The Future of European Integration and German-Canadian Relations

MR. MACDONALD:

The President of the Empire Club, Dr. Harold Cranfield, has kindly invited me to chair this meeting and to introduce our distinguished guest, Professor Ludwig Erhard, whom I had the pleasure, last March, of inviting to address this joint meeting.

In view of the events which dominate the economic world today, there could be no more welcome visitor to a Canadian Platform. We are at a stage where universal stock-taking is evident. Prices continue to rise, while the rate of economic growth slackens. Britain contemplates a reversal of centuries of economic separation from the continent of Europe, while Canada turns its currency free to float in the money markets of the world. The western nations begin to question whether economic growth is an unmixed blessing, while the rest of the world fights off the ghost of Malthus.

At such a time, the voice and message of Ludwig Erhard must be, if possible, more significant than ever. The world of economics is populated by theoreticians of limited exposure to economic management, and economic managers of varying professional credentials. In all cases, there are few who can claim association with an economic miracle. We have with us today one who is an erudite economist, a professional policy-maker, and a modern maker of miracles.

A native of Bavaria, Dr. Erhard attended the University of Frankfurt after service in World War One, in which he was seriously wounded. He earned a Ph.D. in economics and began his professional career as a scientific assistant with the Institute for Industrial Studies in Nuremberg. He became the Director of that Institute in 1942.

In 1945, the world witnessed a remarkable exercise in statesmanship, with the decision to build a modern democracy in post-war Germany. The great Lord Keynes had written of the short-sightedness of post-World War One financial measures against Germany, which contributed to economic distress and the rise of the national socialist party. Economic recovery after World War Two was a tribute to the magnanimity of the allies, the resourcefulness of the German people, and the skill of public servants like Ludwig Erhard.

Dr. Erhard first tested the political fires when he became Bavarian Minister of Economy in 1945. With the establishment of the first German parliament on August 13, 1949, he was elected for the riding of Ulm, which he has since represented for the Christian Democratic Party.

It was during the period from 1949 to 1963 that he was responsible for guiding Germany's "economic miracle" as federal Minister of Economics. During part of that era, he undertook additional responsibilities as Deputy Chancellor from 1957 to 1963. From 1963 to December 1, 1966, he held the high office of Chancellor of the German Federal Republic and, since 1967, he has been honorary president of his party.

Naturally, his honours are legion, including that of Professor Emeritis, Law and Political Sciences, of both the University of Munich and the University of Bonn. He is also an honorary doctor of numerous German and foreign universities and honorary citizen of several cities, honorary president of various organizations and holder of the highest orders of Germany and other countries.

It is not unusual for politicians to write books before taking office and rather common for them to publish widely after retirement. Dr. Erhard, however, has made an unusual contribution to economic literature by charting his course, in print, as he held office. He has published three outstanding books: Germany's Comeback in the World Market, Prosperity Through Competition, and The Economics of Success. Incidentally, I understand the last item is recommended reading for all Canadian politicians today.

The members of the Empire Club, who are joined today, Sir, by our colleagues from the Canadian Club, have anticipated your visit for two special reasons. On an international note, your visit precedes negotiations which may alter the historic character of Britain's relationship to Europe. On a personal note, we were privileged to receive your nephew, Dr. Wilfried Guth, General Manager of the Deutsche Bank of Frankfurt, as our speaker on January 22. Now, we welcome you as a great friend to Canada, as a renowned fighter in the cause of freedom, and as a distinguished practitioner of the art of economics. I am happy indeed to present Dr. Ludwig Erhard to discuss: "The Future of European Integration and German-Canadian Relations."

DR. ERHARD:

During my talks here in Canada, I have been both surprised and pleased to be asked again and again how European integration is doing, what developments are about to take place on our old continent, and what will be the consequences for the co-operation and cohesion of the Atlantic world.

In this group, I think I may also assume that you are familiar with the attitude which I have assumed for more than ten years, and which I should like to define as follows: while I have never been unmindful of the need for closer ties among the nations of Europe, I have always regarded with deep concern the split of the still free part of Europe into two blocks--the European Economic Community on the one hand, and the European Free Trade Association on the other. Frankly, I would have preferred a large European Free Trade Area instead. But obviously, the time had not yet come for such a move, and European attachment to national peculiarities may also have played some part in preventing what belongs together from actually coming together. It does not seem an unfounded hope, however, that things will change in the not-too-distant future. Those forces which used to oppose my view that European unity must comprise the whole of free Europe seem to have lost ground in the meantime or have yielded to a better understanding, even if this was not loudly proclaimed. There is no need to explain that I am referring to the accession of Britain and the Scandinavian countries to the European Economic Community--which in turn would seem to justify the confident hope that the process of integration is not yet concluded.

As the negotiations for British membership are about to be taken up, it is high time to be also quite clear on where and in what direction integration is to be intensified and further promoted. Perhaps the existing uncertainty or lack of consensus is the reason why the EEC has not got beyond a customs union and a more than problematical common farm policy with all sorts of "market regulations". Where no progress could be made in depth an escape was sought in side issues. The latest and rather drastic example is the so-called wine market regulation, when a settlement on relatively narrow interests was made the condition for an event of world-wide significance, namely, the start of negotiations for British membership in EEC. Accumulation of partial market regulations, which by their very nature run counter to a free and liberal order, will not result in a European market that is truly a whole, let alone a European, confederation or even federation. I hope you will not say that I contradict myself if I assure you that the idea of a united Europe is alive among the peoples on our continent as something they long for. The dispute on what would be the proper starting point for a successful integration over an even wider area will, therefore, continue for some time to come.

As you know, the European Economic Community lacking sovereignty of its own and being limited in its authority by law-has adopted the concept of supra-nationality. This can practically only be understood as an interim solution or a combination of the Community's rights and duties vis-a-vis the national parliaments and governments, whose responsibilities are laid down in their respective constitutions. One need not recall the independent ways of a General de Gaulle in order to realize the practical difficulties or the procedural self-contradictions involved in such a set-up.

While a democratic parliament is entitled to amend the Constitution, it may not interpret and apply it at will. In any event, all countries which belong to the Community would have to agree on a common formula to adopt. Where, after all, does the frontier run between the supranational and the international sphere? It is not enough--as we see at present in German economic policy--to form new concepts if these are left without a clear meaning.

A specific example of this lack of clarity is, for instance, the so-called Strasbourg Parliament of the Community, which, in fact, is a consultative assembly rather than a parliament. Deputies are delegated by their national parliaments as long as no European constitution exists--and one may properly ask whether they are committed more to their national constitutions or to some unwritten law that is inspired by Europe? I am not a lawyer myself but an economist and not, I hope, suspected of getting entangled in legal technicalities. But I am even more committed to an organic and intelligible order and, therefore, opposed to the tendency of all socio-political levels to evade clear decisions on fundamental issues. Moreover, I have faith and confidence as far as the value and cohesion of the free world is concerned, but I am not a romantic or a dreamer who prefers to close his eyes to reality.

In voicing my skepticism, as I do, I am not, however, intending to criticize those first Europeans, such as Robert Schumann, Alcide de Gasperi or Konrad Adenauer, who recognized the political and economic danger that threatened Europe and, therefore, knew that a free Europe can only exist as part of the free world. I hope the more that the efforts of my country to arrive at conciliatory arrangements with the Communist world may never render it suspected, in view of its geo-political situation, of trying to move in a political no man's land between different moral concepts, philosophies and societies. The German people may be trusted to know where it belongs.

The failure to set up a European Defence Community has no doubt activated the idea of an Atlantic Community, and it is, therefore, highly understandable that people in North America should want to know what may or even must be the consequences of an advancing European integration. There are, of course, also questions of the Commonwealth involved, and in trying to solve these, we will have to consider what economic benefit--quite apart from historical and moral ties may yet be derived from the formation of such and similar blocs in an outward-looking free world. These are problems which cannot be evaded as the future developments seem to be already set in motion.

Granted that modern technology and the application of scientific knowledge require not only larger business sizes but also wider economic areas, but surely it cannot be the only answer that it is our fate to be submerged in mass collectivism, that the free order which is once more too easily shrugged off as capitalism is already doomed. The critics of our society feed on their own criticism, without being able to propose a system that would be able to guarantee more progress, more social security, and more prosperity for all. The higher justice required from those quarters is the "justice of egalitarianism", just as if we were not thinking human beings but termites.

Excuse me if I seem to deviate from my subject. But if our free world is at all trying to accommodate to the spirit of the age, which pretends to be modern but strikes one often enough as downright old-fashioned, then it stands to reason that things will not remain unchanged. Anyway, if it is really to be our actual or alleged fate to continue to think in terms of large economic areas, then the question of the relationship between economic and political power becomes inescapable. It would, for example, not be quite the same if Canada were to be referred to as a large economic area because of its vast territory and its wealth of natural resources. If you think of Switzerland, in comparison, a country small in size but of high economic efficiency and specialization, you will see there is some similarity insofar as the imminent problems or rather the dualism of organic national economies and deliberately construed large economic areas is concerned.

The question is whether economically sound but not self-sufficient countries, no matter of what territorial size, can dare to aim at absolute independence. They are confronted with those national economies which have formed blocs and have, therefore, a better chance to raise capital and achieve a higher degree of international division of labour among themselves. It must be fully realized that a free order is ensured only as long as no existing or artificially instituted power frustrates the other nations in their endeavour to maintain their independence. The question is precisely whether we can hold up or reverse the trend of socio-economic developments sufficiently to stay free to decide whether there is still a chance for life in a national economic framework governed by a libertarian social order, or whether national states--even without a nationalistic philosophy--will not ultimately have to agree to give up their independence to form part of wider supranational units. The decisive question is thus whether and to what extent individual national economies may rely on an outward-looking libertarian order to continue their independent existence or whether they are already exposed to the pressure of world-wide economic collectivism that leaves no room for individuality. The answer will be different, depending on whether political forces or economic interests tend towards integration or whether a genuine conflict of interests arises.

Three countries bordering on the present European Economic Community, namely, Sweden, Switzerland, and Austria, have committed themselves to strict neutrality which does not, of course, mean that other countries, which are members of comprehensive economic and defence organizations, are of a less peaceful disposition.

As regards EEC in this context, I have often and increasingly deplored that it has been given a rather too strong political accent which is not formally or legally justified by the economic purpose of the Treaty of Rome. This position, which is felt everywhere to be ambiguous, has caused countries like the ones I just mentioned to shrink back from the idea of membership--on the other hand, it provided an excuse to the Communist world to insinuate that the six member countries or the EEC as an institution pursue aggressive political intentions. It is true that economic power will not remain without political influence but this must not be understood in a primitive sense as if the pursuit of economic strength were the outflow of the same mentality as the threatening of the world by sheer power. Thus it would be fair to assume that while the enlargement of EEC by further countries will appreciably augment its economic potential, a widened community may be freed from the suspicion of a possible political abuse of its power.

While large economic areas make for closer ties, they reduce at the same time the ability of their member countries to act on their own. To quote an example, in the fifties the Federal Republic of Germany reduced its industrial tariff within a short time by 40 to 50% without demanding reciprocity and this helped to reduce international monetary strains. In the circumstances which led to the most recent change in the French and German parities, in contrast, that instrument was no longer at our disposal. The forthcoming negotiations in GATT will likewise throw some light on the present unsatisfactory situation. The related problem of the developing countries should in a similar way inspire some new thinking. The danger of a conflict of large economic blocs would only increase if their emergence were to be accompanied by the alignment of certain developing areas with economic power groups. Although stemming from quite different roots, a renewed allocation of the world would give rise to not exactly friendly memories of the past colonial system.

It would certainly be appropriate for the peace-loving world to examine whether the political maturity of nations is not lagging behind their possibilities to dominate the material sphere, and thus to improve or re-arrange men's basic living conditions. It may equally be asserted that, despite the disastrous Second World War, we are still inclined to think in terms of power, while at the same time a technocratic outlook on the world and blind faith in figures as an instrument for the programming of life have more and more undermined our confidence in the order of our society. That phenomenon finds its characteristic expression in the sluggish functioning of the international monetary system and, by the same token, in an inadequate standard of international monetary discipline. Unfortunately, I am not in a position to bring you cheering news from Europe on this subject. On the contrary, it seems more and more that the North American continent shows today a better understanding of the imminent perils than Europe. Consider, for example, my own country, the Federal Republic of Germany. Our present economic situation is characterized by what is no longer full employment but a nearly pathological degree of over-employment, 800,.000 vacancies that cannot be filled, and 1.8 million foreign workers. At the same time, price rises by 4 to 12 % within a year's time have been registered at various levels. It is hard to understand that this latter phenomenon is officially deplored, but also played down, and at the same time the general public is told that the administration knows all right how to meet a recession.

As if that were our present trouble! Things are rather the other way round. There is no surer way to deprive citizens of individual freedom and subject them to collectivism than to disrupt the currency by a frivolous, allegedly social policy and to turn freedom-loving citizens into slaves of the State. I am not afraid to speak up, as it is my deep conviction that what is at stake in the future development is not the individual fate of one nation or another but that we all, who are committed to freedom, will stand or fall together. Before this background, it seems to me that an appraisal of the German-Canadian relations is a secondary issue. What matters for the future is not a set of statistics but principles and commitments. I have referred to a top-heavy alignment and co-ordination of national economies as a misorientation, and because I have no sympathy for a European inbreeding, I can only hope that the present rather one-sided pattern in economic and financial relations will in future leave more room for German-Canadian co-operation. In conclusion, permit me to sum up my theses:

- There is no convincing political or economic argument why the European Economic Community should be limited to the present member countries.

- The end of the colonial era confronts the free world at least with the question whether there could or should be any other formula by which underdeveloped countries are aligned with or subordinated to economic power groups. Is it still imaginable today that the population of Central Africa could be classified according to its "British" or "French" past? What are the practical consequences?

- At a time when the British Empire has ceased to exist as a world-political power and even the Commonwealth is no longer the expression of economic unity, also the European Economic Community--the enlarged one, as it must be hoped--will have to show clearly where it will stand, both politically and economically. One cannot condemn positions of power and at the same time re-establish new ones.

So I must ask: what is it we want? It seems that we act as if we were about to set up a new world order, and all we think of, in the end, is in terms of power or a balance of power. Nor can the European Economic Community claim to be the keeper of a higher moral standard as long as it is itself haggling for economic advantage. As long, therefore, as a European Economic Community is nothing but an economic bloc--a large economic area--it will not be an inspiration to the world, and a power, dominating this world, it will never be able to be, and, I hope, never wish to be. To be strong enough to serve peace and freedom, that alone is our duty and task.

Dr. Erhard was thanked on behalf of The Empire Club and The Canadian Club by Mr. John M. Gray, President of The Canadian Club.

MR. GRAY:

Sir, we are deeply conscious of the great honour you have done us, in The Empire Club and The Canadian Club, by your visit today. As the Chairman remarked, you are known as the architect of a great economic miracle. We are grateful that you have shared some of your expertise with us today and we offer you our best wishes during your visit to Canada and in your continuing service to your country.