Academic journal article Business Economics

The Emergence of the New European Economy of 1992

Academic journal article Business Economics

The Emergence of the New European Economy of 1992

Article excerpt

The Emergence of the New European Economy of 1992

THE ESSENCE OF THE 1992 process may be highlighted by referring to some European views of the United States as a regime model, as well as some American perceptions of current European developments.

Imitation is the sincerest form of flattery. For all the critical debate that flows across the Atlantic on topics such as trade, budget and exchange rate policies, the economic and monetary system of the United States has several key features that the European Community is more or less seeking to replicate. These include: (1) the openness of the continentally dimensioned U.S. internal market for goods, services, capital and labor, and adaptation of business behavior and structures to this datum; (2) the subtle blend of federal and state competences in the governance of the market, with a large and often healthy play of competition between state jurisdictions in the continuing search for the best microeconomic policies; and (3) the workings of the Federal Reserve System, which back in the 1920s came to recognize that integrated financial markets and a single currency left much less place for federalistic decentralization in the domain of macro-economic monetary policy than in the case of microeconomic policies for market regulation.

Looking the other way across the Atlantic, a difference prevails in perceptions that the American media and Europeans have of developments in the European Community heading towards 1992. Public opinion in the United States, understandable in view of the barriers of distance, appears to see Europe in more black and white terms. Yesterday was the Europe of Eurosclerosis, withering into a cultural museum; today we read of Europe striking back. What happened? For Europeans the 1992 process is an important intensification of what for decades has been an underlying trend, driven by the force of economic and political logic. The continuum is as important as the change in trend. The continuum may have been barely noticed by the American media, no doubt because the movement was insufficiently dramatic or too technical.

To illustrate, recall that the European Community has been growing in several dimensions for many years. Take its territorial dimension first: the original six Member States became nine in 1973, ten in 1981, twelve in 1985, thus reaching a population size of 320 million, with further applicants now knocking at the door (Turkey, Austria, perhaps Norway, etc.). Take, secondly, the institutional dimension with a Treaty in 1975 that gave the European Parliament its first minor but legally significant powers in relation to the EC budget, the first direct elections to the Parliament in 1979, and its increased powers in the legislative process in 1987 through another Treaty, the Single European Act. This last Treaty also amended the powers of the other institutions, notably increasing the area of EC jurisdiction that is subject to majority voting rather than a unanimity requirement in the Council of Ministers. Take, thirdly, the policy dimension: the initiation or expansion in the 1970s of EC competences for regional policy, development aid, and exchange rate policy (European Monetary System); the expansion of the 1980s of EC competences for R&D and technology policy, foreign policy coordination; now, the drive to complete the internal market; and stretched out for the 1990s, the move to a common central bank and economic and monetary union.

Thus the development of the European Community's economic, institutional and political system is a deep and diffuse one. It not only has the force of economic and political logic behind it, it also takes place within a framework of institutional arrangements and democratic legitimacy that tolerates or even fosters a continuing systemic evolution. This is taken for granted by Europeans, and often hardly noticed by Americans. But its importance is now dramatized by the contrast with events in Eastern Europe and China, where the political system seems unable to handle desirable economic reforms without convulsion or revolution. …

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