Dollar Diplomacy: U.S. Views of the European Union

In 1946, Winston Churchill argued for a United States of Europe. There were too many disagreements among the victors and losers of the war for a fair hearing. It took another 12 years, until 1958, before delegates from various nations sat in Rome to form the European Economic Community (EEC). Some forty years later now, the EU is still a work in progress, not yet a country of its own, but much more than 15 separate countries. Those countries are Austria, Belgium, Denmark Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden and the United Kingdom.

However, the American view, as seen in contemporary newspapers, journals, and magazines, sees the current EU in terms of economics, not diplomacy. In fact, the average American is blithely ignorant about foreign diplomacy. Chances are nearly no one would know who the president of Germany is for example (Gerhard Schroeder) or the premier of Italy (Silvio Berlusconi). American's interest lies in how the new EU currency, the euro, compares to the American dollar, and how much more the dollar buys these days.

However, there is renewed interest in the last several years about the behavior of officials of the EU, and, especially in the last several weeks, when a merger of General Electric and Honeywell was denied by EU's anti-trust chief, Mario Monti. "Monti believed that the combination of Honeywell's cockpit controls with GE's engines and powerful aircraft financing division would stifle competition." (Elliott 2001 41)

However, the stability of the European Union was shattered on Monday, March 15, 1999. "It is unprecedented in the 42-year history of the EU, It is the biggest humiliation of the (European Commission) and the most dramatic assertion of power by the European Parliament ever." (Horsley 1999 1) The "it" was the mass resignation of the top officials, accused of fraud, nepotism or, at best, the knowledge and failure to stop those activities. "In the case of the department headed by French commissioner Edith Cresson, on youth training, the failure to detect fraud and bogus contracts was called 'unacceptable'." (Horsley, 1999 1)
A bit of organizational history about the EU might explain the interrelationships of the various segments: There is the Council of Ministers which has final decision-making authority, the European Commission which formulates policies and legislation and implements decisions of the Council; the European Parliament, which advises the EU on policy development and proposals emanating from the Commission; and the European Court of justice which interprets the EU treaties and legislation.

The Commission is where the current disaster looms. It is made up of one representative from each of the 15 nations comprising the EU. Britain, France, Germany and Italy each supply two commissioners. Each commissioner now serves a five-year term, to correspond to the terms of members of the European Parliament. Like most international bureaucracies its Brussels staff is enormous: more than 126,700, divided into 23 Directorates-General.

Having provided a quick glimpse of the EU's expansive "reach" and numbers of participants, as well as the latest scandal, there is now an opportunity to develop some background and highlights about the EU…what it is, what it is not, what it has accomplished, and where it has not succeeded. In other words, is the EU simply another political or economic shell for Europe, or does it really provide a solid, meaningful stepping-stone for Europe to compete in the 21st Century against the American and Japanese powerhouses. So, some questions about the EU past and present are in order, as seen by contemporary journals:

WHAT DOES THE EU DO FOR THE AVERAGE EUROPEAN CITIZEN?

The Union is supposed to strengthen the entire European economic situation, especially when it comes to international trade. There is supposed to be a common identity and a structure for greater solidarity. For travel within the Union, borders have practically disappeared. While this sounds good, it is not working. First of all, national enmities, such as the French and Germans, cannot be overcome by fiat. Second, there are restrictions, some of which seem foolish, such as the forthcoming regulation that EU citizens will no longer be able to buy duty free goods at airports or train stations. If duties are supposed to be nearly as free as borders, why this new ruling? In fact, "the new EU regulations are putting Britain's duty-free shops out of business." (Lyell 1999 p A4)

IF THERE IS TO BE A TRUE 'EUROPEAN UNION' WHAT POWERS DO THE MEMBER GOVERNMENTS RETAIN?

As usual there is no simple answer, in fact, no answer at all, at the moment. This issue is still being debated. In fact, the Union can act only on the basis of powers freely granted to it by Member States. In some areas, trade, agriculture, industry, competition, environment, regional development, the Fifteen can be said to different degrees to be 'pooling' at least a part of their sovereignty. This means that such organizations as Airbus Industrie will be guaranteed government and EU backing against Boeing's international sales efforts.

It all sounds good on paper, or when bureaucrats discuss, discuss some more, prepare and publish position papers, and then expect the businessmen and women of the 15 nations to go along with proposals over which they have no say. In recent months, French fishermen have complained, and then struck. Some months ago, a headline story in the New York TIMES reported "Belgian farmers protest EU Agriculture Policies." (NYT, P. A6). German labor unions are complaining to the new chancellor, Gerhard Schroeder, who is to assume presidency of the EU shortly, about the migration of workers across borders to Germany, where unemployment now stands at 12.2%.

The fact remains that the EU, even though it represents 15 separate countries, is run by the elite for the elite. The rich are getting richer: In a FORTUNE article entitled "Europe's New Capitalists" it explains that "Blue chip companies in the EU are being pressured to realize profit margins of 20% like their U.S. counterparts due to the globalization of the world economy…which has seen some $200 billion worth of state companies privatized." (FORTUNE. p. 49) Privatization of state companies does not usually benefit the workers or the average citizen, but those investors who "bought in".

OUT OF THE 15 NATIONS IN THE EU, WHO REALLY RUNS IT?

"When a European citizen is angry about a European Union policy, where does he or she go to complain?…The lack of a clear answer highlights a glaring anomaly in the shape of an increasingly unified continent." (Ford, p. 1) The current corruption scandal is proof that there is an a) lack of interest by the European voter- "only 56% of voters bothered to cast a vote in the last poll in 1994." (Ford, p. 10) and b) a lack of unity on too many areas within Europe.

"'The real obstacle to greater democracy in European policy making is member state governments who use the European Union to bypass the democratic constraints tying them at home,' says Anand Menon, a lecturer in European politics at Oxford university…" (Ford, p. 10) Thus far along the road to a united Europe, the ordinary citizens have reacted to being ignored simply by being apathetic about the whole idea.

WHAT ARE THE EU'S FINANCES LIKE?

Last year, the EU distributed $35 billion to the poorer nations for economic assistance. But, right now, the main priority is to make the "euro", the new single currency for the EU, work. It is expected to rival the dollar and the yen (if the yen regains its luster) in international markets. But, the current scandal is not merely about fraud and nepotism, but the fact that "each year since 1994 about 5% of the total EU budget, or $5 billion, has been wasted, misspent or lost to fraud." (Moulier, p. 41) Part of the problem is the bureaucracy which this year will increase to more than 19,000 people. Now, to hold down the budget, hiring has been frozen, which has led to the hiring of outside contractors, "who at times do not follow EU's guidelines and are hard to monitor. (Moulier, p. 41).

WHERE DOES THE MONEY FOR EU'S BUDGET COME FROM?

EU countries pay their receipts from import duties, farm levies and a part of their VAT revenues. Member states also contribute additional funds, as needed, to balance the budget, according to their ability to pay. The annual EU budget for 1995 was $81 billion (over $91 billion in 1998). More than one-quarter of the budget "goes to redistribute wealth from the richer to the poorer nations via the so-called Structural Funds.

SPEAKING OF CORRUPTION, IS ANYONE DOING ANYTHING TO STOP IT?

"For years, corruption has been the European union's great open secret…'Each commissioner is under pressure to give jobs and perks to his fellow countrymen…Jus as important, the EC must scrutinize and streamline its programs- particularly farm and regional subsidies, which cost about $90 billion a year, or 90% of the EU budget." (Echikson, p. 60) Edith Cresson (mentioned earlier) denies the charges that she siphoned contracts to relatives and friends, but Manuel Marin, from Spain, admits money was misspent because of political pressures.

In other words, to date, nothing has been done. Whether anything will be done, following the mass resignations on March 15, is still doubtful. The European Union still is pressured constantly by its member states. Until the EU is recognized as the sole authority, those political and nepotism and other pressures will continue.

WHAT IS BEHIND THE CURRENT 'BANANA WAR'?

"The issue: Several European nations have rules favoring bananas imported from their former colonies in the Caribbean, while restricting bananas imported from places like Honduras. The United States has taken issue to the World Trade Organization (WTO)…Now the Clinton Administration has upped the ante, announcing the prohibitive new tariffs. Interestingly, neither the U.S. (except for a relatively tiny crop in Hawaii) nor Europe grow bananas…The U.S. argues that the European preferences discriminate against U.S. companies in Central America, like Chiquita, the world's largest producer of bananas." Raspberry, p A17

It seems all political. "The U.S. claims Europe's banana policy is discriminatory, but Chiquita already enjoys a 24% share of the European market, compared with the Caribbean's 9%…all this over a product the U.S. doesn't even export." (Ogletree, p 1)
As a result of this dispute the U.S. is imposing tariffs on such American "favorites" as cheese, wines, cashmere sweaters toys and other goods.

This will be a test of the strength of the EU, in protecting its rights to import goods from wherever they want without punitive tariff sanctions.

BANANAS AND DUTY FREE SHOPPING, ANY OTHER EU PROBLEMS WITH GOODS?

"As part of the launch of the euro, the European Union has raised the cost of buying art in Europe. The changes are likely to bring more art sales to the U.S…An EU committee has voted to impose a resale levy on all works of art sold within its member nations. The vote was 11 to 4, and now awaits approval by the Council of Ministers. England was among those opposing. The levy would arguably hurt England's billion dollar art market the most." (Kinsella, p. Pw10)

A SUMMARY.

The basic idea behind a United States of Europe is a sound one: to prevent future wars. However, it is obvious that, since it was formalized nearly 6 years ago, that the 15 nations are not so readily willing to give up their autonomy as esily as had been hoped. The problem is political, in the sense that some of the poorer members feel threatened by the giants. The problem is economic, because the EU requires the richer nations to help support the poorer ones. The problem is also apathy by the majority of European citizens. The apathy occasionally swells into anger and regret when a particular segment of the population is adversely affected, economically. The French fishermen, Belgian farmers, and German labor Unions are only the tip of an angry economic iceberg of protectionism.

By 2002, the euro is supposed to have replaced the national currencies of the 15 member nations. What the planners may have forgotten is that this will require new cash registers for many,. Because their national currencies is of a different size, or denomination. Who will supply the cost for this conversion? Already shopkeepers are mumbling about having to pay to convert. It will mean learning new amounts for staples and all purchases, with the euro basis far different from, say, the franc, or the kroner, or shilling. The euro will benefit the tourist the most, initially, since there will no longer be a conversion rate as one travels from one country to another. Of course, the Bureaux de Change in France and the Reichsbanks in Germany are wailing that they will lose revenues.

The major problem, however, is that the average European citizen is not totally convinced that the EU is beneficial to him, and that the 21st Century requires a new attitude and acceptance of the inevitable: a Unification of much of Europe.
With all its problems and mismanagement, the EU is here to stay.

WORKS REFERENCED:

Deveney, Paul: "EU Ministers Set to Begin Talks on Farm Policy"
Wall Street Journal, Feb. 22, 1999

Echikson, William: "It's Time for the EC To Tackle Corruption"
Business Week, Jan 25, 1999

Elliott, Michael: "How Jack Fell Down" TIME Magazine, July 16, 2001

FORTUNE Unsigned Article: "Europe's New Capitalists" FORTUNE
Feb. 15, 1999

Ford, Peter: "Europe United, But Who Runs It?" Christian Science
Monitor, Jan 14, 1999

Horsley, William: "EU in Crisis" BBC News Online: www.altavista.com March 17, 1999

Kinsella, Eileen and Dunstan Prial: "The Euro and Art"
Wall Street Journal, Jan 29, 1999

Lyell, Sarah: "Duty Free Shops Close" New York TIMES,
January 15, 1999

Moulier, Philippe: "Eurofinances Aren't All Rosy"
U.S. News and World Report, Jan. 25, 1999

Ogletree, Charles and Randall Robinson: "The Banana War's
Missing Link" Christian Science Monitor, March 31, 1999

Raspberry, William: "Behind the Banana Dispute"
Washington POST, March 15, 1999