Below is the text of the speech made by the President of the EC Commission, Roy Jenkins, at a dinner held by the European League for Economic Co-operation at the Mansion House in London on 17th April 1978.
If the mechanisms of the European Community are economic its aims are political. This statement, commonplace enough now, after twenty- five years of the Community’s existence is still likely, in Britain at least, to provoke from some quarters cries against federalism and resonant pronouncements reminiscent of the books of A.V. Dicey about sovereignty. But the economics of the Community involves jobs and declining industries – monetary stability; regional policy; energy options – all these are the stuff of politics not of bureaucracy. And, although there may be some who believe to the contrary, the institutions of the Community have been carefully constructed, and indeed adapted over time, to allow for the interplay of argument and its resolution at both technical and political level. They are not perfect. The enlargement of 1973 put them under strain.
The future enlargement from nine to twelve will require changes, but the framework for decision is there.
I make these introductory remarks because I firmly believe that there is at the present time an opportunity to use the Community machinery to begin to resolve the economic problems which face all Member States and so enhance the political and economic stature of Europe. The size of the stakes we are now paying for in the world economic game is high. I believe this at least is appreciated in the United Kingdom. What I am less sure about is whether, here, there is a full enough or clear enough recognition of the common nature of the problems and of the advantages of a common Community response to them.
Despite the real benefits of North Sea oil the economy of the United Kingdom remains as vulnerable, particularly given its special dependence on overseas trade, as other Community countries. It has at least as much therefore to gain from common Community action as the stronger Community economies.
I would ask whether, despite the much- vaunted practicality of the British people, they do not find their view of the practical opportunities of the landscape before them obscured by drifting clouds of unreason, market ‘Beware – federalism’ – or ‘Warning: bureaucracy’. I should therefore like this evening to try to set before you the main problems we face, the way in which I believe the Community can contribute to ease them, and could, indeed should, in my view, be the response in the United Kingdom.
There are three principal areas of difficulty: the internal Community economy, our external economic relations, and world monetary instability. I take each in turn.
The average growth rate of the Community remains sluggish. We are well short of our target for this year, and behind the other main industrial units in the world. The consequence of a persistence of present levels of performance would be depressing.
First, there would be no prospect of making an impact on unemployment. It now stands at 6 1/2 million for the Community as a whole. No Member State is unaffected. 40% of those out of work are under 25 years of age. Other things being equal the situation will get worse and no better over the next few years, as 9 million more young people come onto the labour market than those who leave it. Second, a sluggish economy breeds business hesitancy and trade union resentment. It creates a bad climate in which to carry out the adaptation and restructuring of industry which is urgently necessary to restore any real chance of lasting competitiveness in many sectors. Third, it slows down the full integration of the Community market, and puts at risk much of what has already been achieved. Intra-Community trade grew by only 2% in 1977 compared with an annual average of 9% in the previous decade.
It may be tempting to argue that we are still witnessing a delayed response to the shock of the 1973 oil price rise. But that is, in my view, self-deceiving. That shock was severe but it has been a fact of life for nearly five years and if we were fundamentally healthy we should by now have absorbed it.
Nor, when the other main industrial countries are expanding faster than we are, can we put the major blame on the rest of the world. As the world’s biggest trading bloc we have a major responsibility. We must offer our own solutions and not simply press others to substitute for us.
Second, we face acute problems in relation to what is now becoming known as the “international division of labour”. Beyond its intensive internal trade between the Member States the Community is more dependent upon external trade than either the United States or Japan; its interest, therefore, in the maintenance and development of an open world trading system is immense. In addition, the Community, more than the other industrialised parts of the world, has an especially close interest in its relationship with the Third World. This is true of trade and true of politics. We have been in the lead in the North/South dialogue. We have invested a lot of political, capital in this relationship, the Lomé Convention has been one of our major success. We are the threshold of its renegotiation.
At the same time it is from the Third World, together with the non-Community countries of Europe, that our surpluses come. Yet we are competitively very vulnerable not only to Japan and to other Far Eastern countries which have developed in its wake but also to the “industrialised pockets” in the Third World. The impact of this competition on our industries is great. The Community has had to undertake a series of difficult negotiations, notably in steel and textiles, to gain a breathing space for these industries. But some of these actions give us only a short breathing space – time in which we have to restructure industry or face the alternative of growing and permanent uncompetitiveness.
Our lack of growth and the potential frailty of our external trading strength are two of our major continuing problems, but the most pressing is the interlocking crisis in the international monetary system – or rather the lack of system. Since 1971 we have lived without the rules of Bretton Woods. The experience of the last seven years, compared to that of the preceding decades, does not suggest that the absence of such rules is a rewarding national freedom. But the one feature of Bretton Woods that remains is the monetary predominance of the dollar. This is something separate from the weight and importance of the economy of the United States, which is necessarily great and will continue to be so. But the weight of the dollar is still greater and more pervasive. It remains the only effective medium of international exchange. Its position greatly affects our intra-Community relationship and the nexus of the Euro-currency markets as well as our trading position with the rest of the world. The present weakness of the dollar leaves Europe, and the world as a whole, unstable and vulnerable. To say this is not to be hostile to the United States, any more than it was hostile to Britain to try to deal with the over-extended role of sterling in the Sixties. I do not join with those who put the main blame on American policy. It is much more that the system is out of joint, with a large part of the legacy of Bretton Woods remaining but its central mechanisms having been removed.
These are the central economic and monetary and, therefore political issues, which we have to tackle at the present time.
Alongside these is the fact that our problems have to be seen in the context of the imminent enlargement of the Community to ten member and in the not long delayed enlargement to twelve. What is obvious is that such an enlargement will be a weakening factor for the Community unless, in advance, it is given greater internal coherence both economically and institutionally. The need for Community resources is bound to be increased by the inclusion of three new relatively poor members. At the same time, it would be quite unacceptable politically to treat the new applicants more favourably than parts of the existing Community where the need is equally great. In this respect, there was an important but so far publicly neglected recognition by the European Council in Copenhagen that the pursuit of greater internal coherence in the Community implies the determined reduction of regional imbalances. This is indeed in the words of the Council one of the key objectives of the Community enterprise. The result is a commitment to deal not just with our existing regional differences but, if we are to make a success of enlargement, as we must, we have to think from here forward in terms of twelve and not of nine.
The prospect of enlargement has proved again, as did the enlargement of 1973, the Community’s power of attraction. And that attraction is not just for membership but for relationship – especially from the Third World. The problem is how to match that with equivalent internal strength. I believe the opportunity is there to do so in the central economic and monetary field and that there are short-term steps and long-term strides which can be taken.
Let me first comment on the longer-term prospect for Community action. From the autumn of last year, both in public speeches and private discussion, I have proclaimed and defended the thesis that an economic and monetary union of the Nine is not a distant academic dream but a necessary future reality. The problem of monetary discrepancies within Europe threads its way through all our policies, disrupting the mechanism of the common agricultural policy through monetary compensatory amounts and weakening our external trade negotiating position.
What could our strength be if we had to currency stability between Hamburg, London and Rome, that there is between New York and San Francisco or Tokyo and Osaka? It is no accident that of the three major industrial areas we are both the one with the weakest economic performance since monetary disorder became endemis, and the only one which suffers that disorder internally as well as externally. The cost of disunion in terms of internal and international trade is becoming increasingly obvious and heavy. On these two points at least the number of the converted now seems greater than the number of sceptics.
But there remains a good deal of scepticism about some of the internal effects of union and about its practicality – about the effects on prices, jobs, and standards of living. I hope you will agree that as this is not an academic lecture but an after-dinner speec h I can proceed, at this stage, by assertion rather than argument. First, the current economic situation places all our traditional assumptions in flux. The old familiar relationships between reflation and employment and the balance of payments are like navigational aids which have lost their validity as we sail into strange seas. And their invalidity breeds intense discontent – in all countries. But given the existing interdependence of the European economy, a break-out from the straight jacket of nationalist monetary policy could alter these relationships in our favour. A single, homogeneous monetary policy could set, and maintain, a common high standard of price stability provided it were based on a well- prepared currency reform. There are, of course, buried here a whole range of both political and technical issues. All will have to be solved, but the prospect in their resolution would be a new economic environment, with stronger internal monetary disciplines and more relaxed external constraints. The process of transition will require a mechanism for adjusting internal economic differences. It would, therefore, have to be coupled to greater Community budgetary and financial powers, to give better geographical balance both, for example, in cyclical conditions and in the structural reconversion of declining industries. The need for such action is already there within the Community in the disparities between its regions. The prospect of enlargement underlines its importance.
The discussion of economic and monetary issues at Copenhagen was interesting and useful. There we neither aimed at nor took decisions in this area. But the common understanding of our problems was clear. What we now need to do is to prepare with vigour proposals for common action. Between now and the next European Council at Bremen we need to work out new dimensions of Community activity in the perspective of economic and monetary union. President Giscard d’Estaing has pointed to our need in terms of a zone of monetary stability in Europe. In my view we can achieve this by seeking greater exchange rate stability between the currencies of Member States. For this purpose it would in the judgment of the Commission be necessary to extend the Community exchange rate system beyond the snake; to create scope for the Community to develop new dimensions to the European Unit of Account – doing better service as a point of reference and a unit of account for credit and settlement in our internal exchange rate relationship; and to increase the functions and resources of the European Monetary Co-operation Fund.
I hope the United Kingdom will be able to play a major part in producing achievement out of expectation, as much in its own interest as that of the Community.
Britain has now been in Europe for five years and the Community that now exists has been in part moulded by British influence. Some of that influence has been beneficial. For example, on the vexed question of the harmonisation of laws there is now a much greater recognition than there was that the objective should not be as much as possible but as much as necessary. But there is still in my view too great a tendency to concentrate attention on the minor issues and dodge political debate on the major ones. There are historical reasons for this. I know them better than most. But to discuss Community policy we do not need to enter the realms of political theology although we do need a conception of what the Europe is about. That view can be very simple. The Community is, in part, a recognition that the economic conditions of coexistence in the late twentieth century are such that the scope and effect of decisions cannot be limited to a narrow national area. We are interdependent, and that includes the world outside the Community as well as within.
Indeed, we work for an increasing degree of complementarity and common decision making on a worldwide scale. Of course, the greater the scale, the greater the difficulties involved and often the greater the time that decisions can take to be realised. But here in Western Europe we have been fortunate and intelligent enough to work out procedures and machinery for taking decisions in common on common problems. It would be remarkably foolish to fail to co-operate fully in this established framework on the pretext of seeking wider solutions in a much vaguer framework. Better European co-ordination should be the foundation and not the enemy of world advance.
I have put before you this evening what I believe some of these problems are and one major, systematic route of policy which could underpin our ability to deal with them all. It is also a policy route along which real practical steps can now be taken. It is time to think in these terms. For too long Member States have tried to grapple largely on their own with the most serious continuing economic situation we have know since the War. We have wasted too much effort in arguing about whose responsibility it was to go for higher economic growth. Let us now replace the outdated locomotive theory of economic advance with a plan for common action. The four months which began with the Copenhagen European Council present the Community with an unusual combination o f test and opportunity. We need to present a common and powerful front at the Western Economic Summit in July. In order to avoid the confidence- weakening cynicism of a flabby outcome to that meeting, we need a clear sense of our own direction. But that is an occasion and opportunity not the reason for advance. The reasons exist already in our lack of growth, our need for external strength in a world of monetary instability and in the prospect of enlargement. We can out of the present fragility of the European and world economy pluck a set of decisions which can lead to a strengthened European Community. And that is in the interest of Britain in Europe. The European League for Economic Co-operation has played that part in the past. I hope that all of us here today will do so in the future.