The New Old World (8 page)

But since budgets remain the central battleground of domestic politics, how could there be fiscal coordination without electoral determination? The ‘system of institutions' on whose necessity Godley insists is only conceivable on one foundation: it would perforce have to be based on a genuine supranational democracy at Union level, embodying for the first time a real popular sovereignty in a truly 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 are for the scale of the choices before them.

What, secondly, will be the position of Germany in the Europe envisaged at Maastricht? The accelerator towards monetary union was pressed not merely by the hopes or fears of bankers and economists. Ultimately more important was the political desire of the French government to fold the newly enlarged German state into a tighter European structure in which interest rates would no longer be regulated solely by the Bundesbank. In Paris the creation of a single currency under supranational control was conceived as a critical safeguard against the reemergence of German national hegemony in Europe. At the same time, even sections of the German political class and public opinion, somewhat in the spirit of Odysseus tying himself to the mast to protect himself from temptation, were inclined—at any rate declaratively—to share this view. On both sides, the assumption behind it was that a European monetary authority would mean a reduction in the power of the nation-state that was economically strongest, namely the Federal Republic.

No sooner was the Treaty signed, however, than exactly the opposite prognosis took shape, as German interest rates at levels not seen since the twenties inflicted a deep recession on neighbouring countries, and German diplomatic initiatives in the Balkans—once again, as in the early years of the century, shadowing Austrian manoeuvres—stirred uneasy memories. Conor Cruise O'Brien has expressed the alternative view most trenchantly. Commenting on the Yugoslav crisis, in which Bonn claimed to be moved only by the principle of national self-determination—not so applicable, of
course, to lesser breeds: Chechens, Kurds or Macedonians—he wrote:

Germany was in favour of the recognition of [Croatia and Slovenia]. The rest of the Community was against, and the United States strongly so. Faced with such an apparently powerful ‘Western consensus', on any such matter, the old pre-1990 Bundesrepublik would have respectfully backed away. The new united Germany simply ignored the United States, and turned the Community around. Germany recognized the independence of Croatia and Slovenia, and the rest of the Community followed suit within a few days. The reversal of the Community position was particularly humbling for the French . . . The two new republics are now part of a vast German sphere of influence to the east . . . German economic hegemony in Europe is now a fact of life, to which the rest of us Europeans must adjust as best we can. To press ahead with federal union, under these conditions, would not ‘rein in' the mighty power of united Germany. It would subject the rest of us to German hegemony in its plenitude.
³⁶

Just this fear, of course, was the mobilizing theme of the campaign against ratification of Maastricht in the French referendum a few months later. The French electorate split down the middle on the issue of whether a single currency would reduce or enhance the power of the strongest nation-state on the continent. The majority of the political elite, led by Mitterrand and Giscard, in effect argued that the only way to neutralize German predominance was monetary union. Their opponents, led by Séguin and De Villiers, retorted that this was the surest way to bring it about. The dispute was fought out against the background of the first monetary tempest set off by the raising of the German discount rate in June, which ejected the lira and the pound from the Exchange Rate Mechanism in the final week of the campaign. A year later it was the turn of the franc to capsize in waves of speculation whipped to storm-height by the line of the Bundesbank.

We now have a vivid inside account of these events in Bernard Connolly's book
The Rotten Heart of Europe
. The coarseness of its title and cover is misleading: a sign more of the self-conscious
encanaillement
of smart publishing than of authorial quality. The book suffers from an occasional lapse of taste, and liking for melodrama. But for the most part it is a highly literate and professional study. Indeed, piquantly so. A crypto-Thatcherite
at the highest levels of the Community's financial apparatus in Brussels, Connolly is at the antipodes of Thatcher's bemusement in the field of European politics. His book displays an unrivalled mastery of the nexus between banking and balloting in virtually every member-state of the EC: not just France, Germany, Italy or the UK, but also Belgium, Denmark, Portugal and Ireland are covered with dash and detail. (The only significant exception is the Netherlands, whose ambivalence between liberal economics and federal politics is consigned to an exasperated footnote). Chauvinist convictions have produced a cosmopolitan
tour de force
.

Connolly's standpoint is based on a principled hostility, not merely to a single currency, but to fixed exchange rates between different currencies—in his eyes, a dangerous and futile attempt to bridle the operation of financial markets, which can only stifle the economic freedom on which the vitality of a disorderly economic system depends. ‘Western capitalism contained is Western capitalism destroyed', as he pithily puts it.
³⁷
Describing the dogfights of 1992–3 inside the ERM, his sympathies are with the most adamant German opponents of concessions to their neighbours' concerns over interest rates, above all the crusty figure of Helmut Schlesinger, then chairman of the Bundesbank. But the sympathy is strictly tactical—Schlesinger is applauded for an intransigence whose effect was to undermine any prospect of stability in the ERM, so exposing in advance the unviability of EMU. It involves no idealization of the Bundesbank, the myth of whose ‘independence' of political influence Connolly punctures effectively—its policies corresponding with remarkable regularity to the needs of the CDU/CSU in the electoral arena.

Today the German political class, in which nationalist reflexes are no longer so dormant, is having second thoughts about monetary union, as the prospect of a single currency has come to look ambiguous on the other side of the Rhine too. Could it be that Germany received shadow rather than substance in the bargain at Maastricht? In chorus, Waigel for the ruling coalition and Tietmeyer for the central bank have been upping the ante for monetary union, with stentorian demands for ‘strict compliance' with the convergence criteria appended to the Treaty (public debt no higher than 60 per cent and public deficit no more than 3 per cent of GDP, inflation within 1.5 and interest rates 2 per cent of the three best performers in the Union) and a ‘Stability
Pact' beyond them. This orchestrated clamour has no legal basis, since in the text signed at Maastricht the convergence criteria are not unconditional targets to be met, but ‘reference values' to be moved towards; and whether or not sufficient movement has been achieved is for the Commission alone—not the Federal Republic or any other government—to decide. These provisions were the work of Philippe Maystadt, foreign minister of Belgium, a country with good reason to insist on flexibility, and certain memories. In its disregard for legal niceties, or small neighbours, the tone of current German diplomacy has become increasingly Wilhelmine.

Nevertheless, it is a striking fact that so far this ‘Teutonic tirading', as Adorno once called it, has met no rebuff. Paris, far from reacting, has been eager to accommodate. For Connolly, this is only to be expected. Under Mitterrand, the attitude of the French elite has been a Vichy-like subservience to German economic power. In its pursuit of a
franc fort
requiring punitive interest rates to maintain alignment with the D-mark at the cost of massive unemployment, this establishment has committed treachery against the French people. Noting the widespread alienation from the political class evident in every recent poll, and recalling with relish the country's long traditions of popular unrest, Connolly—who describes himself as a Tory radical—looks forward with grim satisfaction to the explosion of another revolution in France, when the population becomes aware of the price it is paying for monetary union, and rises up to destroy the oligarchy that sought to impose it.
³⁸

Premonitions of this kind are no longer regarded as entirely far-fetched in France itself. For the moment the prospect is less dramatic, but still fraught enough. The Maastricht referendum revealed the depth of the division in French opinion over the likely consequences of a single currency—would it lead, in the stock question, to a Europeanized Germany or to a German Europe? The victory of Jacques Chirac in the subsequent presidential elections guarantees that the tension between antithetical calculations will continue to haunt the Elysée. For no French politician has so constantly oscillated from one position to the other, or so opportunely reflected the divided mind of the electorate itself. Clambering to power on a platform challenging the bipartisan consensus of the Rocard-Balladur years,
la pensée unique
that gave higher priority to a strong franc than to job creation, after a
few mis-starts Chirac in office has reverted frantically to financial orthodoxy again. The Juppé government is now administering even tougher doses of retrenchment to force the deficit down to Maastricht levels.

Yet even the tightest budgetary rectitude is no guarantee of a
franc fort
. The ‘convergence criteria', as Connolly rightly insists, are completely unrealistic in their exclusion of growth and employment from the indices of a sound economy. Designed to reassure financial markets, they satisfy only central bankers. The markets themselves are not mocked, and will sooner or later mark down any currency where there is widespread unemployment and social tension, no matter how stable are prices or balanced are public accounts—as the French Treasury discovered in the summer of 1993. The current domestic course of the Chirac regime can only tighten already explosive pressures in the big cities at the cost of its electoral credibility, on which that of its exchange rate also depends. The massive street protests of late November could be a harbinger of worse trouble to come. 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.

Chirac's resumption of nuclear tests can be seen as a clumsy attempt to compensate for economic weakness by military display—demonstratively flexing the one strategic asset the French still possess that the Germans do not. The result has been merely to focus international opprobrium on France. Partial or hypocritical though much of this reaction has been (how many pasquinades have been written against the Israeli bomb?), Chirac's experiments remain pointless. Forcible-feeble in the style of the man, they can scarcely affect the political balance of Europe, where nuclear weapons are no longer of the same importance. At a moment when French diplomacy ought to have been engaged in winning allies to resist German attempts to harden the Treaty of Maastricht, for which France's immediate neighbours Italy, Belgium and Spain were more than ready, it was gratuitously incurring a hostile isolation. On present performance, Chirac could prove the most erratic and futile French politician since Boulanger.

Nevertheless, contrary to received opinion, in the end it will be France rather than Germany that decides the fate of monetary union. The self-confidence of the political class in the Federal Republic, although swelling, is still quite brittle. A cooler and
tougher French regime, capable of public historical reminders, could prick its bluster without difficulty. Germany cannot back out of Maastricht, only try to bend it. France can. There will be no EMU if Paris does not exert itself to cut its deficit. The commitment to monetary union comes from the political calculations of the elite, and the world of classical state-craft—a foreign policy determined to check German and uphold French national power. The socio-economic costs of the
franc fort
have been borne by the population at large. Here, absolutely clear-cut, there is a conflict between external objectives and domestic aspirations of the kind Alan Milward would banish from the record of earlier integration. How much does it matter to ordinary French voters whether or not Germany is diplomatically master of the continent again—are not the creation of jobs and growth of incomes issues closer to home? In France the next years are likely to offer an interesting test of the relative weights of consumption and strategy in the process of European integration.

Meanwhile the pressures from below, already welling up in strikes and demonstrations, can only increase the quandaries above. On the surface, the French elite is now less divided over Maastricht than at the time of the referendum. But it is no surer that the single currency will deliver what it was intended to. Germany bound—or unbound? In the space of the new Europe, the equivocation of monetary union as an economic project is matched by the ambiguity of its political logic for the latent national rivalries within it.

Finally, what of the prospects for extending the European Union to the east? On the principle itself, it is a striking fact that there has been no dissent among the member-states. It might be added that there has also 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. Voters were not involved; but before the consequences were given much consideration, editorialists and column-writers across the political spectrum pronounced with rare unanimity any other course unthinkable. Enlargement to the east was approved in something of the same spirit as the independence of former republics of Yugoslavia. This was not the hard-headed reckoning of costs and benefits on which historians of the early decades of European integration dwell: ideological good-will—essentially, the need to recompense those who suffered under communism—was all. Governments have essentially been towed in the wake of
a media consensus. The principle was set by the press; politicians have been left to figure out its applications.