The sustained full employment that had been the result of ‘golden age’ growth increased the bargaining position of labour, led to an increase in wage demands, and then to an accommodating monetary policy. Given the labour bargaining environment, any other option on the part of policy-makers would have produced higher levels of unemployment, and ended or at least challenged the social compromise on which the golden age had been founded. The labour-market encouraged a new wave of trade union militancy. In 1968, two-thirds of the French labour force was involved in strikes; in Germany i million workers went on strike, in Italy 4 million. The number of work days lost through strikes in Britain increased every year from 1965 to 1970. As a concession to labour, almost every European country at this time introduced legislation making redundancy harder, and thus strengthened further the position of labour and encouraged the inflationary momentum.
On an international level, the strains created by developing inflation in all major industrial countries (including the United States) helped to end the par value system. Between August 1971 (when President Nixon suspended the gold convertibility of the dollar) and 1973, when European currencies went over to a generalized floating exchange rate system, the world moved to monetary anarchy. At the same time, a general global move to increased levels of tariff and especially of non-tariff protection made the prospects for growth through trade dimmer. The immediate aftermath of the collapse of the classical Bretton Woods system, however, only accelerated inflation even further, and contributed to a spectacular boom in commodity prices. The most dramatic increases took place in the case of oil prices. In addition, at the end of 1973 Middle East oil producers used their control of the oil supply as a political weapon.
The oil shock brought a definitive end to the golden age, the high growth period of the post-war era. It made Europeans realize how vulnerable their apparent economic strength had been. A popular report produced by the Club of Rome suggested that the world had now reached ‘The Limits of Growth’. The earth’s mineral resources could not be exploited infinitely. In order to conserve fuel, some countries —The Netherlands, Germany, Switzerland-introduced car-free days. The autobahns were deserted, the most characteristic product of the post-war miracle idle.
The oil trauma also brought a new discussion of the possibility of international policy co-ordination in the face of the new challenges. The German Chancellor, Helmut Schmidt, was terrified that the economic trauma would destroy what he believed to be the very fragile political order. Italy and Britain in particular were descending into economic crisis, intractable balance of payments problems, and domestic ungovernability.
This was the background to the first world economic summit, held in Rambouillet in November 1975 in the imposing setting of an eighteenth-century chateau. The initiative came primarily from the French and German leaders, President Valery Giscard d’Estaing and Chancellor Schmidt. After the meeting, the leaders of the five largest industrial countries announced that they had made ‘efforts to restore greater stability in underlying economic and financial conditions in the world economy’.
Closer European Co-operation
However, faced by erratic American policy and unsure whether they could rely on the United States, the European leaders proceeded with preparations for closer European co-operation in a purely European framework. In 1978 Giscard and Schmidt prepared plans for what they envisaged as a ‘zone of monetary stability in Europe’ to be achieved through the European Monetary System, a system of fixed exchange rates analogous to the Bret-ton Woods par value system.
The first years of the system were extremely turbulent. It had barely begun working in 1979, when the world was hit by a second oil price shock. Between March 1979 and March 1983, the currencies in the EMS required seven realignments. After 1983, however, the system became much more stable. Membership in the system in 1983 helped President Francois Mitterrand to abandon an experiment in socialist economics and to bring the French economy on to a path of anti-inflationary convergence.
The most important relaunching of the European concept occurred in 1986, with agreement on the Single European Act. This provided a new departure in two significant respects. First, it solved a long-lasting constitutional problem as it depended on the acceptance of a new mechanism to overcome the problems of negotiation between what were now twelve member states. At a meeting of the European Council in December 1985, the Treaty of Rome was amended to allow voting by qualified majority (rather than unanimity) for measures required to create a single internal market. Secondly, the Single European Act overcame the problem of creating a single set of Community standards by extending existing national standards throughout the Community rather than imposing a common code (earlier attempts at standardization had encountered widespread ridicule). It provided for the creation of a unified internal market by the end of 1992. But it also implied a wider programme. It included a reference to an earlier statement of 1972 approving the ‘objective of the progressive achievement of economic and monetary union’. The concept of a single market was also extended through a Council decision of 1988 to liberalize capital movements by 1990, and by the preparation in 1989 of the report of the Delors Committee, setting out a three-stage mechanism for monetary union. This was accepted in 1991 at the meeting of the Council in Maastricht, which prepared a treaty renaming the Community as the European Union.
Soon after Maastricht, however, the integration process began to show cracks. Danish voters initially rejected the Maastricht treaty in a referendum in 1992. The liberalization of capital markets proved to be incompatible with the working of the European Monetary System. A series of speculative movements, first against the Italian, Spanish, and British currencies, then against the French franc, effectively destroyed the European Monetary System between September 1992 and July 1993.
World History
