Postwar: A History of Europe Since 1945 (62 page)

The participants at the Messina conference were the ECSC six, together with a (low-ranking) British ‘observer’. Spaak and his collaborators put forward a range of suggestions for customs union, trading agreements and other quite conventional projects of trans-national coordination, all of them carefully packaged to avoid offending the sensibilities of Britain or France. The French were cautiously enthusiastic; the British decidedly doubtful. After Messina the negotiations continued in an international planning committee chaired by Spaak himself, with the task of making firm recommendations for a more integrated European economy, a ‘common market’. But by November 1955 the British had dropped out, alarmed at the prospect of just the sort of pre-federal Europe they had always suspected.

The French, however, decided to take the plunge. When the Spaak Committee reported back in March 1956 with a formal recommendation in favor of a Common Market, Paris concurred. British observers remained doubtful. They were certainly aware of the risks of being left out—as a British government committee confidentially observed just a few weeks before Spaak’s recommendations were made public, ‘should the Messina powers achieve economic integration without the United Kingdom, this would mean German hegemony in Europe’.
¹⁰⁹
But in spite of this, the urgings of the Anglophile Spaak, and the fragility of the international sterling area as revealed a few months later at Suez, London could not bring itself to throw in its lot with the ‘Europeans’. When the Treaty establishing a European Economic Community (and Euratom, the atomic energy authority) was signed at Rome on March 25th 1957, and became effective on January 1st 1958, the new EEC—its headquarters in Brussels—comprised the same six countries that had joined the Coal and Steel Community seven years before.

It is important not to overstate the importance of the Rome Treaty. It represented for the most part a declaration of future good intentions. Its signatories laid out a schedule for tariff reductions and harmonization, offered up the prospect of eventual currency alignments, and agreed to work towards the free movement of goods, currencies and labor. Most of the text constituted a framework for instituting procedures designed to establish and enforce future regulations. The only truly significant innovation—the setting up under Article 177 of a European Court of Justice to which national courts would submit cases for final adjudication—would prove immensely important in later decades but passed largely unnoticed at the time.

The EEC was grounded in weakness, not strength. As Spaak’s 1956 report emphasized, ‘Europe, which once had the monopoly of manufacturing industries and obtained important resources from its overseas possessions, today sees its external position weakened, its influence declining and its capacity to progress lost in its divisions. ’ It was precisely because the British did not—
yet
—understand their situation in this light that they declined to join the EEC. The idea that the European Common Market was part of some calculated strategy to challenge the growing power of the United States—a notion that would acquire a certain currency in Washington policy circles in later decades—is thus quite absurd: the new-formed EEC depended utterly upon the American security guarantee, without which its members would never have been able to afford to indulge in economic integration to the exclusion of all concern with common defense.

Not everyone even in the member states was entirely pleased with the new proposals. In France many conservative (including Gaullist) deputies voted against ratification of the Rome Treaty on ‘national’ grounds’, while some socialists and left radicals (including Pierre Mendès-France) opposed the formation of a ‘little Europe’ without the reassuring presence of Great Britain. In Germany, Adenauer’s own Economics Minister, the enthusiastic free-trader Ludwig Erhard, remained critical of a neo-mercantilist ‘customs union’ that might damage Germany’s links with Britain, restrict trade flows and distort prices. In Erhard’s view, the EEC was a ‘macro-economic nonsense’. As one scholar has perceptively observed, things could well have turned out differently: ‘If Erhard had ruled Germany, the likely result would have been an Anglo-German Free Trade Association with no agricultural component, and the effects of economic exclusion would eventually have forced France to join’.
¹¹⁰

But it didn’t happen that way. And the final shape of the EEC did have a certain logic to it. In the course of the 1950s the countries of continental Western Europe traded increasingly with one another. And they each traded above all with West Germany, on whose markets and products the European economic recovery had thus come increasingly to depend. Moreover, every post-war European state was now deeply involved in economic affairs: through planning, regulation, growth targeting and subsidies of all sorts. But the promotion of exports; the redirection of resources from old industries to new ones; the encouragement of favored sectors like agriculture or transport: all these required cross-border cooperation. None of the West European economies was self-sufficient.

This trend towards mutually advantageous coordination was thus driven by national self-interest, not the objectives of Schuman’s Coal and Steel Authority, which was irrelevant to economic policy making in these years. The same concern to protect and nourish local interests that had turned Europe’s states inwards before 1939 now brought them closer together. The removal of impediments and the lessons of the recent past were perhaps the most important factors in facilitating this change. The Dutch, for example, were not altogether happy at the prospect of high EEC external tariffs that would inflate local prices, and like their Belgian neighbors they worried about the absence of the British. But they could not risk being cut off from their major trading partners.

German interests were mixed. As Europe’s main exporting nation Germany had a growing interest in free trade within Western Europe—the more so because German manufacturers had lost their important markets in eastern Europe and had no former colonial territories to exploit. But a tariff-protected European customs union confined to six countries was not necessarily a rational German policy objective, as Erhard understood. Like the British, he and many other Germans might have preferred a broader, looser European free trade area. But as a principle of foreign policy, Adenauer would never break with France, however divergent their interests. And then there was the question of agriculture.

In the first half of the twentieth century, too many inefficient European peasants produced only just sufficient food for a market that could not pay them enough to live on. The result had been poverty, emigration and rural fascism. In the hungry years immediately after World War Two all sorts of programs were put in place to encourage and assist arable farmers in particular to produce more. To reduce dependence on dollar-denominated food imports from Canada and the US, the emphasis was placed upon encouraging output rather than efficiency. Farmers did not need to fear a return of the pre-war price deflation: until 1951 agricultural output in Europe did not recover to pre-war levels, and between protection and government price-supports farmers’ income was anyway effectively guaranteed. In a manner of speaking, the Forties were thus a golden age for Europe’s farmers. In the course of the 1950s, output continued to increase even as surplus rural labor was drained off into new jobs in the cities: Europe’s peasants were becoming increasingly efficient farmers. But they continued to benefit from what amounted to permanent public welfare.

The paradox was particularly acute in France. In 1950 the country was still a net food importer. But in the years that followed the country’s agricultural output soared. French production of butter increased by 76 percent in the years 1949-56; cheese output by 116 percent between 1949 and 1957. Beet sugar production in France rose 201 percent from 1950 to 1957. The barley and maize crops grew by an astonishing 348 percent and 815 percent respectively in the same period. France now was not merely self-sufficient; it had food surpluses. The third Modernization Plan, covering the years 1957-61, favored still more investment in meat, milk, cheese, sugar and wheat (the staple products of northern France and the Paris basin, where the influence of France’s powerful farming syndicates was greatest). Meanwhile the French government, always conscious of the symbolic significance of the land in French public life—and the very real importance of the rural vote—sought to maintain price supports and find export markets for all this food.

This issue played a vital role in the French decision to join the EEC. France’s chief economic interest in a European common market was the preferential access it would afford to foreign—especially German (or British)—markets for meat, dairy and grain products. This, together with the promise of continued price supports and a commitment by its European partners to buy up superfluous French farm output, was what convinced the National Assembly to vote for the Rome Treaty. In exchange for an undertaking to open their home market to German non-agricultural exports, the French effectively shifted their domestic system of rural guarantees onto the backs of fellow EEC members, thereby relieving Paris of an intolerably expensive (and politically explosive) long-term burden.

This is the background to the EEC’s notorious Common Agricultural Policy (CAP), inaugurated in 1962 and formalized in 1970 after a decade of negotiations. As fixed European prices rose,
all
of Europe’s food production became too expensive to compete on the world market. Efficient Dutch dairy combines were no better off than small and unproductive German farms, since all were now subject to a common pricing structure. In the course of the 1960s the EEC devoted its energies to forging a set of practices and regulations designed to address this problem. Target prices would be established for all food items. EEC external tariffs would then bring the cost of imported agricultural products up to these levels—which were typically keyed to the highest priced and least efficient producers in the Community.

Each year, the EEC would henceforth buy up all its members’ surplus agricultural output, at figures 5-7 percent below the ‘target’ prices. It would then clear the surplus by subsidizing its re-sale outside the Common Market at below-EU prices. This manifestly inefficient proceeding was the result of some very old-fashioned horse-trading. Germany’s small farms needed heavy subsidies to remain in business. French and Italian farmers were not especially high-priced, but no-one dared instruct them to restrict production, much less require that they take a market price for their goods. Instead each country gave its farmers what they wanted, passing the cost along in part to urban consumers but above all to taxpayers.

The CAP was not wholly unprecedented. The grain tariffs of late-nineteenth-century Europe, directed against cheap imports from North America, were partly analogous. There were various attempts at the depths of the Slump of the early 1930s to shore up farm prices by buying surpluses or paying farmers to produce less. In a never-implemented 1938 agreement between Germany and France, Germany would have promised to take French agricultural exports in return for France opening its domestic market to German chemical and engineering products (a wartime exhibition in occupied Paris devoted to ‘La France européenne’ emphasized France’s agrarian wealth, and the benefits that would accrue to it from participation in Hitler’s New Europe).

Modern agriculture has never been free of politically motivated protections of one kind or another. Even the US, whose external tariffs fell by 90 percent between 1947 and 1967, took care (and still does) to exclude agriculture from this liberalization of trade. And farm products were from an early stage excluded from the deliberations of GATT. The EEC, then, was hardly unique. But the perverse consequences of the Common Agricultural Policy were perhaps distinctive all the same. As European producers became ever more efficient (their guaranteed high incomes allowing them to invest in the best equipment and fertilizer), output vastly exceeded demand, especially in those commodities favored by the policy: the latter was markedly skewed in favor of the cereal and livestock in which big French agri-businesses tended to specialize, while doing little for the fruit, olive and vegetable farmers of southern Italy.

As world food prices fell in the late 1960s, EEC prices were thus stranded at absurdly high levels. Within a few years of the inauguration of the Common Agricultural Policy, European maize and beef would be selling at 200 percent of world prices, European butter at 400 percent. By 1970 the CAP employed four out of five of the Common Market’s administrators, and agriculture was costing 70 percent of the budget, a bizarre situation for some of the world’s most industrialized states. No single country could have sustained so absurd a set of policies, but by transferring the burden to the Community at large, and tying it to the broader objectives of the Common Market, each national government stood to gain, at least in the short run. Only the urban poor (and non-EEC farmers) lost out from the CAP, and the former at least were typically compensated in other ways.

At this stage most West European countries were of course
not
members of the EEC. A year after the Common Market was inaugurated, the British—still trying to head off the emergence of a super-national European bloc—suggested that the EEC be expanded into an industrial free-trade zone including the EEC member-states, other European countries and the British Commonwealth. De Gaulle, predictably, rejected the idea. In response, and at the initiative of the UK, a number of countries then met in Stockholm in November 1959 and formed themselves into the European Free Trade Association (EFTA). The member states—Austria, Switzerland, Denmark, Norway, Sweden, Portugal and the UK, later joined by Ireland, Iceland and Finland—were mostly prosperous, peripheral, and enthusiastic proponents of free trade. Their agriculture, with the exception of Portugal, was small-scale but highly efficient and oriented to the world market.