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It's a New United Europe--but France Might Not Make It to Altar : EC: The price of European union may be too high for some countries, they just don't want to see Germany calling all the shots.

December 22, 1991|Walter Russell Mead | Walter Russell Mead, a contributing editor to Opinion, is the author of "Mortal Splendor: The American Empire in Transition" (Houghton Mifflin)

NEW ORLEANS — The European leaders who huddled at Maastricht this month produced either a major milestone in history, or a hollow PR triumph. It will be several years before anybody knows which.

The agreement looks historic. Although British resistance led the Europeans to drop a controversial reference to a "federal" political union in Europe, the 12 members of the European Community are planning, by the end of this decade, to use the same money and to speak with one voice in international affairs.

The Bush Administration gamely welcomed the progress at Maastricht. After all, Europe's divisions dragged this country into two world wars, and common action by Western Europe may be the best hope to prevent catastrophe in the East. But the Maastricht agreements will create several problems for the United States in the next 10 years.

In the short run, the agreement to move toward a common European currency involves a commitment by all the European countries to bring down inflation, regardless of the economic pain. This means the stagnant U.S. economy cannot look to European markets as a major growth opportunity in the next few years. From now on, the perennial American pleas for growth-oriented economic policy will fall on deaf ears.

In the longer term, the success of the European effort to build a common currency threatens the dollar's role as the key currency in international commerce. A single European currency is likely to be more attractive to both investors and traders than the volatile and depreciating dollar. One almost certain result: Foreign investors will demand higher interest rates before they buy U.S. Treasury debt. The U.S. national debt, already grotesquely swollen, will be an increasing drag on the living standards and economic opportunities of American families as the single European currency takes hold.

Even farther down the road, it is possible that a European union would rival U.S. power in key parts of the world--especially the Middle East, where many European powers have historic ties. The trade friction between Europe and the United States, already potentially far more destabilizing than the publicized U.S.-Japan squabbles, could become more serious still, leading to the breakup of multilateral trade agencies like the General Agreement on Tariffs and Trade.

But despite all the headlines, Maastricht may be just a flash in the pan. Even as the pressures for European union grow stronger, other forces threaten to derail the continent's march toward union.

The problem isn't the isolationism of the British. First Margaret Thatcher and now Prime Minister John Major have earned reputations as the most reluctant Founding Parents of the United States of Europe. But Britain has become too small, too poor and too isolated to count for much in contemporary Europe. The real question marks over Europe's future arise in France and Germany. At the moment, France and Germany are both backing European union, but there is growing evidence that both countries may have second thoughts before 1999.

Under French President Francois Mitterrand, France has become the most vocal proponent of a rapid march toward European Union. France has lost faith in its ability to play, alone, a respected place in world events. Its economy is too small, its military too weak, its technology too mediocre and its culture too little respected for France to continue to act as even a medium-sized power on the world stage. Mitterrand sees Europe as France's last chance--only as part of a continental union can France continue to play a global role.

Since Germany will inevitably dwarf France in a united Europe, Mitterrand's position is an extraordinary confession of defeat and impotence from the proudest country in Europe, perhaps in the world. There are already indications that French public opinion is rebelling against it. France has betrothed herself to Germany at Maastricht, but she has chosen a long engagement and reserves the right to change her mind. Look for a stormy engagement and tough negotiations over the prenuptial agreement and, if France thinks her interests require it, she is perfectly capable of leaving Germany at the altar when the wedding day arrives.

What France wants to do now--right away--is to shop for the ring, and this is where Germany begins to get cold feet. France knows what she wants in a ring: the deutsch mark, Germany's enviable stable money. A single European currency will let France exchange the perennially weak franc for a new and non-inflationary money. Investors are now so skittish about France's record of instability and inflation that French borrowers have to pay higher real interest rates than Germans do. This would change under a single European currency.

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