Journal of Common Market Studies Volume XVIII, No. 3 March 1980

Possibilities and limits of European integration*

U L R I C H E V E R L I N G

Head ofthe Department for European Polky, Federal Ministry ofEconomk Afairs, Bonn, and Professor at the University ofMiinster

DISCUSSIONS about the second enlargement of the Community by the entry of Greece, Portugal and Spain are overshadowed by sorrowful concern about the future viability of the Europe of Twelve. The question, whether the aims of European Integration can be realized under the new conditions, is at the centre of all considerations on Europe’s future.

However, the question about the prospects of integration is not limited to enlargement. For years the Community has been described as being in a crisis. But when crises exist permanently, merely changing their immediate causes, it should be asked if they really are crises, that is to say exceptional conflict situations. It is rather more likely that the conflicts the Community has so far experienced are significant of tensions inherent in the integration process itself. Therefore, enlargement does not raise the question of the chances of integration but points to already existing difficulties, accentuating and aggravating them.

It is not possible to deal exhaustively with this vast topic, but only to present some provisional, strictly personal comments for discussion.

?-he state of integration today To start, it is necessary to give a resum6 of the present state of integration in the European Community. In this connection the Community will be taken in a political sense to mean the entire organized movement, inside and outside the Community Treaties, towards European unification including all supplementary agreements, policy actions and coordination procedures.

The Community started with a merging of national markets with provisions for undistorted competition and broad mobility of the factors of production. The Common Market in this sense is even today the hard core of the

*This is an English version of the article ‘Uberlegungen zum Fortgang der Europaischen Integration’ published in German in Europa-Archiu, No. 24,20 December 1979. It is based on a lecture given to the conference on the enlargement of the European Communities, October 27, 1979, at Copenhagen.

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Community and, because of the interpenetration of economies it has brought about, also the most important framework holding the Community together. In this fully integrated area, Community law, strictly applied by the Court of Justice, allows Member States no margin. They must for example uphold free trade of goods in spite of social conflicts which may be caused by the open markets, and they are bound to accept nationals of other EC countries as workers even if there is unemployment at home. For these reasons the Common Market has a major impact on the internal policy of the Member States as well.

The functioning of the Common Market is, however, impaired by conflicts with areas of national policy that are not fully integrated. Trade barriers between Member States, above all, result from differences between national regulations governing the manufacture and marketing of goods. They can only be eliminated by the harmonization of the respective national laws, which will only succeed to the extent that common policies are worked out in each of these special fields. But these laws are founded on considerations of public policy, public security and public health, which continue to be the fundamental responsibilities of the states. This calls for a painstakingly slow process of adjustment, which has been on its way for some time. It has already achieved remarkable results.

The coherence of the Common Market is, however, even more endangered by differences in overall economic policies which are merely to be coordinated, not unified, under the Treaty. But the Common Market brings about the need to establish common policies in the main areas of economic policy. Under the influence of the monetary tensions of the beginning of the seventies a bold attempt was made to achieve a common policy via Economic and Monetary Union. It was bound to fail; the political and social forces in the Member States cannot be overlaid or neutralized by the automatism of a monetary regulatory mechanism. The Community will continue to depend on the painstaking coordination of national policies. Even the European Monetary System, established at the beginning of 1979 which still allows exchange rate corrections does not alter this situation; on the contrary, its success is conditional on how well coordination of economic policy works.

Much the same could be said of special areas of economic policy. The only exception is agriculture because the removal of trade barriers under the EEC Treaty required the common organization of agricultural markets. But the Common Agricultural Policy is something of a negative example, since surplus production and rising costs threaten to bring about a break-down of the common agricultural market which is already being distorted by Monetary Compensatory Amounts.

In the field of industrial policy the Commission disposes of substantial influence by its ability to control state aids; it also tries to apply aids itself. Primary responsibility nevertheless still lies with the Member States, and the Commission finally cannot but respect this fact as practice proves. Moreover,

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in the field of energy policy all that has been achieved, apart from general guidelines, are some isolated measures.

The Community has extended its coordinating activities to some other fields not mentioned in the EEC Treaty by making use of the supplementary gap- filling clause (Art. 235 of the EEC Treaty). Examples are regional policy as well as policies on research, education, environment and development. Outside the Community framework Member States have regarded judicial and internal security matters as well as foreign policy issues as problems of common concern. In all these fields, the Community has mostly confined itself to a more or less close policy coordination. The more integration gains in breadth, the more it loses in depth.

The picture is more complicated as regards the Community’s external relations. Although the Community is responsible for commercial policy, its ability to act at international levels is inhibited by the lack of internal common policies to which external policies normally correspond, and by divergencies of the Member States’ foreign policies of which commercial policy is a part. Internal policies and foreign policy, however, are still regarded by the Member States as being objects of their responsibility and evidence of their national independence. On the other hand, the Community is legally and politically forced to act as a unit v i s -h is its commercial partners. The outside world regards the Community as a unit and expects uniform responses to all demands. As a result of this antithesis, commercial policy has only been worked out in a troublesome process. Nevertheless, the Community has concluded a large number of agreements, mainly association and preferential agreements, with industrial and developing countries, and the Community and the Member States present a common or at least harmonized front in most international conferences. But in many respects the commercial policy is still incomplete, and the negotiation procedures are mostly difficult and lengthy ; because of the lack of common policies the Community is only able to reach a decision after long discussions.

Hence, the prospects presented by the Community are mixed. The Common Market is of vital importance to the business sector, offering safe markets at a time of growing protectionism. Since the establishment of the Common Market, the functional interdependence between different sectors of economic activity has caused mounting pressure to develop common policies in other spheres. Nevertheless, working out such policies meets with considerable difficulties. In areas where the Treaty of Rome necessitated Community regulations, for example freedom of movement within the Common Market or in agricultural and, to a certain degree, commercial policy, much has been achieved. Where, on the other hand, the creation of Community policies is up to the discretion of Community institutions without internal or external constraints, as is the case in coordinating the various forms of economic policy, results have been reached only to a limited extent and by a painstaking and slow process.

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Problems in developing h? Community In order to assess the possibilities of, and limits in achieving common policies, we must examine why it is so hard to find a consensus between Member States. The reasons are manifold.

Beginning with the economic field, it should be pointed out that Member States have different economic philosophies and goals, and these are due to differing economic and social structures and the different directions economies have, therefore, taken.

One of the most important factors is the diversity of views on how the economic system should be run, and especially on the role of the state in the economy. The German approach is that the state should primarily set the framework in which the private sector operates. It should ease the processes of adjustment and not hinder them by conservative subsidies in favour of outdated structures, and it should mitigate the social and regional impact of these processes. Other Member States are traditionally more inclined to intervention and planning. In this respect, however, important changes are taking place in France and Britain particularly, though their success remains to be seen.

Even greater significance lies in the structural differences between the Member States, which are both at the roots of the existing differences in policy, and, to some extent at least, their result. The different structures now existing have been shaped in a long historical process by a variety of economic, social and cultural factors. In concrete situations these tend to give rise to different reactions by the governments concerned. Examples are regional disparities, the degree of administrative centralization, the varying competi- tiveness of industry and its over- or under-concentration, the varying adaptability of entrepreneurs, the scattered organization of the trade unions in some countries, the syndicalistic attitude of some union movements, or shortcomings in vocational training.

In a specific situation, there will be derived real or imagined interests from these factors which determine the different way Ministers argue and vote in the Council. A difficult process of structural adaptation among Member States is thus needed before common policies can be put together. Once Greece, Portugal and Spain join with their special development problems, the range to be covered in working out common policies will be even wider.

The Community is, furthermore, not limited to the area of pure economics but affects the very heart of state policy. Economic policy in its various fields influences not only economic events but central issues to do with the future of a country, its role in the world and the destiny of its citizens. Economic policy is, as is indicated by the word itself, really political. In the modern world it is often more significant for the life of a state and its people than politics in the traditional sense.

Yet, as indicated above, politics in the strict sense of the word are affected by the Community, too. The position of the Member States in the world is

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influenced directly by commercial policy, for which the Community is exclusively responsible. Commercial policy deals with trade arrangements for specific goods only superficially; materially it always has to do with political relations to partner countries and this means with foreign policy. As a special instrument todiscuss these political aspects, the European Political Cooperation (EPC) has been created.

These impacts of Community policies show that it is usually not or at least not solely the lack of political will on the part of Ministers sitting in Council if a breakthrough to a common policy is not achieved. Every minister is burdened with domestic problems caused by the special economic and social structures and by the political impact of Community policy; and if he pays attention to the reaction of his voters at home, this is understandable and legitimate for a politician in a representative democracy.

Therefore even changes in the institutional procedures of the Community will not alter very much. The problems lie in the substance of the Community and cannot be spirited away by procedural tricks. Of course it may become apparent after enlargement whether changes of procedure, for example reducing the number of Commissioners or other changes, can help to improve the day-to-day running of the Community. To this extent the value of the study represented by the ‘three wise men’ to the European Council should not be minimized; but it will not solve the real problems.

In particular, the idea of majority voting is not a general solution. Certainly it should be applied more often, and in some cases this has been done. It may also be hoped that increasing the number of members will make it harder for single Member States to insist on their special interests even if they are isolated. This could be already observed after the first enlargement, even if every Council presents disappointments in this regard. But as a general rule the principle of majority is no way out of the impasse, because no Member State will consent, in the given state of integration, to be overruled in matters of essential interests, irrespective of their official declaration on the famous Luxembourg formula.

Moreover, the concept of a directorate of some Member States or even of a leadership of one or more, which is under discussion, is no solution. Since Member States take a central position in the Community, their equality has to be respected ; all Member States must participate in the decision-making process, otherwise the opposition would be insurmountable. For this reason also the concept of a two-tier Community is unrealistic, even if there are in practice many differentiations as for instance in the European Monetary System.

From all this follows that normally, and above all in fundamental issues, the Council will still have to rely on bringing about a consensus among the Member States in specific instances, as long as the Community as a whole-in contrast to a Federal State for example-is not founded on general consensus. In view of the many structural differences between the Member States which

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have been outlined, and in view of the involvement of issues affecting their survival, it would be wrong to override serious objections of any one of them. The various conflicts of interests will have to be resolved in the notorious step- by-step bargaining procedures inside and outside the Community institutions. The Community, like any modern democracy, lives on compromise. If a Member State permanently refused to compromise, the Community would no longer be viable.

Finally it must be stressed that the Community encounters difficulties in acquiring a standpoint of its own, independent of the Member States, also because it essentially still acts on the basis of a derived legitimacy for its actions. The Community makes its own law, it is true, but this is not effective law just because nine Ministers have adopted it in the Council; it also has to be accepted by those subject to it. Our national constitutions provide for various procedures by which the legitimacy of the representative decision- making bodies is established. In this regard the Community is still inadequately equipped.

Some people expected that the institution of the European Council would remedy this situation to some extent. But this would only be so if the heads of government of all Member States were directly elected as is the French President. Normally the heads of government are just as dependent on their national parliaments and on pressure groups as are the Ministers when they meet in Council. Of course the heads of government can bring greater political authority to bear and thereby stimulate the integration process. But the basic problem cannot be solved by the European Council.

A promising start has been made with the direct elections to the European Parliament, yet as long as its consent to new Community law is not obligatory it will be hard for the Community institutions to maintain a position of their own vis-P-vis Member States.

Conclusions regarding the stmture ofthe Community These considerations lead to a number of conclusions regarding the structure of the Community which are relevant in assessing its future opportunities.

The first point is that the Community embraces the Member States in their entirety. It is not merely a simple administrative association (‘Zweckverband’ as is said in German) designed to carry out a few more or less technical functions, applying expert knowledge to the practical problems of the industrial society as a kind of supplementary administration which leaves the state as such untouched. If all fields connected with the Community are included there is nearly no area of State activity which is not affected. Contrary to popular opinion, this is also true of the central political functions of the Member States.

Foreign policy for example is directly involved through the common commercial policy, and EPC serves as a special instrument of coordination in

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this field. Internal security is affected through the rules on free movement, entry from abroad and residence requirements, which are interpreted strictly by the Court of Justice; some coordination has already started on other issues such as terrorism and law enforcement. In the field of education the mutual acknowledgement of diplomas directly involves university problems; besides, a loose collaboration is beginning on the basis of resolutions. Even defence is touched. The Common External Tariff includes rates of duty for defence goods, and the Community is currently discussing their application. The armament industries are subject to industrial policy regulations ; especially Community rules on public purchases apply to the procurement of defence equipment. Certainly the Treaty provides, in the interest of national security, for exceptions of certain arms and war material according to a special list, and the Community has no competence to discuss questions of security and strategy; but it cannot be said that the whole area of defence is set aside. Therefore, the Community today is more than an economic community; to a considerable extent it is already a political community.

On the other hand it is obvious that the Member States continue to exist as self-confident nation states and to exercise their responsibilities accordingly. They try to regain the freedom of action which the Community has taken from them by seeking to influence Community policy. The result is that the position of the Member States in the Community institutions is certainly stronger now than intended in the Treaties. The clearest symbol of this is the European Council mentioned above because it claims for itself the highest political authority even with regard to the Commission, which is legally independent and not subject to any order from anyone. The growing role of the Foreign Ministers is also a sign of this trend. As a consequence, European policy is coming to be seen more and more as the foreign policy of Member States whereas it ought to be an internal policy inside the Community.

This trend is, however, counteracted to some extent by the fact that the opening up of the markets is already bringing about structural changes across national borders. The interstate interpenetration of industry is a reality no one can escape, and it gives the Community a weight of its own in relation to Member States. Above all, the European Parliament, whose independence and importance will increase, is beyond their influence.

From this arises the tension between the Member States and the Community organs which is typical of the present state of the Community. It is seen most clearly in the way responsibilities are divided. Some public functions have been transferred entirely to the Community to be carried out by it alone. In so doing it applies its autonomous law, which confers rights and duties on individuals and takes precedence over national law. Apart from this integrated sector, there is a broad area where the Community is limited to coordination of national policies. This coordination may in turn sometimes result in common policies, as for example in the harmonization of legislation. Thus, the two areas are connected in many ways; even in the integrated sector the

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procedure of decision-making rather resembles that of coordination especially in the Council.

It would therefore be wrong to regard the integrated sector as the Community’s true area and contrast it with‘ the areas in which a mere coordination of national policies is conducted. Both are intimately linked. Since all government functions are ultimately inter-related, it would be impossible to separate the two areas.

This results in considerable tensions between Community policies and national policies. The Community cannot usually act without the cooperation of Member States, while inversely these are often dependent on the decisions or the approval of the Community. These tensions have to be relaxed constantly in the wearying process of consensus-finding that is characteristic of the Community institutions. They are only inadequately eased by the fact that Member States dominate or at least influence the decison-making process also in the integrated sectors. Because of the interdependence with their remaining responsibilities, the States thus bring all their conflicting interests into the integrated sector itself.

This kind of tension between decision-making bodies at different levels is familiar to the Germans from their experience of a federal system. They are used to accepting friction and some loss of decision-making ability as the price of preventing the accumulation and abuse of power at the centre. The Community is not a state; it lacks the potential totality of competences which characterizes a State and hence it is not a federal state either. In contrast to a federal state, the final responsibility for vital questions is not invested in the top decision level but still lies with its members. Although one must beware of drawing a superficial parallel between the Community and a federal system, it is reasonable to conclude that the Community too will be able to fulfil its functions effectively, even if the powers are separated between the various decision levels.

These observations imply that the Community cannot be classified by using constitutional categories like federal state or association of states, in the German terminology ‘Bundesstaat’ or ‘Staatenbund’, or, to avoid the term ‘state’, like federation or confederation. These categories arose in the 19th century to describe certain historical developments. But history also has new answers to new situations. The Community, in the areas already transferred to it, has largely taken on federal features, for instance with respect to the Common Market and to the Agricultural and Commercial Policy. The champions of confederation, who paradoxically have helped to develop these federal forms by supporting fervently the present systems of Agricultural Policy, cannot ignore this. In other areas, the Community has worked out cooperative forms which make it more like an association of states, for instance in economic policy in all its aspects. It may be said for the present that most of the fundamental and vital issues fall into this cooperative sector. In this fashion, a new type of conjunction of states is emerging which has no model in the past and has not yet taken on final shape.

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An alteration of this situation in one direction or another would only occur if radical changes were possible. A new quality of integration would involve a far-reaching limitation or even dissolution of nation states in Europe, as would have happened for instance if the original plans for an Economic and Monetary Union had been implemented. Nothing of this kind seems realistic given the present situation, even if one might personally regret it. The structural differences are too large in all fields for such shifts to be likely unless some major turn in world affairs occurs. But developments in the other direction are just as unlikely. The interweaving of political interests, the integration on the economic plane, the contacts in the social field and lastly the links established by new laws are already advanced so far that it would cause the greatest difficulties to reverse the process. The Community may suffer setbacks from time to time, but on the whole the participants are interested in upholding present ties and improving them. In the present discussion about the British budget contribution there will, therefore, be strong pressure on all sides to come to an agreement. This discussion must lead to a clear and fair decision. Today, nobody could accept a protracted paralysis ofthe Community, as happened in 1965 during the time of the ‘empty chair’.

Thus it seems, the fact must therefore be accepted, that the Community will continue in the foreseeable future more or less in the form it has today and that it will only develop in limited fashion. Its form may be felt to be unsatisfactory, an amorphous entity somewhere between a state and an inter-state association, between a political unit and a club of mutual economic interest, between being a force in world affairs and introverted self-sufficiency. It is also not to be denied that the Community and its Member States, in short the public power as a whole could be in danger of losing the ability to act. Yet in the last analysis they share in this respect the problems of all western democracies; the question today is whether these are governable at all.

Conclusions with regard to integration The following conclusions can therefore be drawn as to what the possibilities for political action in the Community are in the near future and where the limits to such actions and to integration itself lie.

No radical departure to new shores, no ‘great leap forward’ can be expected. Instead, we will see a continuation of the ‘step-by-step policy’ exercised so far, which is guided by the practical necessities of matters of fact and which intends to lead to decisions at all levels and in all fields where circumstances present an opportunity. The main aim of these efforts must be to improve the conditions under which the integrated areas may function and national policies in other areas can be coordinated.

With regard to the Common Market, this means above all carrying on with the process of harmonization. Politicians and scholars of political science frequently dismiss, or pour scorn on, harmonization as irrelevant to building Europe and a prime example of bureaucratic excess. Yet it removes real barriers and adds up to a mosaic-like system of regulations that consolidates

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the links between the member countries. In terms of Agricultural Policy, the objective must be to remedy the increasing surpluses and costs which threaten to burst the market, especially in the milk sector, and its financing system as well.

Apart from this, it is crucial to reduce structural differences and reconcile conflicting interests, so as to ease present tensions and facilitate the coordination of national policies. In this context an important role falls to regional policy and the various ways in which resources are transferred.

Community aid, however, can only supplement the efforts of the Member States themselves who must retain the main responsibility; the Community’s activity is only subsidiary to that of Member States as in every multigrade system. This is why straight financial transfer without linkage to specific policies should not be taken into consideration, transfers must promote structural adjustment. Therefore, a strong increase of the Community budget cannot be expected, especially the I per cent limit of VAT contribution will have to be maintained.

In this frame, a solution of the problem of the British budgetary contribution has to be found. In a customs union duties and import levies are not an adequate yardstick for the financial burden of the Member State in which they happen to accrue. Similar considerations apply to benefit from Community expenditure such as interventions in agricultural markets.

But differences of burdens of such a degree as now under discussion are indications, [in spite of all incertitudes of calculations, that there is anything going wrong in the system. They show specially] that the economic integration of the new Member States is not yet fully achieved and that, therefore, limited and temporary adjustments are justified. The figures indicate furthermore that financial transfers in the Community are not going in the right direction. Financial transfers from richer to poorer regions are directly or indirectly effected in every State; they are also necessary in the Community to hold the Common Market together. The deficiency of the present transfer system is caused by the preponderance of the costs of the CAP and especially of the milk market. Instead of the present superficial debate about figures and payments, a revision of the CAP is needed to limit the increase of its costs. The margin thus gained has to be used to take measures which may encourage, in an economically right way, structural developments in these Member States whose living standard is below the Community average.

Finally, the efforts to improve the coordination of economic policy have to be continued. They must include the general orientation as well as specific measures in specific situations. In particular, the role of the State in the economy should be constantly discussed. The approaches here are much closer now than two decades ago, Member States having all learned from each other. These discussions will also certainly have to include in the coming years new trends of thought on the future of human society, as for example the ecological aspects.

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In future the three acceding countries, Greece, Portugal and Spain will be brought into this process. In this connection one aspect which has so far only been of minor importance in the context of regional policy will shift into the centre : development policy will become an internaI concern of the Community and bring with it the responsibility of making an additional contribution to stabilization in Europe.

The potential for improvement in the institutional field is likely to be limited. Procedural changes will not affect basic problems. In the present state of development, the Community continues to be dependent on bringing about consensus between Member States. For this reason the representatives of the Member States in the Community institutions must be prepared to exploit their freedom of manoeuvre to the limits. If they go on exporting their domestic political difficulties to Brussels, the institutions will remain incapable of taking major initiatives. Therefore, the ability of governments to compromise must be furthered by trying to widen the base from which they negotiate in Brussels. T o achieve this, it is first of all necessary to strengthen the Community awareness of the general public as a basis for legitimate actions by the institutions.

This is the reason that all efforts should be supported which, above and beyond immediate political and economic decisions, exert an influence on society, create new ties from country to country and integrate the individual nations into the larger framework, The progress reached up to now in this regard has probably been greater than generally realized, but one has not yet learned to use this in day-to-day political dealings. The extension of the Community southwards will help because it makes the foundation broader. Here lies an opportunity and a specific task for the European Parliament.

In this regard an important role is to be played by the European Court, which is detached from Member States and their special interests and exercises a really state-transcending function in the process of decision-making. It has used this function to take courageous decisions with far reaching effects on promoting integration. But it is also put in the total context of the Community. Its task is neither to take the place of the politically responsible institutions, if these do not act in due time, nor to promote a more supranational tendency than is brought about in the over-all political development. In the framework of the given state of the Community, however, the Court is able to play an important role in strengthening the institutions and holding the Community together against the centrifugal forces at work.

Finally, the new political development following the Afghanistan invasion by the Soviet Union will play an important role for the improvement of integration. It shows the proportions of the Community’s internal quarrels as budget problems in the light of threatened western security and freedom. At present the dimension of the new development is not yet clear. Thus it is an open question whether Afghanistan will be an integration factor as the cold war has been in the fifties. In any case the need to stay together must be

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acknowledged even by the European sceptics. The coordination of national policies specially on foreign affairs and on reactions towards the East will be inevitable, and this will strengthen the readiness to find compromises on all the fields of Community’s activities.

The possibilities and limits of European integration are thus indicated in a rough outline. The Community is at a stage in which it binds and transcends Member States but at the same time remains supported by and dependent on them. Within this system it has rich scope for contributing to political and economic stability in Europe and to a better quality of life for its citizens. But it will continue for the time being to come up against the limits imposed on it by Member States who are ultimately responsible for the well-being of their peoples. It will be able to survive in this form if it manages to make steady improvements in the conditions under which consensus is reached between decision-makers at the various levels. To work to this end is the task facing all who participate in this process in the Community’s institutions as well as in the Member States. Whether new chances will arise favouring developments towards new frontiers is a question to hand down at least to the next generation. To this end all doors must be kept open.