Following the second world war, which destroyed the economy
of many of the countries of Europe, the European Union has evolved
from attempts to prevent further wars, inspired by the French
statesman Robert Schumann. The first of these was Benelux,
a customs union of Belgium, the Netherlands and Luxembourg; the
second was the Iron and Steel Community which united France,
West Germany, Belgium, Netherlands, Italy and Luxembourg in 1951.
The object was to prevent any country from setting up an arms
industry (needing steel) independent of the others. The six members
then agreed to the Treaty of Rome in 1957 to set
up an Economic Community to grow beyond a customs union towards
political union, which would amount to a federation.
The Marshall Plan (1948), by which the United States provided huge funds to help in rebuilding the economies of Europe, had a condition that the beneficiaries should cooperate across frontiers. The EU is therefore partly the outcome of that policy.
Britain was invited to join but declined. British statesmen at the time believed the British Empire was still more important to Britain's interest than Europe - though it was in 1956 that the Empire was shown to be over when the Suez war was stopped by a simple order from the United States. They failed to foresee the later developments (and indeed believed it would fail, as some politicians still do), and failed to influence the basic rules, such as the Common Agricultural Policy. The rules were set by France and Germany which still had large numbers of small farmers, rather than the large commercial farms found in Britain.
In 1962 the Common Agricultural Policy was begun, to coordinate food production and prevent further European famines (there had been a famine in 1944-46). It was also to protect small farmers in rural communities.
In 1967 it was renamed the European Communities when the Iron and Steel Community, Euratom and the Economic Community were merged. The customs union was proclaimed in 1968 - though non-tariff barriers were not affected. The European Community was enlarged in 1973 when Britain, Denmark and Ireland joined and EFTA lost its main members. It was enlarged again in 1981 when Greece, and in 1986 Spain and Portugal, joined to make 12 members. These three had become eligible when their dictatorships came to an end.
A Common Fisheries Policy was started in 1973 (just before Britain, Ireland and Denmark joined and was the probable cause for the Norwegian people voting against membership). It may also be the cause of overfishing in the North Sea.
The European Parliament was first directly elected in 1979. Before that its members were chosen by member parliaments.
The next stage was planned to be a monetary union following the agreed removal of customs barriers at the end of 1992 according to an amendment to the Treaty of Rome called the Single European Act. Only in 1993 did it become a Common Market, usually called the Single Market. Most of the members except Britain and Denmark agreed to work towards a common currency by 1999. There was to be a single European Currency, later called the euro. If seven countries agreed it would come into existence by 1997. In 1990 the Thatcher (Chancellor Nigel Lawson) government of Britain proposed a Hard ECU (European Currency Unit) which would be a parallel currency in addition to existing currencies, allowing the gradual adoption of a single currency. This was how the dollar became the official currency of the US. (This idea was rejected, and probably could not have worked in modern conditions). A soft ECU already existed. It was a notional unit of account made up of a "basket" of existing currencies. Only token coins were minted but it was used by international companies for pricing, and could be used for travelers' cheques.
Until September 1992 monetary union appeared likely. It was believed that those countries which stayed out would probably suffer from the disadvantages of having a small currency with no freedom of action. Some elements of the British Conservative party were opposed to it - the cynics would say because the advantage to a government of having control of a currency is to be able to bribe the electorate with a little inflation before an election. (But a weak economy, such as Britain's was - or Italy and Greece now - may be disadvantaged by a single currency). The September 1992 financial events (the Pound and Italian Lira dropping out of the European Exchange Rate Mechanism ERM) seemed to make monetary union less likely. Renewed disturbances occurred in August 1993. Perhaps these showed that there are only two possible conditions: a single currency; or floating national currencies, but not a managed coordination. It may also show that a Single Currency can only be maintained by a fully Federal Government. It is uncertain whether European voters actually want a European Government.
However, the Single Currency came into being on the first of January 1999 when all the member currencies were frozen at stated rates. The European Central Bank came into being and the existing notes and coins were regarded as merely being manifestations of the euro. The physical euro of coins and notes was introduced on 1 January 2002. (The author went to Oostende and took some notes from an ATM machine at 03.00.)
It has also been adopted by non-members of the EU in Kosovo.
Has the euro been a success?
The first criticism was that interest rates set by the governors of the European Central Bank were not suited to every country.
For example, in Ireland a high interest rate might be useful to suppress increasing house prices - a housing bubble, whereas Germany might need lower rates to combat high unemployment. From the beginning there were rumors about the situations of Italy and Greece, which, before the institution of the euro, were accustomed to devaluing their currencies. Following the events of 2011 could either country leave the single currency? The Greek government appears to have falsified the figures it preesented to justify its admission to the Monetary Union. Few people pay taxes there and the government deficit was larger than stated. (An American bank assisted the Greek government in this deception by the kind of "off the balance sheet" trickery used by ENRON).
But both were running (2006, and even worse in 2009) government fiscal deficits higher than were permitted by the European Central Bank following the Convergence criteria.
The three main political questions were: 1) the speed at which political and monetary union would be achieved; 2) the size of the community; 3) the powers and limitations of the central organization expressed through subsidiarity
Treaty of Maastricht
2) Several other countries applied to join. In 1994 Norway, Sweden, Finland and Austria were approved, subject to referenda (Norwegians again voted against). These are rich countries able to support the CAP.
2004. In the next wave Malta, Poland, Hungary, Czech Republic, Slovenia and Slovakia joined, with Estonia, Lithuania and Latvia. Cyprus also joined with this group, though the two parts were not reunited. Bulgaria and Romania were admitted in 2007.
Negotiations with Turkey began in October 2005. It is uncertain whether it will be admitted, because of reservations about its Muslim population, eastern problems, occupation of north Cyprus and its poor human rights record. It is possible that agreement to admit Turkey in 2015 may be achieved but that voters in several countries, including Austria, Germany and France may reject the treaty.
East Germany on its merger with West Germany in October 1990 became a member automatically but had been treated by West Germany previously as German territory with access to Community markets.
Ukraine has expressed interest. Russia is surely too large for full membership.
The Baltic states are afraid of Russia, and of being excluded from Europe and joined in 2004.
3) A third question is the amount of democratic control of the Community institutions. At present the elected European Parliament has very limited powers to dismiss the Commission and reject the budget. The Maastricht Treaty increased the power of the European Parliament to control the Commission. At present the decisions are made by the Council of Ministers who are responsible to national parliaments rather than to the European Parliament. The Commission is appointed by the Council of Ministers (that is, National Governments): smaller countries nominate one Commissioner; larger countries two (until 2004 when all were limited to one). The results of the referendums in Denmark (first) (51% against) and France (51% for) have been interpreted as showing that the electors in these countries were reluctant to allow more power to the Brussels authorities.
4) There are disputes about social costs to industry. Can Europe as a whole compete with the rest of the world if it has high labor costs? This applies especially to France, but also to Germany. Until 1997 with the election of a Labour government Britain opted out of the harmonization on social costs (the Social Chapter) - perhaps because of poor training standards and productivity in Britain. There are comparisons with the relation of Mexico to North America in NAFTA.
Economic Imbalance: a rich island?
The Maastricht Treaty was an amendment to the Treaty of Rome.
Denmark was allowed to opt out of much of the treaty, especially
the Defense and Monetary unions. If Denmark had left the Community
perhaps a Northern Union might have been formed, within the European
Economic Area (EFTA).
At this time it seemed possible that the stronger countries: Germany, France and Benelux - might form a currency union, leaving the weaker countries outside. This would have been a dangerous development as the outside currencies would be in danger of inflating away (as in East Africa). But there were also fears that a Single Currency would have a bad effect on even the stronger economies, causing unemployment. Are these fears the illusions of those ideologically opposed to any form of European cooperation (some members of the British Conservative Party and the extreme right in other countries)? Or are they the results of persistently deflationist economic policies preferred by bankers (compare the Hoover policy before the Keynesian New Deal of Roosevelt)? Now that the euro is in operation we shall see. The physical currency was issued on 1 January 2002. A big test of the euro comes with the Financial Crash of 2008. Can the European Central Bank and the national governments act together to deal with the threatened Depression. So far (December 2009) the euro has increased its value against the pound and the dollar.
April 2011: Large numbers of refugees from Tunisia, following the Tunisian revolution of 2011, are putting this regime under pressure. Italy (Berlusconi) has given many of them permits to stay which gives them rights in the whole Schengen zone. As French speakers many of them have headed for France. France (Sarkozy) has objected and called for a revision of the Treaty. There are threats to reimpose passport controls on all frontiers (that would be expensive if governments have to build frontier posts, new roads and employ thousands of officials).
European Economic Area
As the world's technology develops rapidly (including communications, nuclear power, weapons, transnational Corporations) the political forms of the past - the nation state - seem unable to cope with the problems of the whole world and many forums of international consultation have grown up, including the Group of 7 industrial powers which coordinate their economic and monetary policies. All nations are now linked to each other through these different bodies. Absolute sovereignty has already gone. (A few rogue states remain: Israel, Iraq, Libya, Burma, North Korea.)
A more visionary opinion may be that the world has already reached a condition in which both Europe and the United States are too small to control the integrating technologies and financial markets and that therefore there is no choice but an effective World Federation.
One important reason for international cooperation is that it is difficult to tax the large corporations within national boundaries as they move their funds about so quickly. This may represent the problems of Feudalism on a worldwide scale - overmighty Subjects.
Croatia (Hrvatska) is due to join in 2013.
Former French President Valery Giscard d'Estaing was charged with writing a new constitution for running the EU. It would have given more power to the European Parliament over the actions of the Commission.
Some states ratified the Treaty with a vote in their parliaments. Spain voted in a referendum. Then France and the Netherlands held referendums and the voters rejected the treaty in each. As the new treaty had to be adopted unanimously it dropped. Opinion polls suggested that if Britain had voted the voters would have rejected it. If passed it would have set up a permanent President of the union, instead of the six monthly rotating presidency (held by Britain from 1 July 2005).
This has led to new disputes about the budget. At present 40% of the money raised for the EU (mostly from a proportion of the Value Added Tax) is spent on the Common Agricultural policy which subsidies farmers, especially those in France and Germany. The British Prime Minister, supported by several other states, has called for these payments to be reduced. France and Germany have called for the British "rebate" to be cut. The British have proposed to discuss this rebate if the CAP is also discussed. The French are keen to maintain the CAP.
The June 2007 meeting of the heads of government agreed a new Treaty that would bring in several of the components of the proposed Constitution: especially a permanent President to be appointed by the heads of government, and changes to the voting system to remove the Veto held by the big states on several topics. The British government (Tony Blair) claimed that these changes did not require a referendum. As this was the last act of Prime Minister Blair, before handing over to Gordon Brown no-one could be sure whether Brown's government would ratify this treaty. It was put before Parliament in 2008 and ratified. However, in a referendum the voters in Ireland rejected it. They were asked to vote again in 2009.
The voters in Ireland voted in favor and the treaty came into force. A permanent chairman of the Commission was appointed. He is the former prime minister of Belgium. A British member of the House of Lords was appointed Foreign minister of the EU.
European Court of Human Rights
It must be distinguished from the Court of the European Communities whose function is to rule on disputes about the operations of the various treaties - it is mainly a Commercial Court.