THE UNDERLYING TIES THAT BIND THE UNION.

by Michael Rowe

SUMMARY: France and Germany each for its own reasons have long been the main partners in the scheme to bring about economic and monetary union in Europe. But as the date to consummate this union approaches, France is casting a wayward eye on Britain.

(The International Herald Tribune, "European Union", 8-12-1994)

"The French have no wish to find themselves in a permanent tête-à-tête with the Germans, and we would very much like Britain to join us wholeheartedly in the movement toward European Union," comments Jean-Daniel Tordjman, France's ambassador at large and head of the Invest in France bureau. "The German alliance is important, but a counterweight to German economic strength would also be valuable."

Historically, Britain has been wary of European entanglements, and it still seems to see the Continent essentially as an interesting foreign market. French decision-makers, on the other hand, quickly latched onto the European idea as an extension of French domestic policy. Germany - economically dominant, but psychologically reluctant to exercise its full political clout for several decades after World War II - found the French alliance useful.

A change in dynamics

Now there is a new situation. The collapse of the East/West divide has brought about a unified German nation of more than 80 million people, together with a rash of new candidates for EU membership. As a result, the Union's boundaries are already expanding northward, and are set to expand to the east as well.

"German people wonder what is happening to them, but at the same time they feel the weight and strength of their new situation," says Bruno Leblanc, director of Europäische Wirtschaftshochschule (EAP group) in Berlin. "The prevailing trend in German politics still leans toward European integration, though there are now strong intellectual currents in favor of a more national-based approach. I would liken these latter to a German form of 'Thatcherism' rather than to the more extremist trends that are sometimes depicted in foreign press articles."

Lingering ambivalence

Against the background of American politics and war in Bosnia, Britain and France, have recently been making modest efforts to boost their cooperation in military matters. Joining in the single currency is a very different issue, and could hardly be contemplated in Britain's current political situation. Whether the fear of marginalization in Europe's business and financial markets could lead to a change of view in the long term remains to be seen.

EU member countries have agreed on their timetable for the establishment of a single currency, which could happen as early as 1997. Moreover, the European Monetary Institute - the precursor of the European Central Bank - is now installed on the top three floors of its tower block in Frankfurt.

Hardly any of the EU member states currently meet the Maastricht treaty convergence criteria, which have to be satisfied before they can join the proposed monetary union. Broadly speaking, these specify a maximum budgetary deficit of 3 percent of gross domestic product and government borrowing of not more than 60 percent.

Social costs

The welfare costs of the recent recession account for much of the problem. Recovery is under way, but EU governments are all finding it difficult to explain to their citizens why they now have to cut back in sensitive areas such as pension provisions in order to meet the Maastricht criteria. The long-term competitive advantages that are supposed to arise from these sacrifices may look decidedly remote to men and women who have been paying their taxes and social security contributions for the last 20 or 30 years.

"In Spain, for instance, the government is cutting back at the national level but allowing expenditure by regional governments to continue," says Fernando Cortinas, economics professor at the Instituto de Empresa in Madrid. "in my view, it could well take another 10 to 15 years before European countries will be in a position to form a monetary union."

The equation is further complicated by the rising tide of applications for membership. The arrival of Sweden, Finland and Austria, whose economies are broadly similar to those of current EU members, poses relatively few problems, but applications from Eastern Europe and the Mediterranean stir up more fundamental questions.

Union at any speed

"Ultimately, the Europe of the 12 is going to become 28 or 30," says Mario Telo of the Institut d'Etudes Européennes in Brussels. "It will take many years before some of the new members will be in a position to join the central economic and monetary mechanism, yet they will all be represented in the EU institutions. This clearly calls for difficult reforms in the way the Union operates."

An obvious temptation in an enlarged and ever less cohesive Europe will be to slip back toward a looser association of member states. Some favor this idea already. The concept of a multispeed Europe in which the strongest and most willing members lead the way to closer union offers one possible alternative. This brings the focus back to a small cluster of rich nations at the heart of Northern Europe grouped around France and Germany.

Michael Rowe