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SPECIAL REPORT | JANUARY 19, 1998 VOL. 151 NO. 3 |
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Countdown To E-Day A unified Europe, long a distant dream, is about to arrive for both East and West. But not everyone is prepared for its impact By JOSEF JOFFE
It is a date with fate because it will either make or break the grandest experiment ever in the history of European integration. Come New Year's Day 1999, those so anointed will have to give up a very big chunk of their sovereignty: the power to mint and manage the nation's money. This is hardly a trifling matter, for control over monetary policy--over the interest and exchange rate--has been at the core of the modern nation state. With easy money, governments have battled unemployment. By devaluation, they have tried to trigger export-led growth. To stem inflation, they have tightened the money supply. Yet after Jan. 1, 1999, these critical wea-pons of national policy will have gone the way of the halberd. The Bundesbank and the Banque de France will close up shop and hand over their powers to a European Central Bank. By 2002, when the three-year transition phase is over, marks, francs, guilders and the rest will be history; there will be only euros and cents. If it works, France, Germany and their fellow qualifiers will have taken a giant step toward toward self-transcendence--indeed, the biggest since the debut of European integration almost 50 years ago. If the euro derails, the fallout will damage more than just the tracks laid out in Maastricht in 1992. It may tarnish much of what Europe has achieved since 1952 when the original Six first joined hands in the European Coal and Steel Community. The stakes are huge. For Europhiles, the plunge into monetary union goes under the heading of Deepening. But that is only half of the ambitious agenda the E.U. has imposed on itself for 1998 and beyond. The other half is called Widening. Admission to the currency club in May will occur less than five months after another fateful choice--or "historic event," in the words of German Chancellor Helmut Kohl. At their Luxembourg summit in mid-December, the E.U. leaders at last opened the door to eastward enlargement. Five "Easties"--the Czech Republic, Estonia, Hungary, Poland and Slovenia--now stand a real chance of membership early in the next millennium; another six were invited to get in line for admission by, say, 2010. So there is more than just the euro to try Europe's soul (and stomach) in the next several years. It is "deepening" and "widening" all at once--adding muscle and speed while trying to gain weight. Boxers preparing for the heavyweight championship have occasionally succeeded at this tortuous game. But the E.U., a bunch of 15 (and soon 20) nations, is no Muhammad Ali. If the worst-case scenario comes true, the E.U. might end up like Mike Tyson in his hapless comeback attempt against Evander Holyfield. Tyson had literally bitten off too much; he was stopped in mid-fight and disqualified. European Economic and Monetary Union has to do with fusing many sovereignties into one; enlargement is the very opposite, as it brings in more national wills. Worse, Poland and other Easties are not at all like Austria, Finland and Sweden, the prosperous and well-ordered trio inducted during the last round of expansion in 1995--neither a drain on the E.U.'s resources nor a strain on its political fabric. Bringing in Sweden or Austria was like inviting a rich aunt for Christmas. Her table manners are impeccable, and she brings tastefully wrapped gifts. The Easties are more like long-lost second cousins with a dubious past and a poor credit rating. Poland and the Czech Republic have a per capita income of less than $3,000--as compared to the $27,000 produced by every Austrian. Yet this disparity should not disqualify them. Indeed, if the E.U. were organized in the right way, it could do wonders for the Easties. But it is not. Theoretically, the E.U. would envelop these young market economies in a free trade area that would encourage their economic strength: low-wage production that fuels rapid export-led growth. But the E.U. is only half a free-trade system--for services and industrial goods. In agriculture, the E.U. is a wasteful cartel designed to protect farmers. One half of the E.U. budget ($45 billion) goes into farm support to sustain high prices. Another $33 billion is earmarked for payments to the poorer members like Spain, Portugal and Greece. This poses a deadly dilemma for enlargement. Much needier than these Mediterranean countries, newcomers like Poland employ seven times as many people (proportionately) in the agricultural sector than does Germany. To extend the E.U.'s subsidy system to them would simply break the Brussels bank. Yet to let them compete freely would break the backs of many inefficient farmers between the Algarve and the Aegean. In the event, millions of West European peasants would look none too fondly at their governments during election time. French farmers have stormed city halls for lesser provocations. When the fifteen extended their invitation to the Eastern Five last December, they behaved as sagely as two-year-olds who think that the world disappears when they clap their hands over their eyes. Instead of at last attacking their absurd farm-support system, which hurts not only outside producers but also E.U.'s consumers, they chose the classic European way out: Let's stumble ahead and tackle the problems when the collision occurs. For the time being, they told themselves, we are just talking with the Eastern candidates. This will take at least until 2004, and six years is a long time in politics where, as the Americans say, 24 hours can make all the difference. We have done our European duty by showing the new democracies a silver lining on the horizon; let our successors deal with the inevitable storms ahead. There is still more turbulence ahead. Even the E.U. of the Fifteen has become a cumbersome mechanism, and each time a new member sets up shop in Brussels, the decision-making machinery devised for the original Six (France, Germany, Italy and the Benelux) shudders some more. How do you get 20 nations to agree on something? Though there is "qualified majority voting" already, the unwritten constitution of the E.U. says that no nation shall be overruled on a matter of "vital importance." That makes for lowest common denominator politics--the larger the crowd, the lower the denominator. In theory, that problem should have been solved before the enlargement decision in December--when the Fifteen signed the fabled "reform" Treaty of Amsterdam last June. But as Jacques Santer, the President of the European Commission, put it afterwards: The Treaty "is not a good omen for enlargement." The idea had been to retool the grinding decision-making machinery by reducing the number of commissioners each country should have and to change member states' voting weights in the Council of Ministers where the real power resides. Naturally, the big countries wanted more votes for themselves; naturally, the smaller countries did not want to give up at least one seat of their own on the commission. So, the status quo prevailed, and the machinery remains a worn-out gear box. When, and if, the five Easties join, the commission--the executive committee--will grow from 20 to 25. And the Council of Ministers, representing the nation-states, will look like a mini-U.N. This is hardly a new problem in the annals of European integration. The basic issue, as unresolved as ever, is that Europe wants to have it both ways. The nation-states, some of which go back a thousand years, want an ever more perfect union, but they do not plan to commit suicide for the sake of Europe. Not even such eager Euro-enthusiasts as Herr Kohl or Monsieur Chirac contemplate political harakiri in favor of a European president. Nor do their compatriots really want to be ruled from Brussels rather than Paris or Berlin. So as the E.U. faces the third millennium, it continues as it has always done: agree on a bold leap forward like EMU and enlargement, and then deal with the realities as they mug you along the road. Reality says that you cannot "deepen" and "widen" all at once. Reality cautions that you cannot take a big slice out of national sovereignty and simultaneously bring in more nations. But the E.U. is now set to do both. Though EMU and enlargement will inflict wrenching changes, hardly anybody is now prepared to bet against either. Next May, 11 of the Fifteen will certify themselves ready for the euro. Britain, Denmark and Sweden will stay out voluntarily. Greece will be barred because even creative bookkeeping cannot conceal that the country cannot meet the fiscal and monetary Maastricht criteria. If truth be told, none of the others (with the exception of tiny Luxembourg) will have qualified either. Each and all have merely made a desperate dash toward the finish line, especially the magic 3% limit on the deficit as a fraction of the gross domestic product. They have done so not by sweating off fat but by shooting up with steroids--by selling off government assets like telecoms and airlines and by cooking the books, neither of which changes the fundamentals of budgetary policy. So, come May, the Eleven will wink and nod while bestowing the seal of good housekeeping on one another. Economists are right to warn that states cannot go into monetary union without first bringing their macro-economic policies in line. Think about 11 locomotives that are joined together in a train. Unless they move in the same direction at the same speed, the couplings will break and the train will derail. Historians are right to warn that monetary union requires political union. Yet with the euro, the E.U. is putting the cart before the horse while ignoring the historical record. The 13 American colonies had first to craft a constitution in 1787, then, 126 years later, came true monetary union in the guise of the Federal Reserve System established in 1913. Bismarck had first to batter 25 German states into submission in 1871, then the Reich could proceed toward a unified market and currency. Logic and history say that so ambitious a project as the euro cannot work in the absence of a common state. But back in 1952, when the Six took their first cautious step, who would have dared predict a union of 15 by 1995? Or a decision to take in a bunch of cold war enemies in 1997 while cracking the door open for another six? The Euro-train might yet derail, and enlargement might prove a bigger bite than the E.U. can digest. But history also says that Europe has always lumbered on, growing stronger and larger with each faltering step.
EURODATES IN 1998
Second half of March
March 12
March 30-31
March 31
May 1-3
June
End 1998
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time-webmaster@pathfinder.com |
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istorians love dates like May 2, 1998 because they rhyme with
"fate" and "make-or-break." On that day, a mere four months
away, the European Union will separate the good from the bad and
the ugly. The Fifteen will decide who among them shall be
admitted to the inner sanctum of monetary union that is to be
launched less than a year from now.