United Europe: Inevitable and Formidable
The road to a united Europe was never smooth. Lately, however, it has seemed all but impassable. But this was bound to happen.
As the symbolic deadline of Dec. 31, 1992, draws closer, the negotiators must focus on bedrock issues of sovereignty and national identity.
Many analysts, especially in the United States, have concluded that the process of European integration has stalled. Moreover, they say, the warring tribes of Europe may have lost the opportunity ever to join in a true economic and political union.
American bankers should not bet on such an outcome. The underlying force that has driven the process of European integration is as powerful as ever.
Obituaries Are Premature
Clearly, Europe must either unite or risk foreign economic domination -- whether by the United States or by Japan. This reality will force Europe along the road to unity.
Obituaries for United Europe are not only premature, they are false.
For Americans -- bankers and businesspeople alike -- the implications are clear: In the struggle for global market share, major European institutions are likely to play progressively larger roles.
Meanwhile, Europe and Japan will consolidate their status as global creditors. This means ever-increasing foreign ownership of U.S. manufacturers and financial institutions.
Overseas investors already own more than $2.2 trillion of assets in the United States. Naturally they expect to earn a return on their funds. As a result, a rising share of the U.S. gross national product will flow abroad in the form of interest, dividends, rents, and royalties.
Dissent in Britain
Much of the opposition to full European integration seems to be centered in England among members of the right wing of the Conservative Party.
Their objections are focused on the ultimate need for a common currency and a single central bank in Europe.
Norman Lamont, the chancellor of the Exchequer in Britain, laid out London's view.
While acknowledging that a common currency would result in some cost savings, Mr. Lamont made plain that these advantages paled beside what he called the profound political implications and economic consequences of a move to monetary union.
"We believe it both unnecessary and premature . . . to take binding decisions to move to a single currency," he said.
Mr. Lamont went on to argue that in any event monetary union should not be imposed from the top, which he said would be neither desirable nor workable, but should be market-based and market-driven.
Differences in Economic Health
Mr. Lamont's real objections, however, were more substantive. He stressed the sizable economic disparities within Europe today. Inflation rates range between 2.5% and 21%; short-term interest rates are between 9% and 19%; budget balances range from a surplus of 1% of gross domestic product to a deficit of 17%, and unemployment goes from 1.5% to 16%.
When the two Germanys joined in monetary union, the former East Germany suffered a drastic loss of jobs. This recent history was doubtless in the chancellor of the Exchequer's mind when he warned that poorer areas would become increasingly uncompetitive and face a sharp rise in unemployment.
"This would inevitably lead either to a relaxation of monetary policy or to pressure for a massive increase in . . . fiscal transfers to poorer regions."
The Bet Is on Unity
These are serious arguments. Negotiators trying to pave the road to European union will ignore them at their peril.
Nevertheless, British opposition is likely to be overcome by powerful pressures now sweeping across the continent.
At the same conference where Mr. Lamont tried to pour cold water on European monetary union, Gianni Angelli, head of the Italian car manufacturing company Fiat and one of Europe's leading businessmen, gave his views.
He said that a common currency would lead to a homogenous -- and obviously massive -- European financial market, would lower currency transactions costs, and would bring European wage rates in line with the growth of output.
"What we need," Mr. Angelli said, "is for Europe's institutions to support monetary union with a strengthening of policies aimed at aiding industrial development. Monetary union needs to be complemented by economic union. . . . We should grasp this opportunity with both hands."
Even in London, the betting is that the United Kingdom will sooner or later be drawn fully into a European union. As the Financial Times put it, the country will go "kicking and screaming . . . because it would kick and scream still more if left behind."
Mr. H. Erich Heinemann is chief economist of Ladenburg, Thalmann & Co., investment bankers in New York.
