Freeman

ARTICLE

1992: Which Vision for Europe?

MARCH 01, 1989 by NICHOLAS ELLIOTT

Mr. Elliott works for the Adam Smith Institute, a free-market think tank in London. He is a regular contributor to the journal Economic Affairs, published by the Institute of Economic Affairs.

Should we look forward to 1992 or view it with trepidation? This is the question in the minds of the many onlookers, inside and outside of Europe, who are waiting nervously to see what form the new Europe will take.

Nineteen ninety-two is the year that the Single European Act comes into force. This Act was agreed to by the member countries of the European Community. The aim of it is to dissolve the barriers which divide countries within Europe, to allow more communication and integration.

Everybody is talking about 1992 because it is the opportunity for a change of direction. It is a chance to turn the Community into something more useful than it has been. At the moment the problem is that the European leaders have differing visions. Some would like to use the Community as a framework for freer trade and less regulation. On the other side are those who have always hankered after a federal European government.

The European Economic Community (EEC) was formed by the Treaties of Rome, signed in 1957 by representatives from Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands. The intention was to do away with tariffs between members, set uniform external tariffs, and permit free movement of labor and capital.

European “government” became a reality in 1967 with the establishment of a European Parliament, Council of Ministers, European Commission, and European Court of Justice with headquarters in Brussels. The collective name given to these bodies and the EEC was the “European Community.” Britain joined the Community in 1973, and there are now twelve members: Belgium, Denmark, France, West Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and Britain.

Many of the politicians who originally planned the European Community envisaged genuine European government, with legislative powers gradually relinquished by member governments and vested in the European state machinery. Little has been achieved in this direction. European government has failed to establish authority. It has intervened quite rarely in the affairs of sovereign parliaments, and Commission rulings have often been disregarded. Italy, for example, has been summoned to the European Court of Justice over 100 times for failure to comply with Commission directives, and in 36 of these cases it has continued to break the rules after being found guilty.

More important than the attempts made at sovereign European government have been Community economic policies. The largest part of Community activity has been agricultural subsidization. Around two-thirds of the Community budget every year is spent on the Common Agricultural Policy (CAP) which is largely a system of production subsidies for the farmers of member countries. CAP has added almost $20 a week to the food bill of the average family, and has sponsored massive overproduction. For the layman, this is what the European Com munity amounts to—butter mountains and wine lakes, and overpaid bureaucrats in Brussels to administer them.

When the Community was originally formed, the consensus of principles was very different to what it is today. The Rome Treaties were written in the spirit of the age. They embodied the corporatist economic and political ethos that prevailed at the time. Output of coal and steel and supplies of wheat and milk were to be determined by a single “supranational authority.” The assumptions were that production decisions shouldn’t be left to uncoordinated individual markets, but instead should be managed by government overseers who could better identify the best interests of the entire Community.

The whole design of the Community was framed by the same interventionist preconceptions. It is unfortunate that the Community government superstructure has remained largely untouched by the changes in the foundations of political thinking since. Although the ideas of the 1950s have almost been relegated from dis course, the dead shell remains. The Community, in its old form, has not been popular in Britain and the same is true, I suspect, among the silent majorities of the other European member countries. Contrary to the aim of fostering unity, the Community has been the source of endless nationalistic antagonisms over agricultural quotas and price supports.

Community membership has been a burden to endure. Free marketeers identify i992 as a chance to redefine the Community, to make Europe a free trade zone under its auspices. Margaret Thatcher sees 1992 as the opening for greater economic integration; she views it as the chance to remove regulations and trade barriers which hinder trade links between European countries.

A different vision is held by Jacques Delors, who is President of the European Commission, the executive body of the Community. He is at least equally concerned to use 1992 to elevate continental government. He said recently that he expects 80 percent of future legislation to come from Brussels.

What Will 1992 Bring?

Nineteen ninety-two remains a year in search of an identity. No one can be quite sure of what it will bring. Recent debates, however adversarial, are essential as part of the political process of pinning down some points of compromise and agreement. Over the next few years the consequences of this debate will clarify, and what exactly is going to happen in 1992 will become much clearer too.

What is needed is to update the Community in keeping with the complexion of the 1980s and 1990s. A good start toward this is the proposal of a Single European Market, a scheme for removing trade barriers which interrupt the flow of goods and services between member countries. The Single European Market is exactly the kind of innovation that the Community needs. It can bring the Community up to date with the new consensus for freer markets. It might also improve the disposition of the English to be “European” by delivering some tangible benefits.

The Single European Market is potentially a herald of momentous changes. It will lead to many new specializations as free competition traces out the patterns of comparative advantage. Over the last decade British people have adjusted themselves to living in a more dynamic and mobile society. Thatcherism has encouraged people to assume the outlook of entrepreneurship; people are much more ready to look for their own niche in the market.

This will accelerate with the European market. There are likely to be many challenges to traditional patterns of life; a coal pit in Wales might find it impossible to compete with European rivals. But just as there will be many more shocks to the ossified Britain of old, so people will learn to accept it and to thrive.

With the new choices provided by a European market for consumers to shop around in, government-run enterprises will lose their monopoly power. One example is the British Broadcasting Corporation (BBC). With deregulation of broadcasting on the agenda, and with the rapid spread of satellite TV, it will soon be possible in Britain to tune into a multitude of stations. The BBC will be forced to reform its snooty attitude toward providing television that people want to watch. Otherwise it will lose out to foreign stations which give a better service.

The same stiff wind of competition will be brought to bear on the archaic practices of banks, probably to the cosseted profession of lawyers, and, with the completion of the Channel tunnel, to ferry services. The National Union of Seamen will lose its stranglehold on cross-channel services. Deregulation will snowball as releasing one set of controls renders others less easy to enforce.

Most of the moves toward the Single European Market have been very positive. At the European summit meeting last June, it was agreed that all controls on capital movements will go, this being preparation for European competition in financial services. It was decided that all quota and licensing controls on road haulage will be scrapped. The European Commission announced in August that there will be free competition in European air travel after 1992.

One other trend which is being encouraged is for Europeans to be much more mobile in work. There is to be a mutual recognition of university degrees and diplomas, to allow firms easier access to skilled people. This is another wholly good idea—to encourage firms and individuals to look beyond their own frontiers. In Britain, it will help to relieve the labor shortages that are being encountered by some companies now that unemployment is falling.

Will It Be a Fortress?

Countries outside of Europe, especially Japan and the United States, are watching Europe, suspicious that the free trade ideas of 1992 will be kept within boundaries, behind a wall of protectionism to exclude everybody else. The EEC does have a poor record of protectionism, one that is hard to escape. Onlookers are also disturbed by talk of a “reciprocity clause,” proposed by the European Commission as a control on competition for 1992. This clause would make admittance of a foreign competitor depend upon mutual openness: before an American bank would be allowed to open a branch in Europe, the Community members would have to be satisfied that a European bank would have the same access to the U.S. banking market.

Some recent precedents have been worrying. The European Court of Justice recently upheld a fine on American, Canadian, and Finnish wood producers who had been convicted of attempting to fix prices. This sounds like protection in disguise. Early last summer there were several cases brought against Japanese firms accused of “dumping.” Duties were imposed on computer printers which had Japanese components but were assembled inside the EEC.

Photocopiers made by Matsushita, Konica, and Toshiba were charged a duty of $280 because they failed to meet Community requirements that at least 40 percent of components be of EEC origin. The French government attempted to block imports of the British-assembled Nissan Bluebird on the grounds that less than 80 percent of the materials are European. The European Commission is expected to tell the French to admit the Bluebird, and to fix the local content level at 60 percent.

It is unfortunate that at the very time Washington is in a protectionist stance, the Community is making hostile noises toward the United States. What threatens is tit-for-tat trade barriers, the first choice for no one. The truth is that free trade is best and that trade protectionism harms both the barred and the barrier-builder.

Trade barriers have added $280 to the prices Europeans must pay for Japanese photocopiers. The French ban on the Nissan Bluebird has denied the French the opportunity to buy an inexpensive car, and is a threat to jobs. The Nissan plant in England is in Sunderland, a high unemployment area. Ironically, the ban is also a threat to French jobs because the cassette players, high tension leads, sun visors, and door casings used in the Bluebird are made in France. Here is clear evidence that trade barriers always backfire.

The case against free trade has been debunked time and again, and there are few who will defend subsidies in theory. The problem is that trade policies aren’t being decided with regard to the general well-being, but are backed by vociferous producer interest groups. Farm subsidies don’t persist because legislators are too stupid to see the grain mountains, but because farmers are organized well enough to block any change. The French did not ban the Bluebird out of malign intentions, but because of pressure from domestic car producers.

Looking at the optimistic side, European trade barriers could be loosened when article 115 in the Community statutes is abolished as part of the preparation for freer markets in 1992. This is the clause which permits barriers against foreign goods entering through another member country, like Nissan cars assembled in Britain. It is certain, however, that some protection will continue. There will still be open subsidies, as well as more covert forms such as the cheap loans given out by the German government.

In the past there have been plenty of rebellions by members against Community policies. It seems likely that, in the case of trade after 1992, members will put individual interpretations on Community policy. As is now the case, some will be more open than others. The Eurocrats probably realize that it is best to avoid making enemies of America and Japan by erecting a fortress. We must try to keep the European market from becoming autarkic, and ensure that it remains the worthy enterprise that it can be.

Britain As the Awkward Member

It is apt that Margaret Thatcher, as the symbolic leader of the world movement away from the pretenses of the omnipotent state, has injected some realism into debate over the future course of Europe. The two issues on which Britain was recalcitrant last year were tax harmonization and passport controls. The stand on taxes was admirably sensible, but the caution over freeing border controls was pointlessly timid.

As part of the preparations for the Single European Market, the Commission ordered that member states harmonize their rates of indirect taxation. The idea was that, if there is to be free competition across frontiers, then all competitors should begin from the same point. If tax rates vary, the theory goes, then some producers will be penalized by the handicap of high taxes, while those in low tax countries will start from an unfair advantage.

For Britain this would mean the imposition of the VAT (value-added tax—a sales tax) for the first time on food, fuel, and children’s clothing. For some other members the adjustments required would be far more drastic. Denmark would have to slash its punitive taxes on alcohol, while Greece would have to endure a large tax hike in order to find parity with other members. The extension of VAT in Britain would meet with great resistance, and none of the changes appeal to the politicians who would have to foist them on the electorate. European politicians are often critical of Thatcher’s intransigence, but in this they probably welcome the lead she has set.

The British Chancellor of the Exchequer, Nigel Lawson, has put the case for an alternative “market-based” strategy. This would involve deregulating first and then letting countries worry about their own tax rates. High tax countries, he says, would be encouraged to bring taxes down to compete better in the European market. Low tax countries would attract the productive capital and the entrepreneurs. This scheme has the great merit that it would tend to make tax rates gravitate downwards. The leveling approach of the Commission, in contrast, entails leveling some rates down and some up. Another attribute of Lawson’s proposal is that it doesn’t require any large, drastic, and politically unpalatable changes. It is the most realistic proposal, and the most likely to succeed.

According to the Single European Act, agreed to by all member countries in 1986, Europe will become “an area without internal frontiers” in 1992. On this issue the British government has become cautiously jealous of island status, and has decided that to allow foreigners to visit with the utmost ease is no longer a good idea. The reason given is that it would also ease access for terrorists, illicit drugs, and for animals with rabies.

Before 1914 only Russia and Turkey required passports for entry, with movement free between all the other European countries. During the First World War, passport controls were introduced as a wartime expedient, one of the many that have fettered us ever since.

The terrorist excuse is weak. The terrorist organization which afflicts Britain the most is the IRA, based in the Republic of Ireland, which is the only European country whose nationals require no passport for entry to Britain. Identifying terrorists has never been the problem. We know who they are, but we need to catch them at it. Nor is it beyond the means of professional terrorist organizations to buy false identities or to use unknown new recruits.

Without passport controls the import of narcotics would still be an offense, and animals would still be subject to quarantine restrictions. Stopping people from buying and selling drugs has become something of a blind crusade, pursued without regard for civil liberties. When innocent people can be forcibly strip-searched on their way home from holiday, then the law is surely amiss. Our priority should be the well-being of the many people who would visit Britain to do business or just to take photographs of the Tower of London. If we make it more inconvenient for them to come, then they will go and spend their money in Pads or Rome instead.

On the issue of passport controls, the Commission is right and the British government is being reactionary. But what is more important than winning this argument is resisting the clamor for compulsory identity cards. In September a Home Office civil servant argued that 1992 may necessitate identity cards to keep track of foreigners who will come and go from Britain. Identity cards have also been called for recently as a method of controlling crime in Britain. The idea is a thoroughly pernicious one, open to many abuses. If we must choose between the two, then passports are the lesser of two evils.

What is likely to happen is that the influx of visitors will be far more than anyone anticipated. The French already are claiming that British Rail has underestimated the volume of traffic it will have to carry to and from the Channel ports and tunnel in the 1990s. Whenever I have traveled in and out through Dover, it has seemed that the passport controls are little more than a token pretense, with no serious attempt at the impossible task of monitoring masses of travelers. It is likely that, come 1992, the frontier controls simply will be swamped and that in virtually everything but name, we will have free movement. The biggest cost will be the $18 million customs and immigration facility being built at Waterloo station in London, designed to control the flow of incoming Europeans.

The Ideological Quarrel

It is not a good thing for European unity that Jacques Delors is President of the European Commission, the organizing body for 1992. He is both an abrasive personality and a tout for old-style socialism. Delors’ vision for Europe is a political one. He wants to construct a central European government that will rule all of Europe as a federation.

Put bluntly, Delors has horrified Thatcher and shocked her into rejection. Nothing could be more depressing for her than the thought of absolute rule by the Eurocrats of Brussels. This is what she said in her speech in Bruges in September: “We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level, with a European superstate exercising a new dominance from Brussels.”

The quarrel is not only about the form of European government, because Delors is also clearly unhappy about some of the implications of the Single European Market. He warned that “too much freedom can be repressive,” meaning that he wants a European government which interferes and regulates. In the same speech he called for a new Keynes or Beveridge to remedy unemployment. Both of these intellectuals were British, and it is in Britain that their ideas were applied in their purest forms. Both of them, unlike Delors, were liberals who did not desire the monster state that they helped create. It has been part of the baffle of the last ten years to rid Britain of their legacy. If the European Community is to prosper, it must discard the nos-trams of that era. When Delors looks back with misty eyes to that mythical golden age, he shows once again that he is not suitable to lead Europe to 1992.

Imposition Is Not the Way

The countries of the European Community have developed over history as separate nations. They have each evolved their own individual customs and practices to suit their national needs and predispositions. As any American who has traveled on a Eurail ticket will testify, English behavior is distinct from French, as is German from Italian.

These nations also have developed along separate political traditions. English politics developed consistently with a social tradition of individualism, Italian politics must incorporate the diverse historical developments of different regions, and so on. Europe has never been a state. The political system of each European country is uniquely suited to the evolved necessities of that country.

Given this, a sovereign European government would be alien, it would create conflicts, and it would be unstable. It would be a government that has never been endowed with any authority by subject Europeans. And there is no record to recommend it. The danger is that it would assume all the worst faults of the old Brussels European Community administration. It would be distant, bureaucratic, interfering, and wasteful. But in the new version, it would be a superstate with much greater funds and powers.

Imposed uniformity will never succeed in Europe. Nations will cooperate and find points of common reference spontaneously, where they need to. One of the early costs of British membership in the Community was the imposition of currency decimalization—counting in tens. The aim of this was to achieve harmony in accounting units across the continent, not at all a bad idea. However, “imperial” money (pounds, shillings, and pence, with 240 pence to the pound) had endured in Britain for many centuries, people knew how to use it without a second thought, and it had a comfortable fit in the economy. When decimalization came, it had its costs. For a few weeks it threw Britain into turmoil. While the end result of comparability was useful, it would have been less disruptive to have let the British people adopt the new money where they needed it.

As part of 1992, Britain is going to be forced into using kilos and grams rather than pounds and ounces. Once again, this will throw the country into confusion for weeks; it is a needless and pedantic change because both imperial and metric weights have been displayed on goods since 1974. Of course, over the past 15 years very few people have taken any notice of metric weights, preferring to stick with what they have tried and tested.

The weights and measures that we use in Britain have lasted, refined by the testing of time. By contrast, metric weights originate in the rationalist tradition of France; they are the creation of designing minds. An interesting test of their alternative merits came when the French attempted a cardboard egg box that would hold ten eggs. This was all very rational and consistent no doubt, but the eggs fell out. The apparently irrational British box of six may be an unwieldy number for balance sheets, but at least it holds eggs. This may seem a trivial example, but it shows the clash of principles very clearly.

To take a more serious example, suppose the European Commission decreed that, for the sake of completing the pattern, everyone in the Community should drive on the right. In Britain this would create enormous costs. Steering wheels would have to be converted; British car manufacturers would have to alter their machinery; and drivers would have to relearn the habits of a lifetime. There undoubtedly would be a surge in the number of accidents.

For the most part, even after 1992, English people still will live in England, the French will live in France, Danes will live in Denmark. It is obviously sensible that the rules and customs of each country should be suited to the convenience of the people who live there.

Pursuing Uniformity

More serious still is the needless pursuit of uniformity in politics and economics. However imperfect, the democracies of Europe do reflect at least some of the requirements of the people who live under them. European government threatens to replace that with something more distant and less responsive. In the economies of Europe we have the chance to free ourselves from the stifling controls of the old Community. Each country and region should be left to develop naturally, to find specialties.

In another way, we should be grateful to Jacques Delors for waking up the rest of Europe to the wayward ideas which some of the architects of 1992 are entertaining. He is unlikely to succeed because he is a man after his time. Those leaders of Europe, like Prime Minister Thatcher, Premier Schluter in Denmark, and Prime Minister Silva in Portugal, who have used the market to solve local and national problems, will not want it suffocated from abroad.

The political constitution of the European Community is controversial among member nations. There is unlikely to be a workable consensus that involves anything but nominal role from Brussels. For this we should be glad, and it gives grounds for being quite optimistic about the results of 1992. if it has the right ideas behind it, the European Community could be the best opportunity for free trade and economic liberalism in this century.

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March 1989

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