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Europe needs another regime change Samuel Brittan: Financial Times 10/09/03 Review of European Integration, 1950-2003: Superstate or New Market Economy? by John Gillingham Cambridge University Press, 588pp Nine years ago a book on Prussia, The Betrayal of an Idea by Giles MacDonogh, caused a minor stir. The author argued that the portrayal of this state as the source of German aggressive militarism was a caricature. Prussia's many worthy traditions were perverted both by the Kaiser and Hitler until they became unrecognisable. It would be tempting to apply a similar analysis to the European Union: that the idea of a free market Europe backed by human rights and the rule of law has been hijacked by proponents of an interventionist federal superstate. But it would not be true. As John Gillingham makes very clear in his history of the postwar European movement: the two rival ideas have been there from the very beginning. The conflict was discussed as long ago as 1971 in an IEA paper by Russell Lewis, Rome or Brussels, which examined the tension between the competitive market approach supposedly enshrined in the original 1958 Rome Treaty and the more collectivist ambitions of politicians and officials operating the institutions in Brussels. The great virtue of Gillingham's book is that, unlike many other works on the subject, it describes EU developments against the background of the European political economy. We can learn a great deal from it of the various crises and triumphs of the individual European countries, and indeed of the wider western economy. The history of institutions becomes both more understandable and more interesting when viewed in this perspective. Taken as a book rather than as a political pamphlet, European Integration is indispensable but far from perfect. This is not a subject where paragraph after paragraph of uninterrupted prose works well. The author has made the reader's task unnecessarily difficult by eschewing the visual aids at which American textbooks are normally so good. It would have been so helpful for instance to have had a list of EU Commission presidents with their dates of office; and a list of summit conferences such as Nice or Lisbon whose significance is easily forgotten even by the most assiduous student. Although Gillingham has strong views, his main concern is to record and explain events, irrespective of whether he agrees with the decisions made. His book has already been hailed by hardline Eurosceptics; but I hope that the author, an American professor of history, will resist their embrace. Equally I hope that Europhiles will give the book a hearing and not dismiss it as a neoliberal tract. The best part, as the author seems to realise, are the earlier sections dealing with a period in which the dust has had time to settle. In more recent decades it is almost impossible to separate the historical narrative from current controversies. Readers will not be surprised to find the political entrepreneur Jean Monnet named as the pioneer of the neofederalist approach which culminated in the Commission presidency of Jacques Delors (1985-93). One advantage of the author writing as an historian rather than an economic polemicist is that he shows understanding and admiration even for those on the centralist, collectivist side, such as Monnet and Delors. But he is unable to summon up such sympathy for Walter Hallstein, the first president of the European Commission (1958-78), a colourless but persistent German pedant who insisted that he was in "politics not in business". People like Monnet and Hallstein were not starry eyed believers in Soviet style planning. So long as there was movement and towards "more Europe rather than less", the early Eurocrats were not much concerned with the economic regime. Delors, on the other hand, did have a vision and did not just value the EU as a piece of proto-federalist machinery. As French finance minister at the time when President Mitterrand abandoned his attempts at a French planned economy, he accepted that competitive markets were here to stay. But he believed that they had to be balanced by devices such as the so called European Social Charter which put the emphasis on workers' rights rather than business opportunities. He was too much embedded in the French dirigiste tradition to see that much of the Charter is anti-social in character and can be regarded as a device for pricing would-be workers out of jobs to the benefit of the older workers in established industries. Readers may be more surprised to find the name of Frederich Hayek given as the source of the alternative neoliberal interpretation. For most of today's self-proclaimed Hayekians view everything to do with the EU with intense suspicion. Indeed I was sufficiently surprised myself to look up some of Hayek's writings on the subject. Although he played no part in the post war institutional discussion, he had written at some length on the problems of federalism in the late 1930s. Hayek was among those who believed that some form of federalism, whether in Europe or on a wider basis, was an important step towards a more peaceful world. In a 1939 essay, remarkably anticipating the EU Single Market Act, he argued that a political union required some elements of a common economic policy, such as a common tariff, monetary and exchange rate policy, but also a ban on intervention to help particular producers. In the 1950s and early 1960s the torch for the neo-liberals was carried by one of Hayek's followers, Ludwig Erhard, the reputed father of the German economic miracle, who did not disguise his boredom with the minutiae of Brussels negotiations. Even then there was a good deal of bitterness on both sides of the debate. A long time ago, Dr Max Kohnstamm, a prominent Dutch proponent of the Monnet school, was asked to comment on some remarks of Erhard. Having assured himself that he was speaking off the record, he replied "I was talking about serious politicians." I also remember a conversation with Raymond Barre when he was not yet the mellow elder statesman he has since become but a forthright French Brussels commissioner. When I put to him the case for floating exchange rates, he responded "If that is what you want, then don't bother to apply to join the Community." I did not dare say that, if forced to choose I would go for floating rates. Gillingham's most original contribution is to introduce the idea of "regime change" into the history of the EU, which he dates to the 1970's and which originated outside the EU institutions. But he does not sufficiently clarify the various forces at work. These included the 1973 oil price explosion; the collapse of the Bretton Woods system of semi-fixed exchange rates when the US floated the dollar and the simultaneous occurrence of inflationary demand pressures in the Western world, which gave Opec its chance. These events were of course interconnected. They also put to rest "money illusion" - that is the making of contracts which disregarded inflation and which continued for surprisingly long into the post-war period. It is a pity that monetarist sympathisers no longer discuss money illusion because it runs counter to the later dogma of rational expectations. There were also spontaneous developments within the business world, towards a more competitive culture. These achieved a new lease of life with the IT revolution of the 1990s, whose achievements will in the author's view survive the bursting of the dot.com bubble. The numerous references to Keynesian policies and the welfare state all assume without argument that they are deleterious or erroneous. An explanation, however brief, of to what extent and why, would have been helpful. The omission is particularly irritating in view of the author's fashionable blaming of the European Central Bank for the poor performance of the European economy recently. This is if anything an ultra-Keynesian view which is dismissed in a new study Adjusting to Leaner Times by the Centre for European Policy Studies in Brussels, which despite a scathing review of European economic policy, "finds it hard to fault the ECB on fundamental issues." There is however one EU development which Gillingham does regard as of crucial importance. This was the single European Act of 1986, which established a genuine common market that the original Rome Treaty had not achieved. The heroine of the enterprise is seen as Margaret Thatcher. It does not detract from her credit in pushing through the Act to point out that not only were other people involved, but that it was a countermove to more federalist proposals. The author is more judicious in his treatment of the Reagan presidency of which he equally approves. But here he refers to the many elements that went into policymaking in Washington: for instance the unplanned interaction with Paul Volcker at the Fed, who was hardly on speaking terms with the president. Gillingham remains detached enough to distance himself from the retrospective objections of present day Thatcherites to the Single European Market Act because of the elements of majority voting. And he has no time for the Conrad Black alternative idea of a North Atlantic Free Trade Area. Apart from anything else the Americans will not play. On the wider geopolitical front, he does not accept that the EU, or its precursor the Iron and Steel Community, kept the peace in western Europe. Nato is rightly given credit for that. But the European institutions are praised for transforming what could have been a negative solidarity against the Soviet threat into a positive relationship. In any case the EU needs an idea to move forward from the aim of replacing Franco-German antagonism which was played out some time ago. This new idea could have been given by the task of reabsorbing the former Communist countries into the Western liberal polity. Here Gillingham allows himself real emotion. "The nations abandoned at Yalta must soon face the harsh truth: they have fallen victim to yet another historic betrayal." Free movement of labour will not take place until five or seven years after their accession, expected in 2004; and the accession countries have emerged as net losers from the regional and agricultural policies from which, as poorer members, they ought to benefit. Gillingham takes for granted that the UK should remain an active partner in the EU. An advantage of not being a pamphleteer is that he does not have to close with a three point or six point plan for a better future. He remarks that reform can come from unexpected directions, for example from business developments or from some non-European shock. One hopes it will not come from militant Muslim outrages forcing a lineup with the US on terrorism. Another justification, I would add, for persevering with the EU is as an insurance policy. Very few developments are irreversible. Just as the pre-1914 globalisation era ended in world war, Gillingham's new regime could lose out to a resurgent protectionism thinly disguised as anti-globalisation. In that event there would be enormous advantages in a large European area inside which the barriers would be less likely to come down.
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