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Europe: Politics And Money

Unity And Division

Fifty years after the Marshall Plan began, Europe is feeling the pain of political integration

By Bruce W. Nelan

cover

(TIME, June 9) -- The five decades of effort to defend and rebuild Europe have been a triumph for America. So it was understandable that a touch of triumphalism echoed over Bill Clinton's visit to Europe last week. While colossal headaches were awaiting him at home, over there it was pure pomp and celebration. On Tuesday at a signing ceremony at the Elysee Palace in Paris, he portrayed the new agreement between Russia and NATO as the gateway to a golden era of East-West cooperation. In the Hague the next day, he and the assembled leaders of Europe marked the 50th anniversary of the Marshall Plan--the keystone of it all--with brass bands, dinners and speeches. The next 50 years, said Clinton, should produce "a Europe that is democratic, at peace and undivided for the first time in history."

Quite a prescription, and Europe might even have a shot at it. Certainly that kind of halcyon future would be the end product that American Presidents and planners have worked for since World War II. It would, as Clinton said, fulfill "the real dream of the Marshall Plan." But rhetorical dreams are poor guides to reality, and this one will not come true easily. Signs of new splits and inequalities are appearing, some of them erupting directly from last week's events.

While Russian President Boris Yeltsin made the best of his agreement to go along with an expansion of NATO, the theatrical sigh he heaved before signing was not entirely playacting. The fact is that Russia can consult with a growing NATO, but Russia is left out. So are several other countries in Eastern and Central Europe, including the Baltics, that desperately want to get in. NATO members themselves have begun squabbling about which former Warsaw Pact countries will be invited to join and who will pay the costs; the estimate, still only hazy, and probably too low, is about $35 billion over 10 years.

And in almost the same time frame as NATO's move eastward, the European Union is putting together a monetary in-group with a common currency. Again, some countries will get in and some will be left out. This is very much a revolution from above, while ordinary citizens are increasingly rebellious. For the moment they are more resentful of the price of the monetary union--budget cutting and unemployment--than of its audacious surrender of national power. Voters in France, where the jobless rate is 12.8%, made that clear with a massive rebuke to the government of President Jacques Chirac and his now outgoing Prime Minister Alain Juppe.

Back in 1947, no political provisos were attached to the Marshall Plan, but when Congress appropriated funds for it, the preamble to the European Recovery Act called on the beneficiaries to form a United States of Europe. In retrospect that looks like the old American ambition to remake the world in the U.S. image, but what motivated Congress was national security rather than ideology. If the Europeans would stop slaughtering one another and band together, the U.S. might not have to march into another transoceanic war.

That policy kept America engaged with its allies and paid off handsomely. Not only is there no prospect of a war in Europe, but the ancient enemies--France and Germany at the center--have integrated their economies, torn down internal trade barriers, and face the world increasingly as a single unit. Their prosperity is enormous: Europe's gross domestic product last year, $8.6 trillion, overshadows America's $7.6 trillion.

Europeans today do not think or talk about creating a U.S. of Europe, a federal superstate, but they are getting ready to take control of monetary policy and interest rates away from their sovereign nations and turn it over to a European Central Bank, starting 19 months from now. Then in 2002 the familiar mark, franc, guilder and several other currencies will disappear and will be replaced by the euro, with a small e. The idea is to curb inflation, eliminate the risks of up-and-down exchange rates and harmonize the member states' fiscal behavior. But the idea behind that is more political than economic: that consultations on numbers will evolve into decision making in concert, first on domestic policies and then in the foreign and defense fields. "When we have the same currency," says former French President Valery Giscard d'Estaing, "we will feel the need for common institutions."

As usual, the European locomotive on this track is Germany and the engineer is Chancellor Helmut Kohl, who announced he will seek re-election yet again next year, mainly to shepherd monetary union and the euro into existence. For its own good, he believes, Germany must be anchored in a strong European Union and not left to throw its weight around between East and West. Chirac demonstrated his commitment to monetary union, if not his political smarts, when he called the snap election in hopes of securing control of his parliament for the next five years. The Benelux countries are on board the money plan, and Ireland, Spain and Finland are eager. In an interview last week Italian Prime Minister Romano Prodi told TIME, "The euro must happen on time," that is, on Jan. 1, 1999. And, he predicted, "Italy will be in the EMU," or the Economic and Monetary Union.

Pretty much all Europe wants to get in. The biggest exceptions are Sweden, Denmark and Britain. Even though Britain's economy is strong enough to qualify, Prime Minister Tony Blair says he probably won't go in on the first round. For the other states, the problem is the criteria for entry. To begin with, only members of the European Union may join, so that excludes all the former Warsaw Pact states. Then the applicants face strict requirements set by the Maastricht Treaty of 1992. At the top of the list is the demand that a country's budget deficit must not be higher than 3% of its gross domestic product. That is a tough one, and most European governments have been energetically slashing budgets (read welfare programs) and raising taxes for several years. It's so tough, in fact, that even Germany and France may not make the grade. Some fancy finagling is under way.

The French, for example, have siphoned the entire pension fund of state-owned France-Telecom into the national treasury in order to bring down the deficit. In Germany, Kohl has plunged into a furious fight with the stick-to-the-rules Bundesbank by moving to revalue the country's gold reserves closer to a "market" price to add $10 billion to the federal coffers. The Bundesbank warns that such a trick could undermine "the credibility and stability" of the euro.

After French voters rounded so fiercely on their government in the first stage of the election, Juppe had to promise to resign in hopes of staving off a Socialist takeover of the National Assembly. So perhaps the trans-Europe lesson of the French elections is that austerity measures are too hot to hold on to and that entry into the monetary union will be judged by other standards. In a final bid for votes last week, Juppe said when it comes time next spring to pick the members of the euro club, "the decision will be a political one." Translation: Paris will stop drastic budget cutting, and Italy is probably going to get in. Since the Socialists take similar positions, that is likely to be true whoever is running the government.

Kohl can hardly say no to political fudging, even though it was Germany that insisted on the 3% rule in the first place. For him, the creation of the monetary union and a more integrated E.U. is the essential goal, so he need not squint too hard at the technicalities. Not so the grumbling German people, who still shiver at the memory of the hyperinflation that wiped out the nation's savings in 1923. Germans put great store in a strong, reliable currency and are not thrilled at the prospect of giving up their beloved mark. If they are to trade it in for a soft or unpredictable euro, they will do their best to fight it.

It's fitting, even if only a coincidence, that the new millennium arrives along with a series of momentous European decisions and deadlines. Next month in Madrid a NATO summit meeting will invite at least three former Warsaw Pact members to join the Western alliance in 1999. Next spring the European Union will begin organizing the monetary union for its start in 1999 and open talks with Central and Eastern European countries that want to join the E.U.

By 2002, when the new euro will actually be in Europeans' pockets and checking accounts, some of the eastern states--possibly the same ones that join NATO--may be welcomed into the European Union. This reshaping of the old Continent could turn out to be the first stage of a new unity, as Clinton hopes and predicts. But there is also a risk that it could create a dangerous division of the Continent between nations that are strong and prosperous and those that are weak and fearful.

--Reported by Jordan Bonfante/Bonn, Jay Branegan/Brussels, J.F.O. McAllister/with Clinton, Thomas Sancton/Paris and Bruce van Voorst/Washington





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