CHAPTER 8

European Economic Community (EEC) Potential and Problems (Europe)

German Question
The European problem can be likened to the German federation in the midnineteenth century where there are great potentials to become a Power state but is
unable to because of the division among its members.
Potential
-

Has the size, the wealth and productive capacity of a Great Power.
Population more than the USSR and almost half of the US (*research present)
o Highly trained population from scientist to engineers
However per capita does not capture the great disparity between member
states but it is considered much richer than Russia, some are richer in terms
of per capita than in the US
Largest trading block in the world.
Productive output is ahead the United States, Japan and USSR (*)
GNP is at par with the US, and far higher than Russia, Japan or China.(*)
Army size of countries like (West Germany, France, Britain and Italy) is over a
million men, reserves of about 1.7 million. (far small compared to Russian
and Chinese armies but is larger than the US) plus armaments like
warships, submarines, tanks, artillery and aircraft. With France and Britain
possessing nuclear weapons.(*)
The EEC spends about 7% of its GNP on defense. (*) (about hundreds of
billions of dollars)
However this will not be of any help to the European community simply
because of its disunity.
o Armies speak different languages and possesses different weapons and
differences in the quality and training.
o An even greater problem is the obstacles at the political level,
especially regarding foreign and defense policies of Europe.
Coming up with a united European policy is difficult and complex
especially because of different interests and traditions of each
member states.
o Economic community political ideology always affect the economic
policy and priorities of each member states.
Coordination is difficult especially when there are socialist
regimes in some states while conservatives regimes are in
others
Coordination of currencies still faces a problem because of
different fiscal systems present and differentiate creditworthiness of each state
o Eurosclerosis and Europessimism - The stagnation of the European
economy and the beginning of its decline.

Mainly caused by the oil crisis of 1979. (characterized by steep

rise in fuel prices pressure on balance of payments, world
depression in demand, output and trade)
The Europeans are concerned as to how this might affect
employment levels (the number of people losing their jobs is
higher than post 1945 era. Leading to an increase to social
expenditures lessening the investment. Lack of creation of new
jobs whether because of lack of business incentives, high cost
of labor market, bureaucratic overregulation, failure of the state
to plan and invest sufficiently.
However there are still signs of European competitiveness in
terms of the quality of automobiles, commercial and fighter
aircraft, satellites, chemicals, telecommunication systems,
financial services,etc.

West Germany
-

Had adopted(or inherited the nature of the present structure of Europe

Labor force higher than Britain or France
GNP significantly larger long term productive growth
Largest producer of steels, chemicals, electrical goods, automobiles, tractors,
merchant ships and coal emphasis on engineering and design in German
management (high investment in new technology & superior design and
salesmanship)
Low level of inflation and of labor disputes export prices are competitive.
Surplus of trade balances second to Japan
International reserves are large, usually used as the reserve currency.
EECs agriculture price-support system redistributes resources from the
most competitive to the least competitive sectors of the economy- from the
Federal Republic to the peasantry in southern Europe
High level of unemployment
Decline of birth rates
Threat that the future or successor generation will not work as hard as those
who had rebuilt Germany, higher wage costs and shorter work week than
Japanese may mean that Germany may not be as productive as the Pacific
States
However these problems may not be much important so long as (West)
Germany is able to keep its low inflation rate etc.
German-German relationship
o If the two Germany are brought together into a single nation state this
might make Germany as the economic power center of West Central
Europe. (this does not mean that it will turn out as a dominant military
force in Europe at par with the previous eras in Germany. The deNazification of Europe may not even let it happen and if it did, the
balance of European power will prevail against it.)

But the political realities speak against such solution. Moreover the
Soviet will not let East Germany even gravitate toward West. Because:
(1) East Germany serves as a strategic barrier for Soviet control over the
buffer states in east Europe.
(2) The Soviets are wary of the consequences of a reunited Germany
a. The GNP will be dangerously close to the USSRs
b. It will act as a trading magnet for eastern European neighbors. And;
c. If the Soviets withdraw from East Germany there will also be
questions for the withdrawal of Soviet control over Czechoslovakia,
Hungary and Poland.
More concrete and immediate problem is to discover a viable defense policy
in the event of a war in Europe- especially with the threat of nuclear
weaponry of both US and USSR
o Answered through a dtente with not only Europe but to USSR itself,
(through trade, and political interest) which gives a lesser possibility
that a West Germany will partake in the war.
o

United Kingdom
-

Share of the word manufacturing output has continued to decline.

Trade balance between import and export of manufacture has been in deficit.
Decline in employment
High currency (making exports uncompetitive) due to the discovery North
Sea Oil making the pound as a petrocurrency.
Difficult to revive its manufacturing industry: plants has been scrapped,
foreign markets are lost, international competitiveness has been eroded by
high increase in labor costs.
While the shift to service can improve the economy it still remains that it
cannot earn foreign currencies and are not productive. not to mention a
tight competition in banking and finance and the further lessening of its share
in capital resources
Immobility and lack of training in the labor market, high unit cost and
comparative smallness of the largest British manufacturing firm.
o Engineers and scientist are fairly low, r&d are poorly invested and are
not related to the industrys needs, not even paid by the industry itself.
The allocation of the budget to defense is relatively high considering the fact
that it is economically stagnating. making it more vulnerable to constraints
of high defense spending.
o Which leaves Britain in a dilemma: whether to cut defense allocations
while facing the possible repercussions or to allocate more budget to
defense and leave little for investments.

France
-

A midsized power with extensive national interest and overseas commitments

(just like UK)
Its total GNP and per capita GNP is larger than Britains

Produces more (e.g cars, steel) has very large aerospace industry.
Dependent on imported oil
Surplus on agricultural goods- subsidized by EEC
Highly competitive in high technology fields telecommunications, space
satellites, aircraft, nuclear power.
Reduced inflation, small trade gap and stabilized franc
Weak in selling run-of-the-mill manufactured goods abroad.
Trade deficit import penetration of other industrial goods like automobiles
and electrical appliances
Large unemployment with weak industries. France is unable to keep pace
with German, American and Japanese technologies.
No capital resources for research and development and sustained high tech
based growth.
Defense: nuclear arms, missiles and armaments, large land armies, garrison
in Southwestern Germany
o An independent European country which plays a distinct role in the
Third World countries, different from the US and the USSR.
o New Atlanticism criticized the neutrality of East Germany, an
agreement between France and West Germany to deploy forces, closer
link with NATO
o Especially because France is wary that once US withdraws from Europe
the Soviet Union might attack westward.