Options for Europe – Part 47

The title is my current working title for a book I am finalising over the next few months on the Eurozone. If all goes well (and it should) it will be published in both Italian and English by very well-known publishers. The publication date for the Italian edition is tentatively late April to early May 2014.

You can access the entire sequence of blogs in this series through the – Euro book Category.

I cannot guarantee the sequence of daily additions will make sense overall because at times I will go back and fill in bits (that I needed library access or whatever for). But you should be able to pick up the thread over time although the full edited version will only be available in the final book (obviously).

[NEW MATERIAL TODAY]
The Ratification debacle – 1992-93

On February 7, 1992 the amended Treaty of Rome was signed and the Economic and Monetary Union became European law. As the leaders left Maastricht there were ‘winners’ everywhere. The French thought they would finally get rid of the Bundesbank and create something they might have more control over. The Germans knew that by playing the European card they would look less scary and they also understood that the terms of the Treaty would just ensure the Bundesbank would morph into the European Central Bank at some point. There was a lot of optimism among the political classes.

When German Chancellor Helmut Kohl returned to Germany and addressed the Bundestag after Maastricht he announced that “The way to European unity is irreversible … The member states of the European Community are no bound in such a way that it is impossible for them to split apart and fall back into the concept of the nation-state … That means that we have achieved a key goal of German policy toward Europe” (Kinzer, 1991b). Quite the statesmen. He was not entirely happy that Maastricht had only concentrated on the economic and monetary union at the expense of advancing the political union – such as “strengthening the European Parliament” (Kinzer, 1991b). But, it was enough, at that stage, to gain the agreement regarding the EMU.

Szasz (1999: 115) noted that the signing was not “a moment too soon” given the “political momentum” for implementing the Delors Plan was “starting to dissipate” (p. 115). He speculates that the final push to secure the EMU agreement by the European political elite had “failed to carry their constituents along with them” (p. 115). There was a combination of a sense of great change but almost total ignorance among the general public as to what the implications of these changes would be. There was a sense of denial among the drivers of the change as well. The system they had conceived and put into place could not possibly withstand a major decline in aggregate spending, especially if that ‘shock’ was asymmetric in incidence (not evenly spread across the Eurozone). But their blind adherence to Monetarism closed their eyes to that possibility and as we will see a bevy of economists ‘back-filled’ during the 1990s with all sorts of spurious ‘research’ reports that seemed to justify and give authority to the design and the fiscal rules that came with it.

In addition, by 1991 the mini-growth surge that Europe had enjoyed during the EMU negotiation phase was well and truly over and a major recession was approaching. Germany was at the centre of the shifting fortunes. Its spending boom associated with re-unification had created favourable spillovers across Europe but had driven the German inflation rate up to around 5 per cent. Any reasonable interpretation of this would have suggested that the inflation rate would soon fall again once the abnormal spending patterns ended. But the Bundesbank’s inflation impatience saw them hike interest rates and within a few quarters, Europe was in recession.

Within this context it did not take long for the debate to “fall back into the concept of the nation-state”. The Maastricht Treaty still had to be ratified by each of the individual signatory nations and the ratification process varied in the different nations. The politicians thought this would be a relatively quick matter and the Treaty could become operational on January 1, 1993 (Baun, 2001: 622). How wrong they were.

The rules in Denmark were that a national referendum had to be held, which unfortunately for the political elites meant the people would have their say directly on the EMU, vote by vote. Denmark was the first nation to go through the ratification process. The Danish politicians and bureaucrats that had been operating in their own cocoon – too many EMU working groups, Council meetings, IGC meetings. As a result, they confidently set June 2, 1992, just four months after the Treaty was signed, as the referendum date. The result was a disaster for the EMU proponents. There was a turnout of 82.9 per cent of eligible voters but only 49.3 per cent were in favour.

Szász (1999: 166) speculated that the Danish government which thought it would win the day by distributing half a million copies of the Treaty (“a large number”) to the population of 5 million, in the end “only served to convince voters they were being asked to enter into obligations of an impenetrable character”.

The result meant that Denmark would, under the existing rules, scupper the whole show. Szasz (1999: 166) said that “it was hard to imagine that one small country could prevent the Treaty from coming into force … yet such were the rules”. Something had to be done and it was at the European Council meeting in Edinburgh on December 11-12, 1992, which considered, among other things, the “problems raised by Denmark in the light of the outcome of the Danish referendum on 2nd June 1992 on the Maastricht Treaty” (European Council, 1992: 2).

The Memorandum produced in Part B of the Council’s conclusions was devoted to “Denmark and the Treaty on European Union” and was the result of some very heavy negotiation to overcome the obvious problem the Community now faced. Denmark had submitted a document ‘Denmark in Europe’ to the Council on October 30, 1992 which was a statement of demands that should be met if it was to play ball and not bring the EMU down. Their were four major ‘opt-outs’ required for Danish support and the Council met each one of them, which was no surprise to anyone given the stakes. Accordingly, among other concessions granted, Denmark did not have to participate in Stage III, which meant they did not have to surrender their currency sovereignty.

The Danish government held a new referendum on May 18, 1993 having gained these concessions and achieved a turnout of 85.5 per cent with 56.8 per cent voting affirmative. Not a substantial ratification by any means, but, the problem in that corner of Europe was solved.

But we jump ahead. After the Danish rejected the first referendum, politicians elsewhere remained in denial and blithely went about their own ratification processes, hoping that the Danish problem would go away. Next up was France. Next day in fact. On June 3, 1992, the French President François Mitterand announced that on September 20, 1992 the French people would have their say. He didn’t, strictly speaking, have to call a referendum. A majority in the Assembly would have been enough to carry the ratification process in France. The general view is that he didn’t consider the possibility that the French would follow the Danish sentiment. You will find various explanations in the literature ranging from a noble statements that Mitterand thought the people should have their say to more devious motives concerning his electoral unpopularity at the time (Szász, 1999).

Whatever the motives, on September 20, the people did speak and sounded very much like the Danish, except Mitterand achieved the barest victory with 51.1 per cent in favour on a 69.7 per cent turnout. All the concerns were rehearsed in the lead up to the poll – worry that loss of policy sovereignty would entrench unemployment, worries that the Germans would remain dominant but moreso, given the loss of sovereignty.

And things were not calm in Germany either. Getting the German people to give up their beloved Deutsche Mark would take some doing and the people were not happy and that unhappiness was growing. Ratification in Germany involved a decision of the Bundestag, but that decision had to be constitutional. It was clear that Kohl would carry the vote in the Parliament but not before he had to agree to some ‘concessions’ relating to the necessity of adopting “a strict interpretation” Szász (1999: 169) of the convergence criteria when it came to admitting Member States to the third and final stage. The German politicians didn’t want any riff-raff joining the EMU.

But before long a number of litigiously-minded souls decided to test the constitutionality of the Maastricht Treaty in terms of the German Basic Law. The Bundesverfassungsgericht (German Federal Constitutional Court) was called in to determine the validity of the Treaty and on October 12, 1993 it rejected the petitions and indicated the Treaty was constitutional (German Constitutional Court, 1993).

[NEXT WE EXAMINE BLACK SEPTEMBER WHERE IT ALL LOOKED LIKE IT WOULD COME UNSTUCK]

[TO BE CONTINUED]

Additional references

This list will be progressively compiled.

European Community (1990) ‘European Parliament, Rapid Information Note, SP (91) 2669, 21-25 October 1991 Plenary Session’, October 25, 1991. http://ec.europa.eu/economy_finance/emu_history/documentation/chapter13/19911025en07epdebateonemu.pdf

European Council (1992) ‘Conclusions of the Presidency’, December 11-12, 1992.http://www.european-council.europa.eu/media/854346/1992_december_-_edinburgh__eng_.pdf

German Constitutional Court (1993) ‘Judgment of 12 October 1993 – 2BvR 2134/92 and 2 BvR 2159/92’, Decisions of the Bundesverfassungsgericht, Vol. 89, Page 155.

Kinzer, S. (1991b) ‘Kohl Calls the Path to European Unity Irreversible’, New York Times, December 14, 1991

(c) Copyright 2014 Bill Mitchell. All Rights Reserved.