Triumph Over Politics

After a summer that most vacationers would rather forget (see THE WORLD), Europe approached the serious business of fall with high hopes and busy schedules. September marks the end of the somnolent holiday season, the beginning of a new spurt of business and the return to work of the managers who make Europe's industry run. In 1963, it also marks a decisive time for the unique and historic union that is Europe's Common Market. The remarkable fact about the Market, eight months after Charles de Gaulle abruptly barred Britain from membership, is that, in a triumph of economics over politics, it has continued to be a strong and growing force.

"This is a black day for Europe. The Common Market is now only a mechanism and no longer a living thing," West German Economics Minister Ludwig Erhard had cried in his despair over De Gaulle's action. The mechanism, nonetheless, is working very well. While 1963 has not been quite the year that it promised to be in early January, it has been far more successful than European businessmen dared to hope right after De Gaulle's shocker. Among Europe's top managers, there is a continuing confidence in economic growth, and a sense of expectation about where the Common Market is leading.

Psychologically In. The businessmen have continued to raise their production schedules. Despite the most disastrous winter in recorded European history, the Common Market is growing exuberantly at more than 4% for the second straight year. Says one top Ruhr industrialist: "Though the vetoing of Britain was a deep and painful psychological shock, it has had no direct effect on our business." Nor has it affected Europe's tariff-cutting schedule. European governments in July, without fuss or furore, cut tariffs among their countries another 10%, bringing the total tariff reduction to 60% since the Common Market began in 1958.

Faced with thousands of individual decisions that had awaited Britain's expected entry, both British and Continental businessmen took another look at the situation after De Gaulle's veto, decided that they could live with it--and went on from there. Ignoring De Gaulle, the Common Market recently agreed to meet quarterly with British officials to exchange information, work out problems, and devise new ways to bring Britain closer to the Six. British exports to the Common Market were $280 million higher in the first half of 1963 than in 1961's first half, and British investment houses are now included in almost every new Continental banking syndicate. "Psychologically," says a director of a London bank, "Britain already is in the Common Market."

While waiting for Britain to enter in the years to come, the Common Market has expanded its influence in other directions. The Six recently signed a commercial treaty that will tie in their trade with that of 18 former African colonies. Having made Greece an associate member, the Six next month will give Turkey similar status. Among themselves, they have moved well along toward harmonizing their controversial and complicated business turnover taxes and centralizing their banking and budget policies. But the sharpest spur to increasing economic union is the unflagging strength of the huge European market, second only to the U.S. in size.

Higher Wages. Soon to be six years old, the Continental boom is changing its basic character. From a Keynesian kind of capital-goods boom, the Common Market is now experiencing a consumer-goods boom that will send its auto production up 15% this year (to some 5,000,000 cars) and increase the output of everything from clothes to convenience foods. Now that its war-scarred factories are all rebuilt, Western Europe is concentrating most of its industrial might on meeting an impatient consumer demand.

Europe's buying power is rising all the faster because labor is scarce and demands ever higher wages. With a slightly smaller population than the U.S., the Common Market Six have more than 73 million people gainfully employed, v. 70.8 million in the U.S. This year employers are bidding up wages and benefits 8% to 15% in Germany, France and Italy. Wage inflation is keeping the consumer buying, but it is also cutting into corporate profits.

Heard all over Europe now is talk of "rationalization": a German-born euphemism for the coming shake-out of slow-footed companies in the face of stepped-up competition and automation. Few Common Market leaders believe that Western Europe really needs its two dozen automakers--and fewer still think that so many will be around in ten years' time. Germany's Erhard, Europe's leading proponent of free markets, believes that a certain number of bankruptcies are a healthy inevitability. During 1963's first half, the number of bankruptcy proceedings in Germany increased 11%.

Against Erhard's classic economic view is an older, more restrictive European feeling that things should really be better arranged. State planning was the goal of France's Jean Monnet, Belgium's Paul-Henri Spaak, and many of the others, who germinated the Common Market, and it has been adopted as national policy by De Gaulle's France. The elaborate French plan sets production goals and controls for most of French industry, rewarding those who conform to the plan with government loans and tax breaks. Like Erhard, many men in the business establishment around the Continent are against such government interference--but they have more or less lost the battle. France's le Plan now is being widely copied throughout Europe.

The Eurocrats. Planning is a way of life for a unique generation of men who have already worked six years at the job of European economic unity. They are the Eurocrats, those scarcely known bureaucrats and technicians who run the Common Market from the new headquarters on Brussels' aptly named (except for the British) Avenue of Joyous Entry. There are 2,450 Eurocrats--one-fourth of them translators who cope with the Brussels Babel of French, Dutch, Italian and German--and their aim is an overall European plan that will eventually govern production, wages and investment capital. In every idiom, they constantly repeat: "We are past the point of no return."

The three able Eurocrats who count most are Walter Hallstein, 62, an erudite but colorless German law professor turned politician, who runs the administrative machinery as President of the Commission of the European Economic Community; Financial Chief Robert Marjolin, 52, a Yale-educated French Socialist with an American wife, who lost considerable face back home when he ran as an unsuccessful anti-Gaullist candidate for deputy last November; and Agriculture Chief Sicco Mansholt, 55, a Dutch Socialist dairy farmer, who was a wartime underground leader and then his country's longtime Agriculture Minister. Besides pursuing their economic and political idealism, the Common Market's Eurocrats enjoy handsome salaries that are free of national taxes (Bachelor Hallstein earns $27,800 yearly and fills in a 90-hour week). They also have diplomatic immunity, sport prestigious "Europe" license plates on their cars, and send their children to special schools where even the history texts have been redrafted so that neither the French nor German view of their wars predominates.

Farmers' Roadblock. The biggest difficulty that the Eurocrats face is that restless and unpredictable segment that confounds the planners everywhere: the farmers. French farmers are heavily subsidized and surplus-ridden, and more efficient than Germany's. If the Six adopted the Eurocrats' program for free movement of foods and fibers throughout the Market, 1,000,000 German farmers would have to leave the land over the next generation. Partly to keep France from forcing freer farm trade upon them, the Germans have agreed to French demands for higher tariffs against imports of U.S. chickens, thus setting off the now notorious chicken war with the U.S.

Washington does not want to discuss tariff cuts on industrial imports until the farm scramble is settled. The result is an impasse that may well cause trouble during the "Kennedy round" of tariff cuts scheduled for next spring--though many in Washington now believe that before long Europe will cut back her chicken tariffs. (The Eurocrats are Atlantic-minded almost to a man; it is the politicians back home who give them trouble.) The Kennedy round of tariff cuts between the U.S. and Europe is provided for in the 1962 Trade Expansion Act, which permits the President to eliminate all tariffs only on products for which the U.S. and the Com mon Market together account for 80% of world trade. The Trade Act was based on the assumption of British membership in the Common Market. Without the British, few products qualify under the 80% clause.

Moving Target. The fuss about American chickens has left a wide spread impression that Europe and the U.S. are about to wage a broad economic war. The fact is that in most things they get along well and that their economies have continued to meld.

Overall U.S. sales to the Six, which have jumped 13% in the past five years, are continuing to increase. American businessmen, undeterred by De Gaulle's threats to restrict U.S. investment in France, are continuing to invest heavily in Europe. Direct U.S. investment is running an impressive 45% ahead of last year's rate, will reach $1 billion in 1963.

American businessmen in international trade seem to share the Common Marketers' faith that Europe's continuous growth is assured and that its march toward economic and political union, whatever obstacles it may encounter, cannot be halted. Eurocrats look for the Common Market to reach a high point of sorts in 1967 or 1968.

By then, they figure, Britain will be a member of their club. By then also, the Common Market will have removed all its internal duties on industrial goods. In spite of everything, that target date is still three years ahead of the timetable originally written in the Treaty of Rome--and the fact that Europeans expect to meet it is a measure of how well the Common Market's lofty conception has become pleasing reality.

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