Orchestrating Europe (Text Only)

The concept of a single market had by then been agreed between Delors and the key Commissioner, Arthur Cockfield, who had been appointed by Margaret Thatcher to succeed Christopher Tugend-hat who was now out of favour. That combination, and the greatly enlarged competence which Cockfield requested at DG3 (financial institutions, company law, VAT and indirect taxation) set him in a position of greater directive power than Davignon had ever possessed. Cockfield could therefore provide sole authorship as well as conceptual force for DG3’s work in preparing the White Paper, and a unique preponderance in the Commission college. Davignon’s pragmatism and Narjes’s preparatory work infused what was done, but the logic and intricate cooperation between Directorates owed most to their successor.

Thatcher had given Cockfield a brief ‘to make the internal market work’. His early investigations led him to agree with Delors that any target date before 1992 would be unrealistic. He had no illusions about the lukewarm involvement of most governments, even though the Luxembourg Council (following the Dooge Committee Report) endorsed the target. Consequently the White Paper had to contain a precise schedule of all the components, amounting to nearly 300 items for legislation, a deadline (1 January 1993), fully elaborated concepts of mutual recognition harking back to Cassis de Dijon, tax harmonization (a favourite of Cockfield’s) and some measure of supervision to keep member states in line during the process of implementation. The programme had to be coherent, interlocking, yet distinguished from the social, environmental, competition, investment and monetary issues which were contingent on it, but which, for political reasons to do with member states, could only be incorporated later.

Member state governments may have been unanimous in their welcome for some sort of internal market; but how much they foresaw of the White Paper’s actual details or its contingent elements is unclear. Cockfield took his tutorial mandate to the limit, composed the document as if the political will already existed (as the founding fathers had done in 1957) and wisely circulated it only ten days in advance, giving time for governments, civil servants and permanent representatives to evaluate it but not to draw up counter-proposals. He prefaced it by citing every endorsement that ministers had given, from Copenhagen and Stuttgart onwards: they had willed the ends, here were the means. Despite this care, and despite the low-key, almost bureaucratic tone, objections were at once raised, from other Directorates and from some of the industrialists, who sensed how far it reached beyond the Dekker Report. But Cockfield refused to tone it down. Indeed, being well aware of its impact on financial services, he used other industrialists and City of London figures to propagate what he claimed was the only way to end ‘this prolonged period of uncertainty’. He was rewarded when, at the Milan Summit, the Council instructed the Commission to prepare a plan of action, within the timescale which Cockfield had envisaged from the beginning in his critical path analysis. From this point on, ministers began also to come to terms with QMV, which had been evaded at Dublin the year before and which Cockfield and Delors knew would be essential.

During the French Presidency in 1984, President Mitterrand had also made a tour of European capitals with a ‘relaunch of the EC’ in mind. From this came two significant understandings, the first between Germany and France on institutional reform, (even though France still hesitated at the further powers for the European Parliament apparently required by both Germany and Italy), and secondly between Germany and Italy on market liberalization.

The British government, secured temporarily in the Fontainebleau budget concessions, grew uneasy about suggestions in Paris about an EC of different speeds, if not necessarily a two-tier approach, especially when, addressing the European Parliament on 23 May, Mitterrand presented, with some panache, a view of Europe’s federal destiny and a mordant commentary on how to face le défi Américain – the US challenge.

Much detailed diplomacy was necessary before the Twelve could broker even the beginnings of a compromise, ready for the Milan meeting in October 1984. Mitterrand was now reforging the entente with Germany, hoping that Maurice Faure’s presence as rapporteur of the Dooge Committee (consisting of heads of governments’ personal representatives) would maintain France’s version of how institutions should be reformed during the Irish Presidency. Because of British preoccupations, QMV remained a central issue for the Dooge Committee, whose deliberations were mainly concerned with institutional and constitutional issues.

But the Committee’s high-level membership, and its reluctance to discuss issues of detailed policy, made it an unsuitable vehicle for inter-governmental competition to set the social and political matrix of the internal market, which may well have influenced Margaret Thatcher to look to Cockfield for a more cautious and and empirical approach. In the end, after sifting the potential impact of various important consequences of the internal market, including the Luxembourg Compromise, the numbers divided seven to three on the key question of QMV.

The Dublin Summit which considered Dooge’s interim report had therefore to fudge the main issue for lack of a consensus; and gave a very nuanced, even contradictory line for Milan. But there was enough acceptance by the majority – which did not in fact exclude Britain – to indicate that the seven to three tally, reaffirmed in relation to the need for Treaty amendments and an IGC (during the March 1985 Council meeting in Luxembourg), could be adjusted. Britain was in the process of modifying its position and making overtures to France about a common front. Geoffrey Howe put an able defence of a British plan for QMV without an IGC, at Stresa, in May.

But his proposal was pre-empted when Mitterrand and Kohl drew up their ‘Treaty of European Unity’, to coincide with the fortieth anniversary of the end of the Second World War. What appeared in London to be fresh evidence of the Franco-German entente angered Thatcher and may have contributed to her being manoeuvred into opposition at Milan; she seems not to have been aware until too late that Kohl had also concerted his tactics before the Summit with fellow Christian Democrats in Rome and probably also indirectly with Craxi and the Italian Socialists.

The Milan Summit took place after assiduous lobbying by all the minor players. But Italy held the Presidency, and the leaders of the pentapartito, Giulio Andreotti (DC) the foreign minister, and Bettino Craxi (PSI) the prime minister, sought above all to have an IGC in order to ensure that political cooperation and wide-ranging institutional reforms were incorporated. This would have been impossible without amending the Treaties. The Italian proposals were intended to ensure better decision-making, more Commission power of initiative, a Court of First Instance to ease the ECJ’s overload, and larger powers for the Parliament – a substantial part of which went beyond what Kohl and Mitterrand had agreed. After a confused debate, Craxi called for. a vote under the simple majority procedure covered by QMV, and obtained the required and predicted seven to three result: Britain, Denmark and Greece being in the minority.

The British were scarcely surprised at this outcome. Later on, Thatcher argued that her willingness to cooperate had been misconstrued. But for the other heads of government, having an IGC was crucial. At the time, Thatcher accepted that her prior element of acquiescence in QMV (even on the basis that there was no need for an IGC), and the importance for Britain of limiting further progress to no more than the White Paper’s proposals, justified all-out participation once the IGC had been set up by the the majority. (As Howe put it: ‘member states had to be checked from hanging more baubles on a mobile Christmas tree.’)

But before the IGC opened at Luxembourg on 9 September, the White Paper was already being subsumed in the wider Commission design.

Cockfield had envisaged that his White Paper’s approach to the demolition of three sorts of barriers – frontier, technical and fiscal – should continue to guide the internal market’s evolution, whatever came out at the IGC. Only later would tax harmonization, for example, be incorporated. He had confined it deliberately to the industrial sectors to be liberalized and had not touched on competition, regional policy or the agricultural implications, since he did not intend it to serve as the basis for a more general (and potentially over-ambitious) policy. Nor did he imagine that the internal market would lead directly to EMU (though the Dooge Committee had considered reform of the EC’s monetary system). These dimensions became clear later, for example in his introduction to the Report of the Cecchini Committee, which had been set up to convince member states that the single market would produce not only great but quantifiable benefits.

How much was in fact afterwards made to seem contingent on the White Paper can be gauged from Cockfield’s later phraseology

and the fact that he responded to a question by Cecchini, whether or not to state flatly that the single market required monetary union, by asking him ‘not to overload the boat’ at that stage.

At the same time, other Directorate officials, looking ahead, were preparing their own complementary proposals in the fields of competition policy, mergers, state aids, and overseas trade.

But while pressing the White Paper on governments prior to the Milan meeting, the Commission Presidency and some member states were also engaged in widening the whole concept to include what they regarded as a more balanced programme, including socio-economic policy, environmental action, institutional reform and political integration (which Delors had already outlined to the European Parliament in January), together with social cohesion in the light of Spain’s and Portugal’s accessions. All this stood in clear contrast to the British interpretation, but in line with the opinions of Laurent Fabius and Elizabeth Guigou, who were in charge in Paris. In October, Delors criticized the British ‘supermarket approach’, and set out his own conception of a ‘real Common Market’ including political solidarity, EMU and cohesion. Here in essence lay the idea of a European developmental state and of an economic space not restricted to the Ten, because these had imagined from the start that it would, in due course, be extended to EFTA countries.

It was these proposals which Luxembourg’s Presidency, the next in line, set itself to implement, as an essential adjunct to fulfil the single market according to the contingency formula. Over time, through intricate negotiations in the IGC, Luxembourg’s subtle and neutral approach served to reduce the suspicions of both the Danes and the British. However, the Danish government promised its people a referendum (and Craxi in turn pledged that the Italian parliament would vote only after the European Parliament had given its approval, thereby conveying to the European Parliament a sort of informal competence).

The outcome owed something to cooperation within the ‘Troika’, as Luxembourg eased the agenda from drafts to final texts with few votes but always ‘noting where the majority lay’; But the primary momentum came from the fact that all twelve governments wished to see the internal market come to fruition. Some participants concluded that the British alternative scheme’s intention had come about and that in this area the national veto had already died.

Ireland’s assent (postponed for two years for legal reasons, to meet the Irish courts’ insistence and followed by a referendum) was actually taken for granted by the Belgian Presidency in 1986, as if QMV already existed.

Five IGC meetings sufficed to bring the documents to two Council meetings in December 1985. Divisions and alliances between states varied according to the issue being debated. Real disagreement however centred on four main questions: which single market decisions were to be taken by QMV? How far should cohesion extend, and in what form? How should cooperation and co-decision with the Parliament operate in foreign affairs? What place should be given to EMU?

None of these was susceptible to a simple solution and the wider implications of each ran on to Maastricht and beyond. The text on EMU divided France, Belgium, Italy and Ireland, all of which thought it too weak, from Germany and the Netherlands which wanted the relevant articles attached to but not incorporated as an integral part of the Treaty. Britain did not want either, or indeed any reference to EMU, certainly not before the internal market’s complete freedom of capital movements had been achieved.

The arguments had no empirical basis, except in current practice in running the EMS and ERM, Britain not being a member of the latter. But the eventual compromise rested on promises from France and Italy to liberalize their exchange control provisions – promises which were turned into a guarantee of abolition before the single market deadline came, at an ECOFIN meeting in June 1988, just prior to the Hannover Summit. Meanwhile, the preamble of the SEA was given three indents referring to the ‘objective of EMU’, together with a chapter stating that the member states should cooperate to ensure the convergence of economic and monetary policies.

On this somewhat ambiguous basis, EMU was to be included in the pre-Maastricht process. The Single European Act retained majority voting for all EMS decisions, so that Britain could still exercise a veto, even though it was not in the ERM. Nevertheless, two years later at Hannover, the UK government did concede that the Central Bank Governors Committee, chaired by Delors, might examine ways of setting up the future European central bank, and the ‘concrete steps’ towards EMU long sought by France.

An increase in structural funds (coherence policy) to appease Ireland’s and Greece’s fears about the impact on their economies, eased the Act’s passage, up to its ratification by nine governments in February 1986, and by Ireland more than a year later. Some member states seem not to have realized how large these sums would be, when measured afterwards in relation to Iberian needs. It also brought a trade-off between the German federal government and the Länder (led by the Bavarian and North Rhine Westphalia prime ministers, Franz-Josef Strauss and Johannes Rau, which gave the Länder increased rights of participation in decision-making in Bonn). These were to be a foretaste of the regional compromises made at Maastricht in 1991. Success in the IGC negotiations, reform of the CAP, and extension of QMV to financial services’ liberalization, satisfied British ambitions. The Italians got their extra powers for the Parliament,

the Netherlands and Belgium achieved an extension of political cooperation, Germany a clearer definition of regional policy, and France its hopes of EMU. From all this stemmed the mood of euphoria leading on to Maastricht.

But that was only the legal framework: much space remained for Commission interpretation. Officials’ creativity during the next six years improved on what had actually been agreed, while members transposed what eventually became the 285 legislative enactments, in order to meet Cockfield’s deadline of 1st January 1993. Among the twelve governments, opinions inevitably varied. (Margaret Thatcher particularly resented the way the Commission used Articles 100 and 235 to obtain ECJ confirmation of its interpretation.

) It was not clear until the Hannover Summit in June 1988 that all the heads of government had ‘irreversibly accepted’ the SEA: indeed the Act deliberately had not made the 1 January 1993 deadline a legal obligation, so that the internal market would not be final until all its provisions had been transposed and implemented. Whereas transposition had nearly been completed by the 1st January 1993, implementation still fell far short.

At the time of Hannover, 194 out of 285 legislative items remained to be completed. But the breakthrough on exchange control abolition had come. The legislative programme no longer depended on each six months’ Presidency (which was as well, since the Greek government attempted to turn the proceedings after Hannover in the direction of social policy, training and worker consultation, which would inevitably have aroused industrialists to make a renewed ‘Vredeling offensive’.

) Member states’ mid–term failures to transpose legislation were already being remedied by an informal system of mediation, réunions paquets (see below, p. 628). Great as the delays were to be, even beyond 1992, the main technical problem after Hannover lay not with visible barriers but the implicit ones, created out of ‘exceptions’ through which member states continued to defend their chasses gardées long after they had conceded the former. Although Hannover represented a political landmark, ‘beneath its calm surface, the battle between liberals and interventionists for control of the 1992 project was at last launched.’

In the two and a half years after the IGC, the game between states, Commission and industrial players continued,

complicated by the entry of new players from Spain (which played a part in the second Banking Directive). Most of the advantage, however, accrued to the Commission, which did not seek to hide its wider design but only to nuance it for different audiences as the next stage – harmonization of VAT, excise and corporation tax – approached.

The Commission concentrated, for example, on reducing national restraints on air transport and the carriage of goods, and on the agreement over car imports with Japan. Officials accepted that some implementations would be delayed beyond 1 January 1993, particularly by Mediterranean countries (especially those concerning Spain’s financial services and Italy’s state industries), but relied on the states’ commitments, sealed at Hannover, to limit delays to an acceptable level.

Having been very largely excluded during the bargaining process from Milan to Luxembourg, the Parliament also increased its part during later stages of the single market negotiations, as Cockfield steered his enactments through. Some 260 legislative items remained after the Act’s second reading, together with a host of amendments, and in the process MEPs acquired a power through practice which they were later to consolidate at Maastricht. This extended informally to areas where MEPs had no direct competence at all.

The financial sector also emerged as a player, now that EMU’s shadow lay over the internal market. Banks and insurance companies, at least in the northern states, joined the various action groups and some even took part in public campaigns for 1992 through their domestic press and television. Huge financial gains were being made in these sectors by 1988, much greater than Cecchini had forecast; more in France and Germany than in Britain, but most of all in Italy and Spain, where the least open markets operated.

Harmonization affected all securities markets and stock exchanges, and Spain went through its own ‘big bang’ in 1989–90, as London had done eight years earlier. Nothing was invulnerable to foreign access, not even long-closed insurance and mortgage finance sectors.

Previously, these had been heavily protected areas: in Germany, insurance protection law meant that all policies were similar, with strict tariffs, so that innovation was impossible. This was in complete contrast to the competitive market in Britain, which regulated intermediaries, not policies. In France it remained a criminal offence for non-French companies to sell any sort of insurance. Some liberalizing had been achieved by the EC on life and non-life policies, but full market freedom was not actually achieved until 1990, after nearly twenty separate Commission drafts. Until then, the governments of Germany, France, Belgium, Italy, Denmark and Luxembourg resisted any change, to the unconcealed fury of German companies and all multinationals. It was no wonder that Cockfield avoided legislating for this sector, relying, as 1992 approached, on the single market’s momentum to do the job.

Talk about ‘Europe à la carte’ and ‘variable geometry’ during the Presidencies of the Netherlands, Britain, Belgium and Denmark in the years 1986–8 revealed how fortunate the EC had been in the previous year under Italy and Luxembourg. Britain was evidently keen to prevent the emergence of a contingent social policy dimension. As the Thatcher decade neared its end, and as she herself attempted to limit any broadening of the single market concept, Britain seemed once more to be at loggerheads with the rest. Among member states, it seemed as if the impetus had been lost.

The breakthrough under Germany’s Presidency at Hannover can be explained partly because of France’s occlusion, during the tense period of ‘cohabitation’ between Mitterrand (who during a long duel between Elysée and Matignon managed to retain power over foreign and EC affairs) and Jacques Chirac’s RPR government, and partly by a convergence of opinion between Bonn and German industry on the substantial opportunities for Germany offered by the internal market. The Hannover Summit also indicated that West Germany had committed itself to political, if not yet monetary, union.

Even then, some elements remained uncertain, such as harmonizing VAT, which was fought out between Cockfield (who sought a 17% rate) and the responsible Commissioner, Christiane Scrivener (who proposed a 12% one), at ECOFIN meetings under the Greek Presidency in late 1988. The British government again objected to the principle of harmonization, but in the long run, when Norman Lamont was at the Treasury in July 1992, accepted it as an irreversible matter – one essential for raising government revenue during the 1990s’ recession.

The years 1988–90 were good ones in the EC, which saw a rise in corporate profits, individuals’ living standards, and their expectations (at least for those in work, and above all in skilled or professional work), as the boom swept towards its crescendo. European directors of Ford, IBM or Exxon had long seen what Cockfield’s timetable presaged, as did some Japanese multinationals, and were now eager to set up inside the EC before the 1992 deadline. More and more giant firms such as Rhône-Poulenc (chemicals) and Philips (electronics), and Daimler-Benz (cars), opened offices in Brussels, where lobbyists multiplied, pari passu with the Commission’s output of SEM directives, giving greater complexity to the game. Many of the deals or joint ventures made in this period (British Leyland-Honda, Fiat-Sikorsky and Westland Helicopters, together with Siemens-GTE (USA), CGE-AT&T, and Telefonica-Fujitsu (in telecoms)) suggest that multinationals were actually demonstrating what a single market implied and perhaps defining what EC industrial policy and trade policy in the future should be.

But the most obvious result of Hannover was a renewed mood of optimism, and a determination to consolidate the entire project of monetary and political union. Cecchini had dealt largely with once-for-all benefits deriving from the original White Paper. But by 1989–90 it seemed that, if the single market did help to solve the underlying problems of the EC’s overall adjustment, the gains to be expected after 1993 would be vastly greater – at least for the northern European states – than he had predicted, not least because adjustment could provide means to counter US, Japanese and south-east Asian firms’ market penetration.

In that sense the achievement of an internal market, though the direct consequence of the Single European Act, cannot be isolated from the wider process which culminated at Maastricht in December 1991. For a relatively short period, member states accepted what had already become common sense in the business and financial communities, that the internal market’s likely gains offered greater advantage than earlier economic defensiveness. There could be no value in being the last to come in or the least conciliatory, since the game had ceased to be a zero sum matter; such defensive stances risked being overruled or gaining nothing, whereas the propensity to bargain represented an attractive alternative.

Yet member states’ ratification of the Single European Act hid a number of individual government reservations and, in the British case, perhaps also misconceptions about what had been accepted by the others and the Commission as logical corollaries. Hannover marked a point of political assent to the concept of a rule-based system in which sectional opting-out or evasion would become unprofitable, just as the pledge on EMU provided the necessary technical accompaniment (apart from Britain and Denmark) to avoid unmanageable distortions in the new market and the CAP. That in turn brought huge pressure on Britain and Spain to enter the ERM if they wished financial liberalization to reach its apogee.

The way the internal market was made cannot be isolated from the international context and the Gorbachev era of apparently ultimate détente, followed by the collapse of the Soviet empire in 1989–90, which opened up the countries of eastern Europe to new forms of exchange with the EC. West Germany’s leadership at Hannover prefigured its likely stance two years later as the Wall, and its accompanying psychological walls, came down.

Peter Sutherland, the Commissioner responsible for competition policy, had been appointed to lead the high-level Group on Operation of the internal market, in order to assess how best to achieve the full benefits Cecchini had promised. In his report, analysing post-1992 problems in managing the internal market, he pointed out that the Community’s main functions would now be to administer the rules, monitor member states’ compliance, improve their means of doing so, spread an understanding of the law to ensure consistency and transparency, and generally help to create a climate of shared responsibility in which the Commission would henceforward rely on member states’ competence and expertise, and on their courts for enforcement. The Single European Market was to become the core of a new EC geography which would in turn redefine the relative positions of Commission, member states and ultimately regions. But even in his chosen areas of goods and services, a great deal remained to do.

If this represented a new stage of partnership between them, it was clear from what Sutherland said that the Commission would have to accept some informal degree of diversity in practice among the Twelve, whatever its formal legal standpoint. The advance on the previous decade was nevertheless enormous, whether the Single European Act is depicted as the result of a tacit contract between all twelve member states or of a number of parallel decisions by each government about relative advantage. Either way, each player would respond to the rules, not because of the sanctions (which were negligible and had often enough been evaded in the past) but because of the severe and increasing costs of not doing so. Nevertheless, a number of substantive contingent questions remained to be settled, including the emphasis to be given to competition policy, and the Commission’s place in developing industrial and external trade policies, research and technology programmes. The Act nowhere stated that Article 115, which gave powers to take protective measures against non-European imports, would be removed; neither did it lay down details about progress towards monetary union – if it had, its passage would have been immeasurably harder.

Political problems also remained. When the British government argued for its own draft proposals for single market management before the Edinburgh Council in December 1992, several EC ministers contested the UK’s underlying philosophy, on the grounds that it reverted to the inter-governmental style and failed to acknowledge the Commission’s leading role.

Representing France, Elizabeth Guigou also objected to the UK’s unwillingness to face up to the free movement of people, without imposing passport formalities. Yet on this obstacle to the Act they had already signed, the UK, Denmark and Ireland stood fast against the rest. Single market issues thus ran on, into and beyond Maastricht, to be affected by the recession of the early 1990s and member states’ increasing unease at the consequences of events in eastern and south-eastern Europe.

Taking the process from the early 1980s as a whole, it is clear that the closer the internal market came to fruition, the more it suited both member states and the Commission to cooperate and enjoy the heady mood of harmony after so many debilitating, stagnant years. In this sense, the mid–1980s represented a turning point. Afterwards the Community showed itself better able to face up to extended competition, to direct American and, later, Japanese investment (US investment had decreased during the recession of the early 1980s, as had European companies’ own investments in the EC). The majority of governments, in sharp contrast to their behaviour in the 1970s, also began to turn away from the defensive, non-tariff barriers which they had erected earlier on to delay harmonization.