Why is Europe celebrating the 60th anniversary of the Treaty of Rome?

The tiny nation of Malta (~ 420 thousand population) and the only one of two Eurozone nations that have English as one of its official languages is now hosting the EU Presidency for 2017. This was a function that was established by the Treaty of Lisbon in 2009 and allows a nation to influence the European Union’s agenda. As the rules dictate Malta shares this function with two other nations (Netherlands and Slovakia) to form the so-called Trio Presidency. There will be a lot of talk and papers produced and a lot of flags and posters are appearing in Valletta (Malta’s fortress capital) but don’t expect much to come from it. The other thing about 2017 and the EU is that they are celebrating the 60th anniversary of the signing of the Treaty of Rome later this month (signed on March 25, 1957 and operational from January 1, 1958). The European Commission is clearly keen to give the impression that the Treaty of Rome was the first step in the succession of steps that made Europe what it is today. In one sense that is correct. But in a more important sense that claim is nonsense. The reality is that the subsequent revisions of the Treaty (Maastricht and Lisbon) represented fundamental paradigm or ideological shifts in the way Europe was to be governed. The Treaty of Rome recognised that limited economic cooperation could be beneficial to all participating nations as long as it was attenuated or managed by comprehensive system of state intervention. The subsequent treaties represent a shift from the Member States having the capacity to ensure full employment to a situation where the Member States are biased to enforcing austerity and creating persistent and elevated levels of unemployment and poverty at the behest of the ideological masters in the European Commission, who are neither elected by or accountable to the people of Europe they claim to represent. So … why are they celebrating the 60th anniversary of an approach to economic policy making and nation-building that they have now completely rejected?

The Official 60 years page claims that:

Sixty years ago in Rome, the foundations were laid for the Europe that we know today, ushering in the longest period of peace in written history in Europe. The Treaties of Rome established a common market where people, goods, services and capital can move freely and created the conditions for prosperity and stability for European citizens.

Well the bit about peace isn’t quite right is it? The breakdown of Yugoslavia, for example.

And the bit about “prosperity and stability for European citizens” – what would the Greeks who have now transitted from teenagers to adults and have never been able to have a job say about that?

What would Greeks who cannot get basic medicine say about that?

And the rest of it.

But I digress.

In one of my presentations last week in Maastricht (the first one which I currently have no footage or audio) I briefly discussed the Treaty of Rome.

The Treaty of Rome (officially known as the Treaty establishing the European Economic Community) established the European Economic Community (EEC).

The signatories were Belgium, France, Italy, Luxembourg, the Netherlands and West Germany. It marked the beginning of a perceived need for closer economic cooperation between the Member States in areas of trade (hence the emphasis on establishing the customs union – ‘the Common Market’) and common agricultural and transport policies.

The two major revisions since – the Maastricht Treaty interestingly removed the ‘Economic’ from the official title, and, in 2009, the Treaty of Lisbon renamed the whole agreement the “Treaty on the functioning of the European Union”.

The early post-war developments driven by French interests in coralling the martial aspirations of the defeated Germany began in 1951, with the Treaty of Paris. This agreement was part of the reconstruction of Europe (under the Marshall Plan) and established the European Coal and Steel Community (ECSC).

But it was a French plan (driven by Jean Monnet, head of the French Planning Ministry and Robert Schuman, French foreign minister) to pool French and German coal and steel output and managed by a new supranational body. Other Member States could then join up.

The plan was unambiguously to curb German aggression and begin the long process of making Germany a European citizen again after its horrific behaviour during the Second World War.

At this time, the French embrace of the creation of European-level institutions was more about ensuring Germany would never again go to war with them than any grand desire for a supranational entity.

In 1950, the Planning Office, under the Jean Monnet’s directorship, draft proposal to establish the European Coal and Steel Community said:

The French government proposes immediate action on one limited but decisive point … solidarity in production thus established will make it plain that any war between France and Germany becomes not merely unthinkable, but materially impossible.

Within these broad political environment, the discussions about integration were conditioned by the on-going Franco-German rivalry. France was determined to create institutional structures that would stop Germany from ever invading it again.

It saw an integrated Europe as a way of consolidating a dominant role in European affairs but was determined to cede as little national sovereignty as possible to achieve these aims.

France was also resentful of the influence that the US was exerting in Europe, particularly through the Marshall Plan, which intrinsically tied West Germany to the US.

The Germans, suffering a deep shame for their past militarism and associated deeds, had only their economic success including the ‘discipline’ of the Bundesbank to generate national pride.

As well as a need to expand its export markets, Germany wanted to be part of the ‘European Project’ to demonstrate a rejection of their ugly history.

But an obsessive fear of inflation meant that this participation had to be on German terms, which meant that the new Europe had to eventually accept the Bundesbank culture.

This became a grinding process. Within the German ‘stability’ environment, it was seemingly overlooked that Germany, in fact, relied on robust import growth from other European nations for its prosperity. The fact that not all nations in a Bundesbank-centric ‘stability environment’ could have balance of trade surpluses was ignored.

In 1955, at the Messina Conference in Italy, the members of the ECSC committed to creating the European Economic Community (EEC).

The Treaty of Rome came out of the subsequent – Intergovernmental Conference on the Common Market and Euratom – held at the French Château of Val-Duchesse on June 26, 1956.

While it is not the issue I want to discuss in this blog, the Treaty of Rome, in fact, did very little. It was full of motherhood-type and procedural statements and grand visions but the only real thing that it established was the European Court of Justice (Article 177).

Further, the point that is often missed about this seminal document in the context of modern Europe is that it was heavily biased in favour of the occupied France at the expense of the aggressors Germany and Italy.

But Germany’s growing industrial and export strength became an increasingly significant threat to the French economy. German industrial ambition eventually required France to compromise on its own fierce resistance to ceding any national sovereignty to a European-level entity.

The first major initiative of the newly formed EEC was the creation of the Common Agricultural Policy (CAP), which was introduced in 1962 after several years of bickering between France and Germany at and following the Stresa Conference in July 1958.

The French government, in particular, heavily regulated agricultural prices in favour of the powerful French farming lobby and were willing to cede as little as possible to get hold of German subsidies under the agreement.

France clearly were motivated by their desire to protect French farmers and Germany wanted to expand its industrial export market into France.

To achieve their goals, the Germans agreed to provide subsidies through the CAP to French farmers: a gnawing tension that remains today.

But the administrative viability of the CAP required a very stable exchange rate environment because a multitude of agricultural prices had to be supported across the Community.

Once the Member States locked in the CAP they were also trapped into pursuing the impossible task of maintaining fixed exchange rates.

The German mark became the strongest currency in the 1960s as it export strength grew, which put France and Italy under constant pressure of devaluation and domestic stagnation and undermined the CAP.

The various agreements to maintain fixed parities between the European currencies since that time all largely failed because of the different export strengths of the Member States.

But instead of taking the sensible option and abandoning the desire for fixed exchange rates, the European political leaders accelerated the move to a common currency when the Bretton Woods system collapsed in 1971. The lessons from the Bretton Wood’s fiasco were not learned.

The CAP disaster should have taught the European nations that entering a currency union would be a fraught exercise. Denial, however, reigned supreme.

The point to realise is that the European dynamic in these times was driven by France’s exaggerated sense of its own place in the world, particularly in Europe.

Germany and Italy were defeated states – in shame. France was the victor and under Charles De Gaulle fiercely nationalistic. It was really only prepared to participate in the ‘integration’ process under its own terms – it wanted to control the process, create intergovernmental bodies at the European level that it dominated and extract subsidies from Germany (in particular) to help its own economic development.

History tells us that this exaggerated sense of itself was delusional and France became increasingly subjugated under subsequent Treaty changes and the fixed exchange rate arrangements supporting the CAP to Germany’s economic might and its pathological obsession about inflation.

I cover the consequences of that subjugation in detail in my last book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015).

But it is interesting that the European Union is holding out the Treaty of Rome as the beginning of the lineage of treaties that define modern Europe.

The fact is that such a lineage really doesn’t exist. Along the way, between the early days and the formulation and signing of the Treaty of Maastricht, another major development occurred, which broke the lineage.

That development was was not a diminution in Franco-German national and cultural rivalry but, rather, a growing homogenisation of the economic debate.

The Treaty of Rome was dominated by a ‘Keynesian’ vision of the role of the state and the need to control the ‘market’ through strong fiscal policy and regulation (including capital controls).

Keynesians dominated the French Planning Office, and prioritised domestic objectives (such as full employment and a high wage economy), which meant they would allow the exchange rate to adjust (through devaluation) if international competitiveness became an issue.

The internal struggle in France between the Planning Office and the Finance Ministry (which wanted public spending discipline, a strong French franc and wage moderation) played out through the 1950s and beyond, with the former the dominant institution in French government strategy.

In periods when ‘la tradition républicaine’ dominated French politics, there was hostility towards the relinquishment of power to the supranational level and willingness to establish intergovernmental institutions to advance a sense of Europe.

The Finance Ministry was, however, pro-Europe and sympathetic to the creation of supranational institutions.

But the Treaty of Rome was firmly Keynesian in flavour. The subsequent processes that explored further economic integration (the 1970 Werner Report and the 1977 MacDougall Report) were consistent with that economic approach.

As an essential part of a move to further monetary and economic integration, both Reports recommended the creation of a federal fiscal capacity closely aligned with the European-wide democratic institutions (parliament) as is found in all functioning federations.

That was a reflection of the Keynesian view that fiscal policy was a powerful tool to ensure economic growth was consistent with full employment.

But during these discussions, the Franco-German rivalry (and their totally different views of the creation of powerful supranational institutions) prevented any of these integration plans from becoming reality.

If nothing else changed then the common currency would never have been introduced.

It was not until Milton Friedman’s Monetarism has seeped out of the academy into central banks, economic policy making institutions and the media that things really changed.

The surge in Monetarist thought within macroeconomics in the 1970s, first within the academy, then in policy making and central banking domains, quickly morphed into an insular Groupthink, which trapped policy makers in the thrall of the self-regulating, free market myth.

The accompanying ‘confirmation bias’ overwhelmed the debate about monetary integration.

The British government had already become infested with the Monetarist nonsense yet they abandoned monetary targetting soon after they introduced it in 1971.

But over the Channel, the introduction of the Monetarist-inspired Barre Plan in 1976, by French Prime Minister Raymond Barre, under President Valéry Giscard d’Estaing, showed how far the French had shifted from their Gaullist ‘Keynesian’ days.

Across Europe, unemployment became a policy tool aimed at maintaining price stability rather than a policy target, as it had been during the Keynesian era up until the mid-1970s.

Unemployment rose sharply as national governments, infested with Monetarist thought, began their long-lived love affair with austerity.

The Delors Report (1989), which informed the Maastricht conference, disregarded the conclusions of the Werner and MacDougall Reports about the need for a strong federal fiscal function because they represented ‘old-fashioned’ Keynesian thinking, which was no longer tolerable within the Monetarist Groupthink that had taken over European debate.

The new breed of financial elites, who stood to gain massively from the deregulation that they demanded, promoted the re-emergence of the free market ideology that had been discredited during the Great Depression.

The shift from a Keynesian collective vision of full employment and equity to this new individualistic mob rule was driven by ideological bullying and narrow sectional interests rather than insights arising from a superior appeal to evidential authority and a concern for societal prosperity.

The Monetarist (neo-liberal) disdain for government intervention meant that the EMU would suppress the capacity of fiscal policy and no amount of argument or evidence, which indicated that such a choice would lead to crisis, would distract Delors and his team from that aim.

Delors knew that he could appease the French political need to avoid handing over policy discretion to Brussels by shrouding that aim in the retention of national responsibility for economic policy making.

He also knew that the harsh fiscal rules he proposed that restricted the latitude of the national governments would satisfy the Germans.

Monetarism had bridged the two camps.

The fact that France participated in the ‘currency snake’ in 1972, then joined the European Monetary System (EMS) in 1979, and ended up supporting the Delors Plan to create the EMU, is evidence that the Monetarist-leaning policy makers in the Finance Ministery ultimately held sway in France over the Keynesian-leaning Planning Office.

The European Commission is clearly keen to give the impression that the Treaty of Rome was the first step in the succession of steps that made Europe.

Yet the reality is that the subsequent revisions of the Treaty (Maastricht and Lisbon) represented fundamental paradigm or ideological shifts in the way Europe was to be governed.

A shift from the Member State having the capacity to ensure full employment to a situation where the Member State is biased to enforcing austerity and creating persistent and elevated levels of unemployment and poverty at the behest of the ideological masters in the European Commission, who are neither elected by or accountable to the people of Europe they claim to represent.

So … why are they celebrating the 60th anniversary?

The answer is obvious – it is all part of the grand denial that the European Union persists with to allow the right-wing corporatist elites to maintain their hegemony.

And progressives go along with all of that – for example, so-called progressive people strongly push the Remain position in Britain. Why?

Think about the more recent Treaty revisions. The most recent developments including the Fiscal Compact (a tightening of the Stability and Growth Pact), which came into operation on January 1, 2013, effectively bans Keynesian-style economic policy making at the Member State level.

The Maastricht Treaty and subsequent Lisbon changes made it extremely difficult for Member States to use fiscal policy effectively.

But the Fiscal Compact really makes it impossible. It instituionalises austerity with balanced fiscal outcomes within the constitution of the European Union.

This is about as far from the vision of the ‘founders’ who pushed the Treaty of Rome through as one could get.

The European Union has now become completely dominated by neo-liberal visions of small government and the myth of self-regulating private markets.

The rule-driven environment has also severely compromised the democratic processes at the Member State level. If the citizens of any nation vote in free elections to reject this austerity bias and, instead, demand fiscal flexibility and more regulation, they are subjected to a coordinated attack from the European Commission and the ECB.

Witness Greece in June 2016.

The mantra is that membership of the Eurozone is irrevocable and attempts to break out of it will be met with even more punishing austerity and trampling of citizen rights.

That was not the vision of the Treaty of Rome.

At a time when the economic conditions should favour strong Left-leaning political parties, the so-called European Left falls over itself to be the first to implement the harshest and most damaging austerity – and then they tell us that they can do it more fairly than if the same neo-liberal assault is introduced by the Right.

It is amazing really.

The Treaty of Rome recognised that limited economic cooperation could be beneficial to all participating nations as long as it was attenuated or managed by comprehensive system of state intervention.

The subsequent Treaty revisions make it near impossible to use Member State fiscal and regulative capacity to advance social outcomes that might compromise the demands of the ‘free market’.

There is no continuity between the Treaty of Rome and what goes on now. The Maastricht process was a paradigmic break of the past tradition that had brought prosperity and relative peace to Europe.

Some argue that the Left should abandon its old thinking centred on the nation-state and instead embrace a Pan European model – the so-called ‘post-national approach’.

This reasoning is flawed.

The only way that the Left can regain any political credibility is to oppose the neo-liberal ideology and to convince the relevant voting populations that the problem is the euro and the European Commission … and by default, the modern design of the European Union.

The solution is to exit the Eurozone and to either force change in European-wide processes or exit the whole European Union.

Institutions become corrupted by Groupthink and I suspect that the European Union is beyond redemption. That is why I supported the British voting to leave the EU.

Conclusion

Treaty of Rome was a ‘Keynesian’ vision of full employment and the anathema for what goes as the European model these days.

So … why are they celebrating the 60th anniversary of an approach to economic policy making and nation-building that they have now completely rejected?

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.