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The Stagnant Decade, 1973–83

There is a received picture in Britain of a Community slumping from the high point of optimism reached at the Hague in 1972 into a dismal decade of inertia, relieved only by fractious competition among its member states. Like all received pictures it contains truths. The aspirations of 1972, such as the Davignon Report’s attempt to address the issue of political cooperation for the first time since the mid–1960s,¹ and the Community’s first enlargement in 1973, did little to break the pattern of self-interested national bargaining vying with rare bursts of collective altruism. Worse, the recession set off in 1973–4, and renewed in 1980–82 after an uneasy remission, brought internal problems and a pan-European sense of relative decline. Yet EC institutions sustained the idea of integration with an often surprising momentum in the interstices, so that the astonishing regeneration of the mid–1980s has to be explained not only in terms of a sudden shift around 1984 but in an accumulation of long-planned strategies at different levels within the Community and among different categories of players in the game.

The accession of Britain, Denmark and Ireland on 1 January 1973 occurred while the optimistic mood survived, so that the immediate consequential processes of adapting EC institutions and negotiating the informal areas took place against a background of goodwill, buoyed up by affinity between Edward Heath’s government and that of Georges Pompidou. But ministers and officials in Brussels had also to adapt to – or frustrate – the expectation of two new small states (Denmark and Ireland), both with a high agricultural content to their economies, and one large one (Britain) whose predominantly industrial economy, currency and financial institutions were, by the end of 1973, manifestly in disarray, and its industrial relations close to civil disorder.

Yet in the years of Britain’s final negotiations, the climate of opinion both in the EC and in the Heath government had been optimistic, even euphoric. To French observers, Heath seemed not only willing to pay the full price of entry but to bring for the first – indeed in retrospect the only – time a genuine willingness to follow European models of industrial policy and industrial government. In turn, Heath saw his DTI and regional innovations as material for the EC to emulate.² The fact that an anti-EC wing already existed in his Conservative party seemed unimportant, for Enoch Powell, then the chief critic, was not to turn to outright hostility until 1974. The fact that all Britain’s initial advantage was subsequently lost should not obscure the possibility that, had the oil crisis not struck then, and had Heath not lost the February 1974 election, Britain might have fitted into a novel triangular relationship with Germany and France in a way quite different from its actual halting, semi-detached progress thereafter.

Denmark, in spite of some internal opposition, could take advantage of the experience of other small states in northern Europe, and its economic linkages with West Germany; Ireland (whose emergence from a long period of introspective isolation which stretched back to the late 1920s had now begun) increasingly found a political ally in France. But British entry posed questions for the future of the Franco-German entente, and since the accession terms represented an act of will by the Heath government, with the close support of business, banking and industry, rather than the nation as a whole, Britain’s long-term stance under the next Labour government remained problematic – something which not only French and German governments but those of Benelux and even Italy watched with trepidation.

The new entrants’ responses differed from the beginning. As the Commission recruited new staff, experts and linguists, the Irish took up the offers speedily and successfully, the Danes less so, and the British with marked reluctance. Whitehall’s resistance to transfers, and fears among expatriates for their promotion, lost a great potential advantage during the next decade.³ Due to the lack of full cooperation between ministries, for example, Britain found its former colonies losing out on the share of Yaoundé/Lomé aid even as late as 1981, when they gained only 11 % of the total despite the existence of an informal system of apportioning on a geographical basis, because the form had been shaped originally with Francophone Africa in mind, on which UK representations subsequently made small impression. The Labour party also refused to take the seats allotted to it in the Parliament, as trades unions did in the Economic and Social Committee (Ecosoc) – again in contrast to the other entrants, ensuring an illusory Tory parliamentary contingent at the first direct elections in 1979.

Meanwhile, the new Commission President, from France, Francois-Xavier Ortoli, encouraged the Paris Summit momentum on three broad fronts. As free trade agreements came into force with EFTA countries (Austria, Sweden and Switzerland, followed by Norway, Iceland, and Finland in January 1973, together with Portugal in 1974, newly liberated from dictatorship) it seemed for the first time since Messina that the ‘real Europe’ could be achieved. Discussion began with North African countries about long-term trading relationships, although nothing tangible was likely to emerge until the Council had agreed its own policy for the European side of the Mediterranean. By July 1973, EC and ACP countries started to negotiate both renewal and extension of the Yaoundé Convention, clearly necessary in terms of former British colonies, and despite this potent source of Anglo-French tension, what emerged as the Lomé Convention between the EC and forty-six Third World states was signed in February 1975.

Secondly, the Commission began serious planning for the Social Fund and the new European Regional Fund (which was to have an important impact on the British budgetary question in the early 1980s, and on the attitude of poorer member states who began to argue for what in the end became ‘cohesion’).⁴ July 1973 brought the ‘Social Action Programme’, with involvement by management and unions in all member states. Thirdly, using the EPC machinery, the Nine successfully aligned their national policies at the CSCE meetings in Helsinki, an essential precursor of the final accord with the USA and the Soviet Union in 1975.⁵

The era of détente in Europe seemed assured, not least because these three developments seemed to be an external sign of the ‘fundamental bargain’ made with the United States, that American firms which had already set up within the EC boundary should be treated as Community ones, offsetting the disadvantages of discrimination and trade diversion outside. But a currency crisis in January 1973 had forced the lira to float outside the ‘Snake’ (as sterling and the Irish punt had done since June 1972). The lira’s exit forced the remainder to stop supporting the dollar, then close to its floor against EC currencies. Despite French efforts to push Britain into the Snake,⁶ the Snake had, in effect, left the ‘tunnel’, and the last attempt to shore up the vestiges of Bretton Woods ceased, ushering in a dangerous era of violent fluctuations and huge capital movements, later styled ‘casino capitalism’ by Susan Strange. The crisis forced the EC to forgo plans for the first stage of monetary union. Nevertheless plans for a European Monetary Fund surfaced briefly and the Economic Policy Committee emerged at the end of 1973.

That summer, the Commission won Council support for its first industrial and technology policy. But Ortoli reported to Council in indignant terms on the lack of progress with the internal market, intra-EC trade being still obstructed by a mass of quantitative restrictions and technical barriers. Member states, he implied, were responsible for the bureaucratic delays which obfuscated the customs union and which, intentionally or not, had increased since enlargement. While the EC prepared for the next GATT talks in Tokyo, it was clear that its own commitment to total harmonization, lacking member states’ consensus on the means, had created a vast backlog of work. The Council however showed no disposition to take up Ortoli’s more flexible alternative, which threatened the physical and psychological barriers to free trade in which each state still had such vested interests.

On 6 October 1973 the Israeli-Arab War began, closely followed by the oil crisis and rampant monetary instability, leading to the first full-blown European recession since 1947. OPEC countries’ use of oil supply and price as weapons to deter Western support for Israel had not been entirely unforeseen (at least by the Heath government) but there was little short-term action that any EC state could take, certainly not to look for strategic energy alternatives unless, like the Netherlands, they possessed gas reserves. Italy suffered most (and received help with its oil supply from Holland and Britain) but none escaped the initial shock, and even when OPEC restored production levels, the price rise (initially from $5 to $11.65 a barrel, but finally $14) induced serious cost inflation and balance of payments problems, with lasting consequences for industry.

The sauve qui peut among member states in late autumn and winter was such that for many observers (unaware of the oil companies’ swap agreements) the EC seemed to have lost its rationale as an economic, let alone a political, organism. Commissioners argued for a common energy policy, but Council ministers demonstrated themselves quite unable to broker a solution. The IMF Committee of Twenty did no better: only Italy and Britain tried out its recommendation that members should accept their oil deficits and not shift payments problems onto each other at the world economy’s expense. The USA, West Germany and Japan all deflated, the latter most drastically. Meanwhile, EC-USA relations almost ruptured over ECOFIN’s agreement to borrow $6 billion from IMF facilities with Saudi Arabian-OPEC underpinning.⁷ Although ECOFIN eventually got its money, thanks largely to the UK delegation, the US Congress vetoed further funding and it became clear that, without American backing, the EC could stand alone only on a limited scale and then only if it were united, well-briefed and determined.

Such conditions proved rare during the next ten years as the Nine’s economies diverged sharply. Large reductions in output and working time occurred, and in Britain a three-day working week was introduced. Once the immediate crisis had passed, the underlying problems of meeting external deficits emerged, with almost insupportable consequences in Britain and Italy, together with contingent problems of recycling Arab petro-dollars into OECD investments. The effect was like that after an earthquake: a primary shock followed by disorientation, secondary shocks, immediate crisis responses, and then, at very different times, adaptation and reorganization.

Taking the decade as a whole, the far-reaching consequences of this ‘mid–70S crisis’ can be seen to have been decisive in re-shaping European nations’ ideas and policies for the remainder of the century. It shifted concern from full employment to inflation (with notable impact on the relative strength of unions as against management, and on the EC’s concept of a ‘social area’), and led to new power relations in each society’s major centres of economic activity: finance departments became dominant over those of trade and industry, central banks and the financial ethos superseded industrial priorities, and accountants gained ascendancy over both engineers and personnel managers. Finally, this crisis created a prolonged, pervasive questioning of the cost, priorities and effectiveness of state social service provision which, in the second oil-induced recession after 1980, brought about a revaluation of the state’s role itself. In this sense, (with the notable exception of France) it caused the end of that series of post-War settlements established in the late 1940s, and completed what the collapse of Bretton Woods in 1971–2 had begun: the Community’s severance from the long post-War boom.

Britain’s essay after 1979 in new-right economics and social politics – usually called ‘Thatcherism’ – thus turned out to be only the most urgent and extreme case of a wider trend that was to be replicated, in different national contexts, right across the Community and EFTA. The post-War corpus of ideas which had infused economic growth and political institutions since the 1950s ceased first to have absolute validity, and ended by being virtually obsolete – as the EC’s experience of prolonged high unemployment in the 1990s recession demonstrated.

Within the Community, it was soon clear that as currency cooperation in the OECD had been lost so had unlimited access to cheap energy and the belief in the automatic efficacy of neo-Keynesian macro-economic management. As the IMF’s Committee of Twenty noted, currency cooperation could not be restored until the USA resolved its trade imbalance, or until the surplus countries, Germany and Japan (which had restored themselves to surplus by mid–1975) reduced theirs. As the DM and yen rose, the dollar and sterling declined and, with the IMF’s relaxation of its rules in 1976 (to help out those with the severest problems), international coordination appeared lost in the impasse. France now floated the franc, leaving only four member states clustered around the DM in the ‘Snake’ from which the EFTA countries rapidly distanced themselves.

Certain industrial sectors suffered most: shipbuilding, textiles, above all steel. Car producers and consumer electronics did not escape and, in the general retrenchment of capital investment, a rapid loss of competitiveness ensued vis-à-vis Japan and the Pacific rim ‘tigers’ of South Korea, Taiwan, Singapore and Hong Kong. Low growth, low investment, inflation and unemployment were common to all, but in Europe, as elsewhere, responses varied widely, inhibiting any EC-wide industrial policy.

The West German economy readjusted faster than any other in Europe. After twenty-five years of holding the DM’s value down, to the benefit of trade and industry rather than of the consumer, the Bundesbank allowed the DM to rise, as did interest rates. The subsequent restrictive monetary policy, in conditions of restored price stability and independence from the dollar, made West Germany the natural basis for the ‘Snake’, but this was at the expense of domestic growth. Banks took the lead in the rationalizing process that followed, generally to the detriment of large overstretched firms such as AEG and Volkswagen. However, the harsh social consequences of this monetary policy were offset at government level by the SPD/FDP coalition, based on corporatist understandings with unions to cushion austerity measures.

Meanwhile, on the diplomatic front, and despite the fall of Willi Brandt in 1974, the ostpolitik survived under Helmut Schmidt, insuring stable relations with East Germany as well the Soviet Union, the USA and France. The Franco-German entente remained in place, since all three German parties accepted westpolitik as the only way to balance that in the East.

In France, after Pompidou’s death, despite the Gaullists’ preference for Chirac (RPR) rather than the UDF leader Giscard d’Estaing, it was the latter who succeeded as presidential candidate against the socialist challenge of François Mitterrand, in spring 1974. Giscard’s government held to the 6th plan, hoping to sustain both planned growth and industrial restructuring during the emergency. But being a liberal by inclination, Giscard also wished to diminish the Gaullist emphasis on state direction, while deflating the economy and reducing France’s dependence on external sources of energy. This was a policy which required heavy investment in civil nuclear development, yet which, for fear of a recurrence of the 1968 disorders, proceeded via monetary means rather than by direct wage cutting. It led first to negative growth, then, in 1975, to reflation, and ultimately to a 38 billion franc budget deficit, together with high unemployment accompanied by a weak currency.

In 1976, Giscard replaced Chirac with Raymond Barre (a former Commissioner) as prime minister, who had the more robust aim of cutting feather-bedded state industries down in size, reducing wages, and liberalizing prices. After strikes and much industrial conflict, the Plan Barre achieved surprisingly good results, notably with the rationalizing of steel production into two massive new holdings, Usinor and Sacilor.

In contrast with France, Italy, which had tried to avoid deflation, experienced 26% inflation in 1974 and suffered a steady fall in the lira. A period of political instability saw the regional electoral success of a much-reformed Communist party in 1976 (though it remained excluded from participating in the governing Christian Democrat-Socialist coalition). A strategy of terror mounted by the extreme left culminated in the murder of Aldo Moro, prime minister, in May 1978, and led to reinforcement of the right and extension of political warfare and corruption into almost every level of administration, finance and industry – with long-term repercussions through to the 1990s. Beset by crisis, with constant recourse to the IMF and West German support, Italy failed either to restore confidence in its institutions or to meet the external criteria for fiscal reform.

In Britain inflation continued to rise until it reached 23% in 1976,⁸ thanks to a period of drift under a Labour government with only a small majority, preoccupied with instituting its Social Contract with the trades unions and sorting out the aftermath of a massive secondary banking crisis. Only in 1976–8, after Britain’s referendum on EC membership, and under the direction of James Callaghan and Denis Healey, did Britain achieve some control of inflation and a sounder monetary policy, together with an industrial strategy which, by the late 1970s, had had some effect on micro-economic industrial adjustment. For economic and political reasons therefore neither Britain nor Italy took much part in determining EC-wide patterns before 1980.

Recovery across the Community was correspondingly varied and patchy, depending on the sector and the level of demand, and was nowhere so strong as in Japan or the United States.⁹ Currency fluctuations also fragmented agricultural markets and disrupted the CAP, so that the system of monetary compensation amounts (MCAs) grew ever more complex and had to be bolstered by export levies. Attempts by the Commission to reduce guaranteed prices were rejected by the main beneficiary states, so that MCAs, having been merely a temporary expedient, became an integral part of the CAP in six zones of varying price levels. This in turn caused a rift in the Franco-German entente, since the French government believed MCAs worked to the advantage of countries with stronger currencies.

Increased complexity reflected an institutional crisis. The oil shock and member states’ nationalistic responses produced in Brussels a mood of deep gloom: Ortoli declared that the Community had lost its vision and that its institutions were near collapse. Indeed at the OECD Energy Conference in Washington, in autumn 1975, the EC exposed all its differences, and the UK insisted on a separate seat. At home, members applied individual trade safeguards, many of which the Commission was forced unwillingly to accept. Collectively the EC turned protectionist, imposing a 15% anti-dumping duty on Japanese ball bearings. Of greater significance, it agreed to the Multi-Fibre Agreement’s cartel arrangements on September 1977 in order to keep the EC textile industries alive. There was infighting over fisheries, and a wine war between France and Italy which the Commission had to take to the European Court.

Whatever the language still used by EC institutions, the reality lay in national defensiveness, absence of a common energy policy, and inability to address new issues collectively. The EC’s outward appearances by 1976–7 had come to depend on the Franco-German understanding represented by Schmidt and Giscard, and on the DM core of the ‘Snake’. It was hardly surprising that, within the wider periphery, EFTA countries went their own ways, Austria for one set of reasons,¹⁰ and Sweden for another. (Norway’s electorate had of course already voted against its government’s entry application in 1972.) Only the two Iberian states and Greece showed signs of wishing to join: all three, unlike the EFTA countries, seemed on balance to be assets of doubtful value.

Nevertheless, the Community’s level of activity maintained a certain momentum with the Commission’s establishment of its science and technology policy, its social action programme (which included provisions for disabled workers and equal pay for women) in December 1975, and further limited advances in the free movement of goods in the few sectors, such as pharmaceuticals and medical services, that were still profitable. The Regional Fund took off in March 1975, albeit with smaller resources than were originally envisaged, thanks to disagreements between the main payer, West Germany, and Italy, Ireland and (for different reasons relating to budgetary adjustment) Britain. The ECJ handed down several important rulings on transport and demonstrated a clear commitment to integration which put it, in national governments’ eyes, on the same side as the Commission.¹¹ Political cooperation also broadened out after Helsinki into bilateral agreements with Comecon countries and Yugoslavia, and in a continuing commercial dialogue with the Mahgreb countries of North Africa.

Even these limited gains came about primarily not because the Commission initiated policy but because the Council of Ministers willed it.¹² When the heads of government, jockeyed by the French Presidency, agreed at the Paris Summit in December 1974 to establish the European Council, they went beyond the founding treaties to formalize the existing informal, occasional inter-governmental mode of regulating business, over and above the EC’s existing, and Treaty-based institutions. This Council’s subsequent request to the Commission, Parliament and Coreper to prepare one report on European Union, and to Leo Tindemans, Belgian prime minister, to produce another, together with the agreement by seven states to introduce direct European Parliament elections and to increase the Parliament’s powers, showed how priorities stood. Although the decision for direct elections had been very controversial in France, being referred on grounds of national sovereignty to the Constitutional Council, France had taken the political lead with German acquiescence and Italian support – the latter predicated on the assumption of political influence with France and economic support from Germany.

Meanwhile, without becoming any more communautaire, or any less hostile to harmonizing laws and taxation, the British won an acceptable (though actually useless) formula on their budget contribution at Dublin in March 1975, an apparent redress which probably helped Harold Wilson’s last government to gain its referendum on retaining EC membership in June, after which Labour MEPs at last took their seats.

This emphasis on inter-governmental supremacy, as the recession began to lift, indicated that European integration would proceed without fundamental alterations in the balance of power or the patterns of activity set in the mid–1960s. France returned the franc to the ‘Snake’ in July 1975, and at a minor but not unimportant level acquired some support from Ireland, during the Irish Presidency. The restructuring of basket case industries was to follow the EC pattern of crisis cartels, first set out by the Commission in the case of steel in April 1975, followed by textiles, then the aircraft industry (1977), and shipbuilding (1978). Only in the novel areas covered by the Regional Development Fund was the Commission able to extend its informal autonomy by remedying grosser inequalities between north and south, core and peripheral regions, so that what had earlier been only an attempt to recuperate the Italian Mezzogiorno, became a more general policy of aiding poorer and peripheral regions.

The interplay between the Council and the Commission led to a flurry of activity, ranging from harmonizing company law to reports on a passport union and special rights for EC citizens. Most Commission draft directives at this time derived from the twin themes of harmonization or the internal market, free of border restraints, but those on worker participation and company law were clearly intended to restore an earlier tripartite balance between the social partners which the recession had severely damaged.¹³ In a series of tripartite conferences, the Commission sought to inspire some sort of interdependence rather than sectoral competition, firstly between financial interests and secondly between management and labour – all to no effect. The Council rejected the directive on co-determination and the Vredeling Directive on worker consultation within large firms, and the ETUC discovered that the EC saw the ‘social question’ only in terms of markets and industrial survival.¹⁴

This failure of an earlier dream can be attributed both to the real loss of union influence, especially in labour-intensive industries such as engineering, metalworking and textiles, and to the implicit defensive alliance between management and union leaders to safeguard what employment still remained. But it also emphasized how the earlier consensus had been eroded, and how the Commission was now powerless to restore it.

As Etienne Davignon observed in his report on European Union, it was becoming increasingly difficult to resolve even apparently specific issues without reconstructing the general political conception of what Europe should become. What had appeared to exist in 1971–2 had largely disappeared. The McDougall Report, for example, recommended in 1977 that member states should concert macro-economic policy and structural adjustment, together with the Commission’s regional strategy. But what might in the 1960s have been the beginnings of a genuine attempt at redistribution between core and deprived periphery was rejected by a Council whose members could not agree on what macro-economic policy might be, and therefore refused either the powers or the money. The ERDF itself had become ‘a pawn in the debate over far wider issues’.¹⁵ At this stage, the total of 1.3 million units of account was split 40% for Italy, 28% UK, 15% France, 6% Ireland and 6% Germany. In 1981, Greece entered the arena with 13%.

Yet something more integrated could still be discerned, in direct suffrage for the European Parliament and the consequent distribution of seats (December 1975), in the strengthened budgetary system, backed now by the Court of Auditors with power to investigate members states’ spending practices, and in the institutional reports on EU, accompanied by the Tindemans document. Under the Dutch Presidency in November 1976, the European Council accepted a cautious statement about an incremental road to European Union. Six months earlier, under the Luxembourg Presidency, the Council had accepted no fewer than eighteen directives on the removal of technical barriers to trade, and resolved some of the fisheries disputes by extending EC limits to 200 miles in the North Sea and Atlantic.

But very many directives remained for approval, and the emergence of a common fisheries policy led to often violent disputes between members and with Nordic countries, which were not finally settled until 1983. At the same time, with the second Portuguese revolution¹⁶ and Franco’s death, the issue of extension surfaced again, in circumstances prejudiced rather than eased by the case of Greece.

Greece, freed of its military junta, had been encouraged to apply in mid–1975 by member governments who had backed the government-in-exile and who saw membership as a safeguard of the new democracy’s future. The implication at that point had been that similar support would extend to Spain and Portugal;¹⁷ and Spain’s centre-right government under Adolfo Suarez did indeed formally resume negotiations in mid–1977, after the first democratic elections, with the consent of the centre-left. The Socialist government in Portugal, led by Mario Soares, followed suit in 1978.

At this stage, Greece, liberated from military dictatorship in 1974, under prime minister Karamanlis, (who was widely liked in western Europe) stood furthest down the road to EC membership, untainted by the suspicions of member states, that the military might intervene as in Spain, or the Communist party return to power as in Portugal. The Commission on the other hand regarded all three rather more dispassionately, and recommended against early Greek entry, but the Council, mindful of the dangers of hostilities with Turkey’s military government in the Aegean, overrode it and opened negotiations in July 1976, ignoring Greece’s very different level of social, political and economic development.

Member states differed, depending on whether they looked at the political arguments or the economic ones: on the latter they were harder and more sceptical in the case of Spain, and by association Portugal. Spain also suffered from the outright opposition of French farmers in the south, some unease in Belgium and Holland, and uncertainty in Italy, tom between agricultural interests and Mediterranean solidarity.¹⁸ At a time when the largest entrants from 1973 had not still fully been assimilated, Spain represented too sizeable a risk, whereas the dangers of incorporating Greece seemed relatively small and apparently containable when it came to the CAP and regional funding.

Debate among member states had centred upon Spain’s potentially large new markets and the investments that could be made there, which seemed likely to offset the budgetary drain and to be especially profitable for Germany. But they also took account of the world strategic situation – in the tail end of Nixon’s presidency, the threat from the Greek Left to leave NATO and abrogate American air bases, and the economic conflict between France and Spain.¹⁹ In the end they compromised, agreeing to deal with Greece quickly and to delay the Iberians at a pace acceptable to France and Italy. Delay stretched into the 1980s, exacerbated by Greece’s own bout of factious campaigning to get more financial advantage before Spain and Portugal actually came in.

In the event, negotiations opened with Portugal in 1978, Spain a year later, and proceeded desultorily. In a speech in June 1980, Giscard linked Iberian entry to solution of the EC’s own problems – i.e., the Greek Kalends – an attitude which derived retrospective justification from an attempted coup by sections of the Spanish army in February 1981. Although the king’s firm stance and the rally by the great majority of senior commanders revealed that Franco’s ‘bunker’ had become obsolete, the excuse of unripe time continued, prolonged by Colonel Ynestrillas’s failed coup in October 1982, until Mitterrand’s political turnabout in 1983.

Sporadic moves towards a more comprehensive currency alignment revealed similar discords and inertia. Ideas about a European Monetary System had been aired even in de Gaulle’s day, when Giscard d’Estaing had been finance minister, with the support of the Banque de France. Additionally, EC central banks had always cooperated together, albeit secretively, both in the Governors Committee (established at Basel in 1964) and on the EC’s Monetary Committee where, with finance ministers, they provided advice to the Council. Monetary Union had been latent as an ultimate aim since 1957 and had been recommended by the Werner Committee in 1970 as an aim realisable by 1980.

Such dreams had faded fast after the end of Bretton Woods. But French re-entry to the ‘Snake’ and the evolution of a system of managed rates around the DM anchor encouraged hopes of a zone in which, crucially, the franc and lira might be stabilized. The liberal Giscard’s long intent was to abandon the policy of habitual devaluations as acts of French policy. France was, in fact, forced out of the ‘Snake’ again early in 1976 and the DM had to be revalued later that year. But in the face of continued, variable rates of inflation, the new Commissioners of 1977, and above all the President, Roy Jenkins, were avid to restart the immobile machine and again set their sights on EMU.

Jenkins’s proposal for a European Monetary System (EMS) reached Council at a moment in late 1977 when Japan’s trade surplus and its aggressive competitive edge seemed only too clear to a Community locked into a pattern of weak growth and high unemployment. Among member states, Britain was now far more amenable to the imposition of an external discipline, its chancellor, Denis Healey, having imposed a measure of budgetary restraint and money supply control after the IMF’s intervention in November 1976. There is evidence of consultation between the UK Treasury, Bonn and Paris, at ECOFIN meetings. But at this stage both Banque de France and Bundesbank opposed it. Among bank governors, only Gordon Richardson and Paolo Boffi of the Banca d’Italia supported it (the latter seeing progress to EMU as a restraint on his own reckless political class). These two however drew indirect support from German industrialists who wanted a lower DM – as in fact occurred in the early 1980s.²⁰

They would have got nowhere without Franco-German concertation. Initially sympathetic to the Bundesbank’s view, put by Otmar Emminger, that EMS would weaken the Bundesbank’s independence and its capacity to control inflation through domestic price levels, as well as impose stresses on the DM as core currency that would ultimately force West Germany to become a leading political force,²¹ Helmut Schmidt tried at first to share the burden with France, Italy and if possible Britain. Callaghan declined, but Giscard accepted, taking this as a first step towards EMU. The Italian government hesitated. But for three months the scheme stalled on France’s unwillingness to accept what looked like a West German initiative.

Schmidt finally accepted the DM’s anchor role in February 1978 during the French elections, but since it was a political-economic initiative rather than a fiscal discipline, it was agreed that EMS should be handled by the Council, not the Commission.²² Germany’s conversion owed much to Schmidt’s perception that, as the dollar fell steadily during 1978, President Carter had abdicated the role of Western leadership and that something had to be found to fill the gap. Thus at the Bonn Summit in July 1978 (before the Bremen Meeting where EMS was given its final shape by heads of government, with bank governors filling in the details), West Germany reluctantly agreed to reflate, under US pressure.²³ A stimulus of 1% of GDP was thus given, with some success. But Germany met massive retribution later, when the second oil crisis seriously weakened the DM and aroused a new surge of inflation.

On the macro-economic level, German unease at a rising DM coincided with the Plan Barre’s anti-inflationary aims. But EMS was intended by the Commission and the main participants to lead on to a full exchange rate mechanism (ERM) from which would emerge a European Monetary Fund or pan-European Central Bank with pooled reserves – with the ecu acting as a reserve currency.²⁴ Delayed because of objections, by Ireland among others, it finally came into force on 1 March 1979. Britain, though a member of the EMS, refused to join the ERM. By 1981, despite severe balance of payments problems, worst in Belgium, Denmark and Ireland, all had regrouped except sterling and the drachma, hoping to enforce discipline on their unruly domestic economies. (In the event, since sterling rapidly became a petrocurrency when North Sea oil came on stream, only massive EC intervention could have sustained Britain as a member, even if its new Conservative government had been willing at first to measure sterling against the DM rather than the dollar.)

Yet despite the appearance of stability guaranteed by EMS, German reflation, and Carter’s new energy policy, the second oil shock initiated another recession and four realignments more occurred before 1982. Since West Germany would not revalue, the weaker currencies had to fall, causing growing resentment among their governments. Central bankers, led by the ever-reluctant Bundesbank and with Council assent, postponed the Monetary Fund indefinitely.

In the brief period of renewed optimism however, and before the French Presidency of the Community opened in January 1979, Giscard determined that French political leadership should be reestablished lest West Germany fulfil the role that Emminger feared, or the Commission take advantage of its enhanced status.²⁵ In French terms, reform of EC institutions, crucial to preparations for the next stage of enlargement, therefore implied reducing the Commission’s initiating role, subordinating the European Parliament’s ambitions, and putting the Council firmly and formally in control. This involved a revival of de Gaulle’s early concept of a Directoire, with greater sway for the larger member states.²⁶ Hence the appointment of the Comité des Sages set up under the French Presidency, with a brief to examine the reform of institutions, while retaining the Council’s role, together with the Luxembourg Compromise, except in cases where qualified majority voting (QMV) had been unanimously accepted.

The three ‘wise men’, Berend Biesheuvel (NL), Robert Marjolin (Franee) and Edmund Dell (UK) could not but be influenced by the inter-governmentalism of the time: the way the EMS had been instituted, the impact of Franco-German leadership on smaller members, and the Atlanticist dimension set by the Group of Five.²⁷ Moreover, their report in October 1979 reached a Europe in which members were either self-absorbed, like Italy and Britain, or on the defensive like Belgium. It was not a time for visionary thinking outside the limits set by France and West Germany.

Nevertheless, despite the French Presidency’s leverage, the Committee did not simply follow Giscard’s agenda, but tried to measure the validity of small states’ complaints (Luxembourg, Denmark and Ireland) against the larger ones. In particular, they examined the methods used to operate the European Council, and the suggestion of a two-tier Presidency in which large states would serve for longer periods. In the end, the three accepted the logic that the Council should give ‘overall direction’, setting out the EC’s priorities, but that the Presidency should not be extended beyond the existing six months for each member state in rotation.

This report was a symptom of the prevalent malaise rather than a factor in what followed. The Commission had not, despite Jenkins’s attempts, recovered its old influence as it had existed under Hallstein. It now suffered criticism from West German leaders as much as French ones – often directed at individual Commissioners for their national partiality – criticism whose validity both Jenkins and Emile Noël, Secretary General since 1958, had to admit, yet could not easily remedy, and from the European Parliament President, Emilio Colombo, who saw it becoming ‘renationalized’. The Spierenberg Committee claimed that it had become too large and recommended that the number of members of the Commission should not increase pro rata with future accessions from Mediterranean countries.²⁸ Worse, from Brussels’ point of view, despite manifest delays, some of the big states were not prepared to ease their veto powers under the Luxembourg Compromise, even though some of the smaller ones, led by Belgium, might have been.

The conflict between the Council and the Commission, latent ever since 1965, produced a condition of immobility, on which the diversity of reforming ideas made little impact – hence the lourdeur of which Giscard frequently complained. In practice, most initiatives were decided by the leading member states, even if the initiative came from the Commission or outside: EMS, Greece’s accession, and responses to the Tokyo/GATT round. Such CAP reforms as occurred were possible only because of Franco-German agreement: the Three Wise Men could not have operated without this backing. And whenever the European Parliament asked for more competence, it aroused deep antipathies among both Gaullists and British Conservatives.

But the European Parliament could and did play successfully on West German Länder aspirations, and those of Italian regions whose politics had sprung vigorously into life in the 1976 local elections. Even before the Parliament used its single, ultimate weapon and rejected the EC’s budget in December 1979,²⁹ it had induced the Council of Ministers to address three important issues: economic disparities, convergence, especially of the regions, and the EC’s transport infrastructure – with a future common transport policy in mind. The European Parliament’s sense of its own dignity and tactical responsiveness increased with direct elections, while some sense of common identity on EC matters also developed between parties in certain countries. This had long been true in West Germany and Benelux and it became so under Italy’s pentapartito governments, before and after Aldo Moro’s death. Karamanlis’s creation of New Democracy can be seen as a bid to create a similar centrist governing philosophy in Greece. What may be called ‘insider parties’ tended during the 1980s to find similar affinities inside the Parliament, while the ‘outsiders’ (all communist parties save in Italy,³⁰ both main parties in Britain, many French socialists and the majority of Gaullists) emphasized inter-governmentalism at the European Parliament’s expense.

Meanwhile the ECJ began to accumulate a body of judgments which increasingly underpinned the Commission’s initiating role. In Kramer (July 1976) it ruled that EC institutions’ competences within the EC extended under the treaties to the international engagements required to fulfil them. In March 1976 came the Simmenthal judgment that defined direct applicability to mean that EC legislation had to be implemented uniformly in all member states, not only through transposition but implementation and enforcement – which implied a direct obligation by governments towards individuals to implement directives. This had a stringent effect not only on backsliding states (Italy being already notorious) but also gave recourse to individuals or firms prejudiced by their own government’s failure. The Court’s 1978 judgment against Distillers’ policy of pricing one brand of whisky differently in different countries forced the company to withdraw from the UK market altogether. And in the area of state aids, where member states had frequently disobeyed rulings with impunity, especially in declining industries such as steel and shipbuilding, the legal revolution begun in the 1960s continued, leading to a sharp increase in the number of instances where the Commission dared to intervene.³¹

By giving effet utile, that is interpreting the treaties to give the law its fullest and most efficient effect, with consequences often not obvious in the original texts, the ECJ thus widened the scope of EC law and extended Commission or other competences. Its continuous activity thoughout the 1970s was probably the most important single factor in keeping the sense of ‘Community’ alive in an era of inter-governmentalism.

Simmenthal was perhaps inherent in the Treaties, but Kramer seems in retrospect a more creative interpretation, as does the ECJ’s October 1978 opinion in the ‘foreign policy arena’, that the Commission had competence to use international trade sanctions or embargoes to achieve the EC’s agreed aim. In the Roquette judgment (October 1980) the ECJ laid an obligation on the Council of Ministers to ask Parliament’s opinion – and to wait for it. But all these were overshadowed by the consequences of Cassis de Dijon 1979,³² which established the principle of mutual recognition of members’ own national standards and health or other regulations. The court ruled that a product which was lawfully produced, subject to minimum standards, and distributed in one member state could not be banned from sale in another unless it constituted a clear risk to public health.

The political extent of this battle was not won immediately. In the always contentious area of foods, exclusions and evasions continued, even though the criteria were outside the food standards arena: France ignored both the rules and the ECJ’s judgments by banning lamb imports in 1980, Germany restricted beer under its ancient production regime, and non-fizzy mineral water,³³ Denmark for ecological reasons prohibited beer and soft drinks unless sold in recyclable containers, Italy rejected German pasta, not being made with grano duro, Belgian margarine was to be sold only in cubes not rectangles, and so on. Whatever its logical consequences for the generic harmonization policy, the Cassis de Dijon judgment and its sequel, the pressure vessels case which Arthur Cockfield used in the mid–1980s, could not solve all cases. Indeed similar obstacles survive today, in complicated, obscure forms (such as the effects of the German waste and recycling law) requiring in most cases to be abolished one by one.

Yet it is hard to overestimate the significance of the new approach in which the establishment of basic standards and mutual recognition replaced harmonization. From that point on, the Commission sought to collaborate more effectively with member states’ own technical departments and standards agencies, and to relegate Article 100 (harmonization) only to areas essential for the EC as a whole. By insisting on the overriding aims of the Treaty, the ECJ had given the Commission a powerful instrument to break up the huge log-jam of draft legislation stacked up by a decade of unsuccessful detailed harmonization. It may even have saved the EC’s original ethos from the delays for which the Council and its members were to blame; it certainly helped to recover momentum and renewed the internal market’s attractiveness. It also established a golden rule: that future directives and rules should be simpler, less specific, and aimed at setting basic standards in a general context within which national agencies could operate: if they wished, more but not less strictly.³⁴ A long search for general EC competences thus led to an early definition of what subsidiarity (a phrase harking back to 1957 if not the 1890s) might eventually mean.

The second OPEC oil shock forced the crude oil price to over $20 a barrel at the end of 1979, helping to precipitate a severe and prolonged recession. Domestically, the EC’s endemic budgetary crisis was reinforced by the new British Conservative government’s determination to revise downwards its net contribution. Margaret Thatcher’s single-minded advocacy of ‘our money’ galvanized the next Dublin Council in November, so that the fractious disputes about the EC’s budget overran into farm prices and the common fisheries policy. Thatcher took the subsequent compromise solution with ill grace, letting it be seen as merely a temporary expedient.

In that same, particularly gloomy, year, the EC’s international context was disrupted, firstly by events in Iran (the Shah’s fall, the seizure of American hostages, and the end of Carter’s presidency), then by the Soviet invasion of Afghanistan (roundly condemned by all EC members in January 1980) and thirdly by the new Reagan presidency’s apparent intention (with Thatcher’s support) to revert to an arms race in order to counter and if possible permanently impair Soviet superpower capacity. Tensions rose at the same time in the Middle East and in Poland, where Solidarity’s early successes – though partially reversed by General Jaruzelski’s military dictatorship – exposed both the limits of Soviet power in eastern Europe and the unstable nature of Comecon, the state trading system linking Soviet and satellite states.

The EC coordinated its responses to these crises rather more successfully than it had done in 1974, though the EC’s London Report pointed out the shortcomings in its political cooperation processes.³⁵ But the possibilities of cooperation were limited both by the recession and the ‘sovereign debtors’ crisis (Mexico, Brazil, Argentina, Poland) which lasted well into 1982 with consequences lasting to the present day (Brazil’s debt, for example, had increased from $63.5 billion in 1980 to $116.5 billion in 1991). The recession laid serious, long-lasting burdens on European industries which found themselves at the same time exposed as inefficient, overmanned and technologically backward in competition with Japan and the new Asian ‘tigers’, while the debtors’ crisis tested the banking systems almost as severely as the 1974 liquidity crisis. Steel suffered worst of the industries: this time, however, the British steel strike, and its outcome – defeat for the unions and harsh rationalization – provided a contrast with the EC’s crisis cartel solution, following the 1975–6 model, which was instituted in October 1980.

Such a conjunction of severe economic and strategic problems encouraged EC governments to respond in a piecemeal fashion and inhibited their feelings of commonalty, except in the most defensive, protectionist sense.³⁶ Germany’s earlier attempt to reflate and act as the EC’s motor led to pressure on the DM, a deficit and high interest rates. French policy in 1981–3 moved rapidly in the other direction. A period of frequent realignments followed in which, given the existence of capital controls in most member states, domestic players rather than world markets set interest rates, allowing France until March 1983, together with Italy and Ireland, to devalue apparently without penalty, whereas Germany, Belgium and Denmark emphasized currency stability. But when France reversed its policy in March 1983, it become clear that Italy and Ireland would have to follow. Even the Netherlands, which had stuck with the DM, would have to switch from neo-Keynesianism to the disinflation, industrial adjustment and supply-side policies already being put into effect in Germany by the Kohl administration.

It was hard for the Commission, whatever its responsibility for macro-economic guidance, to check such defensive, protectionist activity during the recession despite the consequences for employment and the existing industrial base. They found it easier to maintain the EC’s coherence and integrity by brokering the lowest common denominator of member states’ most urgent needs, by sponsoring crisis cartels and national schemes for industrial support. The criteria for permitting state aids to industry were made less stringent, especially for shipbuilding, ship repairing and textiles: this despite the fact that state aids should have ceased altogether in the former case. On the industrial side, delays built up in establishing even the most urgent standards for TV systems, video-recorders, telephone systems and mobile telephones. In the computer field, despite demands from the ten or more world-ranking firms for the Commission to set an EC norm for interfaces, progress was painfully slow. It was not surprising that the Spinelli and Dahrendorf plans for scientific and technological policy also ossified.

The Community appeared to be reverting to national and inter-governmental activity. Yet at the same time, its weaknesses were emphasized, weaknesses which could only be remedied by collective action. The EC might have been able to limit the danger from Japan by ‘voluntary export restraints’ (VERs) for a time, but for all its protests, it had little leverage against the Reagan administration, high US interest rates, and the embargo imposed by the White House on EC equipment, first for the Siberian gas pipeline, and then on all high technology supplies for Comecon. Neither did it have a easy defence against US criticisms of the CAP or EC steel subsidies, which were avidly fostered by American producer lobbies, culminating in the imposition of countervailing duties on EC steel exports in June 1982.

In conditions of growing protectionism, not only between the EC and US, but between the US and Japan (which was, of the three, the most successfully impervious to liberal trade), the Community slipped away from its initial consensus on industrial policy³⁷ argued by Davignon and Willi Claes in 1977–8. This had defined goals for the emergency reconstruction of the most stagnant industrial sectors: steel, textiles, aeronautics and defence-related high technology (to which were added infrastructure development and large industrial projects under the ‘Ortoli Initiative’). In that period, a genuine attempt had taken place to break away from sustaining ‘national champions’ (mainly in Germany and France, but also in the Netherlands and Italy). Some of that legacy nevertheless survived as the recession threw the emphasis back onto those markets – electronics, telecoms and cars – most at risk. Davignon’s lead – at a time when his was the most vigorous in the Commission college – went into research and development arrangements such as ESPRIT (information technology), or RACE (communications), which had the effect of sharing the work among the twelve major telematics corporations, but also marked an important new stage in Commission-industry relations.

As for those mergers which came under competition policy because they implied abuse of market dominance, the ECJ gave an interpretation of Article 86, beginning with the Continental Can case in 1972, and extending it with Philip Morris in 1981, which was controversial but confirmed the Commission’s powers.³⁸ But for several years, member states blocked the Merger Regulation proposed by the Commission, being unwilling to see its competence confirmed in detail. The Commission’s struggle to define the nature of the European market and to curb state aids and illegitimate mergers led, however, towards liberalization and the internal market initiative, a contrast to the macro-industrial policy for structural adjustment embodied in the Commission’s other defensive measures or crisis cartels. The latter proved easier than the former, in contemporary conditions: at the request of France, backed by Britain and Benelux, and despite German reservations, the Council agreed unanimously in October 1980 that a ‘manifest crisis’ existed in the steel industry. It was easier to protect than to adjust and, as in the case of managed trade, temporary relief became semi-permanent accommodation (see below p.573).

Among member states there existed no single view of what industrial policy should be, and certainly very little common ground between traditional French and German standpoints. Neither was this surprising in the economic climate of the time. Lack of clarity here contrasted with the developments in competition policy, where most member states wished to retain competence for their national regulatory agencies. Thus the Commission had some ground on which to act in the general interest, declaring that there should be a European industrial outlook, even if it fell short of being a synoptic policy.

A cluster of hopes, in training and professional skilling, assistance for small and medium-sized enterprises (SMEs), transport, regional policy and social action continued to reappear in all Commission documents. Meanwhile ‘anti-trust cartels’ provided time and space for firms penalized beyond the average by the costs of modernizing to produce plans for reconstruction. At a deeper level, belief in the internal market and liberalization spread outwards from the crisis sectors and high technology industries, influencing firms’ behaviour and through them, national governments.

The Commission also proposed, in November 1981, that anti-trust cartels should be read as part of an EC-wide strategy and not confined to the cases in individual countries.³⁹ But this was not enough when set against the reality of member states’ defensiveness⁴⁰ or companies’ breaches of competition policy, even if the Commission was not opposed to stronger linkage between managed industrial decline and managed external trade – especially given the renewed US response to Japanese competition in a range of hi-tech areas. The EC had to respond to the structural challenge, had to modernize and adjust more quickly, even if the costs were high. The problem was to recapture member states’ conviction that this was best done on a Community rather than a national basis.⁴¹

For all these reasons, hopes seemed to lie in the concept of the single internal EC market, flanked by components in research and development, regional policy and sectoral adjustment – a concept which member states, racked by rising unemployment and a sombre awareness in 1983–4 that they could no longer keep all their national champions alive, seemed more prepared to accept than after the first 1973 oil shock. This could of course also be read as a fulfilment of the Commission’s original plan for industry in March 1970, put tentatively in the Colonna Report on harmonization and industrial change, coming to fruition a mere fourteen years after the event.

Nine elections also took place in the EC during the period 1980–83,⁴² causing substantial political changes, especially in France at a time when domestic conditions were overshadowed by deflation, rising unemployment, and industrial discontent. Meanwhile, in a number of countries, notably the Netherlands, West Germany and Italy, public protests grew about the installation of Cruise missiles and the effects on NATO of the American arms build-up. In a much longer timescale, and in various ways, most member states also followed Britain’s lead in profoundly questioning their welfare systems’ efficacy, relations between state and industry, and the state’s role itself.

How different the responses were can be seen by comparing Britain and France. Whereas the Thatcher government in 1980–83, beset by strikes in most basic industries, an over-valued currency, and historically high interest rates, abandoned thirty years of neo-Keynesian macro-economic management and instituted deflation and tight control of money supply, reducing state expenditure at the height of the recession, France embarked on what has been described as ‘socialism in one country’ after Mitterrand’s PS/PCF victory in the May 1981 presidential election. While the rest of the EC watched the Thatcher experiment with a mixture of horror and fascination, as market liberalism gave birth to the privatizing of state industries on an unprecedented scale, Mitterrand’s government abandoned the Plan Barre (whose austerity had been partly responsible for Giscard’s unpopularity) and introduced a new policy of widespread nationalization.

Pierre Mauroy’s government, a coalition of Socialists with four Communist ministers, sought to reflate the economy by redistributing wealth in order to generate higher spending among poorer groups, and hoped to increase employment by classic job-creation programmes, including reductions in working hours. The price was high in terms of currency instability, while the budget deficit multiplied seven-fold in two years. Inflation stayed stubbornly high and the trade deficit nearly doubled.

The crux in France came with the major currency crisis in March 1983, following two earlier deliberate devaluations. Whereas the Ceres left of the PS (like the British Labour party’s left in the mid–70s) had been advocating protection, regardless of what EC partners thought or would permit, Mitterrand and the new finance minister, Jacques Delors, after an initial reconsideration in June 1982, changed radically the government’s whole economic policy to one of increasing austerity. The second package included not only a substantial enforced devaluation, but a budget freeze, a stabilization of the franc, and an end to public sector recruitment.⁴³ Mauroy was replaced as Prime Minister by Laurent Fabius, and the remaining Communist ministers resigned.

France’s experience seemed to prove that no member state, even one with France’s record of political leadership, could act continuously contrary to the global trend – in contrast to the United States which, having first instituted ‘Reaganomics’ as the antithesis of New Deal interventionism, had actually arrested its industrial decline by an expansionist fiscal policy close to classic Keynesianism. But Mitterrand’s grand tournant also affected the EC’s political balance. In 1981, French socialism had consorted uneasily with Schmidt’s brand of social democracy in West Germany (even if some German commentators remained sceptical about its validity, assuming that Mitterrand was at the time finessing his own Socialist left and his Communist allies in the ‘common programme’). But once Mitterrand accepted failure in 1983, and adopted a policy closer to market liberalization and EC integration, revulsion from protection and isolation removed many of the French objections to EC enlargement, to solving the British budget problem, to reform of the CAP and EC institutions, and above all to completion of the internal market.

Mitterrand’s transition from a ‘worker’s Europe’ to ‘no Europe without a social Europe’⁴⁴ occurred as Helmut Kohl became chancellor, leading a CDU/FDP coalition. With Hans-Dietrich Genscher as more or less perpetual foreign minister, and continued domestic principles of low inflation and monetary stability, Germany’s EC position barely changed. Balancing the Ostpolitik in the framework of EC integration again took the form of a low profile foreign policy, acceptable to both centre-left and centre-right in Germany, which avoided any semblance of desire to lead the EC, and set increasing emphasis on integration – to be achieved by the same Franco-German entente as before (see chapter 7).

The fact that by 1983–4, political and economic conditions had been created which made France a willing collaborator, not only in economic but in all dimensions, provides one major explanation for the EC’s subsequent regeneration. In achieving that, Kohl’s personal support strengthened Mitterrand, especially during the crucial French Presidency in 1984, as Schmidt’s had Giscard in the late 1970s, while governmental and institutional linkages supplemented the rapprochements between individuals. But that this could happen was only clear by mid–1983. At that point, the British had to accept that there was no advantage in pursuing bilateral Anglo-German or Anglo-French alternatives, a point already demonstrated when the foreign secretary Geoffrey Howe played a Gaullist card in May 1982 and tried to use the veto to prevent a settlement on agricultural prices, only to fail for lack of a minimum number of allies in the Council of Ministers.

Taken together, the years 1980–83 were a period of fluctuation in the EMS,⁴⁵ nine elections, national defensiveness, distortion of competition, and the introduction of often blatant means to evade free movement of goods. All went far to undermine collective faith in the efficacy of EC legislation and rules. Trade rivalries and different responses to the Soviet Union seemed at the same time to align the continental EC states against Britain and the United States. Spanish entry to NATO in May 1982, and Greece’s factious game-play once Andreas Papandreou’s left-wing Pasok came to power in October 1981, suggested the existence of a new north-south cleavage in Europe, to add to the existing ones of large versus small states, socialist versus non-socialist governments, and the wealthy core versus peripheral regions.

At the centre, the Commission, under the genial but lightweight Luxembourger president Gaston Thorn, could find no obvious consensus about the EC’s future nature and functions. Some talked of a two-tier system and variable geometry or core-periphery models,⁴⁶ while others turned back to de Gaulle’s model of a Directoire.

On the other hand, some operations at Brussels were steadily becoming more collegial, if not among foreign ministers, at least among their finance colleagues on ECOFIN. The evolution of Coreper, the informal association of member states’ Permanent Representatives, into a flexible instrument preparing policy for the Council, together with increasing specialization in the Council and its Secretariat, ensured that majority voting was coming into more frequent use: 90 times in 1979–84, as against 35 in 1974–9 and a mere 10 in 1966–74.⁴⁷ Informal processes and pressures induced compromise and diminished the use of the veto: even France helped to vote the British down when they essayed the Luxembourg Compromise in May 1982. This represented a trend towards a philosophy of incremental momentum, of ‘getting things done’, about which Mitterrand and Thatcher, its foremost opponents, were evidently aware. The process long predated the 1980s revival, and owed much to the other, more integrationist states of Benelux, Italy, Ireland and Germany, albeit each for different reasons.

The pursuit of the internal market centred on three consequential proposals: firstly, the Commission’s own report on regenerating industry, reforming CAP, and solving the budget issue (June 1981), secondly, the committee set up by the Council to draft amendments to the Treaties, to which were added, thirdly, the topics of strengthening the internal market, energy policy, industrial innovation and research, together with proposals on Mediterranean agriculture and job creation, especially among the young. These can be seen as preparatory to the November Council Meeting in London under the British Presidency. But the French also put alternative proposals in October, and in a parallel action, Genscher and Emilio Colombo submitted independently to Parliament in November a draft European Act and statement on integration.

The London Summit might therefore have been the occasion for renewal. That it was not can be attributed partly to Britain’s budget problem and partly to the principle of unripe time.⁴⁸ Nevertheless, Mrs Thatcher became the first Prime Minister to address the Parliament, and a number of concessions were made to its demands for greater powers over the budget process. (These did not stop the Parliament threatening Council with ECJ proceedings in September 1982 for its failure to institute a common transport policy. The European Parliament now saw itself, conjoined with the Court, as one means eventually to subvert inter-governmental dominion.)

Meanwhile, exposed to the recession and confronted by the greater spectre of American and Japanese inroads into their markets, industries and businesses, especially the larger and multinational firms, began to campaign more publicly than in the past for a more effective industrial policy, and for the long-promised internal market. Until around 1981, these efforts had, with the exception of a small number of individual multinationals, largely been on a national scale, in the context of member states’ own industrial policies – or lack of them,⁴⁹ but such was the divergence between German policy and the French socialist experiment, or between Britain’s deflationary neo-liberalism and Italian support for the state sector, that in 1981–3 they began to involve themselves more directly. As a result, influence tended to slip away from ministers, downwards towards the interest groups.

Lobbying of the Commission by industrial players became a notable feature during the Thorn Presidency, encouraged by some of the Directorates’ entry into more specialized policy-mongering, and by the appearance of contentious issues such as the Vredeling Directive on worker participation which required of companies large expenditure and sophisticated rebuttal techniques. Sectoral institutions across Europe in the chemicals and car industries, and the varying national peak bodies – CBI, DVI, Confindustria and Patronat – had for some years secured a point of leverage in DG3 (responsible for industry), particularly in Davignon’s day, though rather less so with his somewhat hide-bound successor, Karl-Heinz Narjes. But this had never generally obtained with the Commission, and to judge from British sources (the only ones currently available),⁵⁰ they and their members had habitually resorted to their home governments, especially in Germany. They had enjoyed varying success. In France they were generally subordinated to an administrative definition of French interests. In Italy they had largely had to make their own way to Brussels. Furthermore, from a position of influence in the 1970s, in Britain after mid–1980 the CBI found itself isolated from government in a way unprecedented in post-War history – yet still having to defend UK membership on the UK political stage, as if it were an open issue.⁵¹ (Operations of these networks are considered in chapter 10.)

In spite of the problems which national peak organizations encountered at home, their European counterpart UNICE was not their preferred choice for activity when it came to trying to influence the Council of Ministers or the Commission.⁵² On the one hand, their members could use the sectoral bodies which already represented each industry; on the other, they could form new organizations of leading industrialists, such as the European Round Table or the group around Guido Carli, governor of the Bank of Italy, which included important heads of banks such as Alfred Herrhausen (Deutsche Bank). The heads of large companies, many of them French, members of AGREF, the association of larger, private sector companies, notably less protectionist and conservative in their own outlook after Mitterrand’s 1983 turnabout, now looked to links with MEPs in the Parliament, such as the Kangaroo group, or developed their own specific companies’ commercial strategies: of which the Albert Report and Wisse Dekker’s report on behalf of Philips (Netherlands) are prime examples.

But whatever the mode of activity (which in the case of national organizations frequently overlapped), the central issues remained the same: abolition of non-tariff barriers and establishment of the internal market. The CBI’s European Steering Committee had indeed held this in its sights continuously from as early as August 1974, and from March 1977 was working closely with the French Patronat. Again, if it is fair to generalize from CBI records, governments used these peak organizations to achieve similar national ends, which in itself encouraged them to address Brussels more directly.⁵³ But on the whole, these semi-public efforts took care to keep industry’s initiatives free of the political vortex during the confused infighting among member states in the period 1979–83.

Much of the industrialists’ work overlapped. Wisse Dekker remained a leading member of ERT while drafting his report, Europe 1990, with Philips’ backing. According to the CBI, 90% of their proposals coincided with his. Europe 1990 also foreshadowed the internal market White Paper in 1985, but since it was begun in the recession under the guidance of firms in the front line of exposure from American and Japanese competition, it was set in a defensive mode, tinged with protection. Fears of the social consequences of 10–12 million unemployed at a time when trades unions’ bargaining strengths in Brussels appeared to be reviving, conditioned its aims of reducing costs without hitting either wages or salaries. So many Ministries of Labour, Commission officials and MEPs felt soured by the way that the Vredeling Directive had been emasculated by a combination of industrial federations, UNICE, and the American Chamber of Commerce’s European Committee,⁵⁴ that they were prepared to listen to ETUC arguments about the ‘transaction costs’ of ignoring the social partners – that is, predisposed to avoid electoral unpopularity and industrial relations conflict.

The CBI (which had fought Vredeling all the way with support from its government and Conservative MEPs) could see that its 10% divergence from the Dekker Report lay not only in its labour market policy but in important questions about how to address all non-tariff barriers together, how to incorporate financial markets, and how far to liberalize and deregulate, rather than erect new barriers where the Euro-borders met the outside world. How effective all this was in the general array of influence bearing on the Single European Act in 1985 is a question for the next chapter: here it should be noted that it aroused the interest of all the allies against Vredeling, among American firms, in the long-established European Committee of AmCham, and also among Swiss firms such as Nestlé and Ciba-Geigy, which were already habituated to working in the EC.

Older pressure groups joined in, under new banners: Jean Monnet’s Action Committee, which he had dissolved in 1975, was refounded in 1979 by Leo Tindemans and Max Kohnstamm, primarily to campaign for European union, but it included industrialists whose main interest was the internal market. When in the second half of 1982 the European Parliament produced a resolution for European Union, the Commission responded with its own proposals for reinforcing the internal market. At the Copenhagen Summit in December, heads of government were finally persuaded to call on the Council of Ministers ‘to decide on the priority measures to reinforce the internal market’.⁵⁵

Of this, Arthur Cockfield would remind them, in his foreword to his White Paper on establishing the internal market, three years later. At the time, it led to a modestly constituted Internal Market Council and the beginnings of a concerted plan by DG3, together with officials of the largest member states, whose outward face could be read in a host of Commission papers arguing this as the only way to recover competitiveness;⁵⁶ and (since EMU was always a contingent matter) currency and monetary stability. Under the German Presidency the plan gathered momentum,⁵⁷ and at Council level culminated in the ‘solemn declaration’ on EC Unity at Stuttgart 19 June 1983.

Soon afterwards, in September, once the drama over French restraints on the entry of Japanese VCRs had been resolved, the French government produced a memorandum Vers une espace industrielle Européenne. A Commission mandate of sorts now existed to prepare something more specific for the Athens Summit in December. But too much Council time was being consumed by the acerbic British budget question (from which the French government took advantage to delay Spanish accession, reform of the CAP and structural funds). The hostilities which had attended the messy EMS general revaluation in March had also not entirely disappeared. The European Parliament was dissipating its energies on dreams of European Union inspired by Stuttgart (which Thatcher regarded as itself an illusion⁵⁸ and which Mauroy also condemned as eroding the national right of veto). Systemic reform depended that summer on three assumptions: that West Germany would not drop its opposition to increasing the Community’s revenue by 1 % on VAT until the reform process had actually started (even at the risk of the EC’s temporary bankruptcy), that the British would not shout too loudly, and that Greece would handle its first Presidency competently.

On these assumptions and inspired by Stuttgart, senior officials in the Commission such as Fernand Braun (DG3) and Paolo Cecchini, Maurice Carpentier, Peter Klein, and Riccardo Perissich, prepared something more dynamic and far-reaching than Commissioner Narjes’ long catalogue of directives-in-waiting since the mid–1970s (which was not actually published until mid–1984). They were able to capitalize on work done in some Departments of Industry, notably in Bonn, London and Paris and on the technical harmonization and the implications of Cassis de Dijon, so that by October, Narjes could outline ‘a more general common approach’ on mutual recognition, rather than total harmonization, to the Internal Market Council. Since Britain, France and Germany now had the clearest policies in this area, Cecchini invited top officials from the Economics Ministry in Bonn, the DTI, and the French Industry Ministry to meet him at the Chateau de Namur, 15–16 October, and here, under very informal Commission auspices, a text was agreed and immediately translated into the three languages. This was fed indirectly to the Steering Committee texts for Athens, as a prototype ‘declaration for the internal market’.⁵⁹ It was lost of course, in the Athens debacle, illustrating both the powers and limits of sub rosa Commission work. But its substance emerged eventually in the EC resolution, 7 May 1985, which indicates the strength of such little-seen trends.

There had been no reason before Athens to think these preparations inadequate. Greek demands had already apparently been appeased with a careful devaluation of the drachma and a scheme of transitional financial support. Greece now took 16% of the regional development fund budget. No fewer than seven special Council meetings took place to sort out in advance the reforms of CAP and the structural funds, together with forms of EC-wide cooperation on the technological challenge to competitiveness, a balanced package involving increased revenue, better budgetary discipline, and prevention of future imbalances to meet the British criticisms. Such a comprehensive package might conceivably have been steered between the British Scylla and the French Charybdis.

Instead a combination of Greek inexperience in the Presidency, and Pasok’s factious demands for yet more cash support, together with Papandreou’s erratic chairmanship, shattered Summit conventions and these tenuous agreements. But it should be added that other heads of government also played disingenuous roles:⁶⁰ with the French Presidency coming up, Greece was not to have the glory. Nevertheless the fiasco was so total that it proved impossible even to draft an agreed communiqué.

Confusion among member states did not necessarily imply total failure. Within six months, under the French Presidency, all these questions had been brought into line, largely by Mitterrand, now at his peak, yet ever conscious of the need for West German backing. France and Germany were finally able to meet even Britain’s demands. But the passage was hard despite the fact that Commission, Parliament and most member states were within reach of each other. After Mitterrand’s speech on federalism at Strasbourg in May 1984, and Lord Carrington’s swift riposte on the budget, it needed the spectre of EC bankruptcy in March and Mrs Thatcher’s refusal of the ‘best offer’,⁶¹ before ministers finally conceded guaranteed thresholds on CAP farm prices, in order to phase out slowly the onerous MCAs.

At the Fontainebleau Summit of 25–26 June (just after the European Parliament’s second direct election) the deadlock broke on the CAP and the budget reforms, together with Britain’s contributions.⁶² Germany, which was to pay most of the debit, won a special subvention for German farmers. ‘Own resources’ were increased to the necessary 1.4% on VAT revenues, leaving loose ends to be tied up in Dublin in December with a final cash subvention for Mediterranean agriculture and the acceptance of an – as yet unformulated – integrated Mediterranean programme.

That in turn removed the southern French farmers’ objection to Spanish accession.⁶³ Spain’s and Portugal’s negotiations, so long delayed by pretexts, were rapidly concluded in March 1985 and the Treaty of Accession was signed in June, providing for entry on 1 January 1986. Meanwhile meetings with EFTA ministers saw the beginning of negotiations on the European Economic Area which, however difficult at times, began what was to be a steady enhancement of mutual economic relations over the next five years. The EC itself came closer to a standards policy, and simpler border formalities with the adoption of a single Community Customs document. France and Germany declared that they would abolish border checks,⁶⁴ and set off on the road to what became the Schengen agreement.

But the impetus went further. The Council at Fontainebleau appointed two committees to examine the EC’s future: one chaired by James Dooge (an Irish senator) on institutional affairs, the other by Adonnino (an Italian parliamentarian) on the prospects for a ‘People’s Europe’. The latter – a sop to the Parliament and its draft Treaty of Union – implied, however vaguely and rhetorically, the existence of a European citizenship and European representation. Fontainebleau thus meant more than Mitterrand’s re-establishment of his own and French leadership in Europe: it cemented the Franco-German core, so that Spanish and Portuguese entry could at last be agreed, it ensured that Jacques Delors (though not Mitterrand’s first choice) would become Commission President from 1 January 1985, and it removed the barriers against Iberian extension by promoting a package of reforms acceptable to all (even to the Dutch who disapproved of Germany’s payoff). But above all it restored momentum to a more widespread European process.

What had begun in 1982 at several levels of individuals, firms, associations, member states, and Commission officials, had been brought into a conjunction. The aims of once-divergent bodies and their leaders coincided sufficiently, as a result of these accumulated trade-off and incremental agreements, to make possible the convening of an inter-governmental conference on the internal market in 1985.

It may not be possible until the documents are available to say certainly which of the actors was the prime mover or indeed whether the explanation should focus on circumstances rather than participants. Quite possibly it will depend on which segment of the wider process is examined. As can be seen from the next chapter, claims can be made for each of the main players. What matters more is that the combination of external challenges to the EC, the 1973 oil shock and strategic fears, the harsh recession and a pervasive disillusion with the system as it had stagnated, led to the entry of more and more players to the arena, while those already in it found a deeper commitment necessary. Their networks expanded and became denser, more continuously effective, notably in industries most threatened by foreign competition: cars, textiles, chemicals, electronics and steel producers. Similar developments, bringing in the same players, were taking place concurrently in many, if not most, national political systems.

Large and multinational firms had sought influence at the EC’s centre but had not been present on this scale before the 1970s, nor switched so much of their corporate resources from national to Community level. Financial institutions, which already watched the process, would follow once the internal market was seen to involve services and monetary union (EMU).⁶⁵ They did not of course outweigh member states or Community institutions because they were not competing on the same level, nor usually for the same ends, but as the temporary failure at Athens demonstrated, the conjunction of all these was needed before regeneration could take place in the annus mirabilis of 1985.

New linkages were growing among the states; between France and Italy, France and Ireland, Germany and Italy, and in the core of those countries whose currencies followed the DM. Some even believed it possible that Britain might become a normal partner. A new world economic boom had started, which seemed matched in political terms by the arrival in power of Mikhail Gorbachev in March 1985: Gorbachev, whose aims had been hinted at earlier, both by his own speeches in England in December 1984, and in Russia by the fact that he had been manifestly the candidate of Yuri Andropov and those reformers who envisaged regeneration arising from a reborn Soviet state.

When President-Designate of the Commission Delors visited each of the other nine members’ capitals in the late autumn of 1984, he put four proposals (rather in the Monnet manner, ‘Europe is in a mess – where do we start?’) Only on the internal market were there signs of general consensus. Whatever conjunction existed at the EC centre (i.e., whenever ministers and heads of government met) was not yet matched in their domestic contexts. The process was neither secret nor predetermined: it operated on many levels with disjunctions, and moved like evolution itself, in fits and starts – more fits at IG level, more starts at official. Some hopes turned into dead-ends, like the Adonnino report; others, like the Dooge Report or the new language of ‘cohesion’⁶⁶ proved unexpectedly fruitful. There was no prime mover, and there were no obvious state boundaries within which the game could take place. But the players, wittingly or not, had begun to create them.