Keith Middlemas - Orchestrating Europe (Text Only)

Something should be added about Spain and Portugal, even though the internal market was to be part of the EC acquis that any new member would have to accept.

SPAIN

The small political elite who managed the long-delayed application process, firstly from Suarez’s centre-right basis, then after the 1982 election under the Socialist government of Felipe Gonzalez, 23knew that entry would be a harsh challenge but that there was no alternative if the Spanish economy were to develop to EC levels and standards. (That there would be a second, more difficult, challenge with EMU/Maastricht in 1991 was not foreseen, although the peseta’s entry to EMS/ERM was always taken for granted, given the importance of creating an integrated financial sector). From the EC’s side, it was recognized that Spain needed a long period of transition before convergence could be completed, or there would be a balance of payments crisis, accompanied by devaluation and inflation.

Restructuring and upgrading the industrial base, together with banking and insurance, were the preconditions of adjustment, in which using not only EC support but attracting foreign direct investment from member states, the USA and Japan would be essential. Paradoxically, the Franco legacy lay less heavily on the economy than the effect of compromises made during the transition to democracy in the late 1970s, notably the Moncloa pacts made in October 1977 between the government and opposition parties acting variously on behalf of trades unions and management, which had accepted mild inflation, wage rigidity and employment security as the price of social peace. Trades unions’ growing powers, a highly restrictive labour code and index-linked wages soon produced much higher inflation which, despite the Banco de’ España’s austere monetary policy, stuck at 20–22% in the early 1980s, inhibiting inward investment, dividing the administration and setting the Bank against the Economics Ministry.

The Gonzalez government’s turnabout in 1984 (which can be compared to that of Mitterrand in 1983) made it possible to reduce money supply and public spending and to bring inflation down to 15%. Thereafter unemployment rose steeply, signifying that the Moncloa pacts’ legacy was dead. As the shocked unions wavered, a recovery began, leading to a boom which accompanied Spanish entry on 1 January 1986. Four years of rapid growth to 1990 brought high demand, high consumption, and a revolution in production – in which the long-sought foreign investment, led by West Germany, was a prime cause. That this policy mixture would lead to overheating became clear towards the end of the 1980s, but apart from joining the ERM no precautions were taken, despite pressure from the CEOE (Confederation of Spanish Employers) for matching supply side reforms, 24which alone could make realistic Spain’s targets for 1992, open banking and free capital movements.

Since the accession negotiations were handled by the government, on the same basis of consent that occurred among the players on economic policy, Spain’s consequent acceptance of the internal market was taken for granted. The political parties, economic sectors (apart from agriculture which was seriously hit in the later and hasty stage of accession bargaining), and the Spanish public, increasingly well informed of the advantages by a liberated and lively press and television, accepted the package as a beneficial whole, so that there was no perceptible domestic opposition to the terms of the Accession Treaty. EC member states, however, could be in no doubt that Spain, with 8 votes on the Council of Ministers, would henceforward rank as a substantial European player, likely to be demanding on matters of regional funding, Mediterranean agriculture and social cohesion.

PORTUGAL

As the revolutionary years 1974–5 receded and memories of the forty-year dictatorship and the long preoccupation with African colonies rather than Europe faded, 25Portugal looked to the EC to help it discover late twentieth-century normality. Shorn of imperial ambitions, the country had no future except in Europe: this much was a matter of agreement between centre-right (PSD) and centre-left (PS). Yet a still-strong Communist party and a nationalist Catholic right conditioned the balance of attitudes. Apart from the main banks (now state-owned) and a few large but declining industries such as shipbuilding and repairing, the Portuguese economy was still based in the south on Mediterranean agriculture and in the north on small firms, mainly concerned with textiles. A backward infrastructure, low levels of education, and a GDP per head of only $3500, below that of Greece (which most observers at the time expected to perform better), ensured that its transition would be prolonged and difficult.

But the small political elite had no difficulty in convincing a public tired of isolation and the heavy burden of having lost a colonial empire, that EC membership was the only way to avoid being relegated to the impoverished periphery and swamped by Spain. The problem lay in deciding between the primarily economic hopes of the minimalists (who included both the communists and the socialist left, as well as the nationalist right) and the centre, which accepted a broader measure of integration. Overall, apart from the ardent federalists, who included President Soares, a concern with sovereignty and national identity inhibited support for monetary union, as it did in Britain, though more so perhaps because of frequent escudo devaluations to aid exports. Living in the shadow of Spain, the Portuguese were jealous of small member states’ rights, yet conscious that, if they were to benefit and complete the process of modernization, they had to show themselves to be good Europeans.

Yet by 1985, Portugal possessed not only an open economy – partly as a result of the tough IMF-imposed programme in the mid–1980s – but an international awareness and important links with southern Africa and Brazil. Though few, its Brussels representatives were to prove themselves able and cooperative. Community decisions were all made at the centre, almost uninfluenced by civil servants and not at all by parliament. The public, conditioned by the ten-year-long liberal PDS government of Cavaco Silva, accepted integration and seem barely to have distinguished the EC from the world at large. 26The influence of industry and farming interests, along with the small role assigned to consumers, can be compared with the situation in Ireland, but the survival of a strong Communist party ensured a stronger role for organized labour.

Like Spain, soon to be Portugal’s largest trading partner, the country was to experience boom years up to 1990, buoyed up by German and Spanish investment. But at the time when the date was set for completion of the internal market, there appears to have been more widespread awareness than in Spain of how far the abolition of tariffs, free movement of capital and transition to the CAP would affect all aspects of Portuguese economic and social life. Hence, while in favour of the internal market, the Portuguese government argued that it was not yet ready, and remained defensive, arguing for a higher levels of support for social cohesion, regional funds and Mediterranean agriculture, while at official and presidency level living up to the ‘good European’ expectation.

On the central issue of the internal market, all ten member states had thus come roughly into line – albeit for different reasons – by the end of 1984. So had the other major players across Europe, industry, finance, even labour – insofar as that had recaptured its European presence. But it needs to be asked to what extent these rather than governments actually determined the outcome.

Financial sectors certainly took little part in the internal market process. The Fédération Bancaire Européen (FBE) had had to react so far to only one major Commission proposal, the first banking Directive of 1977. So long as the quiet years continued neither side wished to stir things up. In the absence of Commission activity, there seemed no urgent need to react to competition from American and Japanese banks, while insurance companies and stock exchanges barely stirred. Even when banks did get their fingers burned in the ‘sovereign debtors’ crisis, they tended to seek global remedies via spreading and insuring risks.