Keynes’s words from 1919 captured the main interest of establishing a free market area across the European continent, ‘economic efficiency’, with a view to overcoming the bickering of ‘nationalist states’. Keynes primarily had in mind the new states of Central and Eastern Europe, but he also advocated for France and even Great Britain to join this union. The idea of pacifying Europe by creating a large market is therefore a long-standing one, dating back in its contemporary form to at least 1919.

Supporters of a large market in Europe believed it would bring peace and prosperity. Peace would result from intertwined economies, and prosperity from the removal of obstacles to free trade. Critics, on the other hand, stressed that free markets also increase inequality, pollution, and the domination of certain companies. To avoid these shortcomings, European integration developed a regulated market, one that is more than a simple free trade area (see Table 2.2 in Chapter 2), for it seeks to address the negative externalities of free markets, as well as to avoid unfair competition.

This chapter examines the paradoxical success of the most demanding form of market integration, the Single Market established in 1992. It is surprising that twelve European states, among the richest in the world, felt the need to link their markets so closely, even though they could have perfectly well continued alone. The creation of a unified market gradually became the central aspect of European cooperation between 1919 and 1957. In a second phase, the countermodel of the British-style free trade area (FTA) emerged as a major alternative. In a third step, the Common Market of the six continental European countries was established in the 1960s, but its practical regulation remained challenging, as demonstrated by the difficult emergence of a common competition policy. It was not until the revival of Europe in 1984–86 that a genuine Single Market was pursued for the vast majority of the continent’s non-communist states. It had three striking features. First, it was put in place quickly between 1987 and 1992, enabling the unprecedented opening of the Union’s internal borders. Second, liberalisation was accompanied by enhanced regulation, in accordance with the oxymoron ‘freer market, more rules’, including a surprising rise of federal competition policy. Third, this move was opposed by several neoliberal figures, such as British Prime Minister Margaret Thatcher in the late 1980s.

3.1 The Market as an Organising Principle for the Continent (1919–57)

The idea of using the market to foster peaceful European cooperation originated with the economist John Maynard Keynes in his The Economic Consequences of the Peace.² The book has become famous for its criticism of the Treaty of Versailles, but its prospective passages offering policy solutions are usually ignored. Due to the multiplication of European borders arising from the dismantling of the central empires, as well as the exemplary economic success of the US, Keynes, who was a senior civil servant in the British Treasury at the time, proposed creating a ‘free trade union’ under the auspices of the League of Nations. It would be complemented by the cancellation of war debts, the elimination of reparations, and an international loan by the US. Keynes’s plan largely announced the choices of 1947–48, with the Marshall Plan and the creation of the first European organisation that accompanied it.

The idea of a European market remained a moot point during the interwar period, despite the League’s efforts to promote free trade. During the World War II, the idea of reorganising Europe around a regulated market persisted, creating an intellectual bridge across the two wars.³ For example, Jean Monnet of France, who had already taken part in international economic cooperation in the Inter-Allied Board during the World War I, served as deputy secretary general of the League of Nations from 1919 to 1923, during which time he intervened in several areas of economic and financial cooperation. He once again contributed to Inter-Allied cooperation in 1939, and in 1943 became a member of the Comité de Français de Libération Nationale (Free France) in Algiers, under the leadership of Charles de Gaulle. That same year, he wrote a memorandum on post-war Europe in which he envisioned solving the German problem by forming a large European free trade market. This struck him as the best tool for preserving peace and supporting ‘economic and social development’, including necessary ‘social reforms’.⁴ After the war, Monnet promoted this idea once again when he drafted the Schuman Declaration of 9 May 1950, which launched the first European Community. Monnet’s example, which is not an isolated one, shows that the idea of integrating Europe through the market predated the Cold War.

After 1945, these European ideas adhered to the world economic order promoted by the US, which was based on immediate financial assistance, combined with a gradual return to economic liberalism. War-battered Europe was condemned to scarcity and protectionism in the immediate post-war period, and was heavily dependent on the US, which represented roughly half of global GDP in 1945. American aid was provided in 1945–46 through bilateral agreements and the United Nations Relief and Rehabilitation Administration (UNRAA). The Cold War convinced the Americans to step up their efforts by establishing the multilateral and multi-year Marshall Plan, announced in 1947.

But the Marshall Plan was more than just a Cold War programme, as it marked the beginning of European integration through the creation of a common market. Anxious to avoid the mistakes of the post–World War I period, as well as to consolidate the Western camp in the Cold War, American leaders made their aid multilateral by requiring the debtor states of the Marshall Plan to join the Organisation for European Economic Cooperation (OEEC) created in 1948. The first European organisation, it was based on the idea of gradually creating a large European market driven by the progressive removal of trade restrictions (quotas in particular). Furthermore, the European Payments Union (EPU), created in 1949 with primarily US funding, enabled fluid capital movements in connection with this trade in goods. Although American aid did not rebuild Europe on its own, it provided undeniable support.⁵

However, the same ambiguity that plagued the League persisted with the OEEC: Was it a first step towards a united Europe, or simply a transitional step towards international free trade? For many observers, and especially the British, the OEEC was a transitional body that would disappear once reconstruction was complete.⁶

In this respect, the Schuman Declaration of 1950, and the resulting European Coal and Steel Community (ECSC), marked a real breakthrough as the market clearly became an effective lever in the quest for a permanent and ambitious European organisation, not a simple tool for reconstruction.⁷ For the German Chancellor Adenauer, it allowed his country to rejoin the concert of nations on equal footing – at least in the economic sphere – as well as to strengthen both European construction and the cohesion of the Western bloc. The same logic was true for Italy. For the small free trade nations of Benelux (Belgium, the Netherlands and Luxembourg), it was a guarantee that their neighbours would keep their markets open. Lastly, France suffered from a lack of coal, which at the time was the main source of energy as well as a raw material for producing steel. For Paris, the ECSC was useful for gaining access to German coal at the same price as its German competitors, otherwise German steelmakers would enjoy a major advantage. To achieve this, Paris had to ensure that an efficient market was created, with rules and procedures aimed at preventing German companies from colluding with each other.⁸ The US supported this logic of regulated liberalism because it feared the reconstitution of German interwar cartels, which usually supported the National Socialist regime, and were therefore affected by the decartelisation process imposed at the 1945 Potsdam Conference. While based on a liberal principle (using state action to promote pure and perfect competition), ‘antitrust’ policy and later ‘competition’ policy were also defended by some left-wing leaders. The British Labourite Hugh Gaitskell, the French Socialists Léon Blum and Guy Mollet, and the German Social Democratic Party all called for more ambitious competition policies at the time.⁹

To ensure this market oversight, the Schuman Declaration invented supranational institutions: a High Authority and a court independent from member states were created to implement the ECSC Treaty, in conjunction with a Council representing the governments. The supranational principle thus emerged, with a view to ensuring neutral regulation of the market. The Community’s objective was to achieve an integrated market by combining: 1) free movement of goods via the elimination of customs duties (and not just quotas as with the OEEC); 2) facilitated movement for workers (mainly Italian immigrants); 3) competition policy (oversight of cartels and mergers); and 4) limited elements of industrial and social policy.

However, this first community did not become an embryonic federal state. When a major crisis struck the Belgian coal industry in 1958, the High Authority asked member states to declare a ‘state of manifest crisis’, which would have given it broad authority over industrial policy, but the governments refused.¹⁰ The Belgian crisis was solved by the national government. Industrial policies relating to coal and steel remained national. Similarly, in terms of competition policy, the High Authority pursued a cautious but moderately useful policy to bring together the French and German points of view, with Paris refusing a renewed concentration that Bonn sought to encourage.¹¹ While the ECSC disappointed the federalists, it fulfilled its role as a mediator between the Six.

The ECSC’s legacy fuelled a debate in the 1950s regarding the launch of other sectoral organisations, such as in health (‘white pool’) and agriculture (‘green pool’). The Netherlands promoted another path forward: the creation of a large integrated market for all products. This solution was launched by the Dutch government in late 1952 as the Beyen Plan, named after the Dutch Minister of Foreign Affairs, Johan Willem Beyen.¹² His ambitious ‘common market’ project was based on four elements: 1) the elimination of customs duties for all products (not just coal and steel); 2) the harmonisation of external tariffs; 3) the common regulation of serious problems through safeguard clauses implemented after a common procedure (rather than safeguard clauses implemented unilaterally by member states); and 4) a ‘European fund’ to pay for modernisation projects. The memorandum insisted on coordinating national economic policies, and envisaged the common market as an area for the free movement of goods, capital, and people. As a small, outward-looking country that had lost most of its colonial empire, the Netherlands was keen to promote free trade. Beyen was inspired by the Ouchy Convention in 1932, which had liberalised trade between this country and its two small neighbours to the south, Belgium and Luxembourg, as well as by the Benelux agreement of 1943.

How did the Beyen Plan of 1953 turn into the so-called Common Market treaty signed by the Six in 1957, which created the European Economic Community (EEC)? This result may seem surprising given the modest size of the Netherlands, the existence of many other European or international organisations for trade cooperation (OECE, ECSC, GATT), and reluctance on the part of more protectionist countries such as Italy and France. The latter accepted the Common Market because they secured specific concession in the Treaty of Rome, with French and Italian negotiators focusing on safeguard clauses, the harmonisation of specific social legislation, special arrangements for agriculture and French overseas territories, and free movement of workers and aid for poor regions for Italy. However, these two countries were also convinced of the centrality of free trade: as importers of raw materials (especially energy), they had to export in order to finance their development. There was also the pressure to return to international free trade (especially from the Benelux countries, West Germany, the US, and the UK). Even outside the West, the steady economic development of the Soviet Union (which pioneered the launch of satellites with Sputnik in October 1957) also seemed to vindicate the efficiency of large markets.¹³

The Benelux countries played a crucial role in striking a compromise around a regulated market.¹⁴ The Six decided to launch negotiations for a Common Market in June 1955 in Messina, Italy. The first discussions were held among seven countries – the Six plus Britain – but the British soon withdrew. After a difficult initial phase, Paul-Henri Spaak, the Belgian Minister of Foreign Affairs, proposed a compromise in an April 1956 report that envisioned a highly integrated market. The Spaak Report was accepted as a basis for negotiations by the Six in May 1956. It was subsequently amended by intergovernmental negotiations in 1956 and 1957, but its general philosophy was kept largely intact in the Treaty of Rome in 1957. As stated in Article 2, the Community aimed to establish a ‘common market’ combined with a ‘progressive approximation of economic policies’. The logic was therefore twofold. On the one hand, an ambitious common market was envisaged, based on the four freedoms of movement for goods, services, people, and capital. However, the clauses were automatic and detailed only for goods, with national barriers being largely maintained for the other three categories. In addition, external trade policies were unified, with the establishment of a common external tariff, and common or harmonised policies were planned for agriculture, competition and specific social issues. Nation-states were left free to act in social and industrial policy. The Treaty of Rome was therefore based on the constitution of a large integrated ‘common market’ compatible with national policies, and based on the principles of solidarity and community.

3.2 The Countermodel of the British Free Trade Area

The main European power, the UK, long remained on the sidelines during these discussions, due to its hostility towards supranationality. However, the Spaak Report of April 1956 forced it to counterattack by launching a project for a ‘Free Trade Area’, which was limited to the gradual abolition of customs duties on industrial goods between its members (whereas the OEEC focused only on quotas and not on tariffs).¹⁵ As a minimalistic trade agreement, it was aimed at all OEEC countries. Considered as a logical complement to the EEC, the British project for a free trade area enjoyed strong support in Western Europe, especially because it would have strengthened the latter in the context of the Cold War. After Stalin’s death in 1953, the Soviet Union appeared less threatening under Khrushchev, but remained a brutal dictatorship nevertheless, as demonstrated by the repression of the Hungarian Revolution in the autumn of 1956 and by the Berlin crisis that began in the autumn of 1958. Continental Europeans were still eager to strengthen ties with their British ally, the great European victor of the World War II. When he met the British Prime Minister Harold Macmillan in late 1956, as part of discussions regarding the secret military operation in Suez, the head of the French government, Guy Mollet, even proposed that France join the Commonwealth! While the British took this proposal seriously, and considered several scenarios, it appears to have been a witticism more than anything.¹⁶ In any case, it demonstrated the Anglophilia of both Guy Mollet (who was an English teacher by training) and more generally that of many French leaders.

The FTA nevertheless suffered from a number of technical flaws compared with the Common Market. The Spaak Report made it clear that reducing internal tariffs would not create an integrated market on its own, as this would trigger trade diversions. For example, if France and Belgium were to abolish tariffs between them, then France’s high tariffs towards a third party such as the UK would be useless because British imports into France could be channelled through Belgium, a country with a low tariff towards Britain. To avoid such a phenomenon, the solution would be for all EC members to have the same tariffs towards non-EC members (such as the UK or US). In 1957–58, when the FTA was being actively negotiated, French negotiators (sometimes supported by the Italians and the European Commission) emphasised many other technical shortcomings, such as the absence of an arbitration institution to settle disputes, and of specific regimes for agriculture and overseas territories. Even the European League of Economic Cooperation (ELEC), a business association, was divided regarding the FTA, between those who believed the priority was to avoid the ‘disturbances that the implementation of the Common Market could cause …’ (i.e., a British perspective), and the secretary general of the League, Lucien Sermon of Belgium, who tried to find a compromise solution alleviating French concerns.¹⁷ Several British businessmen were also critical of the future FTA’s inability to protect against ‘unfair competition’.¹⁸ This shows that the FTA was a project crafted to address specific British preferences: London had no interest in an agreement beyond the liberalisation of industrial goods in Western Europe, because it used the Commonwealth to import agricultural products. This also vindicated the rationale of the Spaak Report and the Treaty of Rome, namely the need to balance liberalisation with regulation, and to create efficient institutions to uphold the rules.

Besides, from the political point of view, the purpose of the FTA was ambiguous: was it designed to promote European cooperation, thereby complementing the Common Market of the Six? Or was it aimed at diluting the Common Market ‘like sugar in tea’ (an expression from the time), thereby preparing for a worldwide liberalisation of trade?¹⁹ British archives show that most British decision-makers sought to win over the most liberal EEC members, such as the German Minister of Economics Ludwig Erhard, who was sceptical of a Treaty of Rome that he considered too protectionist.²⁰ The establishment of an FTA would have convinced Erhard and other EEC sceptics to support the former instead of the latter, condemning the Common Market to oblivion, or at least to a minor role like the ECSC. In 1958 the British negotiator Reginald Maudling, explicitly cited the global liberalisation of trade as the major objective, casting doubt on London’s interest in specifically European cooperation.²¹

French doubts prompted the British to consider implementing the agreement without Paris. At the time France was facing a serious financial and political crisis due to the Algerian War of Independence. Budget and trade deficits had drained its coffers. Paris suspended all of its OEEC trade liberalisation commitments in June 1957: the share of liberalised French foreign trade fell from 82 per cent to 0 per cent, while all other Common Market countries hovered around 90 per cent. In the winter of 1957–58, Paris had to beg for funds from the US, and in a supreme humiliation, from West Germany as well.²² As a result, serious doubt was cast over France’s ability to abide by its EEC obligation of trade liberalisation, namely the first 10 per cent reduction in customs duties among the Six scheduled for 1 January 1959. It appeared that France would have to use the various escape clauses it had insisted on including within the Treaty of Rome. France risked being the only European country unable to implement both its OEEC and EEC trade liberalisation obligations. The Common Market would have been seriously hampered if one of its main partners did not implement it, thereby paving the way for the British FTA to organise trade in Western Europe. If France kept its market closed due to a shortage of foreign currency resulting from external deficits, then the Common Market would become far less interesting for the Five (the Six minus the French).

Charles de Gaulle’s return to power in June 1958 changed the situation by strengthening the French position. Taking advantage of Reginald Maudling’s exasperation – the British negotiator suspended discussions on 14 November 1958 – France declared that the discussions had been broken off definitively. In parallel, the new conservative French leader implemented a stern austerity and trade liberalisation plan, the Rueff Plan (named after the liberal economist Jacques Rueff, who advised de Gaulle), despite near general opposition from politicians, civil servants, and members of the business community. This move allowed de Gaulle to honour all French commitments to liberalisation, both within the EEC and the OEEC. This restored French authority, as well as the Common Market’s interest for the Five, as France eventually accepted opening up its markets to their products. De Gaulle subsequently implemented all trade liberalisation measures without delays during his leadership (1958–69). Yet he was not a federalist; he primarily saw the EEC as ‘a trade treaty’ that could stimulate French industry and secure foreign markets for French agricultural products. As a result, despite being an ardent adversary of federalists, de Gaulle can still be seen as a ‘Father of Europe’, for without him the Common Market would most likely not have won out over the FTA.²³

The British then retreated to a less ambitious substitute, the European Free Trade Association (EFTA), a mini free trade area between seven countries surrounding the European Community, but not wishing to join it out of hostility to federalism: the UK, Switzerland, Denmark, Sweden, Norway, Austria, and the Portuguese dictatorship. It was the ‘Europe of the Seven’ against the ‘Europe of the Six’, or, according to observers at the time, the ‘Outer Seven’ against the ‘Inner Six’. This demonstrates the centrality of the young EEC, even for the Europeans that were not part of it. Intra-EEC trade increased more quickly than trade between EEC member states and the outside world.²⁴ However, supporters of the free trade area were not defeated. In his International Order and Economic Integration published in 1959, the ordoliberal Wilhelm Röpke called for abandoning the Common Market in favour of a free trade area.²⁵ In 1960–61, German officials close to the ordoliberals, such as Alfred Müller-Armack, the Secretary of State for European Affairs, launched a project for a customs union between the EEC and the EFTA, albeit to no avail.²⁶

The British FTA quickly became a countermodel for European decision-makers attached to the Community. In 1979, the French Ministry of Foreign Affairs denounced the risk of the Community becoming a ‘free trade area’ under British influence.²⁷ Even on the other side of the Channel, there were sometimes negative references to the FTA from pro-European voices. In 1984, just before the Fontainebleau Council, Thatcher’s European adviser David Williamson recommended that she conclude her presentation with the incisive phrase: ‘We are arguing for radical progress, far beyond the concept of a free trade area.’²⁸ In 1985, a famous report by a former member of the Thatcher government, Lord Cockfield, asserted that ‘a well-developed free trade area offers significant advantages … But it would fail and fail dismally to release the energies of the people of Europe.’²⁹

The EFTA also failed because the Six supported a gradual liberalisation of global trade. A common external tariff was introduced to replace national customs duties, as states delegated their external trade policy to the Community. They defined a common position, with the Commission representing them in international negotiations at the GATT. It was the Commission that negotiated on behalf of the Six during most of the Kennedy Round (1964–67), the first major post-war multilateral trade negotiation, albeit doing so in close contact with the six member states. The EEC was therefore a power multiplier, as its individual members would have carried much less weight with the Americans if they had negotiated alone. As a result, even a leader hostile to supranationality such as Charles de Gaulle supported the Commission in these negotiations, even during the empty chair crisis.³⁰ The negotiations were successful, as customs duties were reduced by about one-third on both sides of the Atlantic, and the Six preserved the Common Agricultural Policy (CAP) created in 1962. Trade liberalisation negotiations continued despite the oil crisis with the Tokyo Round conducted between 1973 and 1979. While there was a consensus for a further reduction in tariffs of around 35 per cent, the problem of non-tariff barriers to trade remained, namely the technical barriers that multiplied in the 1970s. This shows that removing custom duties was not sufficient on its own to create a unified market.

3.3 Establishing a Unified Market through Competition Policy

Removing trade barriers could not in and of itself ensure fair competition. Setting up a common competition policy was essential not only to maximise market efficiency, but to also alleviate protectionist tensions among the Six by ensuring that the same rules applied to all actors. It would be pointless to abolish custom duties among the Six if companies were allowed to split markets among themselves thanks to cartels, dominant position, or state aid. It was all the more important for the French in particular – as demonstrated by the example of the ECSC – since mighty German companies remained extremely powerful actors.

The Treaty of Rome (1957) therefore established common rules to monitor practices such as cartels (an agreement between companies remaining independent), abuse of dominant position, and state aid (a public subsidy to a company).³¹

However, establishing a common European competition policy was far from obvious in 1957. First, the Six were not ready to grant the Commission broad powers over economic regulation. Second, there was hardly any national competition policy in Western Europe at this stage. Among the Six, only West Germany had a genuinely independent competition policy, but the German law was passed only in July 1957, a few months after the signing of the Treaty of Rome in March. The Gesetz gegen Wettbewerbsbeschränkungen (GWB) was the first law in Europe to create an autonomous ‘competition policy’, applied by an independent authority, the Bundeskartellamt. The Germans were influenced by the ordoliberal approach, which postulated the need for the authorities to institute a liberal order because it was not spontaneous, and to apply its rules to both the state and private actors through the creation of independent authorities (hence the Bundeskartellamt, or in the monetary realm the Bundesbank, also created in 1957).³² France and the Netherlands also had competition policy provisions, but they were weaker. A common European competition policy had already been established for coal and steel within the framework of the ECSC, but it remained quite limited. The High Authority played a useful role in mediating between French and West German interests, without being able to enforce an ambitious policy. In other words, the European Community had to invent a public policy from scratch.

The Treaty of Rome bears the hallmark of the French–German compromise. Paris had two objectives. First and foremost, it wanted stringent provisions to control large companies, otherwise the larger German conglomerates would have dominated their smaller French counterparts. Second, it requested strict rules against restrictive practices in distribution. France was suffering from high inflation, which the government sought to reduce by increased competition in distribution, notably through the creation of supermarkets. West Germany was more interested in fighting cartels and preserving the GWB, which was adopted immediately after the Treaty of Rome following a long debate.³³ As a result, the provisions of the Treaty of Rome encompassed both the German emphasis on combatting cartels (Article 85 EEC), and the French insistence on monitoring large companies through ‘abuse of dominant position’ (Article 86 EEC). However, it did not include merger control (as the ECSC experience had been disappointing in this respect). The treaty’s provisions were both ambitious and vague, leaving much leeway as to the institutional framework of the future competition policy, in addition to its substance.

It was not until 1962 with ‘Regulation 17/62’, the first regulation (a European law) implementing the Treaty of Rome, that a specific ordoliberal interpretation took shape.³⁴ Under the influence of the first European Commissioner for Competition, Hans von der Groeben of Germany, it was a fairly German interpretation of the treaty that took hold, with priority given to fighting cartels and establishing a cartel notification system. Von der Groeben also secured the centralisation of decisions at the Commission, which was not evident in the Treaty of Rome. During the negotiations surrounding the Treaty of Rome, he had proposed creating a strong institutional framework to enforce competition rules.³⁵ French influence persisted through the Commission’s particularly repressive approach towards exclusive distribution agreements, mirroring French legislation, which was stricter than its German counterpart in this area. Bonn opposed von der Groeben when the latter wanted to prohibit an exclusivity agreement between the German firm Grundig and the French distributor Consten.³⁶ For Bonn, certain distribution agreements were useful for penetrating foreign markets. However, from the European Commission’s point of view, von der Groeben believed that this type of agreement limited competition and intra-European trade. The Commission subsequently prohibited the agreement in 1964, contradicting the German government’s position. The latter attempted to have the Commission’s decision overturned by the Court of Justice. Ulrich Everling, a senior official at the Ministry of Economics (who later became a judge at the Court of Justice), met with the Court’s Advocate General, Karl Roemer.³⁷ Roemer asked for the annulment of the Grundig–Consten decision in his official opinion, but he did not have the support of the Court, which broadly confirmed the Commission’s decision (albeit with a reduced impact).³⁸ This pressure from the German government reflected Commissioner von der Groeben’s independence – he was not Bonn’s puppet.

However, beyond this first decision, the Commission struggled to apply Regulation 17/62, as it was swamped with over 36,000 cartel notifications, which were handled by only sixty-eight senior (class A) officials in 1964. In addition, the Commission had to pursue unnotified illegal agreements, but companies became increasingly adept at hiding their cartels. Using the archives of Scandinavian and Finnish companies in the paper industry, a historian has successfully reconstructed how they took greater precautions to hide their agreements due to the growing threat of prosecution by European and Community authorities (despite the fact that Sweden and Finland were outside the Community).³⁹ Before the war, cartels were quasi-public; after the war, they were concealed behind inter-professional bodies. Officials were later forbidden from carrying compromising documents during their travels in Europe. The surprising transparency of these archives shows how the constraint of competition policy became more pressing, thereby forcing the business world (including some established outside the Community) to change its habits.

The situation was even worse with respect to state aid. The provisions of the Treaty of Rome, which are still in force today, are ambiguous: state aid affecting free competition in intra-EC trade was prohibited, but with broad exceptions. In 1960, Competition Commissioner Hans von der Groeben launched studies on national public interventions. He used experts such as the German ordoliberal Ernst-Joachim Mestmäcker, and focused especially on France. He promoted a global ‘competition order’ based especially on the principle of strict equality of treatment between private and public companies.⁴⁰ He nevertheless failed to implement this programme, as member states resisted the Commission. Even the German government was much more cautious than von der Groeben: in 1958, the official instructions to German permanent representatives concentrated on defending German regional aid schemes.⁴¹

The ordoliberal offensive resumed in May 1978 via the German Minister of Economics Otto Graf Lambsdorff. He released a German memorandum calling for increased monitoring of state aid.⁴² The debates were bogged down by hostility from countries granting massive state aid, such as the UK and Italy. This discussion was linked to an ongoing reflection at the OECD regarding ‘positive adjustment policies’.⁴³ According to the OECD, aid that delayed the structural adjustments demanded by the market should be rejected. Instead of such ‘defensive’ sectoral aid, general measures to improve the economic environment (infrastructure, environment, research and development, labour mobility, etc.) should be favoured. However, while the intellectual debate evolved, the Commission remained largely powerless in 1980, as admitted by national administrations themselves.⁴⁴

The situation changed from 1981 onwards due to three reasons: an ideological context less favourable to neo-mercantilist ideas; the difficulties generated by the vigorous French stimulus plan of 1981–82, which was characterised by massive aid to companies; and the arrival of new leaders seeking to apply the rules for monitoring aid. In Brussels, the new Competition Commissioner, Frans Andriessen of the Netherlands, increased the number of procedures, and became more proactive in monitoring public shareholding in companies.⁴⁵ The debate within the Commission became tense, with French Commissioner François-Xavier Ortoli calling for more tolerance, and the German Commissioner Karl-Heinz Narjes advocating a tougher approach. In 1984, the Commission struck a compromise by defining its position more precisely than in the Treaty of Rome: it would not consider equity investments as aid if the state behaved like a long-term private investor.⁴⁶

All member states had ‘skeletons in the cupboards’ with respect to state aid, as one British official remarked in 1980,⁴⁷ but they reacted differently to the Commission’s offensive, with cooperation in London and Bonn, and confrontation in Paris. In London, the first Thatcher government continued to provide massive aid to several ailing companies (shipbuilding, automobile) at the start of the 1980s, but Whitehall was open to negotiation with the European Commission.⁴⁸ The British government negotiated an exemption from the Commission to resume its massive aid to the Harland & Wolff shipyard, which launched the Titanic in 1912. The neoliberal Thatcher willingly allowed massive subsidies to a company that played a crucial role for the ‘Protestant community’ in Northern Ireland, according to one of her advisors.⁴⁹ However, another Whitehall official recognised that ‘even if all the employees worked for nothing, the company would still not be viable’.⁵⁰

In Bonn, the attitude was twofold. On the one hand, the Germans were on the offensive, pleading for a tougher line against excessive state aid. The German government complained to the Court of Justice about the Commission’s decision in November 1981 not to initiate proceedings against a major Belgian aid plan to the textile industry.⁵¹ In 1984 the Court ruled that the Commission should have established a procedure allowing each state to comment on the aid in question.⁵² The German mobilisation was linked to pressure from German textile organisations, which sought to use Community competition policy to enforce discipline in Europe. On the other hand, Bonn was targeted by the Commission for its regional aid, especially its specific schemes designed for areas bordering East Germany, for which Bonn had obtained an exemption in the Treaty of Rome.⁵³ The Volkswagen factory in Wolfsburg, the manufacturer’s largest factory, was located in this area, which provided it significant advantages (infrastructure aid, tax provisions, etc.). In response to the Commission, Bonn redirected its aid scheme to emphasise criteria compatible with the Treaty of Rome, such as specific support for SMEs, energy saving, environmental protection, and research and development.⁵⁴

The Commission’s relationship with France was more problematic. French aid was more visible than German aid, since the latter was largely distributed through regional channels and tax breaks rather than national subsidies.⁵⁵ Above all, the French administration was still marked by a principled hostility to the Commission’s powers in this area. While German officials used the Court, the French were more subdued: when a French company complained about specific Dutch aid in 1983, the French government advised it to lodge a complaint on its own, without official backing, for fear of triggering a counter-offensive by the Dutch government against Paris in other cases.⁵⁶ While the British tried to negotiate with the Commission, officials at the French Ministry of Industry deliberately ignored it, much to the chagrin of diplomats. For example in 1982, talks were held between the office of French Commissioner Ortoli and the Ministry of Foreign Affairs to adapt a future aid scheme for textiles.⁵⁷ But the new scheme was published by the Ministry of Industry without taking into account the opinions of diplomats, who had advocated for more pro-European wording (like the Germans did when they adapted their regional aid schemes). Finally, the Commission referred the matter to the Court of Justice, which condemned France on 15 November 1983. In November 1984, it was the Minister of Foreign Affairs himself, Roland Dumas, who had to remind his colleague Pierre Bérégovoy, the Minister of Economy and Finance, of the need to send complete information without delay to the Commission.

Under centre-right President Valéry Giscard d’Estaing, France was relatively favourable towards EC competition policy, because it was still fairly weak, and its level of state aid was within the EEC average (on a par with Germany). Paris became much more hostile when the Socialists came to power in 1981.⁵⁸ The French government asked for a relaxation of EC competition policy in 1982–83, with respect to both state aid and cartels. However, attitudes later evolved with the ‘single market’ project.

3.4 The ‘Relaunch of Europe’ around the ‘Single Market’

The ‘relaunch of Europe’ was an expression coined in 1984 and used widely across the Common Market, including in London, to describe the optimistic mood during the period 1984–86, which saw the launch of the ‘single market’ programme.⁵⁹ While the Common Market was based on the removal of custom duties (which was effective in 1968), the Single Market sought to remove all obstacles to trade that triggered border controls. It translated into the harmonisation of broad swaths of legislation touching on standards, as well as some specific taxes. It was therefore a much more political project, with concrete implications for European citizens, not just companies.

During the early 1980s, European institutions were largely paralysed by the so-called British Budget Question (BBQ) or British Budgetary Dispute (or more colloquially the ‘Bloody British Dispute’). The British were paying much more than they were receiving (due to the huge weight of agriculture in European expenditure), while they were relatively poor in the Europe of Nine at the time.⁶⁰ This dispute was linked to reforms targeting the CAP, which many actors, including French ones, supported because it represented almost 80 per cent of Community expenditures, generated overproduction and created tensions with third countries due to its protectionism. Another issue was that of Iberian enlargement, which raised competition issues for French agriculture. These three major, interconnected disputes were eventually solved in 1984, when Mitterrand accepted Iberian enlargement for 1986. At the Fontainebleau summit in June 1984, Paris and Bonn conceded a significant reduction in CAP expenditure and the British budget contribution. In exchange, London accepted a ‘relaunch’ of Europe. This took the form of the Single European Act, a treaty concluded in February 1986 that enacted the Single Market programme. In the meantime, the EEC had expanded to twelve members with the entry of Spain and Portugal on 1 January 1986.

The birth of the Single Market programme has sometimes been presented as the result of pressure from neoliberal groups, business organisations in particular.⁶¹ But this interpretation captures only part of the reality, which actually included five stages. First, as early as 1957–58, both the French and the German governments supported a progressive harmonisation of all trade legislation relating to the Common Market. In Paris, government officials had called for the parallel development of liberalisation and harmonisation since 1955.⁶² Thereafter, the French largely abandoned this stance, thanks to the good results of the trade balance in the 1960s, in addition to de Gaulle’s intergovernmental vision. In Bonn, the government’s official instructions pleaded for the gradual harmonisation of all commercial legislation needed to fulfil the Treaty’s objectives.⁶³ It did not mean that both Paris and Bonn had already planned the internal market programme as early as the late 1950s, but rather that the idea of removing non-tariff barriers was present from the beginning.

Then in a second step, the Commission took over the project. In 1968, when the removal of custom duties was complete, it presented a global programme to remove non-tariff barriers to trade in accordance with several principles, such as the mutual recognition of conformity checks. Adopted in 1969, this programme remained a dead letter for a lack of political will of the part of member states. Unanimity was required at the Council, so a single state could block harmonisation. In London, a 1974 Whitehall note was particularly scathing: it targeted Ivo Schwartz of Germany, the Commission official in charge of harmonisation:

London rejected this ‘Man in Palermo’ approach, out of hostility to supranationality. The same reluctance was present in Paris, tinged with protectionism at the beginning of François Mitterrand’s term (1981–83).⁶⁵ The Commission still promoted the project throughout the 1970s and 1980s, but with little success before 1985.

Thirdly, the European Court of Justice (ECJ) supported harmonisation. The opinion of the judges is difficult to discern, because the ECJ’s internal debates remain secret. Some were in favour of supranational integration, but not all, such as Ulrich Everling of Germany.⁶⁶ On the whole, however, it seems that a market-based approach hostile to any form of national protectionism was present in the academic publications of Pierre Pescatore of Luxembourg (judge 1967–85), René Joliet of Belgium (judge 1984–95), Verloren van Theemaat of the Netherlands (Advocate General, 1981–86), and Ulrich Everling of Germany (judge, 1980–88).⁶⁷ In the Cassis de Dijon case from 1979, the Court defined the principle of mutual recognition (automatic recognition of foreign law without harmonisation), but limited it with four broad exemptions: the effectiveness of tax controls, ‘fair trading’, consumer protection, and public health. The Cassis de Dijon ruling was considered a turning point by many observers,⁶⁸ but other analysts have pointed to its limitations.⁶⁹ A study of the Commission’s archives confirms the second interpretation: Paolo Cecchini, the future author of the famous report on the cost of ‘non-Europe’, who at the time was the Deputy Director General for the Internal Market, considered the Cassis de Dijon ruling interesting but not revolutionary.⁷⁰ In other words, the Court could not create a single market ex nihilo.

Fourthly, various European circles were active. In the European Parliament, which had grown in standing since its election by universal suffrage in 1979, many parliamentarians called for the removal of customs barriers to trade.⁷¹ Jacques Delors, then a simple Member of the European Parliament, related an anecdote during the plenary session of 14 October 1980 about the Belgian cyclist Jean-Luc Vandenbroucke, who was accused of illegal imports during a custom check because he transported his bicycle in the trunk of his car to train on the other side of the border in northern France, a few kilometres away from his home. The most dynamic members of the European Parliament formed the ‘Kangaroo Group’, named for its ability to jump barriers, to lobby in favour of removing border controls. The European Parliament exerted significant influence over the intellectual debate by commissioning a report on the relaunch of Europe, drafted by the French civil servant Michel Albert and the British economist Albert Ball. Their report popularised the notion of the ‘cost of non-Europe’, which is to say the excessive expenditure caused by national barriers to trade within the Community. The Commission subsequently sought to scientifically estimate this ‘cost of non-Europe’ by commissioning the Cecchini Report in 1988, named after Paolo Cecchini, the former Deputy Director General for the Internal Market.⁷² It concluded that the potential gain would be 5 per cent of European GNP. The process was also supported by certain economic circles, such as the European Round Table for Industry (ERT), an employers’ organisation made up solely of CEOs from the largest European multinationals, such as Fiat, Shell, and Philips. But many companies did not support the creation of a vast integrated European market, with some adopting a ‘reluctant’ or ‘defensive’ posture.⁷³

Finally, the main obstacle remained member states, in addition to unanimous voting at the Council. The conversion of member states to the internal market project took place around 1982–83. The Benelux countries tabled a memorandum calling for the elimination of technical barriers in October 1983.⁷⁴ In Bonn, the programme seemed useful in limiting the protectionist temptations of its neighbours, which were recurrent in Paris.⁷⁵ Some Germans were reluctant, as demonstrated in 1982 when Commissioner Narjes received his compatriot Dieter von Würzen, who was the German State of Secretary for Economic Affairs, and hesitant towards the project. Von Würzen pointed out the risk of promoting lower standards, which would lead to poor quality products.⁷⁶ Moreover, German regions (Länder) were reluctant to harmonise standards, because they had confidence in the national DIN system.⁷⁷

In London, support for the internal market agenda grew cautiously.⁷⁸ At a meeting in September 1981, Thatcher requested studies on potential new trade agreements, either European or global. She did not express any preference for the Community. In response, the studies conducted by the administration highlighted the protectionism of Britain’s main partners, France and Germany: ‘German industry also benefits from the most effective “non-tariff barrier” in Europe, DIN standards. Thus, the French for example have made several hundred applications in the past few years for particular French standards to be recognised as equivalent to DIN, but so far not even one has been approved.’ Even the Americans were in the line of fire: ‘The US government, while formally eschewing specific support to companies for export projects, nonetheless is a past master at using political clout and the leverage of civil/military aid to establish a presence for US exporters for major projects.’ Most of the policymakers involved in this debate stressed the interest of the EEC in solving this challenge as compared to the GATT. The Community offered a legal arsenal to combat non-tariff barriers to trade, especially if the internal market programme was adopted. Moreover, 1982 was marked by difficult discussions in the GATT between the US and the UK, in connection with President Reagan’s offensive against British steel, as well as the Soviet gas pipeline issue (see Chapter 6), both of which demonstrated the value of European cooperation. In November 1982, Whitehall defined a position that was on principle favourable towards the programme for completing an internal market.

In the meantime, in Paris, the new Socialist President François Mitterrand pursued a more protectionist strategy in 1981–82, dubbed ‘the reconquest of the domestic market’, and marked by the so-called Battle of Poitiers (the original battle was fought in 732 against the Umayyad). In 1982, the French government faced a new invasion, but this time in the more benevolent form of Japanese videocassette recorders. On 21 October 1982, the Ministry of the Economy, headed by Laurent Fabius at the time, mandated that all video recorders imported to France transit through Poitiers in order to undergo formalities. This became the ‘Poitiers Video Recorder’ affair. The undeclared aim was to discourage imports of what was a highly sought-after and innovative product, namely through lengthy customs procedures in a town in central France, far from harbours (where they arrived from Japan) and from the biggest cities (where they were sold).

This was followed by a formal negative opinion from the European Commission condemning these measures and inviting France to abandon them, which happened within a few months. Besides, France’s trade balance continued to deteriorate, and isolation loomed in Europe. At the EC Council of Ministers meeting in January 1982, almost all member states were concerned about these French measures, and asked the Commission to monitor them.⁷⁹

Faced with this failure of the unilateral protectionist approach, the French government changed its strategy and went on the European counter-offensive. At the Copenhagen European Council in December 1982, President Mitterrand pointed to the many non-tariff barriers to trade present in other countries, especially the German beer law. The Reinheitsgebot (Beer Purity Decree), issued in Bavaria in 1516, limited the number of ingredients in beer to four – malt, hops, yeast, and water – hindering imports, notably of certain French beers. The Commission’s plans for European harmonisation allowed more ingredients, but German producers mobilised against ‘chemical beer’. This thorny issue was solved only after a 1987 court ruling that forced West Germany to open up its beer market unless there was a proven health risk for a specific product.

German Chancellor Helmut Kohl accepted Mitterrand’s proposal to create an ad hoc group to study these issues.⁸⁰ In a sign of its importance, this technical effort was often mentioned during bilateral political conversations, such as during the French–German consultations of May 1983 in Paris.⁸¹ The results were nevertheless modest, as the French were unable to establish that German protectionism existed. The bilateral path was thus seen as not promising in addressing non-tariff barriers.

The failure of the unilateral and bilateral paths led French decision-makers to consider the Community path. At the Fontainebleau European Council in 1984, Paris agreed to the idea of a Single Market after obtaining concessions (adoption of the Esprit programme to fund research, a ‘new trade policy instrument’ that was actually a protectionist tool, advantages for its farmers, and resolutions in the social field).⁸² In return, Paris and Bonn granted budgetary concessions to the UK, thereby strengthening the CAP.⁸³ According to President Mitterrand’s advisor Jacques Attali, this was an essential agreement, otherwise the UK could have suspended its payments to the Community budget, thereby jeopardising aid to French farmers.⁸⁴ He estimated that 40 per cent of French agri-food exports were connected to European aid.

After Fontainebleau, the new president of the Commission, Delors, organised the relaunch around the Single Market project. He presented his programme to the European Parliament on 14 January 1985, beginning with an economic issue, namely the crucial importance of ‘completing the single market’ with a ‘harmonisation of rules’.⁸⁵ Delors politicised this issue by denouncing a ‘feudal Europe’, announcing the goal of a market with no internal borders by 1992 (the time of two four year-long Commissions), and by making it central to a citizen’s revival of Europe: ‘We would … like to see the people of Europe, your electors, enjoying the daily experience of a tangible Europe, a real Community where travel, communication and trade are possible without any hindrance.’ The institutional consequence was the call to adopt qualified majority voting in the Council of Ministers for legislation relating to the unification of the internal market. Delors’s speech also touched on other aspects, both social and neomercantilist, all of which revolved around the Single Market.

The Commissioner for the Internal Market, Arthur Cockfield of the UK, transposed this objective into a memorandum listing 300 pieces of legislation to be harmonised, along with several methods of harmonisation.⁸⁶ Instead of discussing lengthy directives in the Council, which were bogged down by technical details, Cockfield proposed that Community institutions concentrate on essential principles, with technical specifications being drawn up by international sectoral bodies. By way of example, the Commission mentioned the European Conference of Postal and Telecommunications Administrations (CEPT), an intergovernmental body of national experts including nineteen European countries (see Chapter 6). The Commission wanted to systematise this approach, because the involvement of these standardisation bodies relieved the Council of time-consuming tasks.

This project was then transposed in the Single European Act, signed by all twelve EC members in February 1986. It states that by 31 December 1992: ‘The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of this Treaty’ (Article 13). Qualified majority voting prevailed for issues relating to the Single Market, except in three areas: taxation, free movement of persons, and the ‘rights and interests of employed persons’. Article 18 completed the system by providing for qualified majority voting for provisions on ‘health, safety, environmental protection and consumer protection’. Delors would have liked to go further by obtaining qualified majority voting for indirect taxation, which was one of the major causes of border controls.⁸⁷ Article 18 states that harmonisation ‘will take as a basis a high level of protection’, which apparently satisfied the social demands of Kohl, who emphasised German fears of seeing its standards lowered.⁸⁸

3.5 The Rapid Opening of the Internal Market: ‘Freer Market, More Rules’

The deadline to complete the internal market by 1992, which was announced by Delors in 1985, was met. This institutional success resulted from two factors: the extent of the legislative work carried out between 1987 and 1992; and the hybrid nature of the Single Market.

The Single Market was gradually implemented between July 1987, when the Single European Act took effect, and late 1992, when internal borders and the controls that went with them were abolished. A second phase began from 1993 onwards, marked by ongoing efforts towards harmonisation. Community institutions thus acted very quickly, since the 300 pieces of legislation provided for in the Cockfield White Paper had to first be proposed by the Commission, and then adopted by the Council, not to mention consideration of the European Parliament’s opinion under the new cooperation procedure. Paradoxically, the deepening of the market required more regulation, as captured by the paradox: ‘Freer Markets, More Rules’.⁸⁹

A couple of major laws stand out amid this flurry of legislation.⁹⁰ In 1988, the directive on public procurement liberalised the awarding of public contracts, one of the main sources of the ‘cost of non-Europe’ identified in the Albert Ball Report. This played a key role in driving down the price of certain services and breaking up local cartels. In 1989, the ‘Television without Frontiers’ Directive was adopted. It responded to the technological changes arising from the growing number of frequencies resulting from the sector’s liberalisation, as well as the establishment of minimum standards for broadcast programmes (concerning advertising, decency, European preference, etc.) at the insistence of the French government.⁹¹ This directive exemplifies the balance between the principles of liberty, solidarity, and community.

With respect to taxes, discussions were more difficult, particularly because of the opposition between Margaret Thatcher and her former minister Arthur Cockfield, who became European Commissioner. The departure of the intransigent British prime minister in late 1990 broke the deadlock. Private individuals were subject to border controls relating to VAT, as well as restrictions on products subject to particular taxes (known as ‘excise duties’), such as petrol, alcohol, and tobacco. The removal of physical barriers within the Community thus depended on an agreement regarding these taxes, which was finally reached in October 1992.⁹² A partial harmonisation of VAT rates and excise rules was agreed upon, but states kept a certain amount of leeway in these sensitive areas. Finally, by late 1992 the Community had adopted over 90 per cent of the measures identified in the White Paper, with a transposition rate (into national law) over 75 per cent on average.⁹³

The free movement of persons was extended from workers, the main category originally covered by these provisions, to other groups such as students (with the start of the Erasmus Programme in 1987) and pensioners, who obtained a right of residence in 1990. In addition, the intergovernmental Schengen Agreement – first concluded in 1985 outside the EC by five states (the Six minus Italy) before being incorporated into Community law in 1997 – allowed for the further reduction of border controls for individuals.⁹⁴ Here too, the idea was quite old, being first promoted officially at the Paris European Council in 1974; but it led to a political agreement only in 1985, thanks to the ‘relaunch of Europe’.

Lastly, the external counterpart of the Single Market was the GATT Uruguay Round, which ran from 1986 to 1994. It led to a further reduction in customs duties, and for the first time extended the logic of liberalisation to the services and agricultural sectors (see Chapter 6).

3.6 The Surprising Rise of Competition Policy

The European Community is a global exception, as it is the only space in which supranational competition policy exists.⁹⁵ This means that one of the most basic prerogatives of the state, cartel control – dating back to kings, who granted privileges to certain merchants and market places – has been federalised, as has the power to control mergers and subsidies to companies (in the 1980s). This surprising development is sometimes explained by sheer technical logic: if Europeans wanted to build a borderless area, they had to harmonise their rules on subsidies to companies. However, this functionalist reasoning is insufficient: if the technical need to harmonise was so pressing, then why did Europeans fail to harmonise corporate taxation? It is surely illogical, from a purely technical point of view, to establish a common market that encompasses tax havens and high-tax countries, but this was nevertheless the case. Besides, the legal framework did not change, as the treaty articles on competition policy (cartels and state aid) have remained the same since 1957. The 1986 Single European Act, which established the Single Market programme, did not change the provisions on competition policy. In others words, a Single Market without a powerful and supranational competition policy could easily have emerged. Archives show that the origin of enhanced control over state aid control was actually the initiative of two energetic Competition Commissioners, Peter Sutherland and Leon Brittan, who were supported by a majority at the College of Commissioners, as well as the Court of Justice.

In 1985, a new Competition Commissioner, Peter Sutherland of Ireland, took the helm in Brussels. The former captain of a rugby team during his studies at Trinity College, he brought a more confrontational stance to the Commission informed by his stay in the US, where he was impressed by the possibility of advancing law through legal cases that were subsequently upheld by the Supreme Court, which he called ‘integration through constitutional law’.⁹⁶ Upon his arrival at the Commission, he established an inventory of existing state aid, and adopted a more aggressive attitude towards industrial policies.

Member states were divided by this offensive. In France, many officials from the Ministry of Industry were hostile, as they wanted to keep their industrial policy intact.⁹⁷ Conversely, officials from the Ministry of Finance’s Budget Directorate were interested in reduced subsidies for financial reasons. The Department for European Affairs (SGCI), the Department for Regional Policy (DATAR), and even the Ministry of Industry saw a potential interest in Sutherland’s new assertiveness, namely controlling discreet German regional aid. The most interested French official was Alain Madelin, one of the French pioneers of neoliberalism, who became the Minister of Industry in March 1986. As early as April 1986, Madelin wrote to Sutherland to explain the new market-oriented French industrial policy.⁹⁸ For example, in June 1986 the French government decided to stop aid to shipbuilding for three of the four large yards, leading to their rapid closure.⁹⁹ However, French officials still kept a confrontational stance towards Brussels in many other cases. In the UK, Sutherland imposed halving British aid for the Rover takeover (by British Aerospace).¹⁰⁰ Sutherland’s offensive extended to other areas.

3.7 Liberalisation and Europeanisation of New Sectors

In the West, many sectors formerly dominated by monopolies and oligopolies moved to free competition in the 1980s and 1990s, starting with telecommunications and air transport.¹⁰¹ This was combined with extensive Europeanisation, which was quite surprising since these sectors were governed by strong national policies coupled with long-standing international agreements. Besides, the Single European Act did not touch upon this area. Hence, this Europeanisation was driven by the activism of the Commission, in particular Commissioners Sutherland and Brittan.

Liberalisation was driven by ideological reasons – such as the conviction that the free market would provide services with a better quality-price ratio – as well as by growing financial constraints after 1973. Technological reasons also played a role, with prices falling due to technical progress. For air transport, this was reflected in new types of aircraft, such as the large Boeing 747 and the small 737, which entered service in 1970 and 1968 respectively, and in the growing competition from Airbus from the 1970s onwards. Technical progress was accompanied by marketing innovations, with the development of charter flights and low-cost airlines. In the telecommunications sector, the shift to digital communications, the launch of numerous satellites, and convergence with information technology led to both massive growth in traffic and plummeting prices.

This posed a challenge to the earlier neomercantilist regulations. In a market where supply is scarce and expensive, it is natural for states to protect a small number of players from foreign competition. National postal and telecommunications giants, as well as national flag carriers, had to serve unprofitable destinations and customers for reasons of territorial cohesion or political prestige. As a result, only national airlines were allowed to operate on most routes, and prices were set by intergovernmental agreements. But when supply became more abundant because of technological innovation, neomercantilism appeared unduly restrictive.

Liberalisation started in the US, where President Carter launched the deregulation of air transport in 1978. Later on, two European countries were liberalising their own national rules: the Netherlands (with Nelly Kroes, the liberal transport minister and future competition commissioner), and the UK (especially beginning in October 1983 with the new Secretary of State for Transport, Nicholas Ridley).¹⁰² The latter signed a first bilateral liberalisation agreement with the Netherlands in June 1984, and then with West Germany in December 1984. The deregulation of air transport could therefore have occurred through a web of intergovernmental agreement, rather than through European integration.

In the Common Market, Lord Bethell, a Conservative Member of European Parliament from the UK, ran the Freedom of the Skies campaign. He wrote to the Commission in 1981 requesting that the free competition articles of the Treaty of Rome be applied to air transport.¹⁰³ But Commissioner Frans Andriessen was reluctant to attack the traditional organisation of air transport, which was based on a combination of bilateral and multilateral intergovernmental agreements, conducted within the framework of the nineteen-member European Civil Aviation Conference (ECAC) and the International Civil Aviation Organisation (ICAO). Lord Bethell then brought a complaint before the European Court of Justice, only to have it dismissed.¹⁰⁴ The European Parliament ultimately took up the case, and filed its own action for failure to act in 1983, which resulted in the Council being condemned for failing to act, although the judgment was not very constraining.¹⁰⁵

When Sutherland arrived at the Commission in 1985, he used a new tool to foster and Europeanise this nascent effort at liberalisation: a direct attack on airlines even in the absence of Community regulation, with a view to pushing for a favourable interpretation of the articles from the Treaty of Rome. In 1985 he attacked the Greek company Olympic Airways for abuse of dominant position, and the two national flag carriers Air France and British Airways for their domination of the Paris–London route.¹⁰⁶ This activism caused a stir at the Commission because the Commissioner for Transport, Stanley Clinton-Davis of the UK, a member of the Labour Party, was much more reluctant than Sutherland. In the Nouvelles Frontières case of 30 April 1986, the Court reaffirmed the Commission’s prerogatives, while recalling the need to work with the Council. Finally, in December 1987 the Council of Ministers adopted the regulation introducing a first breach of governmental prerogatives in setting airfare.¹⁰⁷ Liberalisation was supported by the UK and the Netherlands – and with less enthusiasm – even by West Germany and France under Jacques Chirac’s centre-right government.¹⁰⁸ Liberalisation continued in the 1990s, with a second package in 1990, and a third in 1992.

The same combination of factors was at work in telecommunications, except that the UK preceded the US.¹⁰⁹ In 1981, Thatcher separated postal and telecommunications activities. In 1982, a second operator, Mercury, was allowed to do business alongside the national company British Telecom, which was subsequently privatised in 1984. An independent regulatory authority for the sector, the Office of Telecommunications (Oftel), was created to regulate the market, paving the way for many similar reforms in various sectors and countries. At the same time, deregulation also affected the US, where an antitrust lawsuit dismantled the telecommunications giant AT&T (the heir to the prestigious Bell Laboratories) into seven companies.

Here too, Sutherland was the driving force behind the Europeanisation of regulation in sectors that could otherwise have been regulated exclusively by states, or by other international organisations. Sutherland threatened to sue the companies in order to pressure the Council to legislate. In 1988 he successfully issued a first directive opening up terminal equipment such as telephone sets to competition.¹¹⁰ France, supported by Italy, West Germany, Belgium, and Greece, challenged the 1988 directive, but the Court of Justice ultimately ruled in the Commission’s favour in 1991.¹¹¹ This lawsuit demonstrates the controversial and assertive nature of Sutherland’s policy.

Liberalisation had an impact on another area less affected by technical progress, but essential to completing the Single Market programme: road transport. It was liberalised in 1987 with the progressive lifting of numerous restrictions designed to protect national operators and railway companies.

Liberalisation and Europeanisation were then strengthened when Leon Brittan of the UK became Competition Commissioner in 1989. A former minister of Margaret Thatcher and the brother of Samuel Brittan, one of the journalists who spread the neoliberal gospel across the UK, Leon Brittan was explicitly guided by neoliberal ideology.¹¹² He took the fight against state neomercantilism in another direction, namely merger control, a provision that was missing in the Treaty of Rome. In 1973, the Commission proposed a draft merger regulation to the Council, but member states refused it. Brittan managed to break the deadlock and secure a regulation in December 1989, after sixteen years of negotiations. This law gave the Commission a monopoly over merger control above a certain threshold.

The adoption of the Merger Regulation in 1989 was partly linked to internal market dynamics. If a single market is created, then the number of mergers of European companies can of course multiply; to avoid contradicting national decisions, it is logical to create a single European regulator. This neo-functionalist argument is not enough to explain the adoption of this regulation, otherwise many areas would be federalised. What explained the adoption of the merger regulation was the specific role of European supranational entrepreneurs. The first salvo came from the Court with the so-called Philip Morris judgment on 17 November 1987.¹¹³ It gave the Commission limited power to directly control mergers by using the existing legal arsenal (Article 85 of the Treaty of Rome), but it created legal uncertainty, which motivated member states to act.

It is clear from the archives that this Court ruling was insufficient, as many member states were still ready to block the adoption of a merger regulation in 1988–89. The shrewdness of Commissioner Brittan was decisive in bringing about the decision.¹¹⁴ Bonn was still divided, for the official position was ordoliberal, and there was fear that European merger policy would be too lenient. Yet certain members of the government, such as the Minister of the Economy Helmut Haussmann and his deputy Otto Schlecht, discreetly defended a neomercantilist vision, believing that German competition authorities were sometimes too restrictive regarding mergers, because in his opinion companies needed to grow.¹¹⁵ In 1988, the German Ministry of Economics authorised the merger between Daimler-Benz and MBB in the aeronautics sector, despite strong reservations from the German competition authority. In Paris, the French wanted to use the merger regulation to counter what they called German ‘protectionism’, in this case the refusal by German competition authorities to allow the takeover of the German company Grundig by the French company Thomson-Brandt in 1983.¹¹⁶ As German archives show, German competition policy made the decision independently from the government, but the latter was also hostile to this French takeover for reasons relating to industrial policy.¹¹⁷

Brittan also exploited a favourable political context in December 1989. The French were anxious to conclude negotiations before the end of their Community presidency on 31 December 1989. In Bonn, the Germans wanted at all costs to avoid appearing as the veto wielder, because this symbolic negotiation took place amid high tensions arising from a potentially quick German reunification (the Berlin Wall fell on 9 November 1989). In Paris, the political imperative not to cut itself off from the Germans also frequently appeared in the archives. The few voices advising caution (such as Jean-Claude Trichet, the Director of the Treasury at the time and the future President of the ECB) due to the project’s lack of social or neomercantilist clauses were rapidly overshadowed.¹¹⁸

Brittan exploited this institutional success by launching a crusade against neomercantilism. In 1990, he proceeded with a spectacular merger prohibition to set an example. He took a specific interest in France and Italy, two countries favouring staunch neomercantilist industrial policies.¹¹⁹ He seized an opportunity in 1991 when he convinced the Commission to ban a merger between the French–Italian aircraft company ATR (which produced turboprop aircraft), and its Canadian competitor De Havilland. This triggered hostile reactions at the Commission (from Delors) and in France (see Chapter 5). However, beyond this spectacular case, merger prohibitions were rare.

3.8 The Failure of Neoliberal Thatcherite Europe

Thatcher was strongly invested in promoting a neoliberal Single Market, and was quickly disillusioned by its failure. It is important to remember that a pro-European orientation took shape in London in 1984.¹²⁰ The main motivation, which appears repeatedly in the archives, was political: the UK had to participate in the ‘European relaunch’ for fear of being isolated from the French–German motor. As one official put it, Thatcher ‘does not want to leave the French making the running’.¹²¹ What is more, trade discussions in 1981–82 showed the interest that Community institutions had in promoting British interests. Additionally, the overriding of the 1982 British veto showed the fruitlessness of a purely hostile stance. At that time the British Minister of Agriculture, Peter Walker, tried to block a decision on the CAP by invoking the Luxembourg compromise, but his opposition was overcome by his partners, who agreed that the clause did not apply in this case (because London’s real opposition was towards the budget and not agriculture).

In early 1984, after a conversation with Kohl, Thatcher announced that a British memorandum was being tabled as a contribution to ‘relaunch the Community’. Thatcher’s initial aim was to focus the British memorandum on the European contribution to defending the West. In internal discussions, however, Geoffrey Howe (Foreign Secretary) and Michael Butler (Permanent Representative to the EEC) insisted on including economic aspects in order to avoid a negative reaction on the part of Germany. Thatcher accepted this and asked for specific proposals relating to the internal market, as well as the liberalisation of the transport and insurance markets.

The draft memorandum met with Euroscepticism at Whitehall, demonstrating that Thatcher’s European voluntarism was disturbing. At the Treasury, the note was introduced by a sceptical comment: ‘The paper seeks to match the kind of unrealistic rhetoric about the future of the Community on which Kohl is currently campaigning in the European elections. I must confess that this is not to my taste.’¹²² The British memorandum was completed just before Fontainebleau.¹²³ Entitled ‘Europe – the Future’, it emphasised the need to create a ‘genuine common market for goods and services’, which was essential to ‘meet the American and Japanese technological challenge’. Qualified majority voting in the Council remained taboo, but the memorandum concluded with a pro-European formula, referring to the Treaty of Rome’s principle of ‘ever closer union among the peoples of Europe’.

However, the memorandum was largely ignored due to London’s procrastination. Initially intended for Kohl, it was completed too late, and was not circulated to Community members until the G7 meeting in London on 9 June 1984. As only four of the ten Community countries were members of that forum, a copy was also sent to the other governments. Howe then wondered about the best way to spark discussion regarding the memorandum without publicising it in the press, as ‘it could have caused embarrassment in the last week of the European elections campaign’ (in June 1984).¹²⁴ In the end, the memorandum was not discussed at the Fontainebleau summit.¹²⁵

In 1985 London sought once again to promote a positive vision of European integration, this time in a more explicitly neoliberal way. At the Council of Ministers meeting of 11 February 1985, the Dutch government of Rudd Lubbers issued a memorandum on deregulation, aiming to remove legislative obstacles to entrepreneurial activity.¹²⁶ This issue perfectly fit the Thatcher agenda. The British prime minister requested a British initiative ‘to stem the flow of legislation from Brussels’,¹²⁷ and strove to create a common front with the Benelux countries around this deregulatory agenda. When she met the Belgian Prime Minister Wilfried Martens, she congratulated him on his austerity programme, and lamented the situation in Europe: ‘We have lost the spirit of enterprise and we are faltering under the burden of the welfare state.’¹²⁸ She proposed using the successive Dutch, British, and Belgian presidencies in 1986–87 to push these ideas through.

However, Whitehall was sceptical about building this common front because Thatcher was more intergovernmental, neoliberal, and abrasive.¹²⁹ She insisted on denouncing the excessive cost of welfare states, even as her aides advised her to be cautious on this point.¹³⁰ Similarly, when Thatcher requested a list of examples of European legislation hindering business, Whitehall had no concrete examples to offer;¹³¹ the ‘burdens on business’ survey of British companies did not cite an example of European law until its thirteenth bullet point. The administration also pointed out that most European regulation was adopted unanimously, which is to say with a British vote. The stifling of entrepreneurial initiative by Brussels legislation thus appeared to be a myth.

London finally presented its memorandum entitled ‘The Creation of Wealth and Employment in the Community’ to the European Council in Brussels on 29–30 March 1985.¹³² More neoliberal than the 1984 memorandum, it insisted on the liberalisation of services and the need to conduct studies on ‘the burden imposed on businesses by existing Community legislation and the way to reduce it’. It targeted welfare states by calling for measures to ‘ensure that the social protection available to the unemployed does not act as a disincentive to their seeking jobs’. In very intergovernmental fashion, the British representative met with Pascal Lamy, Delors’s chief of staff, and asked him to initiate a programme to review existing European legislation, with a view to identifying any excessive barriers to the activity of small and medium-sized enterprises.¹³³ He ended his dispatch with a revealing statement: ‘I also spoke to Cockfield and urged him to take an interest.’ London thus treated the Commission as a subordinate, one that was at the service of its deregulatory agenda.

Thatcher’s offensive continued in 1986. Her priority remained the rapid establishment of a neoliberal Single Market, one based on repealing legislation rather than upwards harmonisation (hence ‘deregulation’), extending the liberal logic to new areas such as air and road transport, and refusing any social reform.¹³⁴ The targets clearly identified by Whitehall were not just the draft Vredeling directive, but also a new law defended by the Delors Commission on parental leave.

Thatcher was disappointed, however, as she told her foreign secretary Howe in October 1986: ‘I suspect that deregulation is not working very well.’¹³⁵ She chafed at Cockfield’s sustained legislative activity, and refused to extend his tenure as Commissioner. He was eventually replaced in Brussels by a closer ally, Leon Brittan. Neoliberals at the Commission were also angered by the excessive legislative activism associated with the Single Market programme, which they associated with French dirigisme and intellectualism.¹³⁶ The other looming spectre was that of a social Single Market, as Delors grew closer to trade unions, including British ones (see Chapter 4).

Thatcher’s scathing response came in her famous Bruges speech of 20 September 1988, in which she argued in favour of an intergovernmental, Atlantic, and neoliberal Europe. She attacked excessive legislation, which she opposed to ‘deregulation’. Against Delors’s Social Europe, she asserted: ‘We in Britain would fight attempts to introduce collectivism and corporatism at the European level.’ The speech was nevertheless not Europhobic. Thatcher reaffirmed her government’s community ambition: ‘Britain does not dream of some cosy, isolated existence on the fringes of the European Community. Our destiny is in Europe, as part of the Community.’ The style of her speech contradicted this assertion, especially her comparison between the EEC and the USSR: ‘It is ironic that just when those countries such as the Soviet Union, which have tried to run everything from the centre, are learning that success depends on dispersing power and decisions away from the centre, there are some in the Community who seem to want to move in the opposite direction.’ This practice of ‘Community bashing’ was well described by her personal adviser Charles Powell in a 1986 note approved by Thatcher: ‘There seem to me good reasons for continuing the tactic of “Community bashing” both because it is necessary in its own right to get some sense into the institution, and because you will be a much more convincing exponent of it than the Opposition and will therefore cut the ground from under their feet.’¹³⁷

The neoliberal opposition to a Single Market, seen as overly dirigiste and social, was not limited to Thatcher. In the UK, the Bruges Group, an influential Eurosceptic think-tank, was created in 1989, and marked the beginning of an intensifying dynamic of Tory Euroscepticism. The very same year in France, the Club de l’Horloge and the Club 89, which brought together various elements of the right and extreme right hostile to socialist rule, published a joint memorandum that vilified attempts to create a European welfare state, and explicitly aligned itself with the Bruges speech.¹³⁸ In London, this speech marked a radicalisation of Thatcher, who became increasingly bitter against the European integration process. It was her obstructionist attitude to European affairs that led to her downfall in 1990.

3.9 Conclusion

European integration began and largely revolved around establishing a regulated market. The idea is an old one, and predated the Cold War. It was already expressed in vague form by Keynes in 1919. While the neoliberal temptation of the unregulated free trade area always loomed, especially thanks to British influence, more regulated forms of market integration have prevailed, first as a customs union, then as a common market with a European competition policy, and finally as a Single Market with the harmonisation of most trade rules. The strong regulatory framework disappointed most neoliberals, such as Thatcher, as voiced in her famous Bruges speech from 1988.

This choice of an integrated market, which is surprising at first sight, can be explained by the desire to form the most efficient market possible, and the need to establish shared rules and arbiters to avoid and mediate conflict. For pro-Europeans, it was also a way to foster the irreversible rapprochement of European states and populations. This dual motivation explains the driving role of free trade states, such as federal Germany and the Benelux countries, with the latter playing a major role in the emergence of the common market via the Beyen Plan of 1952–53 and the Spaak Report of 1956. To protect themselves from protectionism from their neighbours, these states supported enhanced market unity through common regulation. Similarly, the most protectionist states, such as France and Italy, also helped strengthen the unity of the market: the French demanded access to Ruhr coal under the same conditions as the Germans, and then opposed what they saw as German protectionism, while the Italians requested the free movement of workers. Similarly, most states found an interest in limiting the state aid provided by their neighbours. It is this desire to secure credible commitments from their partners over the long term – for both economic reasons (fair competition) and geopolitical ones (anchoring Germany in liberal Europe) – that drove this effort to gradually and cumulatively strengthen the market.

The transition to the Single Market stage was fundamental, because it involved nothing less than eliminating border controls in the space of six years. It was around this project that a convergence of the main actors took place during the ‘relaunch of Europe’ in 1984–86. The impetus behind this project was long-standing, and was implemented thanks to convergence between member states and the European Commission. London and Bonn abandoned their plans for international liberalisation, and instead supported a European solution. In Paris, the government ended its attempts at protectionism, and instead sought to use the Single Market to tackle German standards, exemplified by the law on the purity of beer. Ironically, the free movement of alcohol was a powerful driver of market integration, with the Cassis de Dijon ruling (1979) serving as a milestone in this quest. It nevertheless took the convergence of member states and the Commission to trigger the institutional reforms of 1985–86 in order for a borderless market to open in 1992. In Brussels, the Commission was driven both by Delors’s balanced vision of a Single Market, complemented by solidarity and community, and by two energetic neoliberal Competition Commissioners, Peter Sutherland and Leon Brittan. In the meantime, the Community has established itself as the major player in regulating trade on the continent, overseeing a series of technical certification bodies that previously operated independently.

This result was not inevitable, especially if other choices had been made: a protectionist approach by the French in 1983, a different leader in Bonn (with Kohl remaining relatively unpopular in the CDU for a long time), or less proactive commissioners than von der Groeben, Sutherland, and Brittan. New fields of public policy were Europeanised (cartels, mergers, state regulation, the liberalisation of air transport and telecommunications), but without the ordoliberal and neoliberal zeal of the commissioners mentioned above, these areas could very well have been mostly regulated at the national and international level, without any significant role for the Community.

Finally, the main reason for the growing importance of the Common Market lies in the flexibility of the Treaty of Rome, which proved open enough to accommodate both pro-Europeans and Eurosceptics such as De Gaulle and Thatcher, who both strongly supported the Common Market, the former to promote regulated liberalism, and the latter in a neoliberal vein. The liberty dimension of capitalism therefore prevailed in European integration, but not exclusively.