Such a conjunction of severe economic and strategic problems encouraged EC governments to respond in a piecemeal fashion and inhibited their feelings of commonalty, except in the most defensive, protectionist sense.36 Germany’s earlier attempt to reflate and act as the EC’s motor led to pressure on the DM, a deficit and high interest rates. French policy in 1981–3 moved rapidly in the other direction. A period of frequent realignments followed in which, given the existence of capital controls in most member states, domestic players rather than world markets set interest rates, allowing France until March 1983, together with Italy and Ireland, to devalue apparently without penalty, whereas Germany, Belgium and Denmark emphasized currency stability. But when France reversed its policy in March 1983, it become clear that Italy and Ireland would have to follow. Even the Netherlands, which had stuck with the DM, would have to switch from neo-Keynesianism to the disinflation, industrial adjustment and supply-side policies already being put into effect in Germany by the Kohl administration.
It was hard for the Commission, whatever its responsibility for macro-economic guidance, to check such defensive, protectionist activity during the recession despite the consequences for employment and the existing industrial base. They found it easier to maintain the EC’s coherence and integrity by brokering the lowest common denominator of member states’ most urgent needs, by sponsoring crisis cartels and national schemes for industrial support. The criteria for permitting state aids to industry were made less stringent, especially for shipbuilding, ship repairing and textiles: this despite the fact that state aids should have ceased altogether in the former case. On the industrial side, delays built up in establishing even the most urgent standards for TV systems, video-recorders, telephone systems and mobile telephones. In the computer field, despite demands from the ten or more world-ranking firms for the Commission to set an EC norm for interfaces, progress was painfully slow. It was not surprising that the Spinelli and Dahrendorf plans for scientific and technological policy also ossified.
The Community appeared to be reverting to national and inter-governmental activity. Yet at the same time, its weaknesses were emphasized, weaknesses which could only be remedied by collective action. The EC might have been able to limit the danger from Japan by ‘voluntary export restraints’ (VERs) for a time, but for all its protests, it had little leverage against the Reagan administration, high US interest rates, and the embargo imposed by the White House on EC equipment, first for the Siberian gas pipeline, and then on all high technology supplies for Comecon. Neither did it have a easy defence against US criticisms of the CAP or EC steel subsidies, which were avidly fostered by American producer lobbies, culminating in the imposition of countervailing duties on EC steel exports in June 1982.
In conditions of growing protectionism, not only between the EC and US, but between the US and Japan (which was, of the three, the most successfully impervious to liberal trade), the Community slipped away from its initial consensus on industrial policy37 argued by Davignon and Willi Claes in 1977–8. This had defined goals for the emergency reconstruction of the most stagnant industrial sectors: steel, textiles, aeronautics and defence-related high technology (to which were added infrastructure development and large industrial projects under the ‘Ortoli Initiative’). In that period, a genuine attempt had taken place to break away from sustaining ‘national champions’ (mainly in Germany and France, but also in the Netherlands and Italy). Some of that legacy nevertheless survived as the recession threw the emphasis back onto those markets – electronics, telecoms and cars – most at risk. Davignon’s lead – at a time when his was the most vigorous in the Commission college – went into research and development arrangements such as ESPRIT (information technology), or RACE (communications), which had the effect of sharing the work among the twelve major telematics corporations, but also marked an important new stage in Commission-industry relations.
As for those mergers which came under competition policy because they implied abuse of market dominance, the ECJ gave an interpretation of Article 86, beginning with the Continental Can case in 1972, and extending it with Philip Morris in 1981, which was controversial but confirmed the Commission’s powers.38 But for several years, member states blocked the Merger Regulation proposed by the Commission, being unwilling to see its competence confirmed in detail. The Commission’s struggle to define the nature of the European market and to curb state aids and illegitimate mergers led, however, towards liberalization and the internal market initiative, a contrast to the macro-industrial policy for structural adjustment embodied in the Commission’s other defensive measures or crisis cartels. The latter proved easier than the former, in contemporary conditions: at the request of France, backed by Britain and Benelux, and despite German reservations, the Council agreed unanimously in October 1980 that a ‘manifest crisis’ existed in the steel industry. It was easier to protect than to adjust and, as in the case of managed trade, temporary relief became semi-permanent accommodation (see below p.573).
Among member states there existed no single view of what industrial policy should be, and certainly very little common ground between traditional French and German standpoints. Neither was this surprising in the economic climate of the time. Lack of clarity here contrasted with the developments in competition policy, where most member states wished to retain competence for their national regulatory agencies. Thus the Commission had some ground on which to act in the general interest, declaring that there should be a European industrial outlook, even if it fell short of being a synoptic policy.
A cluster of hopes, in training and professional skilling, assistance for small and medium-sized enterprises (SMEs), transport, regional policy and social action continued to reappear in all Commission documents. Meanwhile ‘anti-trust cartels’ provided time and space for firms penalized beyond the average by the costs of modernizing to produce plans for reconstruction. At a deeper level, belief in the internal market and liberalization spread outwards from the crisis sectors and high technology industries, influencing firms’ behaviour and through them, national governments.
The Commission also proposed, in November 1981, that anti-trust cartels should be read as part of an EC-wide strategy and not confined to the cases in individual countries.39 But this was not enough when set against the reality of member states’ defensiveness40 or companies’ breaches of competition policy, even if the Commission was not opposed to stronger linkage between managed industrial decline and managed external trade – especially given the renewed US response to Japanese competition in a range of hi-tech areas. The EC had to respond to the structural challenge, had to modernize and adjust more quickly, even if the costs were high. The problem was to recapture member states’ conviction that this was best done on a Community rather than a national basis.41
For all these reasons, hopes seemed to lie in the concept of the single internal EC market, flanked by components in research and development, regional policy and sectoral adjustment – a concept which member states, racked by rising unemployment and a sombre awareness in 1983–4 that they could no longer keep all their national champions alive, seemed more prepared to accept than after the first 1973 oil shock. This could of course also be read as a fulfilment of the Commission’s original plan for industry in March 1970, put tentatively in the Colonna Report on harmonization and industrial change, coming to fruition a mere fourteen years after the event.
Nine elections also took place in the EC during the period 1980–83,42 causing substantial political changes, especially in France at a time when domestic conditions were overshadowed by deflation, rising unemployment, and industrial discontent. Meanwhile, in a number of countries, notably the Netherlands, West Germany and Italy, public protests grew about the installation of Cruise missiles and the effects