Keith Middlemas - Orchestrating Europe (Text Only)

Secondly, the Commission began serious planning for the Social Fund and the new European Regional Fund (which was to have an important impact on the British budgetary question in the early 1980s, and on the attitude of poorer member states who began to argue for what in the end became ‘cohesion’). 4July 1973 brought the ‘Social Action Programme’, with involvement by management and unions in all member states. Thirdly, using the EPC machinery, the Nine successfully aligned their national policies at the CSCE meetings in Helsinki, an essential precursor of the final accord with the USA and the Soviet Union in 1975. 5

The era of détente in Europe seemed assured, not least because these three developments seemed to be an external sign of the ‘fundamental bargain’ made with the United States, that American firms which had already set up within the EC boundary should be treated as Community ones, offsetting the disadvantages of discrimination and trade diversion outside. But a currency crisis in January 1973 had forced the lira to float outside the ‘Snake’ (as sterling and the Irish punt had done since June 1972). The lira’s exit forced the remainder to stop supporting the dollar, then close to its floor against EC currencies. Despite French efforts to push Britain into the Snake, 6the Snake had, in effect, left the ‘tunnel’, and the last attempt to shore up the vestiges of Bretton Woods ceased, ushering in a dangerous era of violent fluctuations and huge capital movements, later styled ‘casino capitalism’ by Susan Strange. The crisis forced the EC to forgo plans for the first stage of monetary union. Nevertheless plans for a European Monetary Fund surfaced briefly and the Economic Policy Committee emerged at the end of 1973.

That summer, the Commission won Council support for its first industrial and technology policy. But Ortoli reported to Council in indignant terms on the lack of progress with the internal market, intra-EC trade being still obstructed by a mass of quantitative restrictions and technical barriers. Member states, he implied, were responsible for the bureaucratic delays which obfuscated the customs union and which, intentionally or not, had increased since enlargement. While the EC prepared for the next GATT talks in Tokyo, it was clear that its own commitment to total harmonization, lacking member states’ consensus on the means, had created a vast backlog of work. The Council however showed no disposition to take up Ortoli’s more flexible alternative, which threatened the physical and psychological barriers to free trade in which each state still had such vested interests.

On 6 October 1973 the Israeli-Arab War began, closely followed by the oil crisis and rampant monetary instability, leading to the first full-blown European recession since 1947. OPEC countries’ use of oil supply and price as weapons to deter Western support for Israel had not been entirely unforeseen (at least by the Heath government) but there was little short-term action that any EC state could take, certainly not to look for strategic energy alternatives unless, like the Netherlands, they possessed gas reserves. Italy suffered most (and received help with its oil supply from Holland and Britain) but none escaped the initial shock, and even when OPEC restored production levels, the price rise (initially from $5 to $11.65 a barrel, but finally $14) induced serious cost inflation and balance of payments problems, with lasting consequences for industry.

The sauve qui peut among member states in late autumn and winter was such that for many observers (unaware of the oil companies’ swap agreements) the EC seemed to have lost its rationale as an economic, let alone a political, organism. Commissioners argued for a common energy policy, but Council ministers demonstrated themselves quite unable to broker a solution. The IMF Committee of Twenty did no better: only Italy and Britain tried out its recommendation that members should accept their oil deficits and not shift payments problems onto each other at the world economy’s expense. The USA, West Germany and Japan all deflated, the latter most drastically. Meanwhile, EC-USA relations almost ruptured over ECOFIN’s agreement to borrow $6 billion from IMF facilities with Saudi Arabian-OPEC underpinning. 7Although ECOFIN eventually got its money, thanks largely to the UK delegation, the US Congress vetoed further funding and it became clear that, without American backing, the EC could stand alone only on a limited scale and then only if it were united, well-briefed and determined.

Such conditions proved rare during the next ten years as the Nine’s economies diverged sharply. Large reductions in output and working time occurred, and in Britain a three-day working week was introduced. Once the immediate crisis had passed, the underlying problems of meeting external deficits emerged, with almost insupportable consequences in Britain and Italy, together with contingent problems of recycling Arab petro-dollars into OECD investments. The effect was like that after an earthquake: a primary shock followed by disorientation, secondary shocks, immediate crisis responses, and then, at very different times, adaptation and reorganization.

Taking the decade as a whole, the far-reaching consequences of this ‘mid–70S crisis’ can be seen to have been decisive in re-shaping European nations’ ideas and policies for the remainder of the century. It shifted concern from full employment to inflation (with notable impact on the relative strength of unions as against management, and on the EC’s concept of a ‘social area’), and led to new power relations in each society’s major centres of economic activity: finance departments became dominant over those of trade and industry, central banks and the financial ethos superseded industrial priorities, and accountants gained ascendancy over both engineers and personnel managers. Finally, this crisis created a prolonged, pervasive questioning of the cost, priorities and effectiveness of state social service provision which, in the second oil-induced recession after 1980, brought about a revaluation of the state’s role itself. In this sense, (with the notable exception of France) it caused the end of that series of post-War settlements established in the late 1940s, and completed what the collapse of Bretton Woods in 1971–2 had begun: the Community’s severance from the long post-War boom.

Britain’s essay after 1979 in new-right economics and social politics – usually called ‘Thatcherism’ – thus turned out to be only the most urgent and extreme case of a wider trend that was to be replicated, in different national contexts, right across the Community and EFTA. The post-War corpus of ideas which had infused economic growth and political institutions since the 1950s ceased first to have absolute validity, and ended by being virtually obsolete – as the EC’s experience of prolonged high unemployment in the 1990s recession demonstrated.

Within the Community, it was soon clear that as currency cooperation in the OECD had been lost so had unlimited access to cheap energy and the belief in the automatic efficacy of neo-Keynesian macro-economic management. As the IMF’s Committee of Twenty noted, currency cooperation could not be restored until the USA resolved its trade imbalance, or until the surplus countries, Germany and Japan (which had restored themselves to surplus by mid–1975) reduced theirs. As the DM and yen rose, the dollar and sterling declined and, with the IMF’s relaxation of its rules in 1976 (to help out those with the severest problems), international coordination appeared lost in the impasse. France now floated the franc, leaving only four member states clustered around the DM in the ‘Snake’ from which the EFTA countries rapidly distanced themselves.

Certain industrial sectors suffered most: shipbuilding, textiles, above all steel. Car producers and consumer electronics did not escape and, in the general retrenchment of capital investment, a rapid loss of competitiveness ensued vis-à-vis Japan and the Pacific rim ‘tigers’ of South Korea, Taiwan, Singapore and Hong Kong. Low growth, low investment, inflation and unemployment were common to all, but in Europe, as elsewhere, responses varied widely, inhibiting any EC-wide industrial policy.