC states to grow more to resemble each other might have led the Maastricht negotiators to expect the same sort of consensus levels that had been obtained in 1985. Earlier frictions between Commission, Council and Parliament had indeed lessened during the late 1980s. But north-south differentiation seemed to have increased, as Spain’s successfully aggressive tone during the bargaining indicated, and the distinction between countries with sound fiscal regimes and others who were lax demonstrated. The ancient gulf between Britain and the majority, with all its philosophical undertones, remained, albeit softened by Major’s ‘Britain at the heart of Europe’ pretensions. Even subsidiarity, which for most states already meant devolution not to national but to regional capitals or even municipalities, meant something different to British Conservatives – though not to many Scots and Welsh.

How divergent the larger member states’ aims were can be gauged from the table of their desiderata compiled by the Economist in December.33 But whereas smaller and Mediterranean states had more cause than they had had over the Single European Act to defend particular national interests, the activities of Germany, France and Britain were complicated by their adjustments to changing perceptions of the outside world.

As in the past, the German government supported a Common Foreign and Security Policy (CFSP) having, at that stage, no conceivable alternative. French foreign minister Dumas and his German colleague Genscher explained in their October 1990 proposals for a CFSP that they were prepared to include majority voting in the Council. In December 1990, they widened their approach to include a common European defence, building on what had been done in Western European Union (WEU) since 1984. The German-French paper of February 1991 spelled out the WEU’s function as a bridge between the European Union and NATO. For both Bonn and London it was also important to guarantee that any European defence pillar in the framework of the WEU would not undermine NATO. However, the Germans had the additional aim of tempting France back into full membership of NATO.

Conduct of this part of the negotiations, though in the hands of foreign ministers at their monthly meetings, and deputies or permanent representatives on more frequent special occasions, reverted in the last six weeks to heads of government level. In Paris, it was the responsibility of Dumas and Guigou, but never far from Mitterrand himself: in Bonn, rather less harmoniously, it lay between Kohl and Genscher.

For the French government, it was vital to reinforce the EC in French colours rather than allow the Dutch Presidency, aided by Belgium and Italy, to make EC transactions more accountable to the Parliament and more detrimental to national sovereignty. The French were playing for very high stakes: not only for EMU but for a French rather than a NATO-based version of CFSP – at variance, for example, with what the Netherlands required. If defence were also to be included, an alternative had to be found to the organic image of a tree from whose trunk all the branches would spring.