currency
Martin Walker in Brussels looks at what the coming year holds in store for Europe
The last year of the millennium is for Europeans the first year of the new order. Everything changes, starting with the birth of the single currency and the launch of the German presidency of the European Council. If the Germans can fulfil their plans, we shall see the biggest transformation of the European system since its birth more than 40 years ago. And at the Nato summit in Washington we shall see the formal end of Europe’s half-century of division, as the Poles, Czechs and Hungarians join the Western alliance.
The Germans are the pivot to all this because they are both the richest power in Europe and the most troubled. They are rich and weak, in that their military and strategic weight lags far behind that of France and Britain, the continent’s two nuclear powers. They are also at a psychological turning point. Governed for the first time by a generation of leaders who do not appear to be racked by an instinctive sense of historic guilt, they do not automatically reach for their wallets to solve Europe’s problems. Nor do they reflexively reach for the easy solution of more European integration to escape Germany’s internal rows.
On January 1 these new Germans, in their uneasy coalition of greens and social democrats who are themselves split between Tony Blair-style modernisers and traditional Keynesians, assume a place in the sun. They start their turn of chairing all the ministerial meetings of the European Union, the meetings of the Group of Seven leading industrial nations, and the deliberations of that fledgling military structure, the Western European Union.
They have set themselves five main tasks. The first is to launch the single currency smoothly into the world financial system and Europe’s single market. With luck, they hope to use euroland’s own stability to anchor a global economy that is still hideously vulnerable to new shocks from those old nightmares of Asia and Russia, and the new alarms from Japan, China and Brazil.
The second task is to pass Agenda 2000 during Germany’s six months at the European helm. Agenda 2000 is the jargon for the package of budgetary, agricultural and systemic reforms required for the EU’s enlargement. The entry date for the Eastern Europeans may be delayed to 2005 and after, but they are already having a revolutionary effect on Europe by forcing it to reform its structures in order to accommodate new members. None of this will be easy, which is why the Germans reckon they will probably need three EU summits in six months, rather than the customary one, to achieve it.
This second German task covers three separate problems. First, they have to fix the EU budget for the next accounting period until 2006. Most countries want it frozen till 2006 at the current level of 86-billion ecus, about $100-billion.
The poor southern European countries – Spain, Portugal and Greece – know perfectly well that this “stabilisation” plan is a ploy by the rich northern countries to cut their net payments and thus whittle down the south’s net receipts. Expect a deal under which the budget is allowed to balloon a bit before 2006 and then come sharply down. Politicians are much better at promising to cut spending far into the future (after their next elections) than they are at making cuts now or next year.
There is no way that the EU budget can be cut unless the common agricultural policy (CAP) is reformed far more fundamentally than the commission’s current plans envisage. And for Europe to tamper with the CAP is like a nation changing its Constitution. The CAP has been the backbone of the European project since the original deal of the 1950s, under which German industry won access to French markets in return for protecting French farmers. Even today the CAP consumes half of the entire EU budget, and warps the payments system by penalising countries such as Britain, which import much of their food yet have efficient farm sectors.
That being said, the CAP has been a thumping success. Beyond subsidising France, the original CAP had two goals. The first was to make Europe self- sufficient in food, and that has been more than achieved. The second was to cushion the inevitable fall of Europe’s peasantry, which still made up a fifth of the French and nearly a third of the Italian populations in 1957. This has also been triumphantly achieved. Back in 1965 the farm sector accounted for 11% of the gross domestic product (GDP) of Italy and 8% of that of France. Today agriculture’s GDP share is 3% for Italy and 2% for France, and Britain now has a larger farm sector (2% of GDP) than Germany (1%).
Common sense would suggest that it is time for Europe’s farm ministers to declare victory and go home. They won’t, because farmers vote, rural electorates matter, and big farmers and agribusiness are now so rich that governments must listen attentively.
The good news is that the new German government does not depend on farm votes, unlike Helmut Kohl’s coalition. The bad news is that lots of other governments – in Spain, Portugal, Greece, Italy and Luxembourg – still do. Nor does the French government dare to ride roughshod over its own farm sector. Rich France is currently a small net EU payer, contributing $840- million a year more than it gets back. But take away the $5-billion that French grain farmers alone receive from the CAP, and France would become a much bigger net payer than Britain.
These issues are not insoluble, just very difficult. But what makes them acute is the third aspect of this budget problem, which is the German determination to stop being Europe’s banker of last resort. Germany now pays out to Europe each year $13,5-billion more than it gets back, even while the former East German provinces, which are among the poorest parts of the EU, qualify for large infusions of structural funds. The Germans refuse to pay more, and indeed are insisting that they want to start paying a lot less. This may be the decision that finally cuts the Gordian knot of Europe’s intertwined budget and CAP problem.
That at least is the cheery opinion of Dietrich von Kyaw, Germany’s permanent representative in Brussels, and the man who really matters. He will be chairing the most important body that Europeans have never heard of. It is called Coreper – the committee of permanent representatives – and it is at its weekly lunches and conclaves that all the deals get done that can be done, and where the problems labelled “too tough” get tightly defined and then kicked upstairs to the political masters.
In the hands of Von Kyaw, an ebullient and self-confident Prussian whose ministers know his value, Coreper can do a lot. So if Europe does fix its budget and its farm problems and also massages down the German payment next year, Von Kyaw will deserve a modest statue.
If all this fails, then Europe’s politicians deserve great disgrace. The sums in dispute are, in relative terms, peanuts. The entire EU budget is fixed at just below 1,2% of GDP. Germany’s net payments to Europe, as former chancellor Helmut Kohl used to point out, are about 0,5% of German GDP. This is the equivalent of two months’ spending on the German defence budget, and buys a great deal more security and prestige in world affairs.
This brings us to the final task, the ability of Chancellor Gerhard Schrder’s government to make Germans feel relaxed about their role, their identity and their history. Given that normality in this context embraces a France and Britain that remain obsessed with their international standing (and more than a little obsessed with Germany), this should not prove insuperable despite the uncomfortable echoes that will resonate from the shift of the capital from Bonn to Berlin.
The unshiftable fact is that Germany has never been a “normal” nation. Otto von Bismarck’s unification drive of the 1860s catapulted the country into European primacy virtually overnight. The subsequent self-destructive adventures of the mad kaiser and the madder Corporal Adolf Hitler still dominate Europe’s thinking about a country that has been ably and solidly governed by a series of decent bourgeois types for the past 50 years. The real question for the coming year is whether Schrder’s uneasy coalition can maintain this worthy record.
There are three reasons to suspect that the climate should be favourable for this. The first is that the euro has so much political and corporate will behind it, in the United States and Europe alike, that euroland should enjoy a stable macroeconomic base for growth next year. The second is that in Lionel Jospin and Tony Blair the new German government has been blessed with the supportive partnership of two unusually level-headed and politically sympathetic leaders in the other two important European capitals.
Blair’s readiness to put Britain’s formidable defence forces into a European pot is an intelligent use of an important asset. None of this will make the eventual referendum on the single currency any easier, but by turning Britain into a normal European country, Blair is making it easier for Germany to be normal too, and for the great experiment of European integration to continue.
Bear in mind the overarching context of all this. National governments in Europe decide less and less these days. The coming of the euro removes most of the usual levers of economic policy- making from their hands. The aspiration of a common foreign and security policy, as mandated by the Amsterdam treaty, and the new Anglo-French initiative for a common defence identity, means ever more pooling of traditional nation-state sovereignty. The European Parliament’s new powers under the Amsterdam treaty, to have co- decision powers with the national governments on most aspects of EU legislation, erode the old role of the nation states yet further.
The new Europe of the next millennium is likely to be a new animal indeed.
ENDS