BUSINESS

A European revolution

Twelve countries prepare to unite in 1992

ANDREW PHILLIPS December 5 1988
BUSINESS

A European revolution

Twelve countries prepare to unite in 1992

ANDREW PHILLIPS December 5 1988

A European revolution

BUSINESS

Twelve countries prepare to unite in 1992

It is, at the same time, a date, a slogan— and a blueprint. Across Western Europe, “1992” has become the rallying cry for a year that will mark a profound revolution in the way hundreds of millions of people work, live and trade. By Dec. 31, 1992, the 12 countries of the European Community (EC) plan to merge their economies in a giant single market of 323 million consumers—in a far more radical system than anything even considered by Americans and Canadians in negotiating the free trade agreement.

In the past several months, the campaign for a united Europe has caught the popular imagination and it is dominating both business planning and political debate in Europe. To those caught up in the. new wave of “Europhoria,” Europe, by 1992, will finally be restored to the first rank of economic powers, breaking the cycle of stagnation that afflicted the continent for much of the 1970s and early 1980s. Said British Foreign Secretary Sir Geoffrey Howe: “It has woken up European business and industry.”

But when leaders of the 12 EC governments gather late this week in Greece to assess progress on the 1992 plan, they will share a growing concern. Although all are commit| ted by treaty to tearing down 9 remaining barriers to trade, g they have become embroiled in ~ a furious public debate over how much sovereignty individual nations should concede to the EC—and what kind of Europe they should build. At the same time, other countries are voicing concern that the new Europe may turn in on itself—creating what critics call a protectionist “Fortress Europe” that could be more hostile to Japanese, American or Canadian products. And inside Europe, there is a growing awareness that 1992 will produce losers as well as winners.

At a conference in London last week, several senior business leaders said that the fierce competition that will follow the removal of all trade barriers will force as many as half of all factories in Europe to close within 10 years. Said Percy Barnevik, chairman of the SwissSwedish engineering group ABB: “These are the hard realities behind the nice words.” Despite those potential troubles, EC members are meeting the timetable for the 1992 blueprint. EC governments have adopted 107 of

the 279 separate proposals involved in the grand plan—which is aimed at completing the vision of a barrier-free Europe that led to the foundation of the community in 1957. Member states removed tariffs and quotas in the decade following that historic step, but many other obstacles to Europe-wide trade remained. They include differing technical standards, conflicting health and safety rules, local government procurement policies and customs

controls. For years, EC countries tried unsuccessfully to harmonize the conflicting regulations; the key difference in the 1992 plan is that member states have agreed to “mutual recognition” of each other’s norms and standards. In one case, if a pharmaceutical company gains approval for a new drug in France, it will automatically have the right to market the product in all 12 EC nations, without having to meet differing standards in each one.

Multiplied thousands of times, those steps would make doing business in Europe easier, more efficient—and more profitable. A major study by the European Commission, the Brussels bureaucracy that runs the common market’s affairs, concluded that the 1992 measures will increase the output of the EC economies by 4.5 per cent, cut prices by six per cent and create at least 1.8 million new jobs. At the same time, though, the plan would sweep

away protectionist policies that keep many companies in business. At the moment, Europe has 16 companies producing locomotives compared with just two in the United States.

When governments stop favoring local producers, most of those firms will probably go bankrupt—throwing thousands out of work. In London last week, the Italian economist who wrote the commission’s study, Paolo Cecchini, declared: “It will not be a Christmas present for everybody. There will be many painful adjustments.”

Added to those economic concerns is a growing political debate over the future shape of Europe. It began in July when commission president Jacques Delors said that, within 10 years, the EC would decide 80 per cent of economic and social legislation in member states. And in early September, Delors told a

trade union conference in Britain that the 1992 plan was an opportunity to broaden workers’ rights. Both statements outraged British Prime Minister Margaret Thatcher, who delivered a blistering speech in September in Bruges, Belgium. Shattering the calm that had surrounded public debate over 1992, Thatcher attacked any attempt to form a united, federal Europe as “utopian,” and she declared, “We have not successfully rolled back the frontiers of the state in Britain only to see them reimposed at a European level, with a European superstate exercising a new domination from Brussels.”

Those opposing views will likely be aired this week at the EC leaders’ summit. Commission officials have said that they intend to present the leaders with a cautiously worded proposal for improving social standards in Europe. It recommends more stringent health and safety

standards, as well as greater worker participation in industry after the 1992 plan goes into effect—measures that Delors has advocated. Thatcher, reflecting her government’s freemarket philosophy as well as concerns among many European employers, is expected to oppose the proposal because it would raise companies’ production costs. Other leaders, including West Germany’s Helmut Kohl and France’s Michel Rocard, will argue that those measures are necessary to persuade unions to accept the job losses and other adjustments that will accompany completion of the single market.

Rocard is prepared to be even more radical. In a recent television interview, the French prime minister added a moral argument to what could become a fierce battle between proponents of a so-called social Europe and those—notably Thatcher—who see 1992 as a major step toward a more deregulated, market-oriented continent. Said Rocard: “What sets Europe apart from the United States and Japan is its structure of social protection. Sacrificing that would be to deny our heritage.”

Thatcher has made it clear that she is reluctant to go along with several other key parts of the 1992 plan. She has argued against dismantling border checks—which would be the most visible sign of the new Europe—because, she says, they will still be needed to catch terrorists and drug traffickers. And although EC officials maintain that Value Added Taxes (VAT), levies on products at various levels of production and consumption, must be stan-

dardized, Thatcher insists that Britain must retain some of its own practices—including exclusion of a VAT on books, children’s clothes, and food. Other countries share her concerns over VAT, which is one of the most difficult

problems in implementing the 1992 plan.

Such countries as France and Denmark rely on high VAT rates for a large share of government revenues—and lowering those rates to the European average would devastate their

budgets. The tax issue is complicated by differing social priorities. Northern countries, including Britain, Denmark and the Netherlands, generally impose high consumption taxes on liquor, cigarettes and other so-called luxury products. Southern countries, including Greece and Spain, keep those taxes low. As a result, the price of a bottle of whisky now ranges from a high of about $25 in Denmark to as little as $6 in Greece. Changing the tax rate might please some consumers—but it would anger many others.

British opposition is also preventing progress on other steps toward closer European unity. Most other EC members—including West Germany and France—support moves toward a European central bank and, eventually, a common European currency. Thatcher's government has declared its opposition to those measures, insisting on retaining full control over monetary policy.

While those disputes rage inside Europe, leaders of other major trading nations expressed concern that 1992 may signal a protectionist wave as nervous executives, exposed to new competition from their partners, press their governments to eliminate threats from abroad. Many American officials say that they are worried by the EC’s declared intention to limit access to the European market in some cases unless other nations grant what they call “reciprocal access” to their markets. Said U.S. trade representative Clayton Yeutter: “The $64,000 question is whether or not it will be a

Fortress Europe, where they’ll be free traders internally and protectionist externally.” European officials claim that they will not be protectionist, but some Canadian trade officials maintain that that very trend could develop. Said Peter Campbell, a senior official at Canada’s mission to the EC in Brussels: “Protectionism could still rear up because in the coming

shake-out of European industry there will be winners and losers.” He added: “Faced with ruin, a depressed region will clearly push for protection. And in a sharp world recession, Europe, like everybody else, could be tempted to slam the doors.”

A protectionist trend may still be avoided, however. Peter Ludlow, director of the Centre

for European Policy Studies in Brussels, said that he is confident that there will be no “lurch toward protectionism” in a single-market Europe. “One guarantee lies in the sheer number of nations in the EC,” Ludlow said in an interview. “At present, an ailing industry in one country may have enough leverage on the national scene to persuade its government to shut out foreign competitors. It won’t have the same luck when it has to peddle its story to 12 governments.”

Despite those problems, all EC governments have vowed to keep the 1992 plan on track. But their debate over sovereignty will almost certainly intensify as the deadline for completing it approaches. Already, many powers once exercised by individual states have been shifted to Brussels from the national capitals: EC headquarters now decrees policy on trade, customs duties, agriculture and competition. But most European analysts maintain that it is a natural . development. Said Ludlow: “For 40 years, g Europe has been gradually pooling its sover“ eignty out of the conviction that co-operation is the only way to regain economic power after the devastation of World War II. The present generation of leaders finds it only natural to cede ground in the common interest.” As they come to grips with the difficult issues on the road to 1992, Europe’s leaders will find that tradition sorely tested.

ANDREW PHILLIPS

PETER LEWIS