Contradictions at the heart of Europe

On New Year's Day 1994, Europe changed names when the dozen nations of the Community took on the title of EU. Was anything of substance altered? So far, very little. The member states have risen to 15. Otherwise things are much as they were. What is new, however, is that everyone knows this is not going to last. For the first time since the war, Europe is living in anticipation of vast but still imponderable changes. Three dominate the horizon.

The first is the Maastricht treaty. The core of the treaty is the commitment of all the member states, save Britain and Denmark, to introduce a single currency under the authority of a single central bank by 1999. This step means an irreversible move towards federation. With it, national governments will lose the right to issue money and to alter exchange rates, and will only be able to vary rates of interest and public borrowing within narrow limits, on pain of heavy fines from the Commission if they break central bank directives. European monetary union spells the end of the most important attributes of national economic sovereignty.

Second, Germany is reunited. The original Common Market was built on a balance between the two largest countries of the six, France and Germany - the latter with greater economic weight and slightly larger population, the former with superior military and diplomatic weight. Later, Italy and Britain provided flanking states of roughly equivalent demographic and economic size. A decade later, Germany's position has been transformed. With a population of more than 80 million, it is now much the largest state in the EU, enjoying monetary, and increasingly institutional and diplomatic, ascendancy. For the first time in its history, the process of European integration is confronted with the emergence of a hegemonic power.

The third great change has followed from the end of Communism in the former Warsaw Pact. Virtually all the East European countries, and some of the former Soviet lands, want to join the EU. As things stand, the population of these candidates is about 130 million. Their inclusion would make a community of half a billion people, nearly twice the size of the United States. It would approximately double the membership of the EU to some 30 states. A completely new configuration would be at stake.

Historically, these three great changes have been interconnected. In reverse order, it was the collapse of Communism that allowed the re-unification of Germany that precipitated Maastricht. These developments pose dramatic dilemmas.

The final shape of the bargain reached at Maastricht was of essentially French and German design. The central aim for Paris was a financial edifice capable of replacing the unilateral power of the Bundesbank as the de facto regulator of the fortunes of its neighbours, with a de jure central authority over the European monetary space in which German interests would no longer be privileged. In exchange, Bonn received the security system of "convergence criteria" - in effect, draconian conditions for its abandonment of the Deutschmark.

In a system of the kind envisaged at Maastricht, national macro-economic policy becomes a thing of the past. The historic commitments of both social and Christian democracy to full employment and traditional welfare services, already scaled down or cut back, would cease to have any purchase. This is a revolutionary prospect. The supranational monetary authority, elevated higher above national electorates than its predecessors, will be more immune from popular pressures, it seems.

That is not inevitable, however. The project might create an equally powerful force moving in the opposite direction. Misgivings about what the kind of single currency envisaged by Maastricht might mean for socio- economic stability are widely shared, even among central bankers. With nearly 20 million people out of work in the EU, what is to prevent huge permanent pools of unemployment in depressed regions? The Governor of the Bank of England now warns that, once devaluations are ruled out, the only mechanisms of adjustment are sharp wage reductions or mass out- migration. Alexander Lamfalussy, head of the European Monetary Institute, has warned that if monetary union is to work, a common fiscal policy is essential.

Budgets remain the central battleground of domestic politics. How can there be fiscal co-ordination without electoral determination through a genuine supranational democracy? And this must embody for the first time a popular sovereignty in an effective and accountable European Parliament. It is enough to spell out this condition to see how unprepared either official discourse or public opinion in the member states is for the scale of the choices before them.

What will be the position of Germany in the Europe envisaged at Maastricht? It was not merely the hopes or fears of bankers and economists that accelerated monetary union. Ultimately, more important was the political desire of the French government to fold the newly enlarged German state into a tighter European structure. In Paris, the creation of a single currency under supranational control was conceived as a critical safeguard against the re-emergence of German national hegemony in Europe. No sooner was the treaty signed, however, than the opposite prognosis was heard: it would merely extend German power. Just this fear was the mobilising theme of the campaign against ratification of Maastricht in the French referendum.

This referendum revealed the depth of the division in French opinion over the likely consequences of a single currency: would it lead to a Europeanised Germany or to a German Europe? The victory of Jacques Chirac in the subsequent presidential elections guarantees that the tension will continue to haunt the Elysee. For no French politician has so constantly oscillated from one position to the other, or opportunely reflected the divided mind of the electorate itself. The domestic course of the Chirac regime can only tighten already explosive pressures in the cities at the cost of its electoral credibility, on which that of its franc fort exchange rate also depends. The regime's slump in the opinion polls is without precedent in the Fifth Republic. An image of zealous compliance with directives from the Bundesbank involves high political risks.

Nevertheless, it will be France rather than Germany that decides the fate of monetary union. Germany cannot back out of Maastricht. France can. There will be no EMU if Paris does not cut its deficit. The French political class is still no surer that the single currency will deliver what it was intended to. Germany bound - or unbound?

Finally, what of the prospects for extending the EU to the east? On the principle itself there has been no dissent among the member states. It might also be added that there has been no forethought. For the first time in the history of European integration, a crucial direction has been set, not by politicians or technocrats but by public opinion. But on applying the principle, the three leading states of Western Europe have divided. From the outset, Germany has given priority to the rapid inclusion of Poland, Hungary, the former Czechoslovakia and, more recently, Slovenia. Within this group, Poland remains the most important in German eyes.

France, more cautious about the tempo of widening, has been less inclined to pick regional favourites. Its initial preference, articulated by Mitterrand, was for a generic association between Western and Eastern Europe as a whole, outside the framework of the EU. Britain, on the other hand, has pressed for the most extensive embrace. Alone of Western leaders, John Major has envisaged the ultimate inclusion of Russia. The rationale for the British position is unconcealed: the wider the EU becomes, the shallower it must be, for the more national states it contains, the less viable is any supranational authority over them.

In so far as the EU has sketched a policy at all, it goes in the direction set out by Germany's ruling party. Given, however, that a widening of some kind to the east is now enshrined as official, if still nebulous, policy in the EU, is it probable that the process could be limited to a select handful of former Communist states? Applications for admission are multiplying, and there is no obvious boundary at which they can be halted. "Europe Agreements", formally designated as antechambers to entry, have been signed by six countries - Poland, the Czech Republic, Hungary, Slovakia, Romania and Bulgaria - and four more are pending (Slovenia and the Baltic states). It is only a matter of time before Croatia, Serbia, Macedonia, Albania and what is left of Bosnia join the queue. Does this mean the British scenario will come to pass? Harold Macmillan once spoke of his hope that the Community, when exposed to the beneficent pressure of a vast free-trade area, would "melt like a lump of sugar in a cup of tea". Such remains the preferred vision of his successors.

There is no doubt that enlargement of the EU to some two dozen states would fundamentally alter its nature. The most immediate effect would be a financial crisis of heroic proportions. The cost of integrating the Visegrad quartet alone would mean an increase of 60 per cent in the EU budget, rising to nearly 75 per cent by the end of the century. There is no chance of the existing member states accepting such a burden at a time when every domestic pressure is towards tax reduction. That leaves only two other possible ways out: either scrapping support to farming communities and poorer regions (which are composed of voters with the power to resist) or creating a second-class membership for new entrants.

The conviction that EMU and eastern enlargement are incompatible is entirely reasonable. It is shared by the unlikely figure of Jacques Attali, who regards the single currency as a valid but now lost cause, and enlargement as a German project that will lead away from a federal Europe.

Maastricht is unlikely to evaporate so easily. But the hazards of enlargement do not just lie in the economic pitfalls. A still more fundamental difficulty would remain of a purely political nature. To double its membership would cripple the institutions of the EU. Today the five largest states - Germany, France, Italy, Britain and Spain - contain 80 per cent of the population of the EU, but command only just over half the votes in the Council of Ministers. If the 10 ex-Communist applicants were members, the share of these states would fall further, while the proportion of poor countries in the EU entitled to substantial transfers would rise from four out of 15 to 14 out of 25.

This threatens institutional gridlock. The size of the European Parliament would swell towards 800 deputies, the number of commissioners would rise to 40 and a 10-minute introductory speech by each minister at a council would yield a meeting of five hours before business even started.

In such conditions, would not widening inevitably mean loosening? This is the wager in London. Yet the prospect of institutional deadlock might impose as a functional necessity a centralised supranational authority in which majority decisions become normal. Widening could check or reverse deepening. It might also precipitate it. These are the political quicksands on which the Europe to come will be built.

The author is professor of history at the University of California in Los Angeles and the visiting Jean Monnet fellow at the European University in Florence. This is an edited version of a longer article in the current issue of the 'London Review of Books'.