Backed by Muscle
Think of the European Union not as a sort of chassis onto which countries can bolt themselves

The European Union and its forerunners, the reshapers of Western Europe for almost half a century, were a means for restoring peace and stability. They were also a means for reasserting French power within and beyond Europe.
Monnet’s scheme - to tie Germany and other European countries into federal structures which France could dominate - worked well enough to see off all rival projects for Europe. It is no longer propagandist, not even contentious, to speak of the European Union as synonymous with its continent, and this account adopts that convention. Compare Europe now with Europe 50 years ago, and you do not have to be a genius or French, to conclude that the European Union has been one of the great political success stories of the post-war world.
The French are confused about Europe because they have not yet adjusted to the collapse of a presumption on which their plans for it rested. They believed the main power in Europe could and should be France. This was a fair premise in the years after Hitler’s war. So long as Germany was crippled by war-guilt, it could not present itself as a champion of the European interest. It suited Germany and France alike for France, the second continental power, to lead on behalf of both countries.
But as Germany has grown rich and - with unification - much more populous than any other country in Europe, so, naturally enough, its confidence has returned. The re-emergence of Germany as a “normal” country began with the breaching of the Berlin Wall in 1989. It ended, arguably, with the return of the. German government to Berlin this year, and with Chancellor Gerhard Schroder’s declaration in August that Germany “has every interest in considering itself as a great power in Europe”. If any country is to lead Europe in the future, it can only be Germany.
This inversion of the Franco-German balance is one of five recent fundamental shifts in the structure of post-war Europe and its international relations that will be discussed here. A second big shift, encouraged by NATO’s recent war in Kosovo, has been the emergence of a strong sense among the leading EU countries that they should possess a capacity for collective military action that is separable or even separate from the ordinary structures of NATO, and thus not always dependent on the military leadership of the United States.
This new sense of purpose in defense policy has coincided with formal moves to develop a “common foreign and security policy” for the EU. The combined effect will be a movement towards a true European diplomacy backed by muscle.
The awkward question here is whether this strengthening of stand-alone European security can be managed without upsetting transatlantic relations, especially if Europe and America are sparring in other areas, such as trade. The answer, surely, is no. Some rebalancing of relations and some redefining of interests will be necessary, but it must be done in a way that does not threaten the American and European view of one another as allies of first resort.
A third big shift for Europe has begun with the introduction of a new common currency, the euro, which arrived for electronic and paper transactions at the start of this year. A fourth big shift has been the weakening of the European Commission, the emblematic political institution of the EU, in the five years since its presidency passed from Jacques Delors of France to Jacques Santer of Luxembourg. Mr Santer’s commission resigned in March after investigators found it riddled with mismanagement and petty corruption.
Despite the arrival of a new European Commission under an ambitious new president, Romano Prodi, the decline may be irreversible. National governments, meeting collectively as the European Council (for heads of government) and the Council of Ministers (for ordinary ministers), have picked up the slack. They are driving the European Union now, and so they should. They are bolder and wiser than the European Commission, and they have a more direct democratic mandate.
The fifth big shift is coming with the planned enlargement of the EU to take in anything from 12 to 20 new members, most of them former communist countries in Central and Eastern Europe. This will turn the EU from a rich-country club into a true European Union. These five shifts are all desirable. One of them (the rise of Germany) is inevitable. They will unsettle Europe for at least a decade. But they offer the prospect of a stronger and more confident Europe and a reassuring view of how European integration works.
So think of the European Union not as a would-be superstate, but as a sort of chassis on to which countries can bolt themselves. They do lose some freedom of movement, but they gain a great deal of security. That, surely, is a model of integration with which Europe can live and work.

For many big firms Europe will become a more attractive market as its internal barriers disappear

An Old Alliance

Whatever Europe does, it measures itself against America. Europe and America are the two centers of Western values, of Western hopes. Their partnership is one of likes but not of equals.
For most public purposes America and Europe have an “alliance”. The principles of that alliance were fairly straightforward so long as the Soviet Union controlled the Eastern half of Europe. America saw the global containment of communism as its own most vital national interest. So it lent Europe the resources, and demanded from Europe the cooperation needed to bar the way to communism on this most critical front. The creation of NATO was the formal means by which the Europeans obtained an unconditional security guarantee from America, and gave obedience in return.

The Euro’s Year Zero

One curiosity of the euro is that it will not be available as cash until the start of 2002. Governments claim this delay was forced on them because the physical currency could not be produced in time. But considering what governments can do when they really want to, the interlude can be treated as a policy decision. With hindsight, it was an excessively cautious one. Public opinion has accepted the euro readily, enough in theory, and would probably now accept it in practice. For European firms and investors, by contrast, the euro has been a reality since last January. Capital markets have been booming in response: bond issues by European firms in the first three quarters of this year have been running at, roughly triple their rate in 1998. One reason companies want to borrow is that the new European Central Bank has kept interest rates relatively low. That, more than any other factor, is why the euro has been soft since launch.
Another reason for the borrowing boom is the rise in mergers and acquisitions in Europe. Deals worth almost $500 billion were done in the first half of this year alone, roughly five times as much as when merger fever last peaked in 1990. Many are driven by the expectation that a single currency will make European markets for goods and services more integrated and more efficient, so European firms will need to become more integrated and efficient too in order to compete against one another-and against the big foreign entrants for which Europe will become a more attractive market as its internal barriers disappear.
For EU countries still outside the monetary union, perhaps the biggest question about the euro is whether its arrival will indeed lead to a full political union within the EU. This prospect has excited both supporters and opponents of the monetary union in different ways. The answer is that monetary union will push the EU towards political union, but not guarantee it. This is because the basis of national policy is national interest, and national interest has a large economic component. A single European currency will encourage a European economy which is at least as integrated as any national economy is now. So it seems to follow that national interest will be displaced over time by a “European interest” for the countries within the monetary union. This creation of a European interest will fulfil a necessary precondition for the formation of true European policy, but not a sufficient precondition for a political union to produce it.

Here’s the Beef

Retailers across Europe are trembling at the thought that Wal-Mart, America’s and the world’s biggest retailer, may be charging into their markets. Wal-Mart paid $11 billion earlier this year for a British supermarket chain, Asda, and has plenty more to spend.
But EU governments should reserve a particular welcome for any takeovers of European by American firms. An intertwining of the American and European economies through foreign direct investment offers the best hope of counterbalancing the trade friction which has become a serious irritant to transatlantic relations. The more that American firms produce or source their goods in Europe, the more opposition there will be in America to penalizing imports from Europe.