Orchestrating Europe (Text Only)

By participating, players affect each other’s perceptions of one another and what each is doing. As a result, the European Union may be becoming more like a global market in political and economic terms, but not necessarily so in social or cultural respects since there is a wider assimilation at work, beyond the one that makes their behaviour patterns similar. As their perceptions change – faster with the onset of an internal market – so may their interests. Imperceptibly, the economic players may become European, whatever nation states do, whether or not a European public comes into existence to fulfil what, in national terms, remain ‘unnatural communities’. Yet the Community cannot be confined to the economic sphere because there are not even Chinese walls to separate economics from the political economy. If that makes the Community into a state, albeit of a different order from nation states, then the members of it must accept the outcome of what they have helped to create.

Sources

A book like this can only be written on the basis of elite oral history. Only one major archive, that of the Confederation of British Industry, was made available to us, from 1973 more or less to the present day. In amassing our own archive of over four hundred and forty interviews, we were able to hear the views of as complete a range of practitioners as seemed possible: Commission officials, Commissioners, member state administrators, politicians and Permanent Representatives, MEPs, judges and Advocates General, regional notables, representatives of peak institutions in the industrial, financial and labour sectors, and a considerable variety of firms’ and financial institutions’ executives.

We should emphasize that this selection was not Brussels-oriented, but incorporated a variety of standpoints: those of twelve member states, weighted according to size, four applicants for membership, five regions in the five largest member states, and a range of firms and sectoral organizations chosen to illustrate particular cases and their diversity of ethos and orientation. The choice of retired respondents as well as those in post enabled us to cover the period 1973 to 1994, and in particular to obtain insights into less-studied areas such as the Court of Justice, and the Committee of Central Bank Governors in Basel.

There were, inevitably, some arbitrary aspects to the selection, since not all those asked were willing or available to be interviewed. We concentrated more, for example, on the European Court of Justice than the European Parliament, whose powers and informal structures are still in the process of evolution; and on certain Commission Directorates, dealing with industries and the financial sector, rather than others. The interviews themselves naturally vary in quality, but at best constitute a significant weight of evidence. Copies have been lodged at the Sussex University European Institute, at the European University Institute in Florence, and at the Hoover Institution, Stanford, California.

These are in the form of notes, not verbatim transcripts, being the researcher’s record of what took place. This creates problems of attribution. Some of the material would not have been given if the sources were to be made plain so soon after the event; in other cases, where many of the respondents agreed, footnotes would have been unmanageably long. Where a choice is made between different interpretations, attribution would have been invidious and unfair to those who spoke in good faith. Furthermore, no individual could be taken as representative of any firm or institution, let alone a whole sector of government. Hence they are referred to here, where direct quotation occurs from the notes, but only by indexed numbers; in the archives they are referred to by a general title such as ‘DG3 Official’ or ‘Executive of such-and-such a company’.

The problems connected with oral history are well known. They include lapses of memory, vindictiveness, falsification, excessive discretion, trivia, over-simplification, lack of perspective and various sorts of distortion and hindsight.⁵ The interviewer in turn has his or her limitations, ranging from choosing an unrepresentative sample to undue deference or bias in questions; not forgetting that the method is often so enticing that it may unwisely be preferred to official or other printed sources.

A distinction should of course be made between oral history, used predominantly to record memoirs of the less articulate (whose lifestyles rarely appear in documentary form), to construct alternative or ‘peoples’ histories’, and elite oral history, whose respondents are used to presenting themselves and their views fluently. Only the latter have been used here because they offer an unrivalled insight into motivations, interpretations, factors in policy-making, and the personal or group interchanges between those who belong to one or other of a number of elites.

The advantages clearly outweigh the risks, which prudence and practice can to a large extent mitigate, though never eliminate. Elite oral history, constructed from discussion with participants in the midst of the action, provides assessments of personalities and events which may not be recorded in documents even when these eventually become available for research. More important, it gives guidance on organizational relations which may well substantially modify observations found elsewhere. No organigram can be weighted sufficiently to show the informal channels or the difference between real and ritual communications.

Some institutions have only a limited effective life before becoming bureaucratized. Some are so informal as to leave no documentary record. All networks operate differently, depending on the question at issue and the level at which they relate to others. Vast as the flood of EC documentation is, ranging from formal reports to discussion documents, these alone cannot establish what on any given question is the place each player in each game merits. Interviewing gives insights into the assumptions or ethos of a group and its collective aims which, in the case of commercial organizations, may never otherwise be fully documented.

Presidents and principal Commissioners relevant to the main themes since 1981

Presidencies of the Council of Ministers and Meetings of the European Council since 1970

The European Integration Experience

RICHARD T. GRIFFITHS

1

1945–58 ¹

In 1945 western Europe counted the cost of yet another continental conflict, the third in the space of seventy years involving France and Germany. Yet by 1958, these two countries had formed the core of a new supranational ‘community’, transforming intra-state relations in the space of thirteen years. It represented a development to which many in 1945 would have aspired but which few would have dared to hope would be realised so quickly. This evolution marked the beginning of what is commonly referred to as ‘the process of European integration’.

It is worth pausing to consider the double connotation of the word ‘integration’, since the expression is used to imply both a sequence of institutional changes (all involving the surrender of national sovereignty) and the enmeshing of economies and societies that it is intended should flow from these measures. To be more precise, ‘integration’ was one of the goals of the European Coal and Steel Community (ECSC), founded by France, Germany, Italy and the Benelux countries in 1952, and of the European Economic Community (EEC) and EURATOM, both founded by the same six states in 1958. Nonetheless, we should realize that this term intentionally excepts many other types of institutional change on the grounds that they are ‘inter-governmental’, and do not involve the surrender of sovereignty. It also marginalizes other sources, institutional or otherwise, of Europe’s growing ‘interdependence’.

The ‘process of integration’ is given pride of place in the memoirs of those most closely identified with it. This is because they were convinced of the historical importance of their achievements, but also because they were eager to win the propaganda war against the existing inter-governmental alternatives, which they perceived as weak and incapable of sustaining further development.² The institutions and workings of the new supranational communities were pushed further into the limelight by the writings of a generation of political scientists, attracted by the novelty of provisions in the Community and the dynamic inherent in their operations. Their attitudes have subsequently been projected backwards onto the past in a series of histories which concentrate on the struggle for supranational, even federal, institutions, but which mostly exclude developments elsewhere. Yet the EEC came onto the scene relatively late in the day and although the ECSC had been created six years earlier, it was limited in its economic impact. Insofar as the economic boom of the 1950s and the trade expansion that accompanied it had been caused by institutional changes, its origins lay elsewhere. The EEC’s creation witnessed the end of western Europe’s financial and commercial rehabilitation and not the beginning.

Since the late 1970s, a new generation of historians, trudging in the wake of the so-called ‘thirty year rule’ – the period before which some national governments grant access to their archives – have been rewriting the history of this period. Much of this work has still to be assimilated into mainstream accounts but, once it has been, its main achievement will have been to widen the perspective and context of analysis and to rediscover the complexity of the past. This, in itself, has often constituted an antidote to the simplistic ‘high politics’ analysis (and sometimes straight federalist propaganda) of existing accounts. However, thus far historians have been less than successful in agreeing on a coherent ‘alternative’ explanation to federalist accounts.

One casualty of the new history has been ‘American hegemony theory’, at least in its early chronology. The ‘hegemonic leadership’ theory argues that the existence of an American political hegemony allowed for the reconciliation of lesser, more localized national differences. Thus, at the height of its relative economic, political, military and moral power, the United States is supposed to have used its good offices to establish a liberal world order and, more particularly, to have supported ‘integrative’ solutions to world problems that mirrored its own history and that seemed to underpin its own success and prosperity. The new, revisionist literature has demonstrated the limits of hegemonic power and has raised awareness of the degree to which Europe has been able to resist American influence. Equally, it has underscored the ‘European’ as opposed to the American motives in seeking to ‘change the rules’ of European inter-state relations through institutional innovation and reform.

Secondly, historians have stumbled into the ‘actor-agency’ dilemma already familiar to political scientists. Initially, much of the literature focused on the actors: the ideas that drove them, the positions of political power they occupied and their role in the nexus of key players, together with the political processes which they adapted or invented to accomplish their ends. The need to find peace in western Europe and to build a bulwark against totalitarianism formed the ‘real world’ components in this analysis. Subsequently, historians working usually in governmental archives have found a more prosaic subtext to these events. Far from an heroic, visionary quest for a better future, they recount the story of an entrenched defence of perceived national interest. This version of history is often juxtaposed against the earlier approaches but the two are not necessarily irreconcilable. The international agreements that underpin the integration ‘process’ were usually submitted to parliamentary scrutiny and the threat of rejection placed constraints on too cavalier a surrender of sovereignty on issues of real public concern. Moreover, the whole idea of ‘supranationality’ is to adapt the rules of future political behaviour, to determine a new ‘how’ for the political process. It may remain a primary goal even if it requires a surrender of consistency or elegance in the short-term.

This version of ‘perceived national interest’ is itself the outcome of domestic political processes and is susceptible to changes in the balance both within governments and between governments. It is some way removed from the concept of national interest as formulated by ‘realist’ or ‘neo-realist’ scholars, who argue that the state is a unitary actor, intent on maximizing its interests, whose foreign policy behaviour can be understood from an objective reading of its relative geo-political position. Within the literature of integration this type of analysis made its appearance in the early 1960s³ and has recently been revived. In its current version, the viability or survival of post-War, democratic states lay in their ability to satisfy a ‘consensus’ built around comprehensive welfare provision, economic growth and agricultural protection. According to this critique, only when these goals can not be met in any other way do governments agree to surrender sovereignty, usually emerging stronger as a result.⁴ Aside from postulating an implausible degree of coherence in collective decision-making, this version of events both exaggerates the dangers confronting European states in what was, after all, the middle of the greatest economic boom in modem history, and the importance of supranational mechanisms in resolving residual commercial challenges.

Despite the awesome destructive power of the weaponry deployed during the Second World War, Europe’s post-War productive capacity was not as damaged as has often been claimed. Although the image of utter devastation still persists, the material damage was concentrated on areas of infrastructural investment (mainly transport and housing) and much less on productive capital. Most historians now accept that Europe’s industrial capacity was larger in the late 1940s than it had been in 1938 and, in some respects, better adapted to the needs of the post-War era. Without taking this into account, it is impossible to understand Europe’s rapid industrial recovery. Already by 1947, most western European countries had surpassed their pre-War levels of industrial output. Germany, the main exception, was not to do so until 1950, by which time western Europe as a whole was producing almost 25 per cent more than in the pre-War years. Although the expansion of manufacturing was remarkable, serious problems still remained. Basic industries, such as coal and steel, struggled to recapture pre-War levels and the neglect and destruction of transportation systems also caused major bottle-necks. Agricultural production was not as severely weakened within western Europe, but recovery was much slower than it had been for industry. Although a poor harvest in 1947 reinforced the negative image of the condition of European agriculture after the War, this was a serious but isolated incident and output rebounded quickly. Even so, it was not until 1950 that production recovered to its pre-War levels.⁵

The impact of all these changes was to widen the productivity gap between Europe and the USA. In industry alone, the USA had emerged from the War with double the output of 1938 and, despite the dislocation of adjusting to peacetime conditions (and a short-lived recession), had added further to this position by 1950. Without closing the gap, it was felt that Europe would be unable to repair the trade imbalance with the US and would be unable to sustain acceptable standards of welfare for its peoples. This problem was aggravated by the impact of the War on Europe’s trading relationships, both with each other and with the rest of the world.

American wartime planning had aspired to a world multilateral trade and payments system. The Bretton Woods conference, held in July 1944, decided in favour of the restoration of the gold-exchange standard (based on gold and convertible reserve currencies) but with two important safeguards. Firstly, it created the International Monetary Fund (IMF) to aid countries against speculative attack. Secondly, it agreed a set of ‘rules’ to govern international monetary behaviour. In December 1945, the US proposed complementing the arrangements for world monetary order by the creation of the International Trade Organisation (ITO) to ease trade conditions and to co-ordinate national countercyclical policies. Its constitution, in a much watered-down form, was agreed in Havana in 1948. However, the ITO never came into existence because the US Congress, unwilling to surrender so much control over its protectionist arsenal, refused its ratification. This left the temporary and far less comprehensive General Agreement on Tariffs and Trade (GATT), agreed in 1947, as the main regulatory body for commodity trade. It is important to note that in both areas, the agenda for action was a global one. There was little place for new regional discrimination and every intention to eradicate existing trade preference areas, usually between colonial and metropolitan powers.⁶

Instead of a multilateral trading system, Europe’s trade and payments had returned to the pattern of bilateralism and autarky that had characterized the 1930s. Indeed the pervasiveness of frontier controls between countries and across products surpassed anything that had been seen in peacetime since the start of the free trade movement a century earlier. Europe’s commercial problems stemmed from several different sources. The effect of the dislocation of the War on many economies made it difficult to divert production to exports at the expense of investment or already low levels of consumption. Moreover, the liquidation or destruction of foreign investments which, even by 1950, were still earning 75% less in real terms than they had been in 1938, removed an important source for covering import requirements. These two developments aggravated trade imbalances but the problem was further complicated by shifts in the direction of trade. Germany had provided many countries with imports of fuel and raw materials, semi-manufactured and investment goods upon which their own industries had depended. Because German recovery was inhibited by the occupying Allies, this source of supply was much diminished. Moreover, agricultural goods, and particularly grain, were no longer available in the same quantities from eastern Europe. Indeed the only area capable of compensating for this shortfall in supply was North America. Thus the trade deficit with the dollar area increased enormously compared with before the War, at a time when the disruption of colonial economies also meant that Europe was no longer able to earn dollars from triangular trade. The scarcity of hard currencies forced countries to restrict imports and control trade through bilateral agreements, augmented with quantitative restrictions and exchange controls. The effects of these problems, and the measures chosen to cope with them, reduced the relative levels of internal trade in peacetime in western Europe to possibly their lowest point in the twentieth century. The share of internal trade as a proportion of Europe’s total imports and exports fell from almost 48% in 1938 to under 35% ten years later.⁷

It was against this background that, early in 1947, there occurred a sharp deterioration in western Europe’s balance of payments. It was probably occasioned primarily by the ambitious inflationary investment plans initiated in pursuit of domestic reconstruction but was aggravated by the impact of poor harvests on Europe’s terms of trade. Yet it was this second factor, with its associated images of hunger, high prices and social discontent, that formed the prime means publicly to legitimize the massive dollar investment programme announced by the American secretary of state, General George Marshall, at a speech at Harvard University in June 1947. The announcement of the Marshall Plan has often been associated with the ‘Truman Doctrine’ of March 1947, which pledged American help to the Greek government in their struggle against the Communists in the civil war. Together, they have come to symbolize the start of the Cold War. Yet Marshall Aid marked another fundamental shift in American policy. It represented a recognition that Europe’s reconstruction could not be managed within a global, multilateral framework, but rather that the continent’s rehabilitation was a prerequisite for the functioning of wider arrangements.⁸

The failure of a global strategy was underlined within months of the announcement of Marshall Aid. When, in 1945, the Anglo-American loan agreement had been signed, one of its clauses had stipulated that the United Kingdom would reintroduce sterling convertibility by mid–1947. This would allow countries to use their sterling reserves for multilateral settlements and thus reduce the pressures on the dollar. On the appointed day, supported by new loans, the British government duly announced the return to convertibility and found itself immediately confronted with a run on reserves. Within seven weeks, the experiment was abruptly curtailed. Nothing else could have demonstrated so eloquently that it was not currency or liquidity that the system needed, but one currency in particular (the US dollar) and in one area (western Europe).

Of course there was a realization that special transient arrangements would be needed to assist recovery from wartime destruction. In November 1943, for example, forty-four governments created the United Nations Relief and Rehabilitation Administration (UNRRA) for the provision of immediate relief in the form of food, clothing and shelter, as well as the raw materials and machinery necessary to restart agricultural and industrial production. In mid–1946, the UNRRA decided to wind up its operations by the spring of 1947. Before then, in June 1946, another Bretton Woods institution, the International Bank for Reconstruction and Development (IBRD or World Bank) had commenced operations, although it was another full year before it made its first loan. Marshall Aid, however, was an implicit acknowledgment that IBRD funds would be no match for the task at hand.

The United States began its active intervention in Europe’s structural problems with the European Recovery Program (ERP). In comparison with the $4 billion that the United States had contributed to European reconstruction in the first two years since the War through the UNRRA and other programmes, over the four years of its operation Marshall aid allocated to Europe nearly $12.5 billion: $10 billion in grants, $1 billion in loans and $1.5 billion in ‘conditional aid’, which was used to lubricate the limited intra-European Payments Agreement of 1948. Not only were the sums contributed far larger than had previously been considered necessary, but ERP was important in enabling countries to adopt longer-term and more secure planning frameworks for their investment strategies, by giving recipient countries a commitment to provide financial aid and other assistance on a four-year, rather than an ad hoc, basis. On the American side, the Economic Cooperation Agency (ECA) administered the scheme. In Europe, sixteen states formed the Committee for European Economic Cooperation (CEEC) to decide on accepting the aid and, in 1948, continued their existence as the Organisation for European Economic Cooperation (OEEC).

The dollars were made available for vital import requirements. Only 17% was spent directly on imports of ‘machinery and vehicles’, the rest went on raw materials and agricultural products. The importers, however, paid the equivalent in domestic currency to their governments who were free to use the money on capital projects. This mechanism freed domestic funds for capital formation and, since ECA approval was required before the funds could be spent, it allowed US planners to influence directly the direction of economic change. In addition, for example by refusing funds to Italian firms that dealt with non-’free’ (i.e., communist) trade unions, it also permitted their intrusion into the politics and societies of European states.

The macroeconomic impact of the ERP on European economies has recently been questioned. Certainly it did not save the continent from ruin and starvation since, by the time its funds came on stream in mid–1948, that moment had long passed. Instead, it contributed to the maintenance of already high investment levels, with the greatest relative impact in the first two years. However, funding was not on a scale sufficient to explain the super-growth of the 1950s. It is true that in 1948 and 1949, the contribution of ERP funds to gross domestic capital formation touched 30% in Germany and Italy, but in both countries the global figures were particularly low. The more usual level was around 10%, as it was also for Italy and Germany in 1950 and 1951; a useful but not decisive contribution. New calculations suggest that aid directly contributed only 0.5% per annum to annual growth in this period. Indirectly, the flow of funds for raw materials itself released resources for investment and the secure planning horizons might also have contributed to raising investment and output targets. The ERP also reduced the tension of the said structural adjustment. At a time when demand exceeded supply by 7.5%, an addition of 2.5% to GNP reduced the potential conflict about how wealth should be distributed between labour and capital.⁹

Not unnaturally, the Americans were reluctant to see their funds siphoned off into competing national schemes, each presumably demanding further measures of national protection. They insisted from the start that the funds be allocated according to pan-European criteria and in the service of a pan-European plan. The European criterion for aid assessment was adopted. It was taken as the size of the dollar gap rather than any estimate of size of income or degree of damage. A European plan also emerged, aimed at the previously prescribed goal of balance of payments equilibrium by 1952. However, a closer reading of the European plan demonstrates that it was little more than the aggregation of separate national plans. The Americans had more success in encouraging measures for the freeing of trade and payments from national constraints and protectionism. Although the causes of the economic growth of the 1950s, and the even more spectacular expansion of trade that accompanied it, are many and complex, at an institutional level it was the ERP, through the OEEC, that laid the foundations.

In October 1949, the ECA administrator, Paul Hoffman, made a major speech to the OEEC in which he called repeatedly for ‘integration’ as the price for a continued, generous level of dollar aid. ‘The substance of such integration’, he went on, ‘would be the formation of a single large market in which quantitative restriction on the movement of goods, monetary barriers to the flow of payments and, eventually, all tariffs are permanently swept away.’ Although the OEEC had experimented in 1948 and 1949 with some limited multilateral payments schemes and was at that moment considering a (modest) start to a programme of quota removal, Hoffman’s speech had the effect of concentrating minds wonderfully.