Toward a United Europe: Economics Before Politics



AFTER high hopes, many people begin to believe that European integration lies outside the field of practical politics. There are so many obstacles that the ultimate aim may seem unattainable. As the obstacles exist as much in the minds of people as anywhere else, political observers outside Europe may wonder whether Europeans really want integration at all. Or is it perhaps a mere dream of starry-eyed young people?

Your writer is neither a dreamer nor young, but he firmly believes that economic integration in Europe should be brought about, and that it can be brought about. Let us, before going further, first have a look at what integration is supposed to be.

Europe will probably never be one state. Its nations have had very different histories, and almost every one of them has fought the others for its independence. In this struggle national characters have developed, and nations have matured into fully grown personalities who just will not be lumped together. Fortunately integration, especially economic integration, does not require such a thing. It aims at abolition, not of social and cultural distinctions, but of economic barriers. The process it wants to undo is the hardening of nations into states, and of states into instruments for the protection of regional economic interests.

There is nothing specifically European in the existence of tariff walls which prevent the free exchange of goods, capital, and labor. How many Americans who feel impatient about European trade barriers would be ready to give up their own tariff protection, even against a neighbor such as Canada? Yet a North American customs union would be a simple affair compared with economic integration in Europe. But what would, for instance, the U.S. dairy farmers say, who having obtained an embargo on imports of cheese from Canada found that the protection which the tariff gave them was insufficient? And there are plenty of other groups in the U.S.A., as in Europe, whose love of free trade is merely platonic.

Generally speaking, protective tariffs are bad because they are a poor substitute for efficiency. They prevent the consumer from getting the full benefit of favorable natural conditions or human skill which exist outside his own country. Import quotas, as part of a permanent system of protection, are even worse, because on top of all this they call for arbitrary decisions by the administration.

The drive for economic integration aims at an economically United Europe, where trade barriers no longer exist and where capital, labor, and commodities can move freely. Instead of being divided into a number of small or medium-sized markets, such a United Europe would be one large common market inside which goods are produced in areas where conditions are most suitable, and sold at prices which ensure the best value for the consumer. If such a common market were to comprise the whole of Western Europe, there would be over 200 million consumers to cater for. Natural resources in this area are not so abundant as in the U.S.A., but the example of Switzerland proves that this handicap can be overcome by technical skill and commercial sense. Western Europe has perhaps a greater concentration of skilled labor and international merchants than any other area in the world.

If within Europe all barriers were torn down, we should no doubt witness a tremendous release of economic energy, which would solve many longterm, so-called structural problems. What we need in our part of the world is not only raw materials and equipment, but wide and stable markets, economic space, and a political climate favorable to initiatives and creative efforts far beyond the scope of individual countries. This would lead to an increase of European production as a whole, and — given a suitable pattern of world trade and a certain relaxation of import restrictions in the U.S.A. — to independence from American aid. Mutual competition will squeeze the waste out of our national economic systems. Inefficient producers may be faced with some difficult problems, but the consumers are going to have the benefit of lower production costs. Gradually, the interests, skill, and resources of various countries will become intermingled so as to make economic nationalism in any form look outdated.

Apart from creating wider economic possibilities, a merger of national economies would also greatly help to create political strength and stability, which are so necessary in Europe. Any system of collective military defense obviously needs a solid and homogeneous substructure in the economy. But in the long run the best defense against political dangers is a gradual rise in the standard of living and stability of employment. They will make the European masses immune to subversive foreign influences. Economic integration is, therefore, an essential element in the political defense of Europe.


Now if this is so, why have we not got further than where we are at present? Before going into this I should like to point out that the results so far are by no means so small as many people seem to think. European production and trade have greatly increased. If we put the figures for all O.E.E.C.1 countries together, we find that, in 1952 agricultural production had risen to 140 per cent, industrial production to about 150 per cent, and the volume of intra-European trade to almost 230 per cent, of 1947.

As far as production is concerned the rise is of course greatly due to American aid, but intraEuropean trade could only get into its stride after the creation of the European Payments Union, an instrument for multilateral settlement of balances between the member countries and for credits to countries which find themselves temporarily in the red. The E.P.U. came into being in 1950; in that year the volume of trade between the member countries leaped up by 40 percent, as compared with 1949.

All impediments to greater freedom of trade within Europe result from either the wish to protect certain group interests or the need for debtor countries to restore their balance of payments. Group interests usually hide behind tariff walls, whereas concern about the balance of payments mostly expresses itself in quotas.

Very little has so far been done in the way of a general reduction of tariffs within Europe. The General Agreement on Tariffs and Trade, although covering a much wider field, has of course had some influence on intra-European tariffs as well, but it has not led to a general lowering of tariff walls. The only positive examples are Benelux and the Coal and Steel Community. The Benelux countries have abolished the import duties amongst themselves and established a common tariff on imports from the outer world. Their mutual trade is at present ten times as high at current prices, about three times at stable prices, as before the war.

The European Coal and Steel Community is the creation of a farsighted, indefatigable Frenchman, Jean Monnet, who with the “Schuman Plan” has brought about a common market for iron, steel, and coal amongst the six countries which form the core of the European continent: France, Germany, Italy, Holland, Belgium, and Luxembourg. This area is sometimes called “Little Europe,” but it has a population as big as that of the United States and much bigger than all other West European countries together. The remarkable thing about the European Coal and Steel Community is not only that such basic industrial products can be moved about freely between the six countries, but also that the governments in question have given up all power of control over these industries. In order to weld the markets together, individual state intervention is made impossible and all powers have been consigned to a special High Authority. This body is guiding the development of the industries in question in so fur as guidance is necessary, and has established freedoms, including freedom for producers to compete in each other’s markets, which were often lacking as long as the markets were divided by national frontiers.

The problem of how to create a common market without causing undue distress has been solved as follows. Coal of all specifications, iron, steel, and scrap can be sold freely from one country to another, without being subject to import duties or quantitative restrictions. Prices of iron, steel, and scrap are free from control, but the High Authority has fixed a uniform price for coal in all countries. This price is calculated as from certain production centers; prices at the actual place of consumption vary with the cost of transport from the production centers. The uniform basic price strikes a medium between the highest and the lowest production costs. Practically all the really high-cost mines are in the Borinage, one of the oldest coal-mining districts of Belgium. Some of these are closing down, but the others receive help for modernization. The High Authority has imposed a levy of about 12 cents per ton on all coal produced in its territory, and out of the proceeds of this the high-cost colliers in the Borinage receive a subsidy which (together with an equal sum paid by the Belgian government) allows them (a) to sell at the price fixed by the Authority, and (b) to modernize their equipment and rationalize their methods.

The important thing is that these levies and subsidies are for five years only. After that every firm will have to face the free competition of all the others in a market where national protection has become impossible. This is a clear example of the way in which a large free market can be established with the help of a little transitional planning to prevent unnecessary hardships.

It would, however, be wrong to assume that the road to economic unity in Europe would consist of an increasing number of High Authorities. One objection against this would be that the existence of too many autonomous corporations would throw the European economy into a state of chaos and confusion, because of conflicting powers and regulations. Another difficulty is that one cannot do with all industries what has been done with coal and steel. In other industries there are not dozens but thousands of individual firms with different cost levels, production patterns, and trade relations. Under the influence of frontier protection, European countries have developed economic patterns more or less along national lines. It would be impossible to unravel the threads and knit all these incongruous patterns together: there would be tens of thousands of threads and the patterns could never be made to match.


WHAT we need first in Europe is not patient patchwork but radical demolition of barriers. Tariff walls should be torn down and restrictions abolished so that economic forces which are now frustrated will find scope for free and fruitful employment. Far from stitching Europe together, we should give it a chance to grow and prosper. Space and freedom are the things it requires most. The road to freedom is easy enough to find: in technical terms it consists of complete abolition of quotas and systematic reduction of import duties.

Every further step in this direction, however, meets with the obstacle that some countries have a high price level and by admitting imports freely would wreck their balance of payments. In this connection everybody thinks of France. This country has taken some of the most valuable initiatives for European unity— the Sehuman Plan and the European Defense Community — but at the same time it has been one of the most obstinate opponents of free trade in Europe. The main explanations of France’s attitude are backward methods of agriculture, lack of efficiency in distribution, and high costs in some industries, the continuation of which has been made possible by a combination of inflationary finance and protectionism in foreign trade. If France goes on having budget deficils, a “soft “ economy, and high prices, it will never be able to face competition from abroad. There is some danger that this would become the stumblingblock for further economic integration.

In this connection there is no reason to single out France in particular; every one of the European countries may in its turn get into difficulties. But since such difficulties always have repercussions on others, and usually give rise to a claim for American aid, it would be best if they were considered as common problems. Independent experts should be asked for advice, and all European countries, as well as the U.S.A., should interest themselves in the application of remedies which the experts would suggest. A eerlain amount of help from outside will often enable a government to deal with a problem which it sees quite clearly but is not strong enough to solve alone.

There is at present a tendency in Europe to admit the need of collective action in military and political matters. An example of this is the draft treaty for a political community of the six “Schuman" countries. This draft, which proposes a European Executive and a European Parliament consisting of two Houses, has somehow made the idea of European unity seem nearer and more real than before. But it has a serious shortcoming: economic integration is given second place and could at its best be brought about only gradually as a result of efforts to be made by the Executive in co-operation with the governments.

This, to my mind, is putting the cart before the horse. Economic integration is more essential for the unity of Europe than the political machinery which the draft treaty proposes. Not that such machinery would be redundant: there is already a rudimentary parliament for the Coal and Steel Community, to which the High Authority reports, and if the European Defense Community comes into being, its Executive will also need a representative body to report to and to be guided by. To put up a different assembly behind every specialized agency in Europe would clearly be a waste of the time of valuable men or an opportunity for less valuable men who might do the cause of Europe no good. The creation of a really representative Assembly, to which all Executives would report, seems a logical step, whatever one’s opinion may be about the system of representation, the number of Houses, and the allocation of responsibilities.

But if we concentrate too much on the political machinery, we are in danger of erecting a large façade in front of a number of buildings which are still very much separated, and in parts even barred against each other. People may mistake the political façade for the real thing, and forget that behind it economic division persists.

The right thing to do is to organize economic and political integration simultaneously. The Dutch government has acknowledged this by proposing the “Beyen plan,”named after its present foreign minister. This plan suggests an amendment to the draft treaty for a political community, in that the six participating states should undertake to form a tariff community within ten years. From the beginning, participants should take all necessary steps to prepare such a situation, particularly by a gradual lowering of tariff walls against each other. After the stated period there would be no tariffs between them and they would have a common tariff toward the outer world.

We can make economic union in Europe a reality if we continue the work that has already been done, but with an even greater determination. The further we proceed, the greater becomes the resistance of group interests which dread any exposure to the cold wind of competition. In view of this, our main concern for the near future should be a forceful drive for freedom of trade in Europe, as a condition for greater efficiency and stability.

There are, however, two qualifications to this: the transition should be orderly and it should be gradual. From what I have said before it will be clear that by “orderly" I do not mean regulated in detail. Such regulation is not possible. Nor is it possible to prevent every hardship resulting from the process of liberation. One cannot make an omelette without breaking eggs, as the French say. But it should be realized that economic integration must not lead to the creation of distressed areas in Europe. If it does, the government of the country in question will suffer defeat and be replaced by opponents who will do everything to reverse the process, including perhaps complete withdrawal from European co-operation.

The example of the coal industry under the Schuman plan proves that it is possible to prevent large-scale hardships by some transitional planning, which absorbs the shock and prepares the ground for complete freedom. A similar policy will have to be applied in agriculture. Farmers’ attitudes and government policies in high-cost areas have so far been very negative. All they have been trying to do is to avert the danger of free foreign competition as long as possible or, if it had to come - as in Benelux—to claim special Protection for high-cost products. The emphasis, however, should be not on protection but on efficiency. While there may be reasons for high costs which cannot be ignored, the watchword should be modernization. Any price support should be temporary and the proceeds should be used for readjustments necessary to prepare the ground for free competition.

An example of the right attitude of mind was recently given by a young German economist, who found that agriculture in his country was, on the whole, working at such high costs — or low yields - that it could not face tree competition from other European countries. His conclusion was, not that economic integration should, therefore, be banned, nor that German farmers should be sacrificed in the interest of the consumer, but that their efficiency should be raised by a well laidout plan for land improvement, re-allotment, training, consultation, mechanization, and seed selection. Such a plan would prepare the German farmer to take his place in an integrated European economy. This is an example of the orderly sort of transition which is necessary to bring about freedom without creating panic or large-scale distress. Similar needs might occur in the industrial sphere, although there differences in production costs are rather between individual firms than between geographic areas.

As all readjustments take time, it is impossible to produce economic unity at one stroke. It is, therefore, essential to proceed gradually. But just as orderliness does not mean detailed regulation, gradualness does not mean hesitancy. On the contrary, gradual steps towards greater freedom should prove the governments’ absolute determination to go through with the process until complete economic unity has been reached. It has been said that free trade is impossible as long as the rates of exchange are frozen at unrealistic levels. There is no reason why a scheme of diminishing tariff protection should not be accompanied by a sensible revision of exchange rates, or by a coordination of monetary and social policies.

The sense of reality, necessary to push governments and businessmen forward on the road to economic freedom and unity in Europe, can only be created if something definite and irrevocable is being done. That is the best reason why any treaty to form a political community in Europe should include an obligation of the participating countries to reduce the existing tariff barriers between them by a certain percentage at regular intervals, in order to arrive at a complete customs union within a staled period. The need for such a scheme is so urgent that it ought to be the subject of a separate treaty, should the political community not make enough headway. Responsible statesmen in the U.S.A. would be wise to follow the developments in Europe quite closely, because they may have an opportunity to support decisions of truly historical importance.

  1. O.E.E.C.: Organization for European Economic Co-operation.