The Grand Bargain: A New Book Demystifies European Integration

"The voluntary transfer of monetary sovereignty from the national to the European level is unique in history. However, it should not be seen as a single, isolated event. The introduction of the euro is part of the process of European integration. . . . The aims of European integration are not only, or even primarily, economic. Indeed, this process has been driven and continues to be driven by the political conviction that an integrated Europe will be safer, more stable and more prosperous than a fragmented Europe."

-- Wim Duisenberg, president of the European Central Bank, May 1999

One should take Duisenberg's statement with many grains of salt: why do bankers love saying that money is not what really matters? Certainly European unity is driven by history, culture, politics, and economics -- if only because one cannot really separate these things.

Despite its present weakness, the euro represents the highest peak yet reached in the long climb toward integration. But as the 1997 Amsterdam Treaty shows (and the low turnout in the last European Parliament elections recently underscored), Europe's institutions are weak. Polls proclaim that the sense of European identity is feeble. As Kosovo demonstrated, a common security policy lags far behind the common currency. Charles de Gaulle argued that a state is fully legitimate only if it can defend its citizens. But the fateful decision in 1954 to reject the European Defense Community (EDC) -- which would have created a small, integrated army with officers and soldiers of various nationalities serving in the same units -- meant that Europe was doomed (or perhaps lucky enough) to become an economic power that relied on the United States to defend it. Whenever the Russian bear let out a roar, the Europeans appealed to Washington to save them. And with security issues out of the way, they focused on economics instead.

In simplified language, this is what Andrew Moravcsik's book is about. It argues that the European Union (EU) is neither the reincarnation of Charlemagne's empire nor a virtuous peoples' Europe that will sweep away warring nation-states. Instead, the EU is a set of agricultural subsidies and an arrangement for free trade with a complicated system of rules worked out by the member states to protect their interests. Moravcsik's Europe is neither romantic nor unique; its leading trait is its ability to react rather slowly to economic innovation.

What makes states surrender their sovereignty? Why did 11 European countries decide to give up their currencies for the euro? As Europe marches with an uncertain but determined gait toward economic cooperation, scholars have offered competing explanations for this phenomenon. Some argue that European statesmen were intent on constraining German power or countering the Soviet Union or the United States. Others see an idealistic vision of a united, federal Europe. Another camp points to the role of institutions and supranational officials -- from Jean Monnet to Jacques Delors -- in explaining the rise of the European Community (EC), which emerged as these international entrepreneurs fostered new institutions and interstate negotiations to promote their own bureaucratic agenda.

Moravcsik offers a competing vision that, despite its limitations, sweeps like a cold wind through the existing literature, carrying off dead leaves and rotting branches. For him, the basic, rational desire of each state to reap commercial advantages was the motor driving European integration. The EC was not a mystical achievement of European solidarity but simply a way of adapting to the changing realities of the global economy -- namely, the rise of intra-industry trade and investment and capital mobility. He explains the five European "grand bargains," from the 1957 Treaty of Rome to the 1992 Maastricht Treaty, as reflections of the relative power of states and the degree of convergence of economic interests. Ideology and institutions did play a role but did not override the basic realities of national economic interest. As Moravcsik puts it, "Far from demonstrating the triumph of technocracy, the power of idealism, and the impotence or irrelevance of the modern nation-state, European integration exemplifies a distinctly modern form of power politics."

At the core of Moravcsik's vision of European integration lies a rejection of widely praised institutions, favorite actors, and frequently heard interpretations. He dismisses the actors first, refusing to give credit to the famous men of Brussels -- Monnet, Paul-Henri Spaak, and Delors (whose report was supposedly so influential on monetary union). Instead, he places the EC's Council of Ministers and its supposedly uninteresting team of national civil servants in the driver's seat; this intergovernmental decision-making body let the EC pool sovereignty through qualified majority voting. The EC's creation was therefore not an exceptional piece of handicraft undertaken in response to new problems but a flexible operation of national interest that states regularly performed to keep up with their competition. The states that won out were economically the strongest and socially the most resolute. At the same time, they remembered that their competitors were also economic partners and therefore offered to make themselves desirable as trading allies. For example, Konrad Adenauer's Germany presented a large import market for France's agricultural goods after World War II; this factor, not the high Cold War politics of the Berlin crisis, made the EC possible. Later in the book, Moravcsik offers a similar interpretation of monetary union: unromantic and statish. The European nation-state, he leads us to conclude, will survive as long as it concentrates on its economic well-being as successfully as it did in the four decades leading up to Maastricht.

From the first decades of European integration, Moravcsik sees nothing really exceptional about the EC. The main forces guiding events were the same social-scientific principles that mold most state behavior. Strength, stability, the ability to attract allies, and good tactics give a state victory. The apparent exoticism of integration turns out to be banal in Moravcsik's account, which portrays Europe's historic pooling of sovereignty as simply a way of locking in a good future bargain. True, national policy was sometimes driven by geopolitical considerations, as Britain's postwar attempt to maintain its world influence showed. But political economy counted for even more, which is not surprising since the voter likes to eat. Moravcsik goes further, however, to argue that political economy -- namely, the appeasing of commercial interest groups, from farmers to industrialists -- counted even more than abstract economic principles; free trade tends to produce more food than any agricultural policy but brings with it many angry farmers. Free trade also contains a certain risk that the state often finds difficult to cope with.

On the French side, writes Moravcsik, the need to find a trustworthy partner for the growing agricultural surplus was the paramount consideration from the start. De Gaulle's overriding concern was to fix a price level and ally with a group of countries eager to buy meat and milk. French grandeur, the Madonna of the Frescos, the defeat at Sedan, and the victory at Bir-Hakeim were nothing by contrast. Moravcsik is determined to use this pragmatic portrayal of de Gaulle throughout the statesman's career, and, to his credit, he correctly sticks close to his sources throughout this book. Some readers might object that official French documents would inevitably contain more about the price of milk than national identity. To hear about "a certain idea of France," they might argue, one must look to the more personal pages of de Gaulle's Memoires de guerre or Andre Malraux's romantic portrait of the general, Les chenes qu'on abat. Moravcsik opts for a better solution and tries to reconcile the romantic nationalism of de Gaulle with his pragmatism. The general's nationalist legacy partly resulted from the mythmaking of his admirers, but as the French leader himself knew, and as Moravcsik correctly points out, economic problems were never far from his attention. For de Gaulle, the idea of the nation was precisely what gave form and structure to what would otherwise be a collection of tribes. Only a Europe of the fatherlands could stand up to the United States. Similarly, only a French diplomat steeped in the history of the French peasantry could negotiate competently over agricultural policy with a British diplomat well informed about the benefits of British agricultural liberalization in the nineteenth century. Knowledge of history leads people to drive hard bargains in the present; that was certainly history's effect on de Gaulle.

By contrast, Moravcsik is too kind to British Prime Minister Harold Macmillan and does not fully explain his antifederalist stance. He notes that when Macmillan was taking a hard line against the EC in the 1950s, British trade had still not shifted decisively away from the Commonwealth. Not yet, but Britain was just encountering its first real postwar challenges: the overlapping crises of the Suez Canal, a spate of protest fiction like The Loneliness of the Long Distance Runner, and the resignation of three government ministers over a very soft budget. For Macmillan, more than economics was at stake; there was the sovereignty of the Westminster Parliament. Even as British trade began to shift more toward Europe, Macmillan remained wary of embracing Brussels. On the horizon was the 1962 Anglo-American Nassau agreement, in which Macmillan agreed to deploy American Polaris missiles and helped repatch the special relationship with the United States, which was always driven more by sentimental geopolitics than clear-sighted economics. Indeed, this partnership has proven devastatingly durable and continues to confound Tony Blair's current dealings with the EU.

LIVING IN A MATERIAL WORLD

For Moravcsik, defense issues barely count in European integration. (He is too scrupulous to say they do not count at all.) The long, slow movement toward monetary union starting in the 1970s was governed not by a French drive to contain German monetary hegemony but by the German determination to avoid an inflationary rise in the deutsche mark and by the desire of other countries to control their economies. Going over Francois Mitterrand's critical 1983 decision to adopt austerity and force the franc back into the European Monetary System (EMS), the euro's precursor, Moravcsik dismisses the idea that the French president wanted to play a geopolitical role as a great European leader. Rather, his aim was to reduce the trade deficit and the outward flow of capital. To achieve this, he was even prepared to tolerate the unwelcome authority of the German Bundesbank to ensure monetary discipline.

Here, as elsewhere, one feels that Moravcsik occasionally forgets that real politics is less orderly than the events he describes -- a great soupy mess rather than a joint of meat already carved into neat steaks. For example, Moravcsik emphasizes how French Industry Minister Jean-Pierre Chevenement, one of the so-called "Albanians" (a group of French officials that favored autarky, reflation, and independence from the EC), sought above all to limit domestic hardship and hence supported leaving the EMS in 1983. Yet he knew that France's economy was linked with the relationships that the Socialist Party had with the communists and with its own base. At a party congress following the EMS decision, Chevenement made a less aggressive speech than he might have, even though he had already resigned from the government. He saw that the political alliances that would have made it possible to leave the EMS were crumbling. The Socialists were admitting to being what they had always been: a mildly left-of-center party. A year later, Chevenement returned to government as a conservative minister of education.

Moravcsik applies his cold logic to Mitterrand, arguing that he opted for the EMS in 1983 only because the "Albanian" alternative, which would have entailed a risky devaluation and an interest-rate hike, would bear a higher medium-run cost than staying in and imposing monetary and fiscal rigueur. But does it make any sense to say that Mitterrand chose to stay in the EMS for reasons of macroeconomics, a discipline of which he was blissfully ignorant? Mitterrand's long political career showed only two consistent traits: the belief that economics must not be allowed to dominate politics, and the firm conviction that a political role, whether in defense, civil rights, or anything else, could and must be found for Francois Mitterrand. Never was the notion of politics as a soupy mess truer than in the EMS decision. Mitterrand consulted formally and informally; sometimes the people with whom he spoke had no governmental position, like the industrialist Jean Riboud. Influenced by their advice, Mitterrand decided that the Albanians were politically weaker than the Europeanists. Never a man to leave himself with only one policy option, he was already prepared to embrace the EMS, having been a Europeanist in his youth. Now he replaced socialism with Europe as the slogan of his presidency -- but on narrow, domestic political grounds.

The EMS is generally considered the forerunner of the euro. In fact, the origins of the single currency stem from the 1973 breakup of the Bretton Woods system -- the inevitable result of the United States' determination to finance the war in Vietnam without giving up President Johnson's Great Society programs. This put pressure on the U.S. dollar, which de Gaulle exacerbated further by having dollars sold to boost the franc. In turn, the Bundesbank alleviated the strain by buying and holding a huge volume of U.S. government bonds. In one sense de Gaulle and the Bundesbank were acting together to draw attention to American weakness and the fragility of a world monetary order based on the dollar -- to indicate that Europe should pay for its own defense. And they succeeded. In the end, President Nixon was forced to dismantle the Bretton Woods system.

From there to the creation of a new order at Maastricht was a long step, and Moravcsik's hyperrational interest-based framework does not allow us to take it. (I would argue that growing distrust of the dollar was one motor behind the euro's launch; in some distant future we will see the mother of all currency battles between the two.) For Moravcsik, the EC's deepening in the 1970s was primarily motivated by the European fear that currency instability would undermine the Common Agricultural Policy, which consumed more than half of the EC budget and required steady exchange rates to facilitate year-round trade and the distribution of Brussels' subsidies. After this problem was first fudged with superficial, exotic-sounding devices like Monetary Compensation Accounts and the green pound, Europeans tried primitive forms of monetary union like the "Snake" in the early and mid-1970s, when each currency floated -- often briefly -- in a band against the others and all floated together against the dollar. But it still proved difficult to manage, especially since the United States let the dollar float freely and the burden of currency adjustment generally fell on the weak-currency countries. From these mostly unsuccessful experiences, the Europeans learned that you cannot link your currency with that of another country following a very different macroeconomic policy.

It was this lesson, argues Moravcsik, that provoked German Chancellor Helmut Schmidt and French President Valery Giscard d'Estaing to launch the EMS in 1979. Primarily concerned with the German domestic economy but also irritated by President Carter's manipulation of the dollar to obtain a low energy bill, Schmidt had two overriding aims. First, he wanted to prevent an excessive rise of the deutsche mark, which the dollar pushed up during its own periodic bouts of weakness, to keep German exports relatively cheap. Second, he sought to block the decline of the other European member currencies by fixing their value against the mark, thereby stabilizing Germany's important intra-EC trade. For their part, the French sought by the 1980s a European monetary union that combined German anti-inflation discipline with a strong franc and a greater French role in policymaking -- provided that it did not subordinate Paris to the Bundesbank's inflation phobia. That prompted the Delors commission to begin work on economic and monetary union (EMU) in 1988 and complete its report in 1989 -- before the Berlin Wall fell, Moravcsik notes. In the end, the German thesis of low inflation dominated the text, while the French theme of pursuing growth whenever possible was the counterpoint to austerity.

THE HOUR OF EUROPE

Many observers argue that monetary union was the price that Helmut Kohl paid to the French for German unification and the independent way he handled it. Not Moravcsik, who explains EMU as the inevitable outcome of the developments of the 1970s and 1980s mentioned above: negotiations over what became the Maastricht Treaty were already underway before the unification debate, and the issues belonged to the realms of political economy, not geopolitics.

On this score Moravcsik is original but not quite convincing. Adenauer's legacy for Kohl was that a German state could exist only within a friendly Europe. Therefore a gesture had to be made to the European leaders who were feeling anything but friendly after Kohl denied them a say in the unification process. Then too, at least some of Kohl's advisers, even top executives at Deutsche Bank (eager to believe that money is not everything!), felt that if Germany went off on its own, the violent, self-destructive elements in the national character would win out. Such historical and cultural traits do not explain the Maastricht decision, but they do help shape the context in which it was made. Moravcsik does not give weight to the plurality of causes that lie behind a decision of this kind, and particularly to attitudes that emerge from the past.

Moravcsik leaves the aftermath of the Maastricht Treaty for other scholars to dissect, but it is important to ask whether his framework would apply to the turbulent developments of the 1990s. Did rational economic considerations continue to drive policy, or were messier political factors at work? In the 1990s, the latter seemed to take over. For example, Kohl's irresponsible decision to borrow for unification rather than to pay for it with taxes drove the nothing-if-not-consistent Bundesbank to push up interest rates. This decision sparked currency turmoil that drove the Italian lira and the British pound out of the EMS. The europhile Italians finally reacted with a fierce campaign from 1996 to 1998, led by Prime Minister Romano Prodi, to fight their way back into the founding group of monetary union -- but at the cost of reducing their once-robust growth rate to 1.3 percent in 1998. As for Britain, Blair still cannot enter monetary union -- despite his strong Europeanist leanings and the pro-euro sentiment among British export industries -- until he wins back euroskeptic voters outraged by the monetary turmoil of 1992.

Moravcsik's analysis is relentlessly logical throughout the book, and he does not shrink from controversy. For this he deserves praise. His account is original, with only a few shortcomings. But by highlighting economics rather than security, Moravcsik does not explain why Europeans have been unable to forge a coherent foreign and defense policy. (Perhaps this should be the subject of his next book.) One could return to the failed EDC, which was followed by the failed Fouchet Plan. But the real reason was America's willingness to protect the Europeans with NATO, which in turn allowed the Americans to dominate the Europeans with NATO and the Europeans to concentrate on accumulating wealth.

It is unclear whether the United States is willing or able to continue this effort, but in any case the EU is facing a host of political problems. If Moravcsik is right, and if his criterion of a super-state capable of rapid, efficient decision-making holds, the EU is most unlikely to perform well. But the EU is really a union of nation-states that bargain, conflict, and cooperate. Judged from this point of view, it has had its share of political successes. The most important is the Franco-German relationship, now strengthened after Kohl's difficulties with unification removed the French fear of a potential Germany too powerful to need France. (Germany's new Social Democratic government has also been helpful on this point.) Today, the French and the Germans take conflict for granted; witness their very different attitudes in the early 1990s toward eastward EU expansion, which they did not allow to create a permanent rift. The result is a political alliance that is greater than the sum of its parts, capable of surviving clashes over interest rates or lamb subsidies.

Protagonists see such disputes as manageable conflicts that cannot be allowed to jeopardize an even more fundamental friendship. Working together in Europe can build trust. The Northern Irish cannot agree on how they should be governed but Tony Blair and Irish Prime Minister Bertie Ahern have a joint plan, something unimaginable 25 years ago. Moravcsik, who concentrates on the EC's great crises, neglects this humdrum, daily experience that turns into habit, history, and culture -- which is hard to analyze or summarize. This reality does not contradict but softens the economic bargaining of the treaties from Rome to Maastricht. In Italy, successive governments have found a use for this "Europeanness." They ask the voters to make sacrifices in its name that they would not dream of making in the name of Italy. The Italians usually oblige, which cannot be explained in the 514 intelligent pages of Moravcsik's book.