The 10-nation European Community, fearful of becoming locked into permanent second-rate status behind the United States and Japan, is looking to new leadership to reverse its economic decline.
Jacques Delors, the former French finance minister who took over the presidency of the community's Executive Commission this month, acknowledged the seriousness of the trading bloc's economic problems in his inaugural address. "We are being challenged to maintain Europe as an agricultural power, to take our place in the forefront of the new technologies and to invest in our own development rather than see part of our resources go to sustain the growth of the strongest," Delors said.
European industry, he added, is "fighting for its life." Delors' blunt assessment is supported by the latest statistics on the community's economic performance. The unemployment rate in 1985 is expected to pass the 1984 level of 11 percent, or 12 million people. While the United States created 5.4 million jobs and Japan added 1.5 million between 1982 and 1984, the community suffered a net loss of 800,000. For 1985, the community forecasts only a modest rise in overall economic growth from the 1984 rate of 2.2 percent, which itself was lower than the 2.9 percent average level from 1971 to 1980.
A report submitted to community leaders last fall, noting that technological innovation is one of the keys to economic growth, said that the community was responding belatedly to an "emerging inferiority, by comparison to the United States and Japan, in industrial capacity in new and fast-growing technologies." The report said that the community imports about 80 percent of its consumption of integrated circuits and an estimated $20 billion a year in computers and related software.
Delors and the other 13 members of the Executive Commission, which runs community affairs on a day-to-day basis, can take some comfort in the fact that in 1984, progress was made in resolving several stubborn issues. The question of how much Britain would contribute to the community treasury was settled after almost five years of haggling. In addition, agreement was reached on placing limits on excess milk production, which was seen as the first step in getting the community's costly agricultural subsidy program under control.
Although the community was able to settle what Delors called the "family feud" over the British question, officials concede that the requirement for unanimous votes to resolve major issues nearly has paralyzed the community. Delors said European industry is "fighting for its life." -- Jacques Delors, president, EC Executive Commission he has found no consensus on how to approach pressing problems. "The community is no longer capable of making decisions," he lamented in his inaugural speech.
Instead of tackling the procedural difficulties immediately, Delors said he intends first to try to make improvements allowed by the guiding principles in the 1957 Treaty of Rome that founded the community. The treaty said the members would try to create a true "common market" in goods and services, but, 28 years later, the goal is far from being fulfilled. Delors and community businessmen believe that only by dismantling the still-strong barriers to trade within the community can they revitalize the European economy.
Delors said the community should aim to dismantle all frontier restrictions by 1992, an acknowledgement of the slow pace at which the community makes decisions. Last month, for example, trade ministers agreed on the content of a single administrative document that will cover all the import, export and transit requirements of trade within the community. The proposal, however, had been under consideration for four years and will not go into effect until 1988.
Another of Delors' major goals is strengthening the European monetary system, which he believes has encouraged trade and could stimulate greater growth in the European economy. He has said he will not push for the conversion of the European currency unit (ECU), a weighted average of the 10 community currencies, into money consumers and businesses could use for commercial transactions. But he would like to achieve greater monetary cooperation among the member states and a controlled extension of the use of the ECU by banks.
Attempts by the previous commission to strengthen the European Monetary System have been rejected by the community's finance ministers. The West German Bundesbank, in particular, has been one of the chief opponents of the commission's efforts because it objects to proposals to make the ECU a more attractive reserve currency for central banks.
Delors argued in his inaugural speech that because of the burden on the dollar, community central banks need an official ECU with which to diversify their reserves. He suggested that if Europe could share the "global burden of monetary management with the United States," it would be in a stronger position to join Japan in persuading Washington to "introduce internal discipline," presumably an appeal for reductions in the record U.S. budget deficit. This discipline, he said, "would make for relative stability on foreign exchanges and a more balanced distribution of savings."
The community must take action soon on several other questions, including a final decision on a budget for 1985. The European Parliament rejected the proposed budget, saying it was not large enough to cover expected costs. In the meantime, the community is operating on a month-to-month basis, holding spending at the 1984 level.
Negotiations must be completed soon with Spain and Portugal to allow their entry into the community by the target date of Jan. 1, 1986. Their membership, though increasing the political and economic clout of the community, is feared by many officials who wonder where the money will be found for the increased aid that the two nations will be entitled to receive.
The membership of Spain and Portugal also makes more urgent a reconsideration of the community rule requiring unanimous decisions, officials said. "It will be more and more difficult to make decisions unless members accept majority voting," one official said. A proposal for majority voting is to be considered at the next community summit in March, but will face strong opposition from Greece and Denmark, diplomats said. Britain also is expected to express reservations about the plan.
The entry of Spain and Portugal also could create trade problems between the United States and the community. A congressional delegation visiting Brussels earlier this month restated American objections to any increase in tariffs on U.S. imports, particularly oil and fat products, to help cover the cost of the membership of the two countries. The delegation told community officials that the United States accepted the fact that it would face restrictions on its access to Spanish and Portuguese markets after they became community members, but did not want to be penalized twice by being required to pay new tariffs.
The future of U.S. agriculture policy is one of the major concerns of community trade officials. Statements by Agriculture Secretary John R. Block emphasizing the need to drastically reduce government financial support for U.S. farmers and make their products more competitive internationally have raised fears among community officials that the United States intends to pursue a "war" for world agricultural markets.
U.S. officials in Brussels deny that the United States intends to "confront" the community in the agricultural marketplace, and point out that the farm bill proposed by the Agriculture Department this year will no doubt be weakened by Congress. But the question remains, according to one U.S. official, whether the community is "an active partner in the search for discipline in agricultural subsidies."
The United States, the American official said, will continue to press the community in discussions through the General Agreement on Tariffs and Trade to reduce the subsidies.
The community argues that GATT rules allow export subsidies if they do not lead to an inequitable share of the world market. American exporters face difficulties, the officials say, mainly because of the high level of the dollar, not because of violations of international trading regulations. Delors expressed irritation with the administration's free-market philosophy in a speech in Paris last month before taking over leadership of the community.
"The United States must learn that the action of the free market is simply not capable alone of resolving the world's social problems," he said.
One indication of whether the community intends to expand its limits on agricultural products will come in March, when farm ministers set prices for the 1985-86 marketing year.
Another possible point of trade friction between the community and the United States is the question of European wine exports to the United States. U.S. grape growers, taking advantage of provisions in last year's Trade and Tariff Act, could introduce antidumping and antisubsidy complaints against European wine importers. The community, seeing the provisions as violations of GATT rules, already has asked for consultations on the legislation.
The United States will continue its efforts to persuade the community to accept a substantial increase in the size of the aid component in export loans, which would reduce commercial export financing, officials said. The United States believes that greater discipline is necessary in so-called mixed credits to reduce financial advantages for foreign companies in bidding for contracts.
One community official said, "We ourselves are convinced there should be more discipline in mixed credits . The question is, how to go about it." The official said the community prefers a "more progressive" approach. Trade officials for the two sides will discuss the issue in March.
Although the community expects to have objections to provisions of the Export Administration Act to be considered by Congress this year, officials believe that it will be difficult to muster a unified community position on the technology transfer issue. Community Industry Commissioner Etienne Davignon, who initiated an effort last fall to compile a list of products falling under administration restrictions, left the commission for private business this month. Further community efforts will be limited by the belief of some members that the issue should only be dealt with through Cocom, the western group that monitors the sale of sensitive technology to communist nations.
Community and American officials were relieved by the settlement earlier this month of a dispute over the export of community steel pipe and tube products to the United States. Davignon, who negotiated the issue with U.S. Special Trade Representative William Brock, believes that, despite the persistence of trade disputes, communication between the community and the United States is perhaps better than ever.
"What one is looking for is an equilibrium" in European Community-U.S. relations, "and an equilibrium is what you get through some degree of tension and dialogue," Davignon said in a recent interview.
"It's much easier for us to pick up our phone, to call x, y or z in Washington, than maybe at any other time in the recent history of the community," he said. "That is felt the other way around."