Orchestrating Europe (Text Only)

GREECE

Seven years after the end of the military dictatorship, the Karamanlis government from 1974 to 1981 attempted to modernize the Greek economy and transform Greek attitudes through the medium of the EC application. But this project (with intrinsically similar aims to those of Turkey) was undermined by the rapid rise of Andreas Papandreou’s ostensibly socialist but in practice populist-left party, Pasok, from 1977 to its election success in 1981.

At once the Accession Treaty, hard won at home by Karamanlis with Franco-German backing in the Council of Ministers, came into question. It was the Pasok government and its leader, according to other members states’ opinions, who were responsible for the Athens debacle in December 1983 and, more persistently, for blocking the Commission’s new plans for standard-setting and mutual recognition.

Much of this could be ascribed to the inexperience of a small, relatively backward state emerging from a harsh military dictatorship; a measure of local demagoguery and political-administrative corruption was predictable. But Pasok’s ‘third world orientation’ and Greek reactions to the Turkish invasion of northern Cyprus in November 1983 estranged Greece from the EC’s mainstream, as could be seen from factious behaviour of large states during the Greek Presidency.

Greece’s blatant exercises in renegotiation to gain maximum advantage early in 1982, and again before Spain was finally allowed entry, left Greek membership with few admirers and appeared to prove that Greece was prepared not only to milk the EC but to hold up its essential business in order to do so. Paradoxically, this helped to convince the waverers, notably Margaret Thatcher, that some measure of QMV was essential (see above, p. 122).

Yet the Greek government had serious problems to overcome at home, having to confront very inward-looking factions and an avowedly sensationalist press. There was good evidence of a will to do its EC duty, as the Pasok government eventually settled the quarrel over air bases with the USA and moved away from its third world policy, while the Turkish invasion helped eventually to introduce a period of learning on both sides. The appointment as secretary general of CEN (Centre Européen des Normes) of an able Greek engineer went some way to persuade the government of the internal market’s virtues. EC policy was managed by a small bureaucratic elite, running a weak, highly politicized state apparatus, often in confrontation with a volatile public opinion on which all opposition politicians capitalized. Greece’s final decision in favour of the Single European Act therefore represented acceptance not only of the internal market but of a change in Greece’s destiny, a western style of modernization rather than a traditional one, for which Pasok would have to educate their public.

Something should be added about Spain and Portugal, even though the internal market was to be part of the EC acquis that any new member would have to accept.

SPAIN

The small political elite who managed the long-delayed application process, firstly from Suarez’s centre-right basis, then after the 1982 election under the Socialist government of Felipe Gonzalez,

knew that entry would be a harsh challenge but that there was no alternative if the Spanish economy were to develop to EC levels and standards. (That there would be a second, more difficult, challenge with EMU/Maastricht in 1991 was not foreseen, although the peseta’s entry to EMS/ERM was always taken for granted, given the importance of creating an integrated financial sector). From the EC’s side, it was recognized that Spain needed a long period of transition before convergence could be completed, or there would be a balance of payments crisis, accompanied by devaluation and inflation.

Restructuring and upgrading the industrial base, together with banking and insurance, were the preconditions of adjustment, in which using not only EC support but attracting foreign direct investment from member states, the USA and Japan would be essential. Paradoxically, the Franco legacy lay less heavily on the economy than the effect of compromises made during the transition to democracy in the late 1970s, notably the Moncloa pacts made in October 1977 between the government and opposition parties acting variously on behalf of trades unions and management, which had accepted mild inflation, wage rigidity and employment security as the price of social peace. Trades unions’ growing powers, a highly restrictive labour code and index-linked wages soon produced much higher inflation which, despite the Banco de’ España’s austere monetary policy, stuck at 20–22% in the early 1980s, inhibiting inward investment, dividing the administration and setting the Bank against the Economics Ministry.

The Gonzalez government’s turnabout in 1984 (which can be compared to that of Mitterrand in 1983) made it possible to reduce money supply and public spending and to bring inflation down to 15%. Thereafter unemployment rose steeply, signifying that the Moncloa pacts’ legacy was dead. As the shocked unions wavered, a recovery began, leading to a boom which accompanied Spanish entry on 1 January 1986. Four years of rapid growth to 1990 brought high demand, high consumption, and a revolution in production – in which the long-sought foreign investment, led by West Germany, was a prime cause. That this policy mixture would lead to overheating became clear towards the end of the 1980s, but apart from joining the ERM no precautions were taken, despite pressure from the CEOE (Confederation of Spanish Employers) for matching supply side reforms,

which alone could make realistic Spain’s targets for 1992, open banking and free capital movements.

Since the accession negotiations were handled by the government, on the same basis of consent that occurred among the players on economic policy, Spain’s consequent acceptance of the internal market was taken for granted. The political parties, economic sectors (apart from agriculture which was seriously hit in the later and hasty stage of accession bargaining), and the Spanish public, increasingly well informed of the advantages by a liberated and lively press and television, accepted the package as a beneficial whole, so that there was no perceptible domestic opposition to the terms of the Accession Treaty. EC member states, however, could be in no doubt that Spain, with 8 votes on the Council of Ministers, would henceforward rank as a substantial European player, likely to be demanding on matters of regional funding, Mediterranean agriculture and social cohesion.

PORTUGAL

As the revolutionary years 1974–5 receded and memories of the forty-year dictatorship and the long preoccupation with African colonies rather than Europe faded,

Portugal looked to the EC to help it discover late twentieth-century normality. Shorn of imperial ambitions, the country had no future except in Europe: this much was a matter of agreement between centre-right (PSD) and centre-left (PS). Yet a still-strong Communist party and a nationalist Catholic right conditioned the balance of attitudes. Apart from the main banks (now state-owned) and a few large but declining industries such as shipbuilding and repairing, the Portuguese economy was still based in the south on Mediterranean agriculture and in the north on small firms, mainly concerned with textiles. A backward infrastructure, low levels of education, and a GDP per head of only $3500, below that of Greece (which most observers at the time expected to perform better), ensured that its transition would be prolonged and difficult.

But the small political elite had no difficulty in convincing a public tired of isolation and the heavy burden of having lost a colonial empire, that EC membership was the only way to avoid being relegated to the impoverished periphery and swamped by Spain. The problem lay in deciding between the primarily economic hopes of the minimalists (who included both the communists and the socialist left, as well as the nationalist right) and the centre, which accepted a broader measure of integration. Overall, apart from the ardent federalists, who included President Soares, a concern with sovereignty and national identity inhibited support for monetary union, as it did in Britain, though more so perhaps because of frequent escudo devaluations to aid exports. Living in the shadow of Spain, the Portuguese were jealous of small member states’ rights, yet conscious that, if they were to benefit and complete the process of modernization, they had to show themselves to be good Europeans.

Yet by 1985, Portugal possessed not only an open economy – partly as a result of the tough IMF-imposed programme in the mid–1980s – but an international awareness and important links with southern Africa and Brazil. Though few, its Brussels representatives were to prove themselves able and cooperative. Community decisions were all made at the centre, almost uninfluenced by civil servants and not at all by parliament. The public, conditioned by the ten-year-long liberal PDS government of Cavaco Silva, accepted integration and seem barely to have distinguished the EC from the world at large.

The influence of industry and farming interests, along with the small role assigned to consumers, can be compared with the situation in Ireland, but the survival of a strong Communist party ensured a stronger role for organized labour.

Like Spain, soon to be Portugal’s largest trading partner, the country was to experience boom years up to 1990, buoyed up by German and Spanish investment. But at the time when the date was set for completion of the internal market, there appears to have been more widespread awareness than in Spain of how far the abolition of tariffs, free movement of capital and transition to the CAP would affect all aspects of Portuguese economic and social life. Hence, while in favour of the internal market, the Portuguese government argued that it was not yet ready, and remained defensive, arguing for a higher levels of support for social cohesion, regional funds and Mediterranean agriculture, while at official and presidency level living up to the ‘good European’ expectation.

On the central issue of the internal market, all ten member states had thus come roughly into line – albeit for different reasons – by the end of 1984. So had the other major players across Europe, industry, finance, even labour – insofar as that had recaptured its European presence. But it needs to be asked to what extent these rather than governments actually determined the outcome.

Financial sectors certainly took little part in the internal market process. The Fédération Bancaire Européen (FBE) had had to react so far to only one major Commission proposal, the first banking Directive of 1977. So long as the quiet years continued neither side wished to stir things up. In the absence of Commission activity, there seemed no urgent need to react to competition from American and Japanese banks, while insurance companies and stock exchanges barely stirred. Even when banks did get their fingers burned in the ‘sovereign debtors’ crisis, they tended to seek global remedies via spreading and insuring risks.

Even central banks involved themselves only when the Single Market White Paper had been assimilated and monetary union come into focus as a consequence. But deregulation, particularly in Britain after 1983, led to an exuberant period of often ill-judged growth and acquisitions, followed in due course by competition in all markets for capital and financial services; excess capacity ensued, followed by retrenchment – and the same choice that had already faced key industries, between managed and market-led restructuring. Thus the market cycle, as much as changes in the formal financial environment, ensured that they would enter the EC game in the end.

Political scientists and contemporary historians dispute how far ‘industry’ can be seen as a coherent player in this game.

Up to the late 1970s there was certainly no consistent evidence that large or multinational firms, though they were regular players at official level, had been recognized in formal Community bargaining. Insofar as they operated informally, they did so at national government level or through personal links with officials in DG3, so that with the exception of American and Swiss MNCs, which tended to go direct to both the Commission and the Parliament, influence seeped almost imperceptibly into both member states and Commission plans. The results of what they did therefore varied, being at national level more effective in France, Germany and the Netherlands than in Italy and Denmark; and at Commission level, more with DG3 than DG4. Indeed a presumption existed in most of the sectoral federations that DG4’S competition brief inhibited informal links with corporate interests, and that any formal ones should run via UNICE. Since those directives which got through the early 1980s log-jam were still framed in terms of technical harmonization, usually in the food processing industry, and since DG3 perpetuated the industrial sponsorship ethos to their satisfaction, firms and federations themselves saw no need to do more.

But when Etienne Davignon rebuilt DG3 on the Spinelli model, adding to it technological development and foreign trade elements, together with rationalization of the steel industry, this complacent attitude changed rapidly. The twelve major information technology firms willingly took part in Davignon’s research initiative which led to the promulgation of ESPRIT in 1984. On a wider scale, European corporations who benefited substantially from it generally saw the grand structural adjustment plan as a benign way to offset otherwise unacceptable political and financial imperatives from the recession of the early 1980s: redundancies, real wage cuts, benefits reductions, and some of the heavy cost of high-technology capital investment.

Considerations such as these led inevitably to firms’ preoccupation with the internal market’s potential advantages, and complemented what was always in France, and also now in Spain, a thesis about general modernization. If CBI records are typical,

this recognition can be dated to 1980–81; that is, contemporary with Davignon’s initiative.

However, at first its impact was confused by the vigorous polemic over Vredeling. UNICE however was not to be the vehicle, but instead a ‘high level’ informal group, aiming directly at Brussels and heads of government.

Neither were sectors or peak organizations chosen for permeation: few of them were as yet so well based in Brussels as the Americans, and AmCham’s European Committee. But the informal groups, of which the European Round Table (ERT) became the most influential, had greater effect in the earlier period, 1982–4, when they operated informally, than afterwards. Having, as it were, gone public, they became animators, adjuncts to, rather than initiators of change. The influence of the firm has therefore to be measured in the interstices, in rivalry with louder views coming from the Parliament such as de Ferranti’s Kangaroo Group, and the 1981 Nicholson Report which claimed that the EC was ignoring industrial uncompetitiveness.

Yet this is to measure matters only on the EC stage. Some member states had gone down the Davignon road, much earlier – Britain with the Labour governments’ late 1970s Industrial Strategy, France with the Plan Barre, Germany with the Modell Deutschland. Though sectors of British government took a different view in the early 1980s, the DTI was still eager to engage the CBI’s services in its 1981 campaign for the internal market: clearly (despite the rupture between the Thatcher Cabinet and the CBI) a basis for general consensus still existed, at least in the high technology race. Something similar occurred in West Germany as the heads of much of industry came to a central standpoint on the internal market. Their French counterparts followed suit around 1983. AGREF (the Association des Grandes Enterprises Françaises), noted the conjuncture. The idea grew rapidly, according to one French company executive: ‘Europe is a kind of domestic market… the foreign markets are in America and south east Asia.’

The CBI and DVI, together with support from the CNPF or Patronat and Confindustria, therefore took part in Delors’s later ‘vast consultation’ with heads of enterprises across Europe. Governments in effect used their giant firms and federations to influence the Commission, complementing what national representatives were already doing in the Council of Ministers. Who used whom, and who if any one actually set the agenda, is almost impossible to decide without access to EC archives.

What matters here is that in this game, private associations like ERT were encouraged by governments and the Commission to behave as privileged actors; individual industrialists, usually with their firms’ long-term strategic advantage in mind, willingly took up the roles. UNICE, which began to call for QMV as a solution to the log-jam problem in February 1984 came later, counted for less, and was used by the Commission rather as a source to disseminate information and Commission messages. (Even less can be ascribed to the ‘Jean Monnet Committee’, reborn at the end of that year.)

The European Round Table (ERT) stands out, firstly as a collection of industrialists who led firms that were highly important, being multinationals oriented towards investments (which the Community could hope to stimulate by incentives) in telecoms, road and rail transport, and research and development. Secondly, they acted as an influence personally on Jacques Delors before, and for a short time after, he took up the Commission Presidency in January 1985.

It was first established with Pehr Gyllenhammer (Volvo) as chief executive – a useful non-EC catalyst – and its members included Umberto Agnelli (Fiat), Wisse Dekker (Philips), Pierre Defraigne (France), John Harvey-Jones (ICI), K. Durham (Unilever), H. Maucher (Nestlé), C. Nicolin (ASEA), A. Riboud (BSN France), D. Spethmann (Thyssen), Sir Peter Baxendale (UK Shell), R. Fauroux (St Gobain), B. Hanon (Renault), O. le Cerf (Lefarge Coppée), H. Merkle (Bosch), L. von Planta (Ciba-Geigy), W. Seelig (Siemens). It had valuable links with Davignon and his successor Narjes, Fernand Braun, and Ortoli, and in that sense furthered the Commission’s idea of a pan-European, synoptic approach which was neither socialist nor corporatist. Its main general proposal was for a ‘Marshall plan for Europe’ (January 1983), the result of much debate about how to achieve reindustrialization; its main special report was written by Wissi Dekker, on behalf of Philips, in 1984 and published in January 1985.

Private and informal influence had had most effect before these publications, during 1983, in particular on the Franco-German element in the Stuttgart Declaration.

Specifically, ERT focused directly on decision-makers (unlike the coordinating body, European Enterprise Group), proclaiming the importance of non-tariff barriers and the lack of standards, which the internal market was intended to remedy. Its suggested solutions – contained in slim, well-produced pamphlets, somewhat tinged with protectionism – were aimed at political leaders, in contrast to the more detailed literature from UNICE. What mattered most was its animator status, given the point already reached by the Commission and the German, British and French industry ministries. As Maria Green suggests, its influence was used in the direction of a unified rather than a common market, and to bring a much needed pragmatism to the debate;

however, its later, more formal work also fed back into those member states which had stimulated it in the first place, so that it tended to replicate national lines of thought, whether for defensive adjustment or free market openness. This probably explains the CBI’s 10% area of disagreement with the Dekker Report and the DTI’s rather greater degree of divergence, enhanced of course in Margaret Thatcher’s speeches. In its crudest form of differentiation, the British version embodied an unrest-cure with contingent unemployment and bankruptcies while the German and French ones propounded a state- and industry-managed restructuring at minimal social and economic cost.

Given the momentum among governments from mid–1984 onwards, ERT’s later contributions have to be seen as supererogatory, part of the heightened climate of awareness about venture capital, completion of ‘missing links’ in the infrastructure (such as the Channel Tunnel or the EC-Scandinavian road/rail bridge) and the individual projects such as the European Technology Institute, for high-grade postgraduate training.

As for the firms themselves, who in a mere three or four years were to flood into Brussels to establish influence in what now appeared to be the epicentre of commercial advantage, it is impossible to isolate their individual weighting.

Most had a vested interest in the process, as they demonstrated in the wave of mergers, joint ventures and takeovers – in consumer durables, office equipment, metals, agribusiness, airlines (though these mergers all failed), press and television and venture and finance capital – which occurred even in advance of the Single Act, 1985–6, usually with Commission support.

Firms in the lead here included Thomson, Zanussi, Olivetti, Pechiney, Ferruzzi, Cerus (Olivetti), and entrepreneurs such as de Benedetti, Maxwell, Berlusconi (several of which, as a result, became grievously overstretched by the early 1990s).

American firms, feeling themselves losing market share worldwide to the Japanese, especially in semi-conductors, banking and financial services, were meanwhile extracting special concessions in the United States and many varieties of protection from the compliant Republican administrations of Reagan and Bush. As a result, there emerged a barely veiled policy of trade through bilateral agreements which seemed to have become, by 1985–6, as great an impediment to the current GATT round as anything emerging from France or the EC. The situation generally worsened with the US Trade Bill of 1987. In the critical areas of cars, semi-conductors, telecoms, and consumer electronics, the EC reacted less stringently (since American companies, organized in AmCham’s European Committee, had long since operated within its borders)

than it did against Japan. Nevertheless, the Commission disliked the mid–8os regimes of VERs, quotas and tariffs, imposed by member governments acting together in Council, which officials believed only emphasized the bankruptcy of inter-governmentalism and the virtues of the Commission-led internal market process.

The Commission had developed its own scheme in 1983 in the limited field of mutual recognition and standards introduction: ‘limited’ (in DG3’s view) meaning the most that member states would permit. Thereafter, it seemed as if Stuttgart had produced only rhetoric, of little value in daily transactions. Narjes’s long summary of uncompleted items emphasized the backlog, without shaming the Council into advancing the project. Fontainebleau gave no particular encouragement to the internal market. As late as November 1984, when Delors put his four questions to the member governments, he himself was inclined towards institutional reform: it was the negative responses to that which convinced him that only the internal market could proceed.

His first speech to the Parliament, on 14 January 1985, with its call for ‘completion of a fully unified internal market by 1992 (with) a realistic timetable’ may have represented a Commission-led breakthrough.

But that ignores the fact that the 1983 efforts by officials had only been postponed. One close participant points to ‘the Commission’s internal dynamic which… used the multinationals; and also the pressures coming from the Parliament to get away from “non Europe”’, which pre-dated Delors’ activity. Allowance should also be made for the ECJ’s influence: what had begun with the Continental Can case 1972 (see above, p. 96) was renewed in the Philip Morris case of 1981, when the ECJ used Article 85 rather than 86 to lay down the considerations pertaining to cases of mergers and concentrations. The issues of merger regulation and limiting state aids did not disappear from the Commission’s agenda with the Council’s rejection of the Draft Merger Regulation; that this area of the internal market required the work of two far-sighted Commissioners, Peter Sutherland and Leon Brittan in 1986–92, may in fact be a tribute to the delaying capacity of certain governments and industries. Then, as later, the many-faceted interaction of President, college of Commissioners and Director-Generals, has to be seen as itself a competitive symposium operating on a much longer time cycle than those of national governments or firms.

Delors’ questions offered the twelve governments four choices of how to recapture the EC’s momentum: monetary union, foreign policy and defence cooperation, institutional reform, and the internal market. Apart from France, no member government chose anything but the latter; yet few supporters felt strongly about it. On the evidence of his own writings, Delors reckoned that it would take two full four-year terms of office: the first up to 1988 to get the Single European Act, the second to 1992 to complete it;

so his rélance to the European Parliament was to be read both as a proposal for a Europe without internal borders, and a long, politically radical project for what that Europe was to become.