Editor’s note: This article from the September 1956 issue of Fortune depicts some of the earliest talks of unifying nations in Western Europe into a common market. The concept, described in April 1956 in the so-called Spaak Report (after then Belgium foreign minister Paul-Henri Spaak), is similar to what we know today as the eurozone, which European officials are scrambling to keep together as they deal with the continent’s ongoing debt crisis. What generally seemed like a bright idea then is certainly being tested today.
By Michael A. Heilperin
The most important economic idea in Western Europe today is the Common Market. Behind the idea is a group of sophisticated bankers and politicians who believe that it holds the best hope yet for Western Europe’s future. It would unite West Germany, France, Italy, Belgium, the Netherlands, and Luxembourg in a single market almost as populous as that of the U.S.
This summer the Common Market emerged from the planning stage t o the point where experts could begin with some confidence to draft specific agreements. A formal treaty should be ready before the year is out, when the national assemblies of the six nations involved will be called upon to decide whether they can indeed accommodate themselves to the treaty’s numerous and complex provisions. If they decide they can, the six European countries will begin to become, economically speaking, one nation.
No one is brash enough to predict when this will be, and no one can be sure, in fact, that it will ever come off. While five of the six countries have shown great enthusiasm for the idea, many Frenchmen are suspicious and even openly hostile. U.S. observers are privately skeptical. The advocates of the Common Market them selves are aware of the enormous difficulties ahead; they are men already bruised by the collapse of other noble ideas in the past. But these veterans of the long and repeatedly frustrated effort to build a united house of Europe are encouraged by the fact that the newest idea has got as far as it has, and by the conviction that this time they are working from a well thought-out blueprint.
Actually the Common Market is linked with another idea, that of setting up a European Atomic Energy Commission, which has been the most publicized phase of the whole development. But “Euratom” is only secondary. The Common Market is the principal edifice, and the one on which the most earnest effort is being spent.
Business comes first
The details of the Common Market were described first in the so-called Spaak Report (Paul-Henri Spaak, Belgium’s Foreign Minister), in April, 1956. The world began to take the report seriously in May when the foreign ministers of the six countries, meeting in Venice, accepted the report as a basis for drawing up a treaty. It differs first and most significantly from other magnificent schemes proposed in Europe since the war in its basic approach. It is an economic idea. Most other efforts at unifying Europe have been primarily political in their concept. When Europe first began to grope its way out of World War II, men like Churchill, Adenauer, and De Gasperi dreamed of a future in which one government would preside over a federation of some 270 million Europeans. It was hoped that the Council of Europe, which began as an informal assembly of ten nations, would one day develop into a parliament for such a federation. The chuman Plan, setting up a supranational authority for coal and steel, was thought to be a step in the same direction. Inspired by the creation of the Coal and Steel Community’s Court of Justice, one appointee declared, “This may well be the beginning of the Supreme Court of Europe.” Obviously he was being overexuberant, but the dream persisted. The European Defense Community, ardently backed by the U.S., was to be a supranational authority over Western Europe’s military forces-until France rejected EDC in 1954, spoiling that dream and pretty well flattening out all hopes like it. The Council of Europe deteriorated into little more than a large debating society, meeting periodically in Strasbourg. And a strong skepticism toward any kind of political unity, or toward any kind of supranationalism, political or even economic, began to spread across Western Europe.
The notion underlying the Spaak Report, however, is only incidentally political. The idea is to work from the bottom up-in simplest terms, to get Europeans doing business together first and to worry afterward about uniting them on a political level. A workable technique is already being demonstrated by Benelux, which is a modest customs union of three modest countries, Belgium, the Netherlands, and Luxembourg. The Common Market would be a Benelux, only on a bigger and more complex scale.
Lots of customers
Here is how the Common Market would be set up and the way it would work:
• It would unite a population of more than 163 million, almost as big as the U.S.’s 168 million, in a single area of completely free trade. It is an area with a bigger labor force (73 million) than that of the U.S. (69 million), and with total national income roughly one-third of the U.S.’s $322 billion. Present foreign trade of the six nations is roughly of the same magnitude as U.S. foreign trade. Total exports of the six to countries outside their area in 1955 were $12.6 billion (compared to $14.3 billion exported by the U.S.); imports were $13.7 billion (compared to $11.5 billion of U.S. imports).
• The Common Market would set up a common tariff on imports from the rest of the world. The last thing the authors of the Spaak Report want to do, however, is to surround Western Europe with high tariff walls, since two-thirds of the total foreign trade of the six countries is with the rest of the world.
• The Common Market would provide a readaptation fund (financed by contributions from member states) to assist those workers and communities that would be injured by the disappearance of tariffs between the six countries. Nobody has any idea how large the fund would have to be. Its size would be determined by a complicated formula based on present costs of social welfare. It would provide up to one half of the costs incurred in (1) supplying unemployment relief owing to the total or partial closing down of a business enterprise; (2) moving unemployed labor to another place of work; (3) retraining displaced workers. The readaptation fund, therefore, promises some security to labor.
• The Common Market would provide an investment fund of about $1 billion to assist injured industries in converting into other enterprises. There would not, however, be any’ provision for indemnifying capital losses, and for this reason capital does not feel so reassured. Since the European economy is expanding, however, the sponsors of the Common Market scheme argue that most marginal businesses should be able to readjust to a new life.
• The administrative machinery would be similar to that of the Schuman Plan, with a European Commission (the executive branch), a decision-making Council of Ministers, an Assembly that would keep its collective eye on the Commission, and a High Court that would adjudicate legal differences.
Some problems skipped
The Spaak Report is notable for some of the problems that it brushes over or completely skips. It speaks only briefly of the “harmonizing” that the Common Market would bring about “both in wage levels and social charges and in fiscal systems and the cost of capital goods.” It is reasonable to suppose that such harmonizing would gradually and automatically take place. Nevertheless, there is great pressure, particularly from the French side, to require harmonizing prior to the move into a common market. But if the move is postponed until wage levels, costs of social welfare, and costs of capital goods in all six countries have first been brought into complete harmony, the plan will never get off the ground.
The report deals only vaguely with agriculture, which has been a fertile source of trouble to the Benelux union because of the Netherlands’ ability to produce commodities at unusually low cost. Some economic planners have already tried to solve the problem of European agriculture with an agricultural common-market proposal called the “Green Pool.” The Green Pool is an idea that has stagnated.
The Spaak Report has almost nothing at all useful to say on monetary problems. This omission is serious. If the Common Market idea is to succeed, there must be complete convertibility among the six countries in the area. This means realistic exchange rates. Actually, exchange rates between five of the six are now in a reasonably sound relationship. But the French franc continues to be seriously overvalued, and will have to be brought into line before France can be a helpful participant in even the Common Market negotiations. It has been considered impolitic to discuss the French franc out loud, but negotiators privately concede the embarrassment that France’s stubborn monetary policy is causing them.
In the area of monetary problems the experience of Benelux provides a lesson. In the beginning of the economic alliance the Dutch guilder was weak. The Dutch put their internal economic affairs in order, the guilder strengthened and became nearly convertible, vis-a-vis the Belgian and Luxembourg francs, and from about 1953 on, the Benelux union has been getting along quite well. From 1954 to 1955, the Netherlands’ imports from Belgium and Luxembourg increased 20 percent, close to twice the percentage increase of her imports from the rest of the world.
In fact, Benelux provides a number of hopeful precedents. The authors of the Spaak Report can point to the way in which difficulties now worrying the six countries were overcome by Benelux, or merely disappeared. The Benelux experiment has continued successfully without any harmonizing as yet in the chief factors (particularly wages) of production costs. The removal of a number of important trade barriers among the countries caused no major disturbance in their economic lives. Belgium and the Netherlands still do not have a common monetary reserve pool, and responsible economists of both countries see no need for one. It should also be noted that Benelux has accomplished its workable union without the imposition of any supranational power.
How long would it take?
The evolution of six national economies into a single market would take place progressively, not overnight. The Spaak Report calls for three four-year periods of development and outlines what is to be accomplished in each period. For example, the breaking down of tariff walls that the six countries have raised against each other would be accomplished by a 30 percent reduction of customs duties in the first four years, 30 per cent in the second, 40 per cent in the last period. (The report provides for an additional three years of grace, if needed.)
Such a long-term program obviously will require the greatest perseverance on the part of the countries involved. France is making no secret of a reluctance to commit itself beyond the first four-year stage even if it goes into the program. But again the experience of Benelux can be optimistically cited. That union is now twelve years old. And while much still remains to be accomplished, the idea and the basic program are intact.
“Euratom”
What about Euratom, which captured the headlines and was so vociferously discussed this summer in the French National Assembly? Euratom would establish a common market for nuclear fuel and equipment among the same six countries. It would set up a research center, supplement and coordinate the research and production carried on by public and private bodies, and see that there was a free exchange of relevant patents.
Actually, outside of Belgium’s uranium deposits in the Congo, none of the six countries has much in the way of nuclear materials, ‘or facilities, or information to exchange. Nuclear energy, moreover, will be of only very secondary importance to the European economy for a long time to come. A report of the Organization for European Economic Cooperation estimates that “nuclear energy is unlikely to provide more than 8, per cent of the total energy demand in ‘Western Europe” even twenty years hence.
The Euratom plan could collapse and still the idea of European economic unity could survive. Agreement on Euratom, on the other hand, will do little to advance the over-all idea. The supranational Coal and Steel Community has contributed very little, actually, toward drawing Western Europe into an economic whole. Such ideas, and such vertical organizations have been part of Europe’s experimenting but they don’t resolve the fundamental problem. The heart of the matter is European free trade, which is the great and overriding objective of the Common Market.
The two foreign ministers who are chiefly responsible for the Spaak Report are a Socialist and a banker. One of this remarkable alliance is the fiery little Belgian Socialist whose name is on the report. The other is fifty-nine-year-old Johan Willem Beyen, Dutch banker and skillful collaborator in the founding of the World Bank. Paul-Henri Spaak would be the first to admit that it was Beyen who mothered the Common Market plan and nursed it along at the most critical time.
Behind Beyen’s concept of a Common Market are years of U.S. urging that Western Europe get together on its economic problems, and years of mostly unsuccessful efforts along that line. The Marshall plan, though predominantly anti-Communist in its motivations, gave the first big postwar impetus to the idea of the economic unification of Europe. The Organization for European Economic Cooperation, set up to work out plans for European recovery, then took steps to dismantle import quotas within its seventeen-nation area. In 1950 the OEEC countries organized the European Payments Union, with a working fund of $350 million supplied by the U.S. In its six years of operation, EPU has contributed greatly to the revival of multilateral exchange in Western Europe. Then, in the field of production and marketing, the Schuman Plan presented one method of integration, beginning with two big, basic industries.
But the Schuman Plan roused fears in the. minds of some Europeans, who saw how it could lead to a proliferation of schemes for such supranational authorities. And so it did. The Green Pool for agriculture was only one of many such plans that began to be talked about. Liberal economists foresaw a supercolossal planning authority someday sitting athwart all these vertical authorities. A Western Europe united under such an authority was not the liberal idea at all.
A leap into history
Banker Beyen was one of those who, sensing the danger, opposed sector-by-sector integration. It was better to strive for a Europe united on certain problems that were common to all industries, he thought. In 1952 his government submitted to its five partners in the Schuman Plan Beyen’s tentative plan for the establishment of a customs union—an area of free trade operating behind a common tariff wall.
At first there was little interest in the idea, and open objection from France. But at the Messina conference of the six foreign ministers last year, Beyen succeeded in persuading Spaak that it was time to push the Common Market. “I thought, to be quite candid,” says Spaak, “that the plan was too bold, but Beyen brought me around to his point of view.” Spaak was made chairman of a committee to pursue the idea and drove the committee until it turned out a report this year. This was the Spaak Report, which was all that a pleased Beyen could desire, and which, to the astonishment of observers, emerged from last spring’s Venice meeting of the ministers as something they were now quite earnest about. * In the snail’s’ pace of international negotiations, the decision was a veritable leap into history. It was a leap that heartened Beyen and Spaak. From a tentative proposal in 1952, Beyen’s idea of a common market had grown into a full-fledged plan.
The Paris conference of OEEC this summer, at which the Spaak Report was incidentally discussed, produced one encouraging development. Britain, enough impressed by the talk of a common market in Western Europe to start worrying over the effect such a coalition might have on its own trade, abandoned its previous aloofness to the discussions. Although the United Kingdom cannot join the Common Market so long as it maintains tariff preferences among the Commonwealth countries, it did indicate that it might be interested in at least joining a wider “free-trade area. Where Britain leads, the Scandinavian countries are likely to follow.
Boldness and confidence
Washington has watched these moves for the most’ part in deep, official silence, remembering how U.S. pressure on France to accept EDC provoked the resentment of the French, who in 1954 turned EDC down. In State Department vernacular, pressing too ardently now for the Common Market would be “counterproductive.” U.S. officials, furthermore, are afraid of being dentified with another failure in Europe.
This current super-caution of U.S. policy is matched by the cynicism of the French-and just at a juncture when the situation seems to call for boldness and mutual confidence. The Benelux countries are all for the Common Market. Italy looks hopefully toward any plan that will provide it with additional capital and a new outlet for its excess labor force. West Germany, with its sensationally expanded industrial power, strong currency, and healthy markets, can take the Common Market or leave it alone; it is apparently willing to take it.
Not all Frenchmen oppose the Spaak Report. Premier Guy Mollet himself is very sympathetic to its aims. But the majority of French politicians and industrialists appear to believe that they can still “protect” their economy from the realities of the market. They share the cynicism of the French Senator who described the Common Market as “a fairy tale promising a golden age.”
France must face a showdown with its European neighbors. And sooner or later Frenchmen who believe they benefit from segregation must face a showdown with the great mass of French consumers, who are the big losers in France’s essentially rich, shamefully hobbled economy. And finally, unless the U.S. Government has now become indifferent to the economic policies that it has so ardently preached and pushed for the last decade, the U.S. must come to a showdown with France.
