European states weigh the costs of uniting

Western Europe aims to be one big happy family - economically - by 1992. But in the third of a four-part series, John Yemma looks at the practical problems and the anxieties nations feel as they head toward closer union. In Brussels, Europe's contradictions are almost palpable.

On a cool summer day at the rather uninspiring, blocklike office park of Berlaymont where the European Community (EC) is headquartered, bureaucrats from a dozen nations labor to evolve Europe. Idealists talk about a common European currency, a common central bank - and the United States of Europe.

But only minutes away from the multilingual unity factory of Berlaymont is Woluwe St. Stephens, one of Brussels's 19 ethnic communes. This one is mixed Flemish-Walloon. Last winter, the Flemish mayor tried to shut off French-language directory assistance for the Walloons in her district. She did not succeed, but that she tried shows the differences that continue to divide this continent.

Such pettiness will have to be overcome if European unity is to proceed. (Divisions still divide EC, P. 7.) It is only one reason that there is skepticism among important players in West Germany and Great Britain, for instance, about throwing in completely with Europe. They like the single market, they trust each other, and all adhere, in the main, to the same free-market standards. But they are not so sure they should cede much more of their national sovereignty.

Teddy Taylor, a parliamentarian from Essex outside London, grouses that ``the Continent is basically protectionistic, socialistic, and bureaucratic - and nothing has changed.''

The British government heartily endorses the single market, but officials privately express their qualms about going much further, especially if it means giving up British sovereignty.

Britain is hesitant, for instance, to fully join the European Monetary System and peg the pound to the mark. Freedom to tune the economy is prized by the British Prime Minister Margaret Thatcher. And British business, according to a survey by Touche Ross & Co., the accounting firm, has also been slower than others to recognize the importance of the European market.

But things are changing. The Department of Trade and Industry (DTI) says that while only 16 percent of British businessmen knew about the 1992 single market when surveyed last autumn, 60 percent now know.

Behind the lingering doubts, says Helen Wallace, a fellow at the Royal Insitute for International Affairs in London, ``is the fact that we are locked into the European system.''

On the eastern end of the Community, Germany has concerns of its own. This is most readily seen in the question of money. While Bonn is strongly pro-European, the real power is to be found in Frankfurt - in the austere concrete-and-glass box that houses the Bundesbank, Germany's powerful central bank.

The Bank of France and the Bank of England are not politically independent. The Bundesbank is. It uses its freedom to wage holy war against inflation. That has established the mark as the center of gravity for all the currencies of Western Europe.

The bank is gamely going along with EC desires to study creation of a European central bank to manage European commerce. But Bundesbank President Karl Otto Poehl has said any Euro-bank would have to be, essentially, a big Bundesbank.

That's not exactly what Paris and London have in mind. President Fran,cois Mitterrand wants a ``European bank of central banks,'' meaning a weak, backup bank. Britain wants Bundesbank-type independence but not German dominance.

EC leaders, meeting this week in a summit in Hannover, West Germany, were studying the issue. But with such big differences among them, officials of the Bank of France, the Bank of England, and the Bundesbank separately concede that a European central bank is a long way off.

Then there is the question of taxes. Each nation charges different levels of value-added tax (VAT), which is akin to a sales tax.

The British are particularly emotional about the VATs, especially the ones they would have increase to come into line with the Community. Higher taxes on baby's shoes is a particularly upsetting example. ``If you're a parent with children constantly growing out of shoes, you'd understand,'' says John Mayes of the DTI.

``I really don't believe the VATs can be harmonized by 1992,'' concedes Francis Maude, No. 2 minister in the DTI. ``It's not a problem for trading purposes, but it will have to be addressed at some stage.''

In France - where the government is a prime booster of 1992 unification - liberalized capital movements could cause big problems.

Most French government revenue comes taxes on goods and services. In an open market, lower-tax German or British items would be more attractive. French shoppers would dart across the border. Tax revenues would plummet.

Income tax could compensate, but the French dislike income taxes. ``It's a social problem, not a technical one,'' says Andr'e Gaucon, a high-ranking official in the Ministry of Finance. ``We have no solution to this [tax] problem as yet.''

In the past, the EC members have finessed such problems by erecting invisible barriers - complex technical standards, mountains of paperwork - to take the place of the visible ones they were dropping. But 1992 is supposed to sweep away even the invisible barriers.

However, problems remain:

Open internal borders could allow terrorists or drug dealers to slip through lax airports such as Athens or Rome and make their way to London or Bonn.

The EC has already mandated free movement of labor, but ethnic favoritism makes this difficult to achieve in practice.

Political pressure could intensify if workers lose their jobs in a more internally competitive Europe; governments could fall back on protectionism.

``We're getting some hints now that the transition costs could be too high,'' says Pierre Jacquet of the French Institute of International Relations. But ``it's too early for the conventional wisdom about 1992 to be challenged.''

On a retaining wall just outside the Berlaymont is faded graffiti that reads, ``Defendons notre identit'e.'' It is directed at French-speaking Walloons. It could also be the secret concern of governments as they consider giving up national sovereignty.

Next: `Fortress Europe'

... and then there were twelve

1946: Winston Churchill calls for a United States of Europe.

1950-51: Paris Treaty sets up European Coal and Steel Community, ratified by six nations - France, West Germany, Italy, Belgium, the Netherlands, and Luxembourg.

1957: Treaty of Rome establishes free-trade area (European Economic Community) and European Atomic Energy Commission. This is considered the birth of the Common Market.

1962: Common agricultural policy adopted. Highly protected, inefficient farming remains one of the biggest financial drags on Europe.

1963: Crisis when France's Charles de Gaulle says Britain should not join the Community. EC membership negotiations with Denmark, Ireland, Norway, and Britain are suspended.

1965: France boycotts Community meetings after bold proposal by the European Commission to give Brussels more power. Crisis finally cools off with compromise preserving unanimous voting rule, effectively weakening Community decisiveness.

1967: Patchwork of ``communities'' for coal and steel, Common Market, and atomic energy are merged into one European Commission.

1968: All customs duties are removed in trade between EC members; a common external tariff is set up. But formalities and other invisible barriers hinder internal trade.

1973: Britain, Denmark, and Ireland join; enlarge EC to nine.

1974: Treaty of Paris creates European Council, meeting at least three times a year to coordinate policies.

1979: European Monetary System begins operation with European Currency Unit at its heart; European Parliament first elected by direct universal suffrage.

1981: Greece becomes 10th member of EC.

1986: Portugal and Spain join.

1986: Single Europe Act sets in motion the 1992 goal. ``Qualified majority voting'' (weighted for bigger nations) on certain subjects begins to remove impasses caused by need for unanimity.

1987-92: More than 300 regulations are to be harmonized in this period, culminating in creation of an efficient, integrated market.