Orchestrating Europe (Text Only)

The Hague Congress, which created the Council of Europe, was supposed to create a new momentum towards higher federalist goals. Instead, its creation was its own greatest achievement. Whether the British government, or Churchill in opposition, had ever held more than a fleeting interest in actively associating themselves with the construction of a European federation is highly questionable. Embroiled in an organization with a federation as its goal, the government rapidly proceeded to distance itself from other countries’ impulses towards ‘integration’, and in the process became the focus of opposition. The Council of Europe became tom between the ‘federalists’, who wanted to move quickly towards new constitutional arrangements, and the ‘functionalists’, who believed that new arrangements would be workable only if the surrender of sovereignty were a functional necessity. The latter envisaged that progress would take place cautiously, on a step-by-step basis, but since the UK was the leading exponent of the functionalist school, the position boiled down to one of no progress at all.

These developments quickly paralysed developments in the Council of Europe and certainly robbed the European movement, in its various guises, of direct political influence. Only in Italy, under the leadership of Altiero Spinelli, was there an attempt to convert the federalist cause into a mass movement, the Movimento Federalista Europeo. Spinelli soon became disenchanted with the MFE, but his enthusiasm for supranationalism remained undiminished. When the head of the Italian government, Alcide de Gasperi, asked him to draft a federalist plan for controlling European institutions, Spinelli seized the chance. His efforts resulted in the introduction of the ‘federalist’ clause 38 into the European Defence Community treaty (see below). This, however, represented the pinnacle of the MFE’s achievements. As the EDC faded, so the movement’s influence began to ebb.13

Whilst popular movements cannot claim credit for initiating ‘the process of integration’, they nonetheless provided a pool of new ideas and a vocabulary that decision makers could draw upon when confronted by immediate political problems. This occurred most dramatically when, in May 1950, the French foreign minister, Robert Schuman, announced his plan to form a coal and steel pool which embraced Germany. When this call was answered by the Benelux countries and Italy as well, the way was cleared for the ‘Six’ to embark upon a series of institutional experiments built around the concepts of supranationality and surrender of sovereignty.

It was by no means preordained that six countries would become irrevocably associated with each other in a series of supranational communities, nor that those six would be France, Germany, Italy, the Netherlands, Belgium and Luxembourg. To appreciate how ‘the Six’ reached that stage, we have to go back to the creation of Benelux, and the reaction of France, especially, to that development.

Benelux was the oldest of the post-War experiments in regional integration in western Europe. It linked Belgium and Luxembourg (whose own economic union, the BLEU, dated back to 1921) to the Netherlands, first through a monetary agreement concluded in 1943, and then by a customs union treaty signed a year later by the three governments-in-exile in London. Before the War the BLEU and the Netherlands had conducted approximately 10% of their trade with each other, although there had increasingly been an imbalance in favour of the former. The greater wartime damage in the Netherlands served to accentuate the Dutch deficit, which doubled between 1947 and 1951. Despite the manifold difficulties, the customs union came into force in January 1948, when all tariffs were abolished to be replaced by a common external tariff. However, trade was still impeded by the widespread imposition of quotas, especially on the side of the Dutch. To remove these, even if only towards the BLEU, threatened to aggravate the deficit. Progress was only made possible by two further measures. Firstly, Belgium granted ever greater credit extensions (which it was willing to do if it meant securing the Dutch market from Germany, while the latter’s industry was still operating at artificially low levels) and eventually the problem was subsumed into the European Payments Union. Secondly, the Dutch were able to secure preferential access to the Belgian agricultural market. They had wanted completely free access, since this would have helped remedy their trade deficit, but they had to make do with a provision which left Belgium’s domestic protectionism intact.14

From its inception, the Benelux experiment attracted considerable attention from policy-makers in France. This should be no surprise since before the War Belgium had been France’s largest European trading partner. Just as Belgium hoped to supplant Germany in Dutch markets, so France to needed to expand into the German vacuum to fund its own modernization plans. However, whereas the Benelux tariffs lay close to each other at the lower end of the range when they agreed to a common external tariff, it was realized that any union with France would be behind highly protectionist walls. Moreover, the Netherlands required the German market for its agrarian exports and its traditional shipping services. This required a reciprocal ability to purchase German imports; something that would be impossible if the Netherlands agreed to the arrangements proposed by the French.

From 1944 onwards there was continuous French pressure to break open the Benelux. It was headed off by the creation of a joint consultative body, known as the Conseil Tripartite, which arranged swaps of raw materials in the early post-War months, attempted to co-ordinate policy towards Germany (difficult given the different national provisions) and provided a forum for French attempts for a customs union. These efforts to break open the Benelux were countered by a demand that the move could only be considered if West Germany were to be included; a demand that ran counter to the reason for the French wanting the union in the first place. In 1947 the French used the CEEC conference in Paris to bluff the Benelux partners into daring to turn down the option of a customs union. They had hoped to use American leverage, who themselves wanted to use dollar aid as a way of securing their goal of closer regional integration.

Instead the study group for a pan-European customs union was created to deflect some of the pressure. They deliberated until the end of 1948 but ultimately failed because no decision had yet been taken on the German economy and its position in any future schemes. More immediately, the French found their challenge to move to the immediate formation of a customs union accepted only by the Italians. The fact that France’s primary goal remained the Benelux was reflected in two further approaches in 1948 to persuade them to join. Both were refused.15

By December 1947 the first feasibility study for the Franco-Italian Customs Union was ready. It was surprisingly optimistic and a second commission was established to investigate how it could be implemented. In March 1949, Sforza and Schuman signed a treaty that would effectuate a customs union in a number of stages. A tariff union was already envisaged for 1950 and full economic union about six years later, but through fear of Italian competition, in particular in agriculture, the French Conseil Economique (a tripartite advisory body representing labour, industry and agriculture) thrice rejected the treaty. The government drew the inevitable conclusion and demurred from presenting it to parliament for ratification.16

It was whilst the issue of the Franco-Italian customs union was still alive that the French economy was confronted by a highly localized but serious problem; a balance-of-payments deficit with Belgium. From such unpromising beginnings was born FRITALUX, the name given to the grouping of France, Italy and the Benelux. The French solution to this trade imbalance had been a devaluation against the Belgian franc, with all the help from the Belgians in managing these ‘broken exchange rates’ that this move implied. From there the idea developed to a ‘mini payments union’ with a flexible exchange rate mechanism. Thinking in this direction was reinforced by the prospect that US dollars would be available to sponsor regional integration initiatives, which served to lubricate the discussions long after the exchange rate realignments of September 1949 had resolved France’s original problems. Given the advanced stage that the talks between France, Italy and Belgium had reached and the implications all of this would have had for Benelux, it is amazing that it was only in September 1949 that the Dutch were actually informed of what had been happening. They immediately declared that they disliked the idea and would only consider it if it were supplemented by a customs union, which would also embrace the newly sovereign West German state. The French, whilst not rejecting the idea out of hand, argued that the union would better be created first and that Germany could join later. The Dutch feared this would never materialize and that entry, if it were ever agreed, would be surrounded by so many exemptions and escape clauses that Germany might not be willing, or even able, to join. There the negotiations stuck until the spring of 1950, when it became clear that the Americans had decided to do something else with their cash – provide the initial capital for the EPU.17

With the exception of the Benelux itself, the episodes discussed in this section all ended in failure. Yet they reveal several imperatives guiding policy in the immediate post-War period. The first was the motivation in all the modernization programs to utilize the breathing space created by Allied control over the post-War German recovery, to supplant the German position in both domestic and in foreign markets. The second was the fear of unrestricted German competition. Towards the end of 1949, Allied controls were already being relaxed; yet the powers of the new supervisory authorities were ill-defined and as yet untested. With or without the complication of the Dutch insistence on surrendering frontier controls against Germany, which a customs union would imply, the re-emergence of German industry was already a certainty. It was upon meeting that challenge, either politically or economically, that the entire commercial future of Europe depended.

The coal and steel sectors of western Europe took time to recover from the War. These key industries figured prominently in governmental recovery programs, such as the Monnet Plan in France. It was not accidental that the first major broad-based plan to integrate a specific industrial sector was the European Coal and Steel Community (ECSC). Coal and steel were important traded goods and essential industrial resources. Since they were largely similar products, they were easy to control and had a long history of being subjects of international cooperation. However, neither the timing nor the authorship of the first proposals for integration was accidental. The French initiative stemmed from an acceptance that this plan would, realistically, be their only method of establishing any control over German re-industrialization. French plans for the reconstruction of their steel industry had been based on an attempt to secure markets which had previously been German and also upon guaranteed access to German coal supplies. In 1950, the US policy of relaxing controls threatened to release excess German steel capacity upon a market that was already showing signs of becoming glutted. If, at the same time, German coal was redirected towards German mills, and coal supplies to France were priced relatively unfavourably, the adverse effects on France would be compounded. The Benelux countries, and to a lesser extent Italy, were pulled into the arrangements because they could not afford to remain aloof from a powerful producer bloc being created on their borders.

The Schuman Plan, as it was known, had been prepared in the French Planning Commission by Jean Monnet’s staff. It was launched on 9 May 1950, on the eve of talks with the Americans and the British on future controls of the Ruhr’s industry, and was clearly aimed at seizing the policy agenda. The British had been neither consulted nor informed of the proposals beforehand, but quickly ascertained that the organizational form implied too great a surrender of sovereignty, and that they required an entanglement in continental Europe of a nature that was inconsistent with their other foreign obligations. French attempts to persuade them to participate, the sincerity of which has been questioned, were quickly abandoned and, in the summer of 1950, negotiations began. The treaty of Paris, establishing the European Coal and Steel Community, was signed in March 1951 and came into effect in July 1952.18

The stated goal of the treaty was to rationalize the production and sale of coal and steel. To this end, all import and export duties, subsidies and other discriminatory measures on the trade of coal and steel were immediately abolished. Although rules for pricing were established, in ‘normal’ circumstances the market was supposed to be competitive. The Community also managed funds for subsidizing firms hurt by the creation of the ECSC and for retraining workers. These were aimed particularly at the Belgian coal industry, some sectors of which were penalized by a combination of thin seams and high labour costs. Over a transitional period, efficient producers paid a levy to enable Belgian mines to adjust to the lower prices. Moreover, because of the heavy weight of fixed costs, the industry was extremely vulnerable to fluctuations in demand and therefore many of the remaining provisions were intended to come into effect in ‘abnormal’ circumstances; namely, to mitigate the impact of price falls in times of recession. It is curious that although cartel practices were prohibited within the community, the ECSC’s marketing policy in the rest of the world was identical to those that would have been followed by a private cartel.

The innovation in the treaty, and the reason why it inspired such interest among proponents of deeper ‘integration’, lay not in the settlement of a potential political and commercial problem but in the manner of its resolution. The ECSC was administered by an organizational structure which bore many outward similarities to that of the future EEC. It was controlled by the High Authority (HA), a supranational organization comprised of nine independent members assigned by each of the participating nations, which was free to initiate reaction where it had competence and rights to do so at extremes of the business cycle.

The HA co-operated with a Consultative Committee recruited from producer, labour, consumer and distributive interests. It also worked closely with a Special Council of Ministers, in which each country would have one vote, whose role was designed to increase as decisions on coal and steel impinged on wider economic and security issues. The HA was ultimately responsible to the Common Assembly comprising 78 members drawn from national parliaments. Although the HA was the most powerful governing body, the Council could block certain decisions and the Assembly could force the resignation of HA members.19

It is hard to judge the immediate economic impact of the ECSC. The overnight removal of trade controls, without the transitional periods common to most European agreements, was certainly a success. However, for coal and steel, traditional barriers were less important as regulators of trade than they had been in the past or than they were for other sectors of the economy. The coal trade was covered by international agreements in which tariffs did not really play a role; Italy, with a rate of 15%, was something of an exception. For steel, both France and Germany had already suspended tariffs before the treaty was signed and the Benelux tariff had long been fairly low. Again, only in Italy, where an ad valorem tariff of 11–23% had been levied (and which was allowed to remain intact over a transition period) did tariffs have a protectionist intent.

More important was the impact of the ECSC on pricing. The ECSC eliminated the practice of dual pricing and created a base-point pricing system. Although price controls and subsidies were not fully abolished, even small progress on this front eased trade. Moreover, the discriminatory transport-pricing policies of ECSC members were eliminated. By volume, coal and steel were among the most important traded goods, so reduction of cross-border rates of about 30% made a major impact in deregulating transportation. The opening of the coal and steel trade also expanded imports of steel products into France and the Saar, which jumped from 27,700 tons in 1952 to 117,600 in 1953 – a period of low demand with trade barriers in effect for the first few months. In fact, throughout the 1950s, total intra-community trade grew much faster than production or trade with non-members; intra-ECSC trade in treaty products increased 171% from 1952–7, while production increased only 43% and extra-ECSC trade only 51%. In addition to these concrete effects, the ECSC defined the pace and structure of the debate over future initiatives undertaken by the Six. The next initiative took place in the area of defence and security policy.

Although they were soon to be overshadowed by the Cold War with the Soviet Union and its satellites, it is important to remember that security and defence policies had initially focused on the need to inhibit future German aggression. The Treaty of Dunkirk, signed in March 1947, was a long-term Franco-British alliance directed against Germany. When the Brussels Pact was signed a year later and the Benelux countries joined the alliance, they modified its exclusive orientation against Germany by a commitment to ward off aggression from whatever source.20 In the intervening twelve months, the announcement of the Truman Doctrine had highlighted a more immediate and dangerous threat to peace and security from the Soviet Union in the east. Yet the fact remained that had the Soviets invaded, the new alliances were ill-placed to stand in their way. Some have even argued that their very frailty was intended to demonstrate the necessity for American troops and equipment, backed by nuclear weapons if necessary, to be committed to Europe’s defence. Indeed, the secret so-called ‘Pentagon Talks’, which embraced the USA and Canada, started soon afterwards. These discussions came into the open in the summer of 1948 and were widened in their scope, culminating in April 1949 with the signature of the Atlantic Pact, forming the North Atlantic Treaty Organisation (NATO).21

American strategic planning in this period recognized that it would be impossible, even with US troops already on the ground, to defend Europe from Soviet aggression. In the event of an attack, the best scenario was a withdrawal behind the Pyrenees to Spain and across the Channel to the United Kingdom, from which points the reconquest of Europe could begin. A defence line at the Rhine or the Alps was not considered to be plausible before 1957 at the earliest. The only way to bring that date forward was to increase the European defence effort, and to employ the latent military strength of West Germany. Two events accelerated thinking in this direction: the victory of the Communists in China and, more importantly, the loss of the nuclear monopoly signified by the detection of the first Soviet atomic test in autumn 1949. These plans were made public in the crisis atmosphere surrounding the Communist invasion of South Korea which triggered the start of the Korean War. In September 1950, Acheson demanded the rearming of West Germany within NATO whilst pledging both an increase in the number of US troops stationed in Europe, and assistance for an arms buildup elsewhere.

The European reaction to events in eastern Asia was rather more sanguine than that in the USA, and few really saw any link between the Korean war and an increased threat to security in Europe. Given the fact that the rise in raw material prices which had accompanied the outbreak of war had undermined ECSC members’ balance-of-payments positions and weakened their recoveries, they were reluctant to undermine progress further by increasing defence budgets. Still less did they see any immediate necessity for German rearmament. In France especially, this reaction was acute. If the idea of facing a resurgent German industry had filled French policy-makers with dismay, their alarm at the prospect of a reconstituted German army was even greater. Since much of the French army was involved in Indo-China, Germany would soon have the largest army in western Europe.

Within the French planning ministry, an alternative strategy was hurriedly put together. If supranationality had provided a vehicle for controlling German industry, could it not serve to control its rearmament as well? In October 1950, the prime minister René Pleven announced that France would accept German rearmament only in the context of a European army, under the control of a single minister of defence. Initially, the Americans were horrified at the delay to the formation of German divisions that acceptance of the French proposals would imply. Although talks on the Pleven Plan started in February 1951, parallel efforts continued to find a formula for the integration of the German army into NATO. When these failed, in summer 1951, the US not only tolerated the French scheme but became an enthusiastic advocate. A European Defence Community (EDC) would become the agent for carrying forward the process of integration in Europe.22

At this point, only five of the six ECSC countries were involved as full participants in the negotiations. After the switch in the American position, the Netherlands finally joined too, its change of heart prompted by a fear of losing American cash and goodwill and the hope of securing a defensive line (the Rhine-Ijssel line) that would not abandon most of the country to advancing Soviet forces. In May 1952, the treaty establishing the EDC was signed in Paris. It was not particularly elegant in design, nor particularly egalitarian in intent. To neutralize the danger of independent German military adventure, the army was to be made up of national units of battalion size only. Having thus fragmented German military capacity, the French then went on to remove their own colonial armed forces from Community control. By defining Germany as a potential war zone, the treaty also proscribed the manufacture of certain war equipment on German soil. Despite the modifications made during the negotiations, the EDC did not make much military sense. Nor did it much appeal to the other members of the Six. But the treaty’s greatest failure lay in its primary task of making German remilitarization acceptable to French public opinion. Successive French governments shrank from presenting the treaty to parliament for ratification and when they eventually did so, in August 1954, it was rejected.

The EDC is an interesting example of the limits of American hegemonic leadership. American pressure was instrumental in securing a higher priority for European defence spending and for obtaining recognition that German troops were necessary. Yet, ultimately, the American administration had to defer to the French political agenda. Moreover, having done so, they failed to secure French acceptance of its own government’s creation, despite the fact that Europe’s defence was impossible without the USA. Certainly, this point was repeatedly made and never more clearly than when secretary of state John Foster Dulles threatened an ‘agonizing reappraisal’ of the American defence commitments to Europe if the issue were not resolved quickly. Moreover, French security objectives in their colonies were utterly dependent on US assistance. From 1950 to the fall of Dien Bien Phu, the United States covered 70% of the costs of France’s colonial war in Indo-China.

Despite all the possibilities for leverage that this dependence implied, the Americans still failed to secure the acceptance of a policy with which it had become increasingly identified.23

Part of the problem with the EDC was the question of control: to whom would a European minister of defence be responsible, who would decide how and when the European army would be used and who would decide the foreign policy that the existence of the army was supposed to support? The treaty had indeed envisaged an assembly and its first task would be to design a new, democratic model for political control. The existence of these clauses had been introduced on the insistence of Alcide de Gasperi and were a triumph for Altiero Spinelli’s federalist movement. In September 1952, the foreign ministers decided not to wait for the ratification of the EDC treaty but to move ahead immediately with the preparations for a ‘European Political Community’ (EPC). Six months later, right on schedule, the ad hoc assembly produced a draft treaty for the EPC. Meanwhile the increase in Gaullist representation in the French parliament had led to the coalition government dispensing with the services of Schuman as its foreign minister. This, more than anything, symbolized the abandonment of supranationality as the leitmotif of French foreign policy. Within the new environment, however, the EPC merely complicated an already difficult situation. For French socialists, the EDC was acceptable only if the elements of democratic control were strengthened. But any concessions in this direction would antagonize the Gaullists and others for whom the treaty was acceptable (if still unpalatable) only if the elements of national control were reinforced. Thus the French made desperate efforts to add protocols to the EDC treaty in the vain hope of finding the magic combination that would allow their parliament to ratify it.24