Tuesday 22 September 1992



Geneva 21 Sep (Chakravarthi Raghavan) -- The razor-thin margin of approval of the Maastricht treaty by the French electorate in Sunday's referendum, appears to have just enabled keeping alive the idea of political and economic integration of the European Community alive. But it has not resolved any of the underlying problems.

In strictly legal terms, the over 300-page Maastricht treaty and its future does not affect the European Economic Community and the Rome Treaty, including the post-1992 single market.

Maastricht merely tried to complement the Rome treaty, by nudging Europe in the direction of a federalist united Europe - with a common currency by end of the decade, with a common foreign and defence policy and a common citizenship.

And while a French 'no' would have killed the 'Maastricht' treaty, the yes has not secured it. And the narrow 'yes', and the indication of a general underlying situation of flux would have its impact on the EC as it is.

For one thing, with the Danes having voted 'no' (by an equally thin margin), in any event before it can be brought into force, the treaty would need revisions to secure Danish ratification.

And the process will bring up not merely the demands for changes in the treaty, but even in other issues that were swept aside.

The narrowness of the French vote, would also bring pressure on German and British governments to hold their own referendums, rather than ratify the treaty through Parliaments.

Perhaps a way around would be found by at least amending the treaty in some respects. But whether even this could be sufficient to get the treaty ratified without another bruising referendums everywhere is not so certain.

Ahead of this, the German government and the Bundesbank would come under pressure from the other 11 EC-members (as well as from elsewhere in the G7) to ease up on its interest rate policies and use of monetary instruments, and rely on fiscal instruments. But this might increase pressures from the various parts of the German political spectrum to have the treaty put to a popular referendum.

Chancellor Kohl, like President Bush, came to power promising no tax increase to pay for the German reunification and may find it difficult to change. But without change, a decade of the present tight money policy would be needed to draw in outside capital for paying costs of the unification.

But whatever happens, the optimism about a single Europe, and being able to stand up as a united political and economic unit vis-à-vis the US and Japan, has received a setback, but without necessarily strengthening the US or Japanese power vis-à-vis the EC.

The turmoil on the European currency markets, within the EC's Exchange Rate Mechanism as well as those indirectly linked to the ECU, which forced the British Sterling and Italian Lira to be 'suspended', has merely taken a breather. Soon, it would continue to face problems, as speculators find weak spots to probe and push, in transactions where they in fact would not be losers: so long as the countries within the ERM are forced to defend their narrow band, and buy at the bottom to prop up the currency (unless they devalue like the Spanish or suspend as the British and Italians), speculators can only gain.

The turmoil has been precipitated by the role of the German Bundesbank, and its attempts to flex muscles (as the US Federal Reserve did nearly a decade ago) and keep politicians and domestic workers in line, by a high interest rate which also helps meet the costs of unification of Germany (with other partners of Germany paying the price through recession, stagnation and unemployment caused by their need to keep up interest rates to maintain parity with the German mark).

In any new negotiations for revision of Maastricht, there will be pressure for changes to bring the future European central bank under more Community-wide political control, rather than allow it (like the German Bundesbank) to be completely independent and run by hard-nosed bankers who are not too bothered by the social effects on their actions.

The Germans who even now are averse to losing the identity (and power) of the mark in a common European Currency, would be even less willing - at least until the Bundesbank policy creates deep divisions within the German society - as between the finance interests and those of public and workers affected.

And whatever the long-term evolution, the hopes of a single European currency by end of the decade has received some setbacks - unless the Germany give way and the future European currency is not allowed to be determined by bankers, who would thus decide on a whole range of economic and social policies of countries.

However, for the other EC countries, the problem is compounded by the fact that even without an EMU, and immediately a rigid ERM, they still have to face the fact of the weight of the German economy and the power of the mark, since devaluation of their currencies vis-à-vis the mark, beyond a point, would result in fuelling inflation, while maintaining it at a particular level would force them to have high interest rates. The overall German postures leading up to this crisis, has also aroused some visceral feelings among the public of the other EC member countries viewing the various German actions as no more than a German effort to achieve, through finance power, national objectives that it failed through two wars.

Even before the current crisis, there have been mutterings against the German foreign policy that precipitated the crisis in Eastern Europe and the break-up of Yugoslavia. It was the German decision in 1991 to recognize Croatia (and quietly send military assistance to it in the fight of Croatians against the Serbs) that has resulted in the current fighting among the former constituents that could envelop the Balkans and suck in rest of Europe.

But the currency crisis, and its impact on economic life everywhere, brought home to the average man the German power and the helplessness of their governments.

This anti-German view has had its repercussions inside Germany too, where the extreme right is raising its head, though it is still much less important than say in France.

The future of Maastricht, technically does not in any way affect the Rome treaty and the European Community -set up as a customs union, with member-states ceding limited powers to Brussels.

low thrown up in the debate leading to the French vote Sunday, show that there is a growing ground-swell of opposition in the countries to the EC decision-making process by bureaucrats twice removed (from national control) technically responsible to the Council of Ministers who often in their national parliaments try to avoid being answerable by pointing to the Rome treaty.

This results in a situation where the Brussels bureaucrats (including political Commissioners) and the Ministers, act in a non-transparent way and without public debates, and inevitably push policies and decisions favouring big business and major corporations, including the banks and finance capital.

The French 'no', which has drawn massively from the votes of the farmers and workers in manufacturing and service industries (as different from the higher paid professionals) is a clear indication of the growing ground swell of opposition to the oligarchic 'order' sought to be imposed from above.

The trade unions in France, as in rest of Europe, had generally favoured Maastricht - because it gave an opening for a social dialogue at Community level and enable the workers' viewpoints to be put forward - unlike now when it is only the big transnational corporations and their interests that get the ear of the EC Commission and the ministers on the EC Council.

But the very large 'no' vote by the French workers will make the trade union leadership too to think again.

Initial reactions to the French vote, the Wall Street Journal quoted US and EC officials in Brussels, as saying that the French vote should help the US and EC to move closer to an accord in the stalled Uruguay Round talks and enable it to be concluded by November 3, before the US elections (thus giving a boost to Bush's chances).

However, it is clear that the very large 'no' vote, including opposition from French farmers and workers, and the fact that French elections are around the corner (latest by early next year), makes it clear that the French government would have even less room for manoeuvre.

If anything, the French vote has shown deep divisions among the public. For the politicians and political parties, given the French system, this has provided an opportunity for new alliances and support. The division is even within the parties.

The French government has hence to be seen as vigorously defending "French" interests in Brussels and in Geneva. Any action against the farmers would be seen, not in strict terms of the farm issue, but as one more instance of national interests yielding to supra-interests.

At one stage in the Uruguay Round negotiations this summer, GATT officials as well as the Americans, were looking to Germany and Chancellor Kohl to bring pressure on France to yield.

The Germans, embroiled in wider community problems and needing to ensure the EC unity, would find it even more difficult than before to pressure France to yield on the agriculture issue.

Even the British (now holding the EC presidency), normally more sympathetic to the US, would hesitate now to pressure France, particularly since the British need French support against German policies.

Till now, the EC Commission bureaucracy has been trying to expand its space and power vis-à-vis the member-States. It had been trying to use the GATT and the Uruguay Round to persuade members to change policies and accept the EC Commission prescriptions, just as it had been using the views of the members to persuade its other major trading partners to yield.

One of the EC Commission's main objective in pushing the Multilateral Trade Organization (MTO) in the Uruguay Round has been that with an MTO, and as a definite treaty, it would not only strengthen the EC's position vis-à-vis the US, but would have also strengthened the EC bureaucracy's position vis-à-vis the member-states and national bureaucracies.

And all this has been possible because of its own non-transparent way of functioning, as also the even more transparent ways of the GATT negotiations.

It is with an eye to this, that the Commission has been pushing inside the MTO for the EC to have a status of its own - and thus a vote, apart from its 12 member-States - rather than the current anomalous situation in GATT where the EC is only negotiating on behalf of its members, but has no position apart from that.

Learning from the recent events, the EC Commission has been trying to find allies - with EC Commission President Delors talking about enlarging the role of the European Parliament and the EC Commissioners talking about 'subsidiarity', meaning leaving several decisions to varying levels of decision-making - from regional councils and local authorities to national governments and Brussels.

But all this can also be undercut through the MTO - since any agreement negotiated and entered into would have to be conformed with not only at the level of the EC, but also of national and local authorities, even in terms of the subsidiarity.

And unless the EC Commission is made 'responsible' to the European Parliament - like national governments to national Parliaments, merely allowing more debates in the Parliament or even some sharing of power, would not help to remove the disquiet in countries.