European Community: Blueprint for the Dream

By Jill Smolowe

In the end there was something for everybody. Britain could claim that it was still master of its monetary and labor policies. France could point to a firm timetable for establishing a single currency for the European Community's other 11 members. Germany, among the most Euro-minded of the Community states, could hail the birth of a "European union." And the most impoverished brethren in the group -- Greece, Ireland, Spain and Portugal -- had won the promise of money transfers from the rich states to the poor.

The summit in the medieval Dutch town of Maastricht last week, aimed at forging deeper economic and political integration within the European Community, was a qualified success. After two days of heated wrangling, the 12 heads of state and government produced an agreement that took a giant step toward monetary unity, a half step toward strengthening a separate European defense organization, and a baby step toward framing a common foreign and security policy. They also moved toward pursuing joint action in areas ranging from immigration to education and labor. "This meeting," said German Chancellor Helmut Kohl, "has resulted in the fulfillment of a dream. Further integration is now inevitable. The course is irreversible."

The Maastricht decisions will be incorporated into the 1957 Treaty of Rome, the E.C.'s charter document. With its political dimension expanded, the Community -- the industrialized world's largest single market with 340 million people -- should provide much needed stability in the face of turmoil in Eastern Europe and disintegration in the former Soviet Union.

The summit's crowning achievement was the commitment by 11 of the 12 (Britain excepted) to monetary union by the end of the century. After years of debate, the leaders agreed to establish a single European Currency Unit, the ECU, as early as January 1997. But each country must first meet stringent economic criteria. Among them, total government debt must fall below 60% of gross domestic product, and budget deficits may not surpass 3% of GDP. If fewer than seven countries meet the test by the target date, then the currency will be delayed until 1999, when qualifying nations will put the ECU into circulation as their legal tender. Countries still unable to adopt the ECU by that date will do so when their economic performance matches the E.C. guidelines. In addition, a European Monetary Institute will be established in 1994 and will later achieve full powers as Europe's central bank.

All of this is designed to make Western Europe the world's biggest economic power, equipped to meet the American and Japanese challenge. But there are huge caveats. Most important, Britain demanded a separate "opt out" clause, under which its Parliament may vote later in the decade on whether or not to adopt the ECU. Moreover, only three countries currently meet the criteria. At a time when average E.C. unemployment is nearly 10%, belt tightening to achieve the rigid goals will hardly be popular.

The Maastricht decisions raise the prospect of a "two-tier Europe" in which the economically powerful countries of the north will pull even further ahead of the nations to the south. "Countries unable or unwilling to join a single currency, including Britain, will quickly find themselves facing currency instability, higher interest and other very tricky domestic problems," warns David Roche, chief international-portfolio strategist for Morgan Stanley in London. To help lagging economies catch up, the E.C. will create a "cohesion fund" to pour an unspecified amount of cash into transportation, infrastructure and environmental cleanup in the south.

The summiteers also agreed to move toward a more unified foreign policy. This follows the divided stance of the E.C. during the gulf war and its indecision about whether to send peacekeeping troops to Yugoslavia. E.C. President Jacques Delors, who had branded the Community's foreign policy apparatus "organized schizophrenia," called for streamlined decision-making procedures. But members shrugged off pressure from France to adopt majority voting, yielding to Britain's insistence that a unanimous poll serve as the only basis for important initiatives.

On security, the members agreed for the first time to work toward what the treaty described as "the eventual framing of a common defense policy." Members designated the Western European Union, a long inactive consultative group that includes nine E.C. members, as the new military "pillar," to act in coordination with NATO. While the treaty calls upon the WEU to "respect the obligations" of the states belonging to NATO, there is no categorical statement that NATO will remain the key to Europe's defense. The three nonmembers of the WEU, Greece among them, will be invited to join, while Turkey, a NATO ally that does not belong to the E.C., will be offered associate status.

The Community had little difficulty accepting joint action or increased cooperation in the areas of industrial affairs, health, education and immigration. But labor policy proved far thornier. Eleven members signed a "social chapter" that expands E.C. authority over labor practices, including minimum wages, working hours and firings. Again Britain opted out -- hardly surprising, given the years of Thatcherite determination to loosen labor unions' stranglehold on the country's economy.

While the summiteers hailed the gathering as a success, some audiences back home were not quite so impressed. In Britain opposition Labor leader Neil Kinnock argued that Major's refusal to commit to either a single currency or social policy "has isolated Britain on the most vital issues." In Germany, where fears mount that a common currency will undermine the country's cherished anti-inflationary stability, the daily Bild Zeitung ran the gloomy headline: "1999 -- THE END OF THE MARK."

Still, Maastricht marked a major milestone in the European Community's quest for greater integration. Although the word federal does not appear in the treaty -- once again, at British insistence -- the text does call for "an ever closer union." Three decades ago, Jean Monnet, the E.C.'s founding father, championed the notion that tighter economic ties would produce closer political cooperation. In Maastricht that dream was endorsed with renewed enthusiasm by the leaders of the new Europe.

With reporting by Adam Zagorin/Maastricht