European integration evolved within the context of the Bretton Woods system and institutions designed by the USA and the UK in 1944.
The Bretton Woods system in part refl ected the need for a more stable international fi nancial framework so as to facilitate a liberal trading order between capitalist economies. This was deemed necessary in response to the international economic crisis of the interwar years and particularly the 1930s in which the collapse of international fi nancial markets paved the way for an upsurge in economic nationalism, protectionism and extremism ultimately unleashing imperialist and militarist rivalries between the major capitalist powers (Dinan, 2004, pp. 2–5). In this way, the lack of an appropriate international fi nancial architecture and the corresponding lack of economic cooperation between states was a major cause of instability and insecurity in world politics. The postwar settlement would therefore be characterized by attempts to promote and systematize international economic cooperation in the developed capitalist world at least, through a set of international institutions designed to foster and facilitate world trade.
The Bretton Woods institutions adopted a liberal approach to the governance of international economic relations. The postwar settlement established the role of the US dollar as the world’s reserve currency through the dollar standard. The General Agreement on Tariffs and Trade (GATT) created a forum for successive rounds of trade liberalization. The International Monetary Fund (IMF) was established to recycle trade surpluses and provide lending to defi cit nations so as to lubricate world trade. The International Bank for Reconstruction and Development (the World Bank) was established to tackle long-term issues of reconstruction – and later development – to underpin an expanding world trade system. At the same time, decolonization destroyed imperial trading networks, allowing the opening of markets on a multilateral basis (Tsoukalis, 1997, pp. 9–10;
Burchill, 2001a, p. 53). US aid to Western Europe for reconstruction was predicated on commitment to the longer-term, US agenda of liberalization (Dinan, 2004, pp. 13, 19–22). Hence Marshall Aid not only served the interests of reconstructing Europe but also enabled the USA to kick-start European integration on liberal premises in line with the broader agenda of
US hegemony (ibid., p. 21). The subsequent development of the European Coal and Steel Community strengthened this development, particularly as the more supranational ambitions and proposals of Monnet were gradually diluted (ibid., pp. 51, 57–62).
Both Bretton Woods and the EU (then EEC) itself were implicitly predicated on the liberal contention that open markets promote peace, democracy and prosperity. The liberal ideological underpinnings to the postwar settlement remain enormously controversial in terms of both their coherence and their actual purpose (Burchill, 2001a). Realists, structuralists and critical theorists all point to the deployment of ideology as a veneer for the pursuit of national or class interests and more or less explicitly question the ‘economics’ which posits free trade as the optimal policy for all nations (Burchill 2001a; 2001b; Linklater, 2001; Gilpin, 1995). In this context, then, the Bretton Woods settlement may be seen as responding to the interests and preferences of the US state in particular and/or a set of national and increasingly transnational class (Gill and Law, 1998). Bretton Woods represented a ‘hegemonic project’ centred around the US state while stimulating the formation of an incipient transnational class (van der Pijl, 1984; 1998).
The postwar economic boom permitted a graduated process of economic liberalization. International liberalism was, however, very fi rmly ‘embedded’
at the level of national economies where there remained considerable scope for the pursuit of national strategies of legitimation through the consolidation of national models of economic governance striking a balance between the interests of organized labour and capital. These models are analysed in more detail later, but it is important to note at this stage that they represented an accommodation between market liberalization and social protection – the ‘de-commodifying’ role of the social model, as Esping- Anderson (1990, p. 37) puts it – allowing the creation of a new hegemonic bloc tying together fi nancial and industrial capital and organized labour (van Apeldoorn, 2002; Gill and Law, 1998; Davis, 1984).
The development of the EU (then EEC) and the postwar reconstruction of Europe therefore took place within this context. This period of reconstruction saw a boom in the economies of Western Europe with the consolidation of developed, industrial capitalism across the then EEC. The spread of American multinationals facilitated the diffusion of Fordist production models to Europe, stimulating productivity. The development of Keynesian welfare models ensured the necessary demand infrastructure to soak up the output of Fordist mass production (Arrighi, 1982; Boyer, 1978).
Trade, mainly intra-industrial, expanded between the EEC members.
Along with the spread of American capital, American cultural infl uences penetrated Europe. These developments consolidated transnational exchange
and the formation of transnational interests and orientations within sections of European national capitalisms. While not joining the ‘original six’ EEC members, other West European countries participated in the same broad processes of Fordist reconstruction, development and liberalization, and ultimately most became formally integrated into the EU.
Over time a variety of contradictions assailed the postwar boom (Armstrong et al., 1991; Boyer, 1978; Callinicos, 2001, pp. 81–2; Cerny, 1993, pp. 163–6). The very success of the Bretton Woods system tended to promote such contradictions. The recovery of the European and Japanese economies placed pressure on the exchange rate system. Growing defi cits, in US trade and public fi nances, fed by the Vietnam War and the Great Society programmes of the 1960s, prompted Nixon to devalue the dollar in 1971, leading to instability on international fi nancial markets. Through the late 1960s, and across the developed world, organized labour, emboldened by buoyant economic conditions and low unemployment, pressed for a greater slice of the economic cake, disturbing the class compromise on which the boom was founded. Their success in securing higher wages stoked infl ationary pressures while encouraging further radicalism. The social radicalism of the 1960s refl ected a dissatisfaction with the excessive routine and standardization of Fordism. Infl ationary pressures grew across the capitalist world, fuelled by devaluations and growing industrial unrest.
The quadrupling of oil prices in 1973 delivered the coup de grâce.
The crisis of Fordism upset the delicate compromise of the postwar period; but also that between competing fractions of capital in which those externally oriented and transnational fractions of capital have tended to hold the upper hand over more internally oriented and fractions (van Apeldoorn, 2002, pp. 29–30). Along another cleavage within ‘capital’, the interests of fi nance and money capital have tended to win out over those of productive capital (ibid., pp. 27–9; Grahl, 2003, pp. 36–41).
Despite a tendency in some of the literature to downplay the continuities between the post-1945 and post-1973 periods, the seeds of this struggle were sown with the internationalization accompanying the postwar boom (Lochner, 1999). This promoted the development of transnational capital and, critically, also began to unleash the power of international fi nancial markets in ways which impinged upon both states and productive capital (Strange, 1986; Cerny, 1993). The development of increasingly liberalized capital markets can be traced back to the Bretton Woods system itself, its focus on full currency convertibility, international trade and the dollar standard which created the conditions for an accumulation of dollar balances in the hands of an array of private fi nancial actors (ibid., pp. 165–6).
The destabilization of currency markets and the transfer of signifi cant dollar balances to the OPEC oil producing countries accelerated the
consolidation of a signifi cant volume of footloose money capital seeking rapid return, encouraging the creation of fi nancial markets and instruments seeking to accommodate it. Rapid technological change and intense capital market liberalization have fed this development, transmitting short- termist and internationalizing pressures to both the productive sector and domestically oriented banking systems (Nolke, 1998; Grahl, 2003, pp. 28–30;
Cerny, 1993).
At the same time these pressures also impinge upon states with the power of speculation, imposing neoliberal discipline on governments fearful of the consequences of capital fl ight (Gill, 1998, pp. 412–15; Grahl, 2003, pp. 34–6). But although fi nancial capital has an increasingly systematic transnational bent, the growth of transnational productive capital has also been signifi cant (van Apeldoorn, 2002, pp. 55–60). Again, this growth was partially a corporate response to the crisis of Fordism. The exhaustion of national markets stimulated the search for new, external markets and led business to pressure national governments to bargain for access to other markets (Hanson, 1998). Overcapacity triggered more intense international competition in many industries as fi rms, encouraging strategies of relocation to cheaper production environments, stimulated the growth of transnational networks of supply and production. A major transformation took place away from standardized mass production to more fl exible, customized and leaner production strategies featuring closer inventory control, rationalization, subcontracting, downsizing and relocation offshore (Amin, 1994; Jessop, 1991). At the political level, this began to erode organized models of capitalism (Lash and Urry, 1987).
Across the Western economies, the immediate need to curb infl ation in the wake of the oil crisis fl oored the Keynesian consensus. Policies of tight money and fi nancial orthodoxy were increasingly adopted, creating additional constraints in terms of domestic demand and competitiveness, further encouraging corporate strategies of internationalization. The demise of Keynesianism was refl ected in a general revival in liberal economic ideas and their ascent to political and intellectual hegemony. The emergence of neoliberalism was symbolized within the Bretton Woods institutions and their global pursuit of the Washington Consensus (Stiglitz, 2002). Within the EU, the Single European Market and the case made for it in terms of specialization, effi ciency and competition are likewise built on neoliberal premises. Europe‘s economic crisis was located in the sclerosis of internally oriented and excessively regulated national capitalisms and the ‘distributional coalitions’ they sustained (Olson, 1982). Removing protection from these coalitions and enforcing competition would stimulate trade, specialization, effi ciency and virtuous cycles of growth (Cecchini, 1989).