Routes to Economic Integration: 1992 in the European Community

By Kay, J. A.; Posner, M. V. | National Institute Economic Review, August 1989 | Go to article overview

Routes to Economic Integration: 1992 in the European Community


Kay, J. A., Posner, M. V., National Institute Economic Review


ROUTES TO ECONOMIC INTEGRATION: 1992 IN THE EUROPEAN COMMUNITY

1992 is a staging post on the route to European economic integration. For Britain, the real issues are not national sovereignty versus supranationalism, but the choice between a liberal, market oriented path to integration and a planned, centralised one. The paper assesses these options as they arise in regulatory policies, in industrial strategy, and in the monetary and fiscal policies facing the Community. It recognises that there are major policy areas where the creation of a central authority is essential but concludes that the market route is often the right--and the only feasible--approach. This is the third article from members of the CLARE Group to appear in the Review. Future articles will normally appear about twice a year. The Review is pleased to give hospitality to the deliberations of the CLARE Group but is not necessarily in agreement with the views expressed. Members of the CLARE Group are M.J. Artis, A.J.C. Britton, W.A. Brown, C.H. Feinstein, C.A.E. Goodhart, D.A. Hay, J.A. Kay, R.C.O. Matthews, M.H. Miller, P.M. Oppenheimer, M.V. Posner, W.B. Reddaway, J.R. Sargent, M.F-G. Scott, Z.A. Silberston, J.H.B. Tew, J.S. Vickers, S. Wadhwani.

1. Introduction

Britain still calls it the Common Market; most of the rest of Europe uses the term `European Community'. The 1992 programme (for its chief agreed features, see Box A), is however mainly about commercial and financial matters, about barriers to trade and their removal. It is therefore correct for economists in their professional role to ignore the ideals and the ideology, and concentrate on what `will' necessarily happen in commercial reality and what `ought' to happen in the realm of economic policy. Even economists, even British economists, however, cannot ignore the excitement that the prospect of a Europe without frontiers engenders for many people, especially young continental Europeans. This excitement reflects a genuine idealism. It transcends purely commercial effects: but it may also generate commercial effects.

The driving force of national unification was, for at least Germany and Italy, the all powerful patriotic cry of the last century, and the extension of such ideals of unification to much of the rest of Europe is not an unduly athletic leap; and, as for France, while her existence as a modern nation state has deeper roots, she has more recent memories which make the removal of barriers on her German frontier a political issue of far more importance than the pure economics would suggest. It would be insensitive for UK readers to ignore these ideas, and unwise not to anticipate their consequences for the bargaining process.

Yet there are many routes towards political or economic integration, and the present continental urge may be described as Bismarckian--the imposition, fairly early in the process, of a strong central authority on the component parts. By contrast, in the United States (and some would say that the same was true, several centuries earlier, in the United Kingdom) the process was slower, allowed a greater degree of pluralism and diversity, and permitted a process of social Darwinism to spread `best practice' throughout the Union; this we call the Jeffersonian model. It is a continuing theme of this article that often, although not always, the Jeffersonian process may be preferable to the Bismarckian, for both economic and political reasons.

The process of integration can be measured either by the amount of trade between countries or the degree to which barriers have been dismantled. The latter is an elusive concept, but Box B measures the first: economic integration within the Community is progressing, but there is a long way to go before a single market is an economic, as well as a legal, reality. The path towards it can be analysed along three scales. Must common institutions be developed early, or can they be delayed? …

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