Major crises – the two world wars, the Cold War, decolonisation – forced Europeans to reinvent themselves by creating a hybrid political organisation, the European Union.¹ The EU is more than a traditional international organisation such as the UN, because it has its own budget, currency, and directly applicable law. Yet it is not a state, for it lacks a police force, army, and criminal justice system. Its member states conserve a right of veto for all major decisions, and preserve the ‘competence of competence’, which is to say ultimate sovereignty. When the British wanted to hold a referendum to leave the EU in 2016, no one denied them that right, unlike the Catalans in 2017. When a corruption scandal involved a vice-president of the European Parliament in 2022, it was the Belgian police and courts that prosecuted her. It is therefore illuminating to explore the EU’s unique political and institutional features in order to understand how it has played such a large role in organising European capitalism.

The EC/EU have served as an instrument for member states seeking to reassert their legitimacy and power, as well as an organisation driven by supranational actors such as the European Commission, the Court of Justice, and more recently the European Parliament. This chapter will develop this argument in five stages: (i) on the origins of the EU; (ii) on the centrality of the EU; (iii) on the balance between intergovernmental and supranational dynamics; (iv) on the EU as a compromise between member states; and finally (v) on the EU’s compatibility with the three forms of capitalist governance.

2.1 The Three Origins of the European Union

European integration is rooted in a search for peace, prosperity, and freedom. The need for peace was prompted by the industrial-scale destruction of the two world wars, both of which erupted in Europe. That is why the quest for European integration started in earnest in 1919.² This was particularly true for France and Germany, which fought three wars (1870–71, 1914–18, 1939–45), each increasingly lethal. They suffered from deaths (one in four Frenchmen born in 1894 for example), destruction, the payment of reparations (France to Germany during the first war, Germany to France in the final two), and from the cost of occupation (one quarter of French GDP during German occupation in 1940–44).³ After 1945, the German challenge remained: while the country was occupied and dismembered, the immigration of millions of Germans expelled from Eastern Europe cemented its status as the most populous European country. Despite Allied bombing, Germany’s industrial capacity remained the largest on the continent. To break the vicious circle of French–German wars, both countries, along with their immediate neighbours, sought a more innovative approach to international cooperation than the traditional ones (from the Concert of Europe in 1815 to the UN in 1944).

The second motivation was prosperity, and the struggle against decline. Europe was surpassed in economic might first by the US and later by China, and in between lagged behind the Soviet Union and Japan for several decades in terms of economic growth. Western Europe’s global economic weight was halved between 1913 and 2008, while the US share remained the same, and China nearly caught up with the US (see Table 2.1).

The third motivation for building the European Union was to defend liberal democracy. Here too, the EC/EU was different from other forms of European cooperation, notably the various projects of authoritarian fascist ‘Europe’ during the World War II. After 1945, several European institutions, such as NATO and the OEEC, included dictatorships, notably Salazar’s Portugal. On the contrary, the EC/EU was founded to bring societies and states together around common values such as liberal democracy and peace. A potent force of unification was anti-communism.⁵ Joseph Stalin was a menacing Soviet leader, especially given that Moscow had much more troops than Western European states, and had detonated the Soviet atomic bomb in 1949. The Russo-Soviet threat did not disappear after Stalin, but has remained potent despite a short period of détente (notably in 1991–2007) and strong cultural links forged between Russia and Europe.

2.2 The Centrality of the European Union

The EU’s role gradually became so pivotal that it led to a synecdoche: the part, which is to say the Union, is confused with the whole, the European continent.⁶ This result was nevertheless not a preordained outcome: the EC/EU could have failed or remained secondary (and still can).

At the outset, the continent’s reconstruction was overseen by the United Nations Economic Commission for Europe, which was quickly marginalised due to the Cold War.⁷ The first European organisation was the OEEC, founded in 1948 to manage the Marshall Plan, but its institutions were weak. On the contrary, the European Community, which appeared with the Schuman Declaration on 9 May 1950, was a partially federal Europe of Six intended exclusively for liberal democracies willing to pool their sovereignty in certain areas. What emerged was the ECSC in 1951, and later the EEC in 1957.

However, there was an alternative to the Communities at the time, the free trade area (FTA) proposed by the British in 1956. It was a looser form of European cooperation based on intergovernmental institutions, and encompassed all of Western Europe (including dictatorships such as Portugal). The FTA was rejected by the French in 1958, only to be reborn again in the guise of the European Free Trade Association (EFTA), signed in 1960 by Britain and six other countries: the British press spoke of the ‘Outer Seven’ as opposed to the ‘Inner Six’.

The real breakthrough came in 1961 when the UK submitted its application for membership, thereby recognising the EC’s centrality in Europe. The first enlargement eventually occurred towards the north in 1973 (Denmark, Ireland, United Kingdom). Later enlargements can be explained by the return of democracy in both the South (accession of Greece in 1981, Spain and Portugal in 1986) and the East (accession of East Germany with German reunification in 1990, of neutral countries in 1995, and of former Soviet countries along with Malta and Cyprus between 2004 and 2013). These successive enlargements allowed the EU to maintain its share of global population around 5–6 per cent, and of global wealth (GDP) at 15–20 per cent between 1950 and today (approximately 16 per cent in 2024 after Brexit).⁸

All of the EC’s competitors faded away. In 1960, the OEEC became the Organisation for Economic Co-operation and Development (OECD). It dropped the adjective ‘European’ with the membership of the US and Canada, which were followed by Japan in 1964, and later by other non-European countries. While the OEEC organised trade and monetary cooperation in Europe, the OECD became an influential think-tank for the rich countries of the Western bloc.⁹ The secretary general of the OECD was unable to secure an invitation for himself to the G7 in 1975, in contrast to the Commission, which gradually imposed itself in this forum.¹⁰ The Commission later extended its prerogatives to fields in which the Council of Europe had been a pioneer, such as education and culture (the Erasmus Programme was launched in 1987), as well as to European symbols (invented by the Council of Europe, and taken up by the EEC in 1985).¹¹ The Council of Europe nevertheless conserved primacy with respect to human rights.

The Community was strengthened between 1989 and 1992, first by the Maastricht Treaty, which launched the Economic and Monetary Union, but also by the diplomatic initiatives taken by Commission President Delors to fully insert his institution within the post-Cold War world.¹² Delors’s support for German reunification and his assistance to former Eastern bloc countries were precocious, dating back to his 17 October 1989 speech at the College of Europe. By contrast, many other European leaders were reluctant to embrace rapid German reunification. At the European summit in Strasbourg in December 1989, all European leaders, except those from countries that had not taken part in the World War II (Spain’s Felipe Gonzales and the Irish), expressed reservations about Kohl’s failure to give his partners advance notice regarding his ten-point plan to accelerate reunification.¹³ On the economic front, Delors’s initiatives involving Central and Eastern Europe in 1989 convinced US President George Bush to propose that the Commission coordinate Western aid to these countries.

Still, the enlargement of the Community towards former Eastern bloc countries was not a preordained outcome. In 1990–91, French President François Mitterrand, in keeping with the French preference for a small Europe, supported the creation of a ‘European confederation’ that would have brought together all European countries, including the USSR but not the US.¹⁴ This vague project was in response to European fears of disorder following an anticipated withdrawal of US troops. Mitterrand promoted the project to the Czech leader Vaclav Havel, who agreed to hold a conference in Prague in 1991. However, when Mitterrand declared in Prague that the EC accession for Central and Eastern European countries could take ‘decades and decades’, and risked transforming the Community into a free trade area, many leaders realised that Mitterrand’s project of what he called a ‘European Confederation’ was in danger of becoming an alternative to enlargement. The project soon failed.

Enlargement towards the East eventually took place in 2004–13, a few years after the creation of the monetary union in 1999, a project that many actors (notably in the US) considered a chimera when it was launched in 1992. While the EC could have been weakened by the end of the Cold War, it actually morphed into a larger and more influential EU.

The uniqueness of the EC/EU is even greater when compared with other international organisations. For example, the ILO and UNESCO were bogged down by Cold War conflicts, and sometimes by US withdrawal (during the 1970s and 1980s), which strained their finances and hence their capacity to act.¹⁵ The history of the UN Environment Programme (UNEP) shows that it was highly dependent on funding from a few states – generally Scandinavian countries, which allowed them to hold conferences (Stockholm in 1972) or preside over commissions (Brundtland in 1986) – and from private groups as well.¹⁶ The GATT/WTO were not competitors but rather partners, as the Commission has conducted world trade negotiations on behalf of member states (with their close oversight) since the 1960s. A division of labour gradually emerged, with institutions such as the OECD and ILO providing expertise for the EC/EU.¹⁷

The only real competitor to the Union was NATO, which remains dominant in military matters, and the International Monetary Fund (IMF), which takes the lead in managing monetary crises, although the EU expanded its prerogatives in this area during the euro crisis.¹⁸

A comparison with other regional organisations further underscores the EEC’s institutional distinctiveness.¹⁹ The Council for Mutual Economic Assistance (Comecon) was active in the Soviet Bloc, although archival studies have confirmed the weak powers of this strictly intergovernmental institution. Similarly, studies focusing on Mercosur and other South and Central American organisations for cooperation also reveal their powerlessness. While the EEC eliminated internal customs duties in 1968, customs conflicts still occur frequently in Latin America. Trade integration is much less developed: while share of intra-zone trade has been above 70 per cent in the European Union since its creation in 1992, it has not surpassed 30 per cent in Latin America, and is even significantly lower now with Mercosur. As for ASEAN, it has long remained a partial free trade area undermined by internal divisions, although the dynamism of East Asian countries, China in particular, combined with the rejection of the Trans-Pacific Partnership in 2017 by US President Donald J. Trump, has revitalised Asian regional trade integration.

The EU’s central role in organising Europe thus emerged fairly late, and is not permanent. Integration can be followed by disintegration if populations no longer see added value in this type of political configuration, and seek a return to national solutions. After the crises of the 2010s, Euroscepticism became a striking trend in political circles and the media.²⁰ It was epitomised by Brexit in 2016, and by the confrontational stance of other governments (since 2010 in Viktor Orbán’s Hungary, and from 2016 to 2023 in Poland under the Law and Justice Party).

2.3 The Union: Between a Federation and an Association of States

The European Union is a hybrid entity, with federal and intergovernmental aspects.²¹ It was launched by the Schuman Declaration of 9 May 1950, which sketched out a new kind of semi-federal organisation by inventing what would later become the European Commission. It was followed by the creation of the ECSC via the Treaty of Paris in 1951, and later the EEC via the Treaty of Rome in 1957. The latter treaty still largely remains the basis for today’s EU, which was established in 1992. Some of its articles, in addition to its general philosophy, remained in the Treaty of Lisbon in 2007, which is currently in effect.

This community model was founded on four institutions created by the Treaty of Paris in 1951: the Council of Ministers representing states, the Parliamentary Assembly, the Court of Justice, and a supranational body charged with proposing and implementing legislation. This body was called the High Authority at the ECSC (1952), and the Commission at both the EEC and Euratom (1958). In 1965 they merged into a single Commission.

This institutional setting is partly federal: the absolute sovereignty of member states is challenged by majority voting in the Council of Ministers (a state in the minority must apply the decision adopted), by the Commission’s monopoly over initiative (right to propose new legislation), by the existence of federal law, and by the direct election (since 1979) of members of the European Parliament via direct universal suffrage.

But this system does not amount to the United States of Europe. The EU only exists through international treaties that states must accept on a unanimous basis. States designate the leaders of all supranational institutions, with the exception of the European Parliament. The major body for decision-making and (more often) blockage remains the Council.

The Commission is not the equivalent of a government, which is generally united behind a leader and an electoral programme (or at least a coalition), but rather a patchwork of decision-makers from different nationalities with contrasting political, economic, social, and even European orientations. The Commission President is no more than a primus inter pares, who can end up in the minority at the College of Commissioners during a formal vote. Besides, while the Commission is tasked with executing the decisions passed by the Council and Parliament, it only has a fairly small administration (32,000 people in 2025), with no independent power of inspection in most fields, and lacks the power of resorting to legitimate violence. It therefore relies heavily on national administrations.

The institutional framework has evolved over time, all while perpetuating this balance between a state-driven and federal logic. The former was strengthened by the Luxembourg Compromise, which encouraged unanimity rather than qualified majority voting at the Council of Ministers between 1966 and 1986, and by the creation of the European Council in 1975. The latter includes heads of government and the Commission, and defines the overall orientation of EC activity. The European Council is more than a purely intergovernmental institution, even though it remains driven mainly by inter-state negotiating.²²

The federal dynamic was emphasised with the gradual emergence of European federal law, which is to say law that is directly applicable, and takes precedence over national law. This began with the Van Gend & Loos (1963) and Costa v. ENEL (1964) decisions, which grew out of mobilisation by groups of pro-Community jurists.²³ The federal dynamic continued with the gradual reinforcement of the European Parliament in the 1980s. It also depends on the personality of the Commission President, with the most influential being Walter Hallstein (1958–67) of Germany, who established the supranational basis for institutions, and Jacques Delors (1985–95) of France, who transformed an essentially trade-related community into a budding monetary, economic, and social union.

There is a great deal of internal diversity within the EC. The procedures are not the same for all public policies. The most regalian sectors such as defence, foreign policy, and justice remain in the hands of states. Unanimity is often given primacy over qualified majority voting, intergovernmental agreements over federal law, and the Council of Ministers over the Commission or Parliament. On the contrary, in the most Community-based sectors, the procedures gradually became more federal: for foreign trade and agriculture in the 1960s; for competition in the 1980s; and for monetary policy and a growing number of economic and environmental regulations (excluding taxation and social law) beginning in the 1990s.²⁴ As a result, according to the economic historian Kevin O’Rourke, ‘there has surely never been a more tightly integrated group of economies in human history than the [twenty-seven] member states of the EU’.²⁵

Diversity is also territorial, as all of the EU’s spaces are not concerned by the same policies.²⁶ This notion has its origins in the agreement that created the European Monetary System in 1978. The latter included an exception for the British, the only member state not to take part; London subsequently secured exemptions from the Schengen Agreement, the euro, and the Maastricht Social Charter as well. Denmark and Sweden followed suit. The temptation of a ‘multi-speed Europe’ naturally emerged to reconcile varying commitments to European integration. For example, in 1984, the French Minister of Foreign Affairs Roland Dumas – and later French President François Mitterrand himself – proposed launching a Europe of Eight (the Six plus Spain and Portugal, which would soon be joining the Community) in the event that budgetary negotiations with the British failed.²⁷ Their German counterparts politely avoided the subject, for Bonn feared the constitution of a small Europe subject to strong French influence. In June 1985, just before a meeting of the European People’s Party (EPP), the president of this group of Christian Democratic parties, Piet Bukman of the Netherlands, explicitly envisioned a multi-speed Europe as a working assumption: ‘An initiative that would keep the Community moving and would allow progress towards the European Union, namely to advance with the Inner Six (+ Ireland) while waiting for Great Britain to join them.’²⁸

National and European institutions are intermingled. Kalypso Nicolaïdis has characterised this system as a ‘demoicracy’, a system in which ‘sovereignty’ is ‘exercised concurrently by several rather than just one demos’.²⁹ The hybrid nature of the Union’s political system generates its complexity and hence its ‘democratic deficit’: most European citizens struggle to understand how its institutions work. They do not feel part of a fully-fledged European public sphere, for lack of continent-wide media, parties, and grassroot mobilisation.³⁰ This complexity is also a function of the urge to avoid any strong leadership within the European system, a liberal reflex that has been prevalent in post-war Europe.³¹ The democratic deficit has also been fuelled by the tendency of member states to shift the blame on European institutions. Besides, they have devolved to the Union their most unpopular tasks, such as setting standards and managing monetary policy. It is therefore logical that European institutions are seen as being aloof and technocratic. At some point, the European Parliament discussed the noise level of lawnmowers, probably not the best way to elicit public interest!³² By contrast, member states have kept more popular policies to themselves, including providing health care, pensions, schools, police, justice, and the military.

All in all, three main dynamics can explain the EC/EU institutional developments. First, the European institutions represent an opportunity for member states to promote their nation-interest and to get credible commitments from their partners.³³ Second, supranational institutions, the European Commission, the Court of Justice, and later the European Parliament, have managed to progressively increase their power, sometimes stealthily as in the case of the Court relying on the ‘integration-through-law’ dynamic.³⁴ More precisely, historical institutionalism has shown that the ability of member states to master the decision-making process is hampered by ‘path-dependencies’ and ‘unintended consequences’. This is particularly true for low salience issues such as competition policy, whose decisive reinforcement in the late 1980s was informed by ‘path-dependencies’ of the 1960s, which led to ‘unintended consequences’ for France: Paris underestimated the European Commission, which gained major power in competition policy in 1962 (for cartels), but was unable to implement them in the subsequent years.³⁵ Yet, Commissioner Brittan drew on this legacy to get major power for the Commission again in 1989 (this time for mergers), only to use them much more forcefully, including against France.

Third, the European integration process is supported by an elusive European federal identity. It is visible in the successive elections of pro-European governments, and in polls, with often a sizeable number of respondents being in favour of vague federal aspiration such as the ‘United States of Europe’ in the post-war years, or a ‘common defence and security policy’ today.³⁶ Europeans are split, most of them considering the nation states as their main anchor, but refusing the return to a jingoistic Europe of aggressive nations, unable to regulate their conflicts by rule-bound institutions.

2.4 The EU as the Intersection of Contrasting National Strategies

‘France seeks reincarnation as Europe; Germany hopes for redemption through Europe’ said Zbigniew Brzezinski, the National Security Advisor to US President Jimmy Carter (1977–81).³⁷ As a matter of fact, states developed contrasting European strategies. In Germany, due to the National Socialist past, foreign policy rhetoric is more modest than in Britain and France, which ruled over colonial empires, are both nuclear powers, and have a veto right as permanent members of the UN Security Council. German political discourse has been more federal, in keeping with its history (aside from the Hitler period). Practice was nevertheless more often intergovernmental than the discourse, as demonstrated by the regular criticism of EC institutions by the Federal Constitutional Court in Karlsruhe.³⁸ Administrative practice has been less unitary than in France or the UK, due to the strong degree of decentralisation (which left many powers to the Länder), and to divisions between ministries, that were more visible than in Paris or London.³⁹ As Germany depended on the US for its defence, and on the world market for its exports, it has always been favourable to enlargements.

In Paris, the priorities were practically the opposite of those in Bonn; the rhetoric was ambitious, especially under Charles de Gaulle (1958–69). The preferred geographic scale was a small Europe where French influence could be maximised (hence without the British), supplemented by strong ties with Africa (in keeping with a post-imperial logic). This translated into two rejections of British accession in 1963 and 1967, and later unease over enlargement towards the East. The relationship with the US evolved. At the outset of European integration, French governments were highly Atlanticist, and insisted that Washington be actively involved in Europe. However, starting with US opposition to the French–British expedition against Nasser in Suez in 1956, and especially de Gaulle’s return to power in 1958, there emerged a discourse of Europe as a power, one that was allied with but independent from the US. Paris withdrew from the NATO integrated command from 1966 to 2009. In terms of institutional preference, French governments have often associated a voluntarist and idealist discourse with an intergovernmental practice. For example, French President Valéry Giscard d’Estaing (1974–81), known for being pro-European, nevertheless sought to curtail the powers of the Court of Justice of the European Communities, which he found overly intrusive.⁴⁰

The British stance towards European integration was encapsulated by the term ‘awkward partner’, which appeared often in the literature, and was used by British diplomats from 1980 onwards.⁴¹ The British were awkward because they never supported idealist pro-European rhetoric. London proceeded with European cooperation primarily for economic reasons, with no desire to alter its national political model, which was characterised by its striking success during the World War II. The other major European countries suffered various military failures, making them more predisposed towards the delegation of sovereignty to supranational institutions after the war. In his famous speech delivered in Zurich on 19 September 1946, Winston Churchill called for European integration, but without the UK. Studies focusing on European economic cooperation before 1939 also show that British actors (companies in particular) were proportionally less involved in international and continental cooperation than their German, French, Belgian, and Dutch counterparts.⁴² This was certainly due to the imperial heritage, as well as the physical interdependence (in the form of rivers, coal mining areas, migrant populations) that united countries in Charlemagne’s Europe.

After joining the Community in 1973, following twelve years of difficult negotiations punctuated by two vetoes by Charles de Gaulle, relations between London and Brussels remained strained. The abrasive style of Margaret Thatcher (1979–90) sustained a permanent debate regarding the UK’s possible exclusion from the EC, even among the Germans. The archives reveal that in 1980, during an interview with Roy Jenkins (President of the Commission) and Peter Carington (Foreign Secretary) of Great Britain, the German Chancellor Helmut Schmidt asked them if their country wanted to create a situation where other EEC members asked it to leave the EC due to its intransigence on budgetary matters.⁴³ A few months later, in a discussion with Schmidt regarding Britain’s stance, the French president Giscard d’Estaing wondered whether admitting the UK in the EC had not been an error.⁴⁴ Schmidt rejected the prospect, but admitted the major problems arising with Thatcher. Around the same dates, in an interview with his counterpart, the German Minister for Foreign Affairs, Hans-Dietrich Genscher, Lord Carington threatened that the British could withdraw from the EEC if the budgetary problem was not resolved, with a veiled threat to pull out British troops from West Germany, which the Germans needed as a buffer against the Soviet Union.⁴⁵ Already in late 1958, amid the conflict surrounding the British proposal for a free trade area (FTA), Prime Minister Harold Macmillan threatened the Six with the withdrawal of the British military presence in Germany in the event its proposal for an FTA failed.⁴⁶ This explicit linkage between trade and geopolitical issue was typical of Britain. For example, Thatcher reiterated the same threat to Kohl in 1984.⁴⁷

With the EEC membership referendum of 1975, the UK became the only state to demand new concessions immediately after its accession, and to submit them to a referendum. Great Britain was also the only country not to participate in the EMS in 1979, thereby paving the way for additional exceptions. Other countries subsequently secured exceptions, but the UK was the country that initiated and accumulated them, before its ultimate isolation (along with Hungary) over its refusal to elect Jean-Claude Juncker as Commission President in 2014. During the most severe crises, especially those involving the British contribution to the budget (1980–84) and ‘mad cow’ (1996), it threatened to withdraw, or at a minimum not to adhere to European obligations.

Still, the UK was often central to European cooperation, firstly by playing a major role in many different European organisations (such as the OEEC, the Council of Europe or NATO), and secondly by strongly influencing the EC after joining in 1973, especially with respect to competition policy.⁴⁸ Brexit, which was passed in 2016 and implemented in 2020, represents a sharp break with the past, as it was the first time that a fully European state left the EU.

All in all, European states and citizens have nurtured different political ambitions for European integration. Various factors have played a role, such as geopolitical allegiance (neutrality or NATO membership, relationship with Russia), the colonial past (including within Europe), the strength of institutions, and, of course, the national mix of capitalism.

2.5 European Institutions and the Trinity of Capitalism

International economic organisations are not conducive to all forms of capitalism. Many experts have estimated that the European Union is compatible only with liberty capitalism. Its decision-making process is complex as it is designed to avoid the domination of any single actor. Its institutions seem to be more effective at promoting free trade by removing obstacles, what is known as ‘negative integration’, than in creating new instruments expressing solidarity or community, or ‘positive integration’. The German political scientist Fritz Scharpf has deplored the Court of Justice’s bias towards negative integration, and the Council’s inability to promote positive integration due to the ‘joint decision trap’ (the difficulty of taking action as a result of unanimity requirements or obstructionary coalitions).⁴⁹ The Union is considered exclusively as ‘regulatory state’, rather than an actor making discriminatory choices.⁵⁰ Moreover, only a strong sense of shared identity can justify painful redistribution measures or difficult choices to ‘pick the winner’ in industrial policy. The steady development of neoliberal policies in Europe since the late twentieth century, particularly at the European level, appears to support this argument.

However, this book will complement this narrative by arguing that the European institutional system, while being easier to combine with the liberty aspect of capitalism, is also compatible with moderate forms of solidarity and community capitalism. Three factors call for consideration. First, from a theoretical point of view, Scharpf’s argument can be reversed. ‘Negative integration’ is easier than ‘positive integration’ only if the negative redistributive effects of free trade are ignored. All economic rules, even those considered the most neutral, create winners and losers. Pure and perfect competition never exists, as all markets are imperfect, and hence dependent on artificial rules (Who can access the market? How are prices set? etc.). Similarly, the seemingly depoliticised nature of neoliberal policies, which are supposed to be neutral, is illusory. For example, the politics of deregulating markets are based on discriminatory decisions: most of the time, they tend to discriminate against incumbent monopolies and oligopolies (Chapters 7 and 8). This creates distributional effects, some positive, such as lower prices if the deregulation is well managed, others negative, such as weaker social and environmental protection.

Second, the ensuing chapters will show that, for most of their history, capitalist European states have remained fairly protectionist, as powerful constituencies (starting with farmers) have prevented any liberalisation measures. The role of European institutions was to facilitate the combination of various national forms of solidarity and community capitalism in Europe.

Third, the historical account developed below shows that the legal framework of the European treaties, while firmly anchored in free market rules, can accommodate solidarity and community forms of capitalist governance. For example, trade rules have been used to liberalise trade with the US in manufactured goods, but also to support protectionist policies in agricultural and textile products (Chapter 6). The competition policy rules that were defined in the 1957 Treaty of Rome, at a time when hardly any competition policy existed in Europe, are flexible and have accommodated many different approaches, including German ordoliberalism, the second Chicago school in the US, and the public interest criterion (Chapters 5 and 8).⁵¹

Traditionally, economists have distinguished between several forms of international trade cooperation.⁵² In turn, each type of cooperation required a specific set of international institutions, as shown by Table 2.2.

Five steps of integration can be identified. Step 1 is the free trade area, which is based exclusively on the removal of trade barriers. It is compatible only with the principle of liberty; intergovernmental institutions are sufficient for managing it. In step 2, the Common Market, a minimal amount of semi-federal rules and institutions are needed to implement the common external trade policy. The EEC went through this stage in the 1960s, by liberalising trade in goods and implementing a protectionist agricultural policy. It then morphed progressively into the Single Market with common rules (step 3), which necessitates more federal procedures in order to adopt such legislation (with qualified majority voting for certain decision taken by the Council of Ministers since 1987) and monitor it (with federal law since the 1960s). Such cooperation is conducive to liberty capitalism, but also to moderate forms of community capitalism (if cartels and mergers are tolerated or even encouraged, and if standards for domestic companies are adopted at the expense of foreign competitors) and solidarity capitalism (if high social and environmental rules are adopted). At the same time, the European Communities implemented redistribution (step 4), initially with regional policy (starting in 1975, reinforced in 1988: see Chapter 4), and later with monetary policy. The latter created important redistributive effects, for better or for worse, as shown by the eurozone crisis (Chapter 8). Redistribution makes solidarity capitalism possible, but only on a limited scale, as the European budget is modest and based on rules deemed to be neutral, and therefore avoids explicit discriminatory choices.

With the return of community capitalism since 2016, the challenge has been to create a more assertive community (step 5), one able to make explicit discriminatory choices in industrial policy (‘picking the winner’, i.e. concentrating subsidies on a few major projects), trade (reacting to protectionist threats), foreign policy, and defence.⁵³ The move to step 5 has been under discussion over the past ten years. It does not require a fully-fledged federal union, as the current institutional framework – defined by the 2007 Treaty of Lisbon – is conducive to bold initiatives if there is political willingness to face international challenges together.

Table 2.2 should not be read as a pathway that automatically leads to a more integrated European Union. Stages are partially overlapping: there was no clean break between the Common Market and the Single Market for example, as some elements of social and environmental policies date back before the 1986 Single Market programme (Chapter 4). The neofunctionalist dynamism described by Ernst Hass, which is to say the ‘spillover’ effect – according to which the pooling of sovereignty in one area of economic policy triggers pooling in another related area – is not automatic. It can be stopped or even reversed, as demonstrated by the threat of a shrinking eurozone in 2010–15, or with the Brexit vote in 2016.

2.6 Conclusion

The European Union is a peculiarity in world history. It is a hybrid actor, both intergovernmental and federal, and based on a complex decision-making process designed to accommodate the fact that each member state has a different relationship to it. The European Union’s dominant role in regulating capitalism emerged quite late, after the failure of numerous alternatives in both European and international organisations. As Brexit has shown, it is perfectly possible for the Union to shrivel, potentially due to nationalistic pressures applied by a new group of leaders. The following chapters will explain why Europeans haven chosen to pool together an increasing number of instruments for managing capitalism. They will also argue that the European institutional system, while being easier to combine with the liberty aspect of capitalism, is also conducive to solidarity and community. The role of European institutions was to facilitate the combination of various national forms of solidarity and community capitalism in Europe.