Year XXVI, 1984, Number 3 - Page 181



Economic Union and the Draft Treaty
Their massive vote in favour of the Draft Treaty on 14 February 1984 expressed the discontent of Members of the European Parliament with the European Community in its present form. Part of this stems from the impotence of member countries in their strategic relations with the superpowers. But much of it reflects the failure of the Community to master the crisis in the contemporary economy.
The MEPs’ disappointment with the Community also reflects their hopes for what it might achieve. The prosperity and dynamism of member countries in the 1960s was associated with the establishment of internal free trade, the common external tariff and – to the satisfaction of all member countries at the time – the common agricultural policy. Along with these, the EC treaties had provided a structure of institutions and an outline of further competences that seemed to promise a continuing growth of policy integration.
But since the 1960s this growth of policy integration has faltered. Despite the removal of tariffs, the EC’s internal market remains fragmented by non-tariff distortions, notably in some higher-technology industries. The European Monetary System is a pale image of the common-currency system that was proposed in 1970 in the Werner report.[1] Community structural policies are too weak to help much to promote adjustment in sectors that urgently need it. This conjuncture of weak integration with stagflation contrasts sharply with the combination of strong integration and dynamic growth that preceded it.
Doubtless the stagflation has been caused by changes in the real economy with which the system of economic management has not yet come to grips, and to which the system will have to be adapted. But it is plausible that in Western Europe, which has been worse afflicted by stagflation than the advanced industrial economies elsewhere, one element in this adaptation will have to be a strengthening of common economic management, or policy integration, to match the growth of integration among the West European countries’ real economies. From where they sit, it is understandable that MEPs should regard this as the key to a successful Community economy; and it is fair to warn the reader that the writer of this essay regards it as at least one of the keys without which the door to a new European prosperity is not likely to be opened.
Weak Community institutions and lack of instruments.
The shift of economics from political economy to econometrics has diverted economists’ attention away from the study of the institutions in which economic policy is made and, to some extent, from the instruments with which it is executed. Naturally enough, the MEPs, whose daily work involves political institutions and policy instruments, do not share this bias; and many of them have identified institutional weakness as the central cause of the Community’s failure to create a powerful economic union.[2]
The essence of this weakness is seen as the search for unanimity among the member governments before significant decisions are taken, associated with a “democratic deficit” whereby, in the absence of legislative powers for the European Parliament, the choices that underlie these decisions gravitate from hard-pressed ministers, meeting in Brussels for a few hours, to committees of civil servants representing the member governments.
Thus the existing Community is criticised as failing to realise the potential of the treaties that established it, because the member governments, following the démarche of General de Gaulle in the mid-1960s, have extended the practice of the veto far beyond the limits envisaged in the treaties. At the same time the treaties themselves are held to have relied too much on unanimous intergovernmental voting to introduce new policies or to create new policy instruments.
Money and monetary policy can be taken as a paradigm. A common currency formed a normal part of early plans for European integration.[3] But the Treaty of Rome, although explicitly designed to establish a European Economic Community, confined its provisions in the field of money to half a dozen innocuous articles envisaging consultation on conjunctural and balance-of-payments policies. Evidently the founding fathers, having been worsted in 1954 in their attempt to integrate the defence establishments through a European Defence Community, were unwilling to take on those other citadels of national sovereignty, the finance ministries and central banks. Monetary integration remained on the agenda for economic union, however, even if this agenda was hidden while de Gaulle remained President of France; and soon after de Gaulle’s demise, the Werner report proposed a monetary union, within which there would be “the total and irreversible convertibility of currencies, the elimination of margins of fluctuation in exchange rates, the irrevocable fixing of parity rates and the complete liberation of movements of capital.”[4]
Although the Werner report was so precise in its definition of monetary union, it was quite vague about the institutional implications. A common currency (or irrevocably fixed parities with total convertibility, which amount to the same thing) removes the principal instrument of economic policy from the hands of the member states. It therefore requires that this principal instrument be managed collectively, that is, if one is to speak plainly, by a common government. Yet the Werner report, doubtless hoping to avoid stimulating gaullist reflexes in France, wrote merely of the need for a “centre of decision for economic policy”, with no indication that this implied a radical political reform.[5] But this equivocation proved fatal to the scheme, for the French government was unwilling to transfer monetary sovereignty to effective common institutions, while other member governments, and crucially the German one, would not permanently lock parities without such a transfer.[6] The schemes for exchange rate cooperation which followed, including the European Monetary System in its present form, have not responded to the view that an economic union should be established and that this requires a transfer of substantial instruments of monetary policy from member states to common Community management.
The story of “economic and monetary union” has been told at some length because it illustrates perfectly why the Draft Treaty was designed to provide both for reform of the Community’s institutions into a system of European government (and of parliamentary government, that being the form prevalent in member countries) and for the extension of Community competences and instruments. For experience has shown the Treaty’s promoters what common sense probably told them in the first place: that without effective institutions which dispose of adequate instruments, an economic and monetary union is not likely to be developed.
Competences and instruments.
The economic union outlined in the Draft Treaty comprises five main aspects of public policy: completion of the internal market; external trade policy; structural policies; monetary and general economic policy; and the Union budget.
The internal market.
The Treaty of Rome provided for freedom of movement for goods, services and capital within the Community and for nationals of any member state to work and to establish economic activities in other member states. The vision was of a Community in which movement would be as free and undistorted as within one of the member countries. But as we have seen, one of the disappointments with the Community is that this vision has not been translated into reality. With the growing significance of specialisation and scale in the modern economy, this failure is becoming an increasing handicap to industries in the member countries in competition with more homogeneous large economies such as the United States and Japan.
This failure is due in part to the difficulty of securing unanimous agreement to remove a given distortion, whether unanimity is stipulated in the Rome Treaty (for example in the approximation of laws that distort the functioning of the common market) or is merely practised more often than that Treaty appeared to envisage (e.g. in securing freedom to provide services throughout the Community). Thus a substantial part of the vision of a single undistorted market, which the Draft Treaty reaffirms (see art. 47), could be achieved through the combination of the Union’s inheritance of “the Community patrimony”[7] with its more decisive institutions.
While the application of the Union’s reformed institutions to the Community patrimony offer the simplest solution to the problem of removing barriers and other distortions within the Union, the drafters of the European Parliament’s Treaty felt the urge to go further to ensure that this is done completely and without undue delay. They therefore went beyond the Community patrimony in their articles 47-49, on freedom of movement, competition policy and the “approximation of laws relating to undertakings and taxation”.
Thus not only does article 47 stipulate exclusive competence for the Union “to complete, safeguard and develop the free movement of persons, services, goods and capital” within the Union’s territory, but is goes on to require the Union’s legislative authority to lay down “detailed and binding programmes and timetables” for the liberalisation process, and to fix periods of two years for services and ten years for capital. Evidently the reluctance which several member governments have shown to accept free movement for services and capital, for example, led the drafters to suspect that even the more streamlined and decisive institutions they propose might fail to accomplish the desired results without such detailed treaty obligations.
Again, rather than rely on the Union’s institutions to pursue a competition policy as defined in articles 85 and 86 of the Treaty of Rome, the Draft Treaty in article 48 gives the Union “exclusive competence to complete and develop competition policy at the level of the Union”, specifying a “system for authorisation of concentrations of undertakings” based on article 66 of the ECSC Treaty and “the need to prohibit any form of discrimination between private and public undertakings”.
In order to strengthen the Rome Treaty’s provisions for removing fiscal and legal distortions in the common market, article 49 of the Draft Treaty requires the Union to “approximate the laws, regulations and administrative provisions relating to undertakings ... in so far as such provisions have a direct effect on a common action of the Union” and to “effect the approximation of” the laws relating to taxation “in so far as necessary for economic integration within the Union”. While the drafters’ inclination to sweep away bureaucratic cobwebs that disfigure the common market was doubtless sound, it should also be remembered that some of the legal, administrative and fiscal differences among the member countries reflect a social or cultural diversity which it may be unwise or even impossible to eliminate. Thus different balances between direct and indirect tax in Aberdeen and Palermo may stem from deep-seated differences in attitudes towards the state or towards its role in relation to social justice; and the aims, procedures and competences of a European Union need to be defined in ways that take sufficient account of such distinctions. We will return to the question whether the Draft Treaty could be improved in this respect.
External trade policy.
The external trade policy (or common commercial policy, as the Community jargon has it) is the most striking success of Community policy-making. In the other main fields of international relations, such as money and defence, the Community remains a political dwarf in its relations with the United States. In trade negotiations, on the contrary, the EC was shown, soon after the Rome Treaty came into effect, to have become the equal of the US. This was made evident when President Kennedy initiated the Kennedy round of tariff negotiations in the Gatt, in response to the emergence of this new trading power with its common external tariff; and it has remained the case in trade negotiations since.
The difference between before and after the establishment of the European Economic Community was precisely the creation of the Community’s common tariff, which prevented member governments from making separate national deals with trading partners on the basis of separate national tariffs. The power of a common policy instrument could hardly have been more convincingly demonstrated. Yet although the institutions of the EC have, albeit cumbersomely and painfully slowly, managed to use this instrument in tariff negotiations, they have a dismal record where the creation of new common instruments is concerned. The same centrifugal force of the national political and bureaucratic systems of the member states, which underlay their inability to aggregate their trade negotiating power when they still had separate tariffs, has undermined most of the good intentions to create other common instruments. It is this sterility, in an era when new common instruments appear so necessary in order to manage the interdependent Community economy and to defend its interests in the hard world outside, that has led the architects of the Draft Treaty to set such store by institutional procedures that will remove the present blockages, not only to the efficient use of existing instruments, but also to the establishment of new ones.
Thus the Draft Treaty’s brief provision for external trade policy packs a heavier punch than its brevity might seem to imply. “In the field of commercial policy, the Union shall have exclusive competence” (art. 64.2): this gives the Union’s institutions, which are so much more decisive than those of the Community, the power both to use the EC’s already substantial instruments of trade policy and to fashion the further instruments that the growing importance of non-tariff influences on international trade is rendering more and more necessary.
Structural policy.
The Community is not without competence to make structural policy and instruments with which to execute it. Its agricultural policy is famous or notorious, according to the point of view. The Rome Treaty contained more articles on transport than on agriculture, but without equivalent effect; the ECSC provides for structural policy for coal; and Euratom for atomic energy. The Community also possesses several instruments of industrial policy.
Historically, protection has been the primary industrial policy instrument for most countries; and the effectiveness of the EC’s common tariff, together with ways in which the Draft Treaty would strengthen the common commercial policy, has already been described. The other side of that coin was the renunciation by the member states of the use of tariffs and quotas on the trade among them. Despite its incompleteness, the development of the EC’s internal market has been one of the greatest acts of industrial policy in this century; and the Community’s continuing struggle to complete the single liberalised market remains at the centre of industrial policy-making. The Draft Treaty, as we have seen, equips the Union to ensure a victorious conclusion to this struggle.
Subsidies have recently been challenging the primacy of traditional protection in the field of structural policy. The EC disposes of “an array of financial funds”[8] which can be used for its industrial policy, including the Social Fund, money raised under the Treaty establishing the European Coal and Steel Community, the Regional Development Fund, the European Investment Bank and the New Community Instrument (Ortoli facility) whereby the EC can raise funds to finance investment projects. But “all in all, the Community financial funds are of modest importance”;[9] and one of the most important of the Draft Treaty’s economic provisions is the power that article 71.2 gives the Union to raise as much revenue for the European budget as its institutions may, by majority vote procedures, decide. The Union would not, therefore, be constrained like the Community in using financial instruments for industrial policy.
Given the modesty of the Community’s financial resources, its main power in the field of industrial subsidies has been the negative one of controlling the subsidies given by member governments (in Community jargon, state aids). In principle, the Rome Treaty regards these as “incompatible with the common market” in so far as they distort or “threaten to distort competition by favouring certain undertakings or the production of certain goods” (art. 92). But the same article goes on to allow that subsidies may be compatible with the common market if they are to promote the development of regions with low living standards or underemployment, important projects of common European interest, or the development of certain economic activities or areas, where this “does not adversely affect trading conditions to an extent contrary to the common interest”. So the Commission of the EC has been able to use its powers not only to prohibit subsidies that distort competition but also to allow those that help in “speeding up the response of the private enterprise system to new investment and technological opportunities ... and the adaptation of industries which need to contract and redeploy resources”.[10] The negative power to prohibit national subsidies has thus been turned into an influence in favour of positive adjustment; and the Draft Treaty has not proposed any change to the Community’s powers with respect to state aids, although the Union’s disposal over more money for its own subsidies would powerfully enhance its capacity to turn industrial policy in a positive direction.
Competition policy can likewise be used to encourage adaptation in sectors that need to adjust through capacity reduction; and after running the EC’s competition policy on fairly orthodox neoliberal principles, which as US anti-trust legislation has shown can exert a considerable influence on industrial structure, the Commission has begun to promote adjustment in a branch of the chemical industry in this more positive way. The Draft Treaty has, however, sought to strengthen this line of action by requiring the Union to develop its competition policy “bearing in mind ... the need to restructure and strengthen the industry of the Union in the light of the profound disturbances which may be caused by international competition” (art. 48).
The Community patrimony with respect to external trade policy, the internal market, subsidies and competition policy has been recapitulated here because the use by the Union’s institutions of the competences which are already part of the patrimony would be the Draft Treaty’s most important contribution to structural policy, at least if the more ample financial resources implied by articles 71, 75 and 76 (see below) are also taken into account. It could indeed be argued that there was no need for the Draft Treaty to make any further provision for structural policy. But article 53 does in fact go into sectoral policies in some detail; and article 58 makes far-reaching provision for regional policy, while article 73 stipulates “a system of financial equalisation ... to alleviate excessive economic imbalances between the regions”. Under both articles 53 and 58 the Union is given concurrent competence: that is, “the Member States shall continue to act so long as the Union has not legislated” (art. 12), but cannot legislate thereafter.
For agriculture and fisheries, the Draft Treaty requires the Union to “pursue a policy designed to attain the objectives laid down” in article 39 of the Rome Treaty: hardly necessary, since this is part of the Community patrimony, which the Union would inherit. For energy, wider-ranging objectives are specified than are to be found in the treaties establishing the EC, including not only security of supplies, market stability and a harmonised pricing policy, but also “the development of alternative and renewable energy sources ... common technical standards for efficiency, safety, the protection of the environment and of the population, and ... the exploitation of European sources of energy”. The structural policy implicit in such aims is, moreover, to apply to all energy sources, whereas the existing treaties provide specific structural aims with respect only to coal and atomic energy. The European Parliament, clearly frustrated by the weak and patchy Community energy policy, would give the Union the capacity to make a strong and comprehensive one.
For transport, the Draft Treaty reiterates the aim of ending distortion and discrimination, which is already clearly stated in the Rome Treaty, and adds the important aim of creating “a transport network commensurate with European needs”. The aim of establishing “a telecommunications network with common standards” also breaks significant new ground.
For industry and for research and development, the Draft Treaty foregoes the definition of any particular aims but gives the Union power to coordinate the actions of member states. In the case of research and development, this takes the far reaching form of the Union “coordinating and guiding national activities”, which might be thought to open the door to Union control not only of any detail of member governments’ policies but even, depending on the interpretation of “national”, of research and development activities hitherto independent of governments within the member states. The Draft Treaty also empowers the Union to “provide financial support for joint research ... and ... undertake research in its own establishments”, both of which the Community already does within the limits of its present resources.
In the field of industry, the Union’s control is confined to “the policies of the Member States in those industrial branches which are of particular significance to the economic and political security of the Union”. For other industrial branches the Community patrimony together with the Union’s greater financial power is evidently, and probably rightly, believed to afford adequate scope for Union industrial policy. Where “economic and political security” are at stake, it may be thought legitimate for the Union to bite deeper into member states’ competence, depending perhaps on how broadly such security is defined.
Monetary and general economic policy.
The most important of the Draft Treaty’s provisions in the field of general economic policy, indeed the key among all its economic proposals, is to be found in article 52, which gives the Union competence “for the achievement of full monetary union”. All member states are to participate in the European Monetary System; the EMF (European Monetary Fund) is to be established (according to art. 33) with “the autonomy to guarantee monetary stability”; “part of” the member states’ reserves are to be transferred to the EMF; the ECU (European Currency Unit) is to become a reserve currency and a means of payment, and the Union is to promote its wider use. More generally, the Union is to establish “the procedures and the stages for attaining monetary union”. In the first five years, the heads of government in the European Council can suspend these monetary laws; but there is no hindrance thereafter to the establishment by the Union’s institutions of a monetary union of the type defined in the Werner report.
This article, with the Union’s more decisive institutions, is enough to shift the balance of power to make general economic policy from the member states to the Union. The Draft Treaty adds to this, however, a concurrent competence for the Union “as regards European monetary and credit policies, with the particular objective of coordinating the use of capital market resources by the creation of a European capital market committee and the establishment of a European bank supervisory authority”. The competence for monetary and credit policies seems anyway implicit in article 52. But the words “coordinating the use of capital market resources” might be interpreted as requiring a directive form of control over capital markets, rather than the establishment of a regulatory framework which was probably intended.
Part of article 50, which gives the Union concurrent competence “in respect of conjunctural policy, with a particular view to facilitating the coordination of economic policies within the Union”, also seems redundant in the light of article 52; for pari passu with the progressive establishment of the monetary union, the responsibility for monetary policy passes inevitably to the Union. Article 50 also, however, appears to give the Union the power to control the budgets within the member states, which comprise the other main instrument of economic and conjunctural policies. Union laws are to lay down the principles on whose basis “the Commission shall define the guidelines and objectives to which the action of the Member States shall be subject” and “the conditions under which the Commission shall ensure that the measures taken by the Member States conform with the objectives it has defined”. This may raise the spectre of a Union government treating the budgets within the member states as the British government has been treating the local budgets within the United Kingdom – against the principle of all democratic federations, which keep the states’ budgets free from federal control.
The argument for Union control over member states’ budgets is that, whereas in most federations the federal budget is bigger than those of the states, the Union would start with a budget amounting to some 2 per cent of public expenditure within the member countries as a whole. So the Union budget would carry little weight compared to that of states’ and local budgets as an instrument of conjunctural or general economic policy. This argument was deployed at the time of the Werner report, which likewise proposed Community control over the member states’ budgets, specifying “global receipts and expenditure, the distribution of the latter between investment and consumption, and the direction and amount of the balance”.[11] But when that report was written, faith in the effectiveness of demand management through fiscal manipulation was greater than it is now; and the Werner group was, as we have seen, remarkably insouciant about the political implications of their proposals. Even if fiscal manipulation makes a big contribution to successful demand management (which may, despite current scepticism, still be the case), this would have to be set against the political consequences of so heavy a load of centralisation in a Union which will need to foster political vitality not only at the centre but also within the member states. Taxation and expenditure are among the principal instruments of social as well as economic policy, and democracy can hardly flourish without adequate control over them. It follows from this that, while the Union’s institutions control the Union’s budget, control over the states’ budgets should remain with the states. This argument relating to political structure should at least be weighed carefully against the case for Union control of general economic policy. It would be surprising if the outcome were to give the Union power over the states’ budgets, beyond perhaps the right to fix upper and lower limits for the budget balance where there was strong evidence that this would be necessary for the Union’s economic stability.
Whatever the outcome as regards Union control over member states’ budgets, its right to “utilise the budgetary or financial mechanisms of the Union for conjunctural ends” (art. 50.4), or indeed for the ends of economic policy more generally, can hardly be gainsaid. Although the starting point would be the EC’s quite small budget, the Draft Treaty sets no limit to the revenue that could be raised by the Union; and the legislative procedures that the Treaty envisages would be likely to produce, over time, a substantially larger budget. It was suggested earlier that this would be the Treaty’s most important contribution to the array of instruments for structural policy; and the budget can indeed be seen, along with monetary union and the effective use of the Community patrimony by the reformed institutions, as the essential triptych of the economic union that would emerge from the Treaty.
The Union budget.
The communautaire insistence on “own resources” for the EC is not a vacuous dogma but a practical necessity if the Community is to exist as an effective entity. The power of a common instrument was demonstrated earlier with the case of the external tariff. The Community would likewise achieve little if it were unable to pay for any specific activity, without unanimous agreement among the governments to raise the necessary revenue for it. This explains why the Draft Treaty opens its sections on the budget by stating squarely that “the Union shall have its own finances”, that they will be “administered by its institutions”, on the basis of a budget adopted by “the European Parliament and the Council of the Union” (art. 70).
The Draft Treaty goes on to provide for regular and efficient control of the budget. All expenditure is to be “subject to the same budgetary procedure” and there is to be an annual report to Parliament and Council on “the effectiveness of the actions undertaken” (art. 72). There is to be a multi-annual programme for revenue and expenditure, revised annually and “used as the basis for the preparation of the budget”; and the Commission is to report on “the division between the Union and the Member States of the responsibilities for implementing common actions and the financial burdens arising therefrom” (art. 74). The budget is to “lay down and authorise all the revenue and expenditure of the Union in respect of each calendar year”; the adopted. budget “must be in balance”, although this allows for “borrowing and lending” as well as the raising of revenue; appropriations are to be “entered in specific chapters grouping expenditure according to its nature or destination” (art. 75). The budget is to be “implemented by the Commission” (art. 78), which shall submit annually to Parliament and Council “the revenue and expenditure account” (art. 80), this being audited and “the implementation of the budget” verified by the Court of Auditors (art. 79). Finally, “the Parliament shall decide to grant, postpone or refuse a discharge” (art. 81).
The budget to which all these proper procedures are to apply is to be declared adopted by the President of the Parliament after it has been approved by the budgetary authority, that is according to a complex procedural relationship between the Parliament and the Council of the Union laid down in article 76. This relationship is quite similar to that for enacting laws. In the unlikely event that both Council and Parliament accept by simple majorities (a majority of the weighted votes cast in the Council and of the votes cast in the Parliament) the budget proposed by the Commission, or if Council and Parliament agree by simple majorities the same amendments, which are not opposed by the Commission, the budget is to be adopted. More probably, the Commission and Parliament would agree upon a budget amended by the Parliament (the Parliament having to vote by an absolute majority of all its members to amend any amendments proposed by the Council), in which case it would be adopted unless a qualified majority of the Council (for a second reading of the budget, three-fifths of the weighted votes cast and a majority of the representations of member states) is against it. Put the other way round, a budget agreed by Parliament and Commission will be adopted even if only two-fifths plus one of the weighted votes cast in the Council and a minority of the representations are in favour of it.
This procedure has been described in a little detail because of the complexion it casts on the question of the size of the Union budget. The Union “may, by an organic law, amend the nature or the basis of assessment of existing sources of revenue or create new ones” (art. 71). An organic law can be passed, if Parliament and Commission agree on it, with only one-third plus one of the weighted votes in the Council (art. 38). Although a qualified majority in Parliament (a majority of all its members and of two-thirds of the votes cast) is also required in those circumstances, it seems not unlikely that the Union would acquire a tax base from which substantial revenue could be raised. The amount to be raised from this tax base would be decided by the procedure outlined above, requiring only a simple or an absolute majority in the Parliament and two-fifths plus one of the weighted votes cast in the Council.
There should be little difficulty, with those procedures, in raising the money required to finance the policies decided in the Union’s institutions: a sharp contrast with the precariousness of the present Community budget. This is of no small significance in an age when, despite public expenditure cuts, the budget plays such a big part in economic and social policy. The problem may be, rather, that the procedures could, if there were majorities of centralisers in Commission and Parliament, open the way to raising the Union budget to levels that would unduly constrain the budgetary potential, and hence the political life, of the member states.
What would be a just division of revenues and expenditures between the Union and the states is a question to which many answers could be given, depending on the weight given to a variety of political, economic and social values. The MacDougall report to the Commission[12] suggested that a “pre-federal” budget, concentrated on employment, regional, structural and cyclical policies, could comprise 2-2½ per cent of the Community’s gross domestic product, rising perhaps to 5-7 per cent. Whatever the just division, there is also the question of what budgetary arrangements would be acceptable to the member countries’ parliaments that would have to ratify the Draft Treaty; and it seems doubtful whether a procedure which gives so little weight to the member states’ representations, while offering no limit to the size of the budget that could be determined by majorities in the European Parliament and Commission, would be acceptable to at least those parliaments, particularly the British and the German ones, which tend to take a jaundiced view of the impact of European budgets on their countries.
Economic union and member states.
The question of a just division of powers between Union and states, and the related though less noble question of the acceptability of the Draft Treaty to member countries’ parliaments, arise with respect not only to the Union budget but also to the Treaty’s proposals for economic union as a whole.
This writer at least applauds the European Parliament’s determination to see a real economic union established, to provide a framework in which the European economy could realise its full potential, instead of limping behind Japan and the United States as the Community is doing at present. The Draft Treaty contains the essential elements of such a framework, in particular the monetary union, an adequate Union budget and the Community patrimony, to be governed by institutions from which the present blockages have been removed.
Beyond these essential elements, however, the Treaty’s drafters may have gone too far in some ways towards centralisation or uniformity. The potential for making taxation uniform among the member states, for raising the size of the Union’s budget beyond reasonable limits, and for controlling budgets or research and development within the member states, has already been mentioned. In each case, it would be possible to provide a check by amending the Draft Treaty: excluding personal direct taxes from harmonisation, for example; setting a maximum (say 5 per cent of Union GDP) above which the Union budget could not be raised without treaty amendment; giving the Union no power to interfere in the budgets of member states or to prohibit research and development programmes within them.
The Draft Treaty might well be improved by some such specific amendments. At the same time flexibility is a great merit in a constitution (which the Draft Treaty would in fact be for the European Union), and this tells in favour of relying as far as possible on more general provisions to safeguard the autonomy of member states against excessively centralising forces.
The Draft Treaty already contains the principle of “subsidiarity”, whereby “the Union shall only act to carry out those tasks which may be undertaken more effectively in common than by the Member States acting separately” (art. 12). This principle might become a more effective safeguard against undue centralisation if it were provided that the tasks in question should not in themselves be excessively centralist (e.g. tax harmonisation beyond what is needed for reasonably fair trade among the member states).
The encroachment of central power in the regulation of economic activities has been limited to some extent in the United States by the constitutional guarantee that no person be deprived “of life, liberty and property without due process of law”; and a similar purpose has been served, in Canada’s constitution, by excluding central government legislation on trade and commerce “where it conflicts with property and civil rights in a province”. But in each case there has been “much uncertainty “about the respective powers of general and state governments, because of the conflicting and ambiguous language adopted”.[13] The Draft Treaty invokes the rights derived from the constitutions of the member states, the European Convention for the Protection of Human Rights and Fundamental Freedoms and the European Social Charter (art. 4); and it might be worthwhile to consider whether the way in which this is done could avoid some of the uncertainties that have arisen in Canada and the US.
The procedure which would allow Union laws, including the budget, to be enacted with the support of only a minority of the member states and of their weighted votes may tilt Union legislation too heavily against the retention of political scope for the member states. It would be some safeguard against this, and more in line with the constitutions of other unions, to require at least a majority of the states’ representations for all legislation, and a qualified majority for the more fundamental, organic laws.
Amendments such as these to the Draft Treaty might both ensure a better distribution of power between the Union and the states and, as a consequence, also make the states more willing to ratify. It may also be advisable to consider the particular problems that could arise for member states whose support is indispensable if European Union along the lines envisaged in the Draft Treaty is to become a reality. In Britain and perhaps France the doubts about political structure are likely to be more important; here we will consider the economic doubts which may well predominate in Germany. The Germans, having suffered two hyper-inflations in this century, are peculiarly liable to fear a recurrence of the malady; and they are apprehensive lest monetary union with their currently more inflationary neighbours should draw them again in that direction. They are also keenly conscious of being the Community’s “paymaster” and wary of exposing themselves to bigger net contributions to the budget. They are also aware of the merits of political union such as the Draft Treaty outlines; but they might want reassurance before committing themselves irrevocably to monetary union and a budgetary procedure that could bring a much larger financial commitment. Such reassurance could perhaps be offered by a procedure that was devised in the Treaty of Rome, where transition from the first to the second stage was made conditional on “finding that the objectives specifically laid down in the Treaty for the first stage had in fact been attained in substance” (art. 8.3). Here the objectives in question might be assured monetary stability and a fair distribution of budgetary costs and benefits.
The European Parliament, in its Resolution on the Draft Treaty establishing the European Union, declared its desire to “take account of the opinions and comments of the national parliaments”[14] on the draft. The view will have been made apparent in the foregoing that the provisions for economic union could be improved in the process and that various inessentials could be dropped. But there is also the danger that in the course of political discussions the vision of an effective economic union could be lost. Rather than compromise on the essentials, the European Parliament should keep such features as the common currency, an adequate budget and decisive institutions at the centre of its project. Only thus can it help to persuade the member states, if not now then at a later stage, to accept what is necessary for the economic future of Europe.

[1]Report to the Council and the Commission on the realisation by stages of Economic and Monetary Union in the Community (Werner Report), Supplement to Bulletin 11-1970 of the European Communities, Luxembourg, 8 October 1970.
[2]That this is the view of Altiero Spinelli, the principal promoter of the Draft Treaty, is shown in Altiero Spinelli, Towards the European Union, Sixth Jean Monnet Lecture, Florence, European University Institute, 13 June 1983. See also Michael Burgess, “Federal Ideas in the European Community: Altiero Spinelli and ‘European Union’, 1981-84”, Government and Opposition, Summer 1984, p. 340.
[3]See for example Walter Lipgens, A History of European Integration 1945-1947: The Formation of the European Unity Movement, Oxford, Clarendon Press, pp. 110, 578.
[4]Op. cit., p. 10.
[5]Ibid., p. 12.
[6]This deadlock was analysed in John Pinder and Loukas Tsoukalis, “Economic and Monetary Union Policy”, in G. Ionescu (ed.), The European Alternatives, Alphen an der Rijn, Sijthoff and Noordhoft, 1979, pp. 482 ff.
[7]Article 7 of the Draft Treaty provides that “the Union shall take over the Community patrimony” and goes on to specify “the provisions of the treaties establishing the European Communities and of the conventions and protocols relating thereto” and “the acts of the European Communities, together with the measures adopted within the context of the European Monetary System and European Political Cooperation”, in so far as these are not amended by or incompatible with the Draft Treaty, or amended or replaced in accordance with the procedures laid down in the Draft Treaty.
[8]Jacques Pelkmans, Market Integration in the European Community, The Hague, Martinus Nijhoff, 1984, p. 275.
[9]Ibid., p. 277.
[10]Dennis Swann, Competition and Industrial Policy in the European Community, London, Methuen, 1983, p. 51.
[11]Op. cit., p. 19.
[12]The Role of Public Finance in the European Communities (Mac Dougall Report), Brussels, Commission of the EC, April 1977.
[13]K.C. Wheare, Federal Government, London, Oxford University Press, 1951 (first edition 1946), p. 149.
[14]European Parliament, Draft Treaty establishing the European Union, February 1984.

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