Europe's Future: Go West, Old Man

By Charles Krauthammer

WHEN THE GROUND BEGAN SHAKING UNDER EAST GERmany more than three years ago, , the race was on between the unification of Germany and the unification of Western Europe. Last month the results came in. Germany won.

West European unification was premised on the cold war: a divided Europe and a diminished (West) Germany held within the bounds of a deep, strong, European union. Given time, this might have come about. Had the cold war persisted another decade or so, a federal Western Europe might have been established in the shelter, as it were, of the Berlin Wall.

But the Wall came down and time ran out. The new Germany became preoccupied with the task of absorbing the east. Moreover, the new Germany grew too large to be swallowed by a federal Europe. The Maastricht treaty, the penultimate stop on the road to a federal Europe, was a last-ditch attempt to deny that reality.

Last month denial became impossible. Europe's exchange-rate mechanism exploded, and somewhere in the rubble lies Maastricht. What happened? The ERM tied E.C. currencies to the German mark. But much of Europe -- notably Britain and Italy -- was unable to keep up. The German central bank had jacked up interest rates to dampen the inflation caused by huge deficit spending on eastern Germany. The weaker E.C. countries had a choice: a) match Germany's high interest rates and risk both deep recession and political suicide; or b) drop out of the ERM. Not surprisingly, they chose b).

Amid the chaos of the currency crisis, it became clear that German political vision is as yet no match for its economic dynamism. Germany is Europe's de facto leader, but will not act the part. As Americans have learned to their constant chagrin, leadership means sacrificing some measure of national interest to the greater alliance interest. Germany knows that its interest rates set the standard for the rest of Europe. By setting its rates ruinously high, Germany was announcing that in fighting domestic inflation it was quite prepared to lead the rest of Europe into recession. The rest of Europe has just announced that it will not be so led.

After the ERM debacle, it is clear that the grand vision of a federal Europe is an illusion. What then does Europe do?

Do more of what it does best: free trade. The E.C.'s single-market project will soon allow the virtual free flow of capital, goods and labor within the Twelve. Speaking last month in Washington, Margaret Thatcher made the case for a rapid widening of the single market. First, east to its European neighbors. And then boldly west -- to North America.

Free trade between Europe and America has been bruited about before. It was raised by National Security Adviser Brent Scowcroft, unfortunately without result. But with the fading of visions of a federal Europe, it acquires a new urgency. Today, two potentially antagonistic trade blocs are going up on both sides of the Atlantic. The U.S. is afraid that a Fortress Europe will shut its trade doors. Europe looks warily at the budding North American Free Trade Agreement, which would create a trading zone demographically larger than the E.C.

A transatlantic free-trade area merging the two would not just prevent a trade war and increase prosperity on both sides of the Atlantic. It would have a profound global effect. As Thatcher pointed out, Europe and North America together account for more than half of world GNP. They would dictate the terms of the world economy. Given the fact that at the core of the transatlantic union would be America, Britain and other free-market countries, it could dictate a world of free trade.

Why is that good? Because common markets make not only for general prosperity but also for the kind of comity and nonbelligerency that flow naturally from uncoerced commercial relations. Moreover, a transatlantic free- trade zone would signal Japan that if it had thoughts of creating a rival Asian bloc or did not modify its predatory drive for market dominance, it might find itself shut out of the new world economic order.

Almost 50 years ago, another deposed British Tory Prime Minister journeyed from Britain to America to propose union with America. The major -- and forgotten -- point of Churchill's Iron Curtain speech was his call for a "fraternal association of the English-speaking peoples," an association so close between America and the British Empire that "eventually there may come the principle of common citizenship."

President Truman responded with a looser but wider idea, an alliance not just with Britain but with all of Western Europe. The result was NATO, America's first ever peacetime alliance and arguably the most successful alliance in history.

Today again there is need for alliance, not military this time but economic. The threat is not the Soviet empire but growing economic nationalism and protectionism threatening 50 years of unparalleled world prosperity. The answer is a transatlantic pact, a free-trade zone embracing like-minded, market-oriented, democratic peoples stretching ultimately from Vancouver to Vladivostok.

Political union is a project best left to our children. Perhaps by their time, differences of language, that engine of nationalism, will have lost their salience. A world speaking in Macintosh icons -- a world in which video has rendered language obsolete -- may come to see its political divisions as archaic and encumbering as did the American states of 1789.

Tomorrow, Utopia. Today, a more modest goal: a Transatlantic Free Trade Zone.