EUROPEAN AFFAIRS

▪ 1994

Europe.

      After a long period of uncertainty and introspection, the European Community (EC)—or the European Union, as it became known after the Maastricht Treaty on European Union entered into force on November 1—ended 1993 on a positive note. The special summit in Brussels at the end of October confirmed the treaty. The European Union now was responsible for decisions on common foreign-policy concerns, security matters, and judicial cooperation, while the European Commission remained the legal body of the EC.

      Jubilation was not unbounded, however, and deep doubts remained about the EC's ability to achieve economic and monetary union within the Maastricht timetable. Britain and Italy had withdrawn their currencies from the European exchange-rate mechanism (ERM) in September of the previous year, and by early 1993 many people had already begun to wonder if the ERM was not too rigid. There were doubts about the ability of the EC member states to achieve sufficient economic cohesion in view of persistent recession and rising unemployment. Nor was it encouraging that Germany was not rushing to abandon the Deutsche Mark in favour of a European currency.

      Denmark assumed the rotating presidency of the EC in January. The new European Commission met for the first time in that month, but for a two-year limited session. Jacques Delors was confirmed as EC president, while former British Cabinet minister Sir Leon Brittan assumed a new role as commissioner for external economic affairs and was put in charge of the General Agreement on Tariffs and Trade (GATT) negotiations.

      Economic Affairs Commissioner Henning Christophersen announced that the European Commission was revising downward its overoptimistic forecasts for average growth in the year to 0.8%. He blamed the reduction, in part, on Germany's forecast of no growth for 1993. In an atmosphere of increasing economic crisis, the European Commission began holding bilateral meetings with each member state to discuss wage cuts, fiscal consolidation, and the possible switching of government spending to capital projects to increase jobs.

      Some signs of the financial crisis that was to hit the ERM later in the year were already becoming apparent. Christophersen warned speculators in January that runs on the Danish krone, French franc, and Irish punt could prove expensive as the economic fundamentals of the countries were put in order. As January closed, finance ministers approved an ECU 8 billion balance of payments loan to Italy. Conditions attached to the loan required the country to reduce its debt-to-GNP (gross national product) ratio, limit government borrowing, and implement government reforms of public spending in such areas as health, pensions, and the civil service.

      Brittan condemned the United States for unwarranted and heavy-handed action to impose swinging tariffs on steel imports. He said that the EC steel producers had scrupulously respected the antidumping agreement that ran for 10 years until its expiration at the end of March 1992. The issue was the first skirmish in a series of trade disputes that were to mar the GATT negotiations and perpetuate doubts that the December 15 target date for a Uruguay-round agreement would be realistic. Within a few days Brittan was reacting strongly again, this time to a decision by Washington to prevent federal agencies from awarding contracts to EC companies. The move was seen as "strike two" for the U.S. government's new administration in its first two weeks, and the EC was left concerned about possible protectionist policies developing across the Atlantic.

      The GATT talks dominated the EC's political agenda throughout the year. In March Delors met U.S. Pres. Bill Clinton in an attempt to cool down the various long-running disputes over telecommunications and public procurement that were hampering a GATT deal. The visit by the EC president came just one week after the U.S. called off negotiations with the Commission on the long-running disputes. In the end both Clinton and Delors expressed a desire to find a "mutually satisfactory solution." Clinton announced that he would be seeking the consent of Congress for an extension to the end of the year of the "fast-track" negotiating mandate in the GATT negotiations.

      In April the Community turned its attention to the former Soviet Union. At the two-day Group of Seven (G-7) meeting in Tokyo, Christophersen announced a further package of EC assistance to the former Soviet republics of about $3 billion but warned that despite the massive injection of aid, far more would have to be done. Meanwhile, the EC agreed that its role should be to set an example to its eastern neighbours with the promise of opening EC markets while warning them that in return they must gradually remove state protection. The Commission made it clear that it would not hesitate to use its powers to defend EC industry from breaches of multilateral trading standards, such as the dumping of cheap imports by Eastern competitors.

      By the end of April, the U.S. and the EC were pulling back from the brink of an all-out trade war after reaching a partial agreement on public procurement contracts. At the same time, the Commission's ninth annual report on U.S. barriers to trade described the situation as "highly unsatisfactory." Although the EC trade deficit with the U.S. had fallen from $16.7 billion to $9 billion, there had been no significant reduction in the number of U.S. trade barriers facing EC firms. The report also expressed concern about the U.S. legislation that had had an impact on trade outside U.S. territory, such as the Cuban Democracy Act, and it highlighted EC efforts to negotiate a deal on multilateral free trade. In talks in Tokyo in April, the Commission expressed concern about the European Community's growing trade deficit with Japan. At $31.2 billion in 1992, the deficit had reached a level that was potentially explosive, the Commission said, unless measures were taken to reverse the trend.

      In May, in their second referendum on the Maastricht Treaty, 56.8% of the Danes voted "yes." In accordance with a plan worked out at the Edinburgh EC summit in December 1992, Denmark had been allowed to opt out of the single-currency and defense arrangements of the treaty. Delors said that the Danish reversal on the 50.7% "no" vote in 1992 gave the EC the stimulus needed to pull it out of a period of gloom and inaction.

      The Danish government announced that initiatives for growth and employment would be at the top of the agenda at the midyear EC summit, for which it would serve as host in Copenhagen. The plan was timely, coming as it did at a time when the Community's economy was shrinking for the first time since 1975, according to the current-year report of the European Commission. The issue of unemployment continued to resonate in EC gatherings throughout the year.

      The German government had always insisted that neither the strains of unification nor internal controversy over the Maastricht Treaty would lead to any wavering of its commitment to the EC. The German question came to a head at the end of July at a special meeting of the European Monetary Committee, made up of central bank governors and representatives of national governments. Germany and its powerful Bundesbank were the targets of bitter recriminations as the ERM was effectively dismantled and the currency exchange fluctuation bands were expanded to 15%. Only Germany and The Netherlands elected to keep their currencies within the original 2.5% band, giving rise to concern that Germany was becoming the nucleus of a Deutsche Mark zone in a two-speed Europe.

      The troubled Maastricht Treaty successfully weathered the parliamentary process in the U.K., but Prime Minister John Major was badly damaged by the political deals he had been forced to make with opponents on the right of his Conservative Party. Germany was the last country to ratify the accords; the Constitutional Court gave its somewhat tentative approval in October.

      Belgian Foreign Minister Willy Claes told the EC leaders who had gathered in Brussels on October 29 to ratify the Maastricht Treaty that "there is no reason to be euphoric"; indeed, there was none. The tally of progress on European unity for 1993 was mixed at best: reluctant agreement on Maastricht, disagreement with the U.S. and Eastern Europe on trade matters, and nonagreement among EC members on currency issues. Further questions of changing the administrative structure and possibly the voting procedures (which gave proportionately more weight to smaller countries) of EC bodies were becoming urgent, and the possibility of four new members—Austria, Finland, Norway, and Sweden (Switzerland voted during the year not to pursue its application)—joining the EC in 1995 was looming as well. The Brussels meeting did manage to resolve the contentious issue of awarding sites for various new European agencies. The European Monetary Institute, the core of a future central bank, went to Frankfurt, Germany. Among the other assignments were Copenhagen as the site of the European Environment Agency and The Hague as the headquarters for the Europol Drugs Agency.

      By November, German economic forecasts were being revised upward, introducing a cautious and qualified note of economic optimism to the entire Community. Delors, however, was less sanguine as, in a series of speeches, he warned of the danger that the EC would become "an English-style free-trade area" and complained that Community leaders were not doing enough to promote economic growth and employment.

      The year ended with perhaps the greatest failure of the European movement still unresolved: the tragic lack of cohesion over the former Yugoslavia. Deep divisions within the EC and between the EC and the U.S. had by this time become open and public. There were also sharp disagreements over the lifting of the arms embargo on Bosnia and Herzegovina and demands advanced by some EC countries for limited air strikes against the Serbs and later the Croats. The clear message from Clinton, was that the EC needed to get its act together. Faced with a clear signal that U.S. interest in European security was diminishing, this key pillar of the Maastricht Treaty was given new impetus. In December most of the EC members—led by Germany, France, and the U.K.—announced plans to establish diplomatic relations with The Former Yugoslav Republic of Macedonia, despite the protests of Greece, which was due to assume the EC presidency on Jan. 1, 1994.

      The Western European Union (WEU) played an increasingly important role as the forum for a future European security and defense policy. In November the full European Army Corps of 50,000 French, German, and Belgian soldiers was formed. It was intended to provide the basis of a European army answerable to the EC through the WEU but also to be available to NATO.

      The Council of Europe expanded to 32 members during the year to become the only body encompassing both Eastern and Western European countries. In answer to calls from countries with sizable minority problems, such as Slovakia and Romania with their large ethnic Hungarian populations, the organization decided to focus on the problems of minorities at a summit in Vienna in October. The decision reflected a general view that a more positive approach to the problems of minorities earlier on would have helped to avoid the conflict in Bosnia. The Vienna summit also concentrated on plans to assist Eastern European countries with their democratization programs. (JOHN PALMER)

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