10 the History and Institutions of the European Union

10 The History and Institutions of the European Union

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The History of the European Union

Precursors to the European Union

While many visionaries have sought the peaceful unification of Europe, and a few dictators have looked to do the job by force, serious planning for economic and political unification in Europe did not occur until after World War II. A strong impetus for change was the damage caused by nationalism and war in the three decades between 1914 and 1945. Even after the war, tensions were raised and energy absorbed in the dispute between the conflicting and, to many eyes, largely bankrupt ideologies of nationalism, communism, and fascism. “Europeanism” offered an alternative, which could both influence domestic political agendas and provide a supranational goal to diffuse nationalist tensions. The potential economic rewards of a united Europe were appreciated from the beginning, but they were initially less important than the prospect of political gain.

A further push toward unity was given shortly after the war by the creation of the American-financed Marshall Planand the institution created to administer it, the Paris-based Organization for European Economic Cooperation (OEEC).[1] Today the Marshall Plan is almost universally remembered and revered as a rare example of enlightened altruism on the part of the United States. Rather than extracting revenge and reparations from the defeated powers, as the Treaty of Versailles, which concluded the First World War, had done, the Marshall Plan was designed to assist the reconstruction of Europe by helping both victor and vanquished. As well as administering project aid, the OEEC was active in alleviating the dollar shortage, financing the bilateral currency imbalances, and helping to remove the trade barriers that had multiplied in the prewar periods. After three years of slow growth across the continent, the OEEC efforts began to bear fruit. American exports to and investment in Europe soared and prosperity began to return to the continent. While often credited with the revival of Western Europe, some scholars have seen the Marshall Plan as a decisive step in the division of postwar Europe. The Soviet bloc was invited to participate in the Marshall Plan, but Stalin rejected aid because it was conditioned on extensive information sharing. The exclusion of Eastern Europe helped draw the “iron curtain” that divided the nations of Europe until 1989.

In 1948, a conference at which all the major western European nations were represented was convened at The Hague. Originally called the Congress of Europe, this body became known as the Council of Europe and made its permanent home in Strasbourg in eastern France. It became a useful forum in which to debate and define the competing models of European integration. An important issue was Britain’s role. Britain had emerged from the war with a great deal of moral authority and might have taken the leadership role on European unity had it not favored European integration through intergovernmental cooperation rather than by creating supranational organization. In retrospect we can see that the British leadership failed to appreciate that major changes had occurred in the global political landscape and conceived of World War II as merely the latest in a series of continental conflicts requiring British intervention to restore the balance of power. At the end of the war, Britain turned to concentrate on world trade and the remnants of its empire to the neglect of its interests in Europe. The Scandinavians supported Britain’s position of cooperation without political integration, and the Council of Europe was unable to offer a clear path toward the federal solution preferred by the other west Europeans.

The real precursor of the contemporary European Union (EU) was the European Coal and Steel Community (ECSC), first suggested by Jean Monnet and later advanced by another Frenchman, Robert Schumann.It was originally proposed to combat the fear that the revival of the German economy might cause German military power to rise once more. The idea of the ECSC was to create a “common market” in coal and steel, removing the basic ingredients of a war machine from national control, and placing its oversight with a “high authority,” independent of national governments. Initially the ECSC consisted only of France and Germany, but the Benelux countries and Italy joined to form “the Six,” signing the Treaty of Paris in 1951. The ECSC not only succeeded in reducing tensions in Western Europe, but it also provided a compelling model of the value of pooling national markets.

European Defense Community (EDC)

European PPolitical Community (EPC).

Although five of the members of the ECSC were happy to go along with this, in 1954, the French National Assembly failed to ratify the EDC, a move that proved fatal for the EPC as well. Persuading European governments to yield sovereignty in the defense and political arenas was always to prove tougher than harmonizing economic arrangements.

The Treaty of Rome

The failure of the EDC and EPC initiatives set back the European movement; Europeanists shifted their emphasis from rapid political unification toward consolidating economic integration. The foreign ministers of the Six met at Messina in 1955 and began a process that culminated in the Treaty of Rome. This established two new bodies, the

European Economic Community (the EEC, often called the European Common Market)

and Euratom, the European Atomic Energy Community.

Together with the ECSC these bodies constituted the

European Communities (EC).

The most important move was the establishment of the EEC. The success of the ECSC demonstrated that economic gains could be made by increasing the size of the market, thereby allowing both greater competition (with a long-term impact on efficiency and dynamism) and a greater degree of specialization. Moreover, in the 1950s confidence in the power of economies of scale was high. National firms might be uncompetitive in global terms because of the limited size of the domestic market, but European firms could amass the size to compete internationally.

While it is generally accepted that economic integration offers benefits to all participants, there are different degrees of economic integration. At the lowest level, a free trade area allows the movement of goods between countries without the hindrance of tariffs or quotas.

A customs union not only provides for such movement but also requires that the members have a common external tariff (CET) applied to their imports from third-party countries.

Acommon market is a customs union with the additional commitment to the free movement of factors of production within the member states. The member countries had as their ultimate goal a common market, but the first step toward this was the completion of a customs unions and the establishment of a common external tariff.

The Community of Six France Germany Italy Benelux

The Community of Six, established by the Treaty of Rome, gave itself a 12-year adjustment period to establish a customs union.

During this time internal tariffs between constituent nations were to be progressively reduced to zero and the tariffs on goods originating outside the community harmonized. By 1968 this customs union was complete, although progress toward the liberalization of factor movements, required for a true common market, was much slower and would, in fact, take another quarter of a century to effect.[2]

Fear of fortress Europe, -- US Policy -- containmenta market shielded by high tariffs, which would have been against the prevailing trend of multilateral tariff liberalization. However, despite the threat to its economic interests, the United States supported the development of the EC because it offered the political reward of European stability. Fears on the economic front were eventually disarmed when it became clear that the final external tariff structure of the EC was to be more liberal than that of the original members. Trade relations between the EC and the United States have not always been harmonious, and fears of restricted access to the European market have been chronically recurrent. Nevertheless, the tariff reductions negotiated in both the Dillon and Kennedy rounds of General Agreement on Tariffs and Trade (GATT) were translated into cuts in the common external tariff

.

Although economic aspects of the Europeanism thrived, progress toward a politically united Europe was limited, with both defense policy and foreign policy remaining the domain of national governments. However, the stances of Germany and France, the two most powerful nations, became increasingly coordinated as German Chancellor Konrad Adenauer and French President Charles de Gaulle cooperated closely in “the Bonn-Paris axis,”

and their interaction frequently determined European policy. However, despite increased cooperation such policy making was at the national and not the Community level.

Shortly after the Treaty of Rome, Britain had second thoughts about its failure to pursue EC membership. The remnant of its empire, the British Commonwealth, was largely going its own way and the treasured “special relationship” with the United States was becoming less close with each successive year.[3] In 1959 Britain took the lead in the creation of the

EEuropean Free Trade Area (EFTA, otherwise known as the “outer seven”), consisting of Britain, three Nordic nations (Sweden, Denmark, and Norway), Austria, Switzerland, and Portugal. It was designed to capture the benefits of a free trade area without any commitment to social expenditures or to political union. From the British point of view it was unfortunate that all of its partners were small, since each of them gained much more in terms of market access than did Britain. Quickly recognizing the limitations of EFTA, Britain formally reversed its position on the EC, announcing in 1961 that it was interested in full European membership, but negotiations were unilaterally terminated by French President de Gaulle, who used the French veto to deny entry.

Expansions of the 1970s and 1980s

After de Gaulle resigned in 1969, British entry became a possibility once more.

In December1969 talks began to admit not only Britain, but also Ireland, Norway, and Denmark. Britain secured entry, but paid a price in terms of budget contribution that was a higher share of gross national product (GNP) than that of any other member. Ireland and Denmark also joined, but Norway, although admitted, rejected membership in a national referendum, influenced by the fear that its valuable fisheries would be opened to wider exploitation. The short-term consequences of membership were unfavorable for Britain. Food prices soared as a result of the protectionist

common agricultural policy (CAP)that ended cheap imports from Australia and New Zealand.[4] British industry was not competitive and lost market share at home without significant expansion of exports to continental Europe. In the early 1980s the Thatcher administration eventually negotiated a lower British budgetary contribution and even secured a modest refund, but the British population remained skeptical about the benefits of membership.

Greece joined the EC in 1981 and

Spain and Portugal in 1986. The new members were noticeably poorer and less developed than the existing EC nations, increasing the population of the community by one-fifth but its income by only one-tenth. They were therefore a net drain on EC finances. Membership for these nations involved a different calculus of gains and losses. Although the newcomers did contribute something in terms of increasing the accessible market for existing members, the main gains were seen as political. Entry into the EC was thought to have a centralizing impact on the domestic politics of member nations, and it was hoped that membership would put these countries, all of them recently under fascist regimes, on the road to moderate politics.

EC-1992: Completing the Internal Market

In 1987 the Treaty of Rome was amended by the passage of the “Single European Act,” the most important proviso of which was the end of any individual country’s power to veto economic legislation on the grounds of national interest.

This important measure Ccleared the way for the project known as EC-1992, the completion of the internal economic space to allow totally free movement of goods, persons, services, and capital.

Physical barriers

Procurement

Financial services

Experience had shown that deepening the political links of the EC was a difficult operation, because it involved the sacrifice of domestic sovereignty, but liberalizing the internal economy of Europe was less contentious. In 1985, with the absorption of Spain and Portugal almost complete, the European Commission issued a White Paper containing 300 proposals for the “completion of the internal market.” In 1987 the Treaty of Rome was amended by the passage of the “Single European Act,” the most important proviso of which was the end of any individual country’s power to veto economic legislation on the grounds of national interest. This important measure cleared the way for the project known as EC-1992, the completion of the internal economic space to allow totally free movement of goods, persons, services, and capital.

Euro growthsclerosis

The growth and success of the EU overshadowed the modest achievements of EFTA, whose members saw that the free trade area could never offer a market of the size and depth of the EU. Consensus favored a closer alliance with the EC and several EFTA members actually applied for full membership. In 1991 EFTA and the EC combined to establish a common free trade area, for manufactures but not agricultural goods, an institution that became known as theEuropean Economic Area (EEA).

It is hard to gage the success of the internal market project. It has failed to deliver the promised economic gains, and EU growth since the completion of the market has been lackluster. In the period 1993–2002, GDP growth in the EU has averaged 2.3 percent per annum, faster than stagnant Japan but well below the pace of 3.5 percent set by the United States (see Table 10.2). European employment has been even slower growing during this period with job creation lagging behind the labor market entry rate and rising unemployment has become one of Europe’s largest social problems. Whether or not the position would have been even more dire without EC-1992 is hard to tell.

The Social Charter

The Social Charter (officially the “Community Charter of Fundamental Social Rights of Workers”) was a declaration adopted by the heads of state or government of 11 member states of the European Community[5] at the meeting of the European Council in Strasbourg in December1989. It set out broad principles shared by the signatories and constituted a first step in the harmonization and establishment of consistent labor law across the EU. The Conservative British government of that time, committed to the interests of business, felt that the clauses in the Social Charter designed to strengthen the power of labor in the workplace would both lessen the freedom of management and the mobility of labor.

The rights expressed in the Social Charter are quite general and involve shared commitment to a safe workplace and social protection. One clause asserts the right of all workers to a paying job, clearly a dead letter given the high rates of unemployment in the Community

. Of particular importance are three specific sets of provisions that were obnoxious to the British Conservatives.

1. The first protects labor unions and guarantees their right to engage in collective bargaining i. This might have been palatable had not the charter gone beyond this in providing that workers must be informed about the activities and plans of the management and that workers participate in the running of the company through representation on the board. To the business-oriented Conservatives, this seemed to allow the unions to usurp management prerogatives and was styled by Margaret Thatcher as “back door socialism.”

2. A second set of provisions guarantees the absolute freedom of workers to move within the EC

3. , and a third guarantees the equal treatment of men and women, including equal pay for comparative work.

The Social Charter was is a statement of general commitment but does not impose any specific action on a member country.

The Maastricht Treaty

Following the relative success of EC-1992 in completing the economic space, the EC faced new challenges in both economic and political spheres. On the political side, progress toward an ever-closer political union had been placed in abeyance while the single market project had been pursued. The economic sphere was politically the easier one, since it offered clear and sometimes quantifiable benefits. It involved less sacrifice of sovereignty than the political agenda and was supported even by “euroskeptics” like Margaret Thatcher. However, the next step toward full economic integration was more controversial. It involved the creation of a single currency, which, Europeanists argued, would tie the European economy closer together in the way that the existence of the common dollar ties together the elements of the United States.

In December of 1991 the European Council, consisting of the heads of state and of government of the member nations, met in the previously obscure Dutch town of Maastricht and drafted the Treaty on European Union, almost always referred to as the Maastricht Treaty.This document was the foundation of the next stage of the European project, even

changing the name of the community to the European Union (EU).

In a rather ponderous architectural metaphor, the treaty defined the Union as resting on three “pillars.”