CHAPTER 8European Economic Community (EEC) Potential and Problems (Europe)German QuestionThe European problem can be likened to the German federation in the mid-nineteenth 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) 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. Armies speak different languages and possesses different weapons and differences in the quality and training. 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. 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 credit-worthiness of each state 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 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 de-Nazification 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 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.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. 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. 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 An independent European country which plays a distinct role in the Third World countries, different from the US and the USSR. New Atlanticism criticized the neutrality of East Germany, an agreement between France and West Germany to deploy forces, closer link with NATO Especially because France is wary that once US withdraws from Europe the Soviet Union might attack westward.