7. MIXED EXPECTATIONS

"First we must modernise France," said Jean Monnet to Walt Rostow, an American economist, in 1947. "Without a vital France there can be no Europe. Then we must unite Western Europe. When Western Europe unites and gathers its strength, it will draw in Eastern Europe. And this great East-West Europe will be of consequence and a force for peace in the world."

Monnet's dream has had its troubles - De Gaulle's chauvinism in the 1960s, the oil shocks of the 1970s, the anguish over the Maastricht treaty, and then more recently economic recession and the humiliation (Jacques Delors's word) of Bosnia. Yet the dream is still intact: France is rich, the cold war is over, Germany is united. Whatever the latent truth of the caricature at the start of this survey, no country wants to leave the European Union; and plenty are queuing up to join, attracted by its economic mass and its implicit promise of security in what, for Central and Eastern Europe, is a worryingly uncertain world.

Indeed, the attraction grows stronger with every report of the Eu's resurgent economies. Even the timetable for economic and monetary union, dismissed as a pipe-dream during last year's exchangerate crisis, is beginning to look more feasible. True, a majority Of EU members will not have fulfilled the necessary criteria of economic convergence to allow the creation of a single currency by 1997. But it looks as if France, Germany, the Benelux countries (with a little rule-tweaking for Belgium's public debt) and perhaps Ireland could yet form a singlecurrency block by the second date envisaged in the treaty timetable, of january 1st, 1999. The Eu would then have its inner core in place-and at least part of its single market would have the efficiency of a single currency.

Even so, it would be foolish to pretend that all is well. On January 5th Jacques Delors is due to step down, having proved himself the most dynamic president the commission has ever had. in his ten years in office, he has brought about - against all the odds - the single market, the Maastricht treaty, and massive development aid (the structural and "cohesion" funds) for the EU'S poorer regions and countries. All that leaves the new president, the unassuming, Luxembourgeois Mr Santer, with a hard act to follow, not least because the parliament which only grudgingly endorsed him, is determined to weaken the commission's powers. Assume some bitter wrangling for the 1996 conference (which will probably endure well into 1997 in order to leapfrog a British general election), and it is easy to see how, Europe's self-confidence, slowly returning, could quickly fade.

Think positive

Yet it need not. For all the liabilities of its social costs and lack of entrepreneurs, the EU has plenty of assets: for example, a well-educated workforce (although more investment is needed in education, especially in vocational training), good engineering skills, and a tradition of expertise in advanced technologies. But it can no longer take these advantages for granted, unless it modernises economically. Even the biggest advocates of social "solidarity" and "cohesion" (the principle of using subsidies to promote development and so narrow economic divisions) talk now of deregulation and open markets; of the need to promote overall economic efficiency rather than pick winners; of the need to introduce cross-border competition into energy and telecoms.

True, some might be tempted to slip into old habits, but such backsliding has become more difficult: the Edinburgh summit of 1992, while approving more money for development, also checked agriculture as a proportion of the Eu's budget. The GATT agreement, coming into force next year, will lower the EU's external tariffs and require cuts of 21% by volume and 36% by value of the EU'S subsidised farm exports. Add GATT to the Europe Agreements with the union's eastern neighbours, and it will become increasingly hard for the EU to indulge its latent protectionism (although, amazingly, it recently penalised the garlic growers of Vietnam).

Unhappily, as the exemptions and delays to the single market show, deregulation is more easily preached than practised - especially when so many Europeans associate America'sjob-creating deregulation with excessive inequality, and even crime. They have a point, but without a big jump in European productivity not much of an answer. If Europe makes that jump, it will be able to afford its life-style. If not, there can be only a gradual decline.

Whether it can be graceful is another matter. Too many in Europe, from factory workers to politicians, act as though the good times will inevitably return for those who wait. They should remember the economists' cliché that no lunch is free. The greatest problem for Europe today may not be unemployment but complacency.