Betrothal in Brussels

"We are like the couple who have an engagement party," explained The Netherlands' Foreign Secretary Hans de Koster. "If over the next five years we don't get married, we return the gifts." The simile aptly described the momentous agreement last week by the six nations of the European Common Market--France, West Germany, Italy, Belgium, The Netherlands and Luxembourg--to move toward monetary union by Jan. 1, 1981. Though hedged with provisos and fraught with the danger of delayed decisions, the Brussels agreement nonetheless created specific plans to expand the Common Market trade bloc into an area with a single currency.

Monetary--and eventually economic --union would presage the establishment of something akin to a United States of Europe. Borders would become more like state lines. With a single currency, travelers would no longer face aggravating losses from changing their money at borders. People, goods, services and capital would circulate freely. The arrangement would stimulate growth through more efficient use of manpower and resources and enable European corporations to compete more easily with big U.S. firms on a Continent-wide basis. Even more important, as a study group headed by Luxembourg Prime Minister Pierre Werner put it: "Economic and monetary union is the leaven for the development of political union."

To make a monetary union succeed, the Common Market countries must harmonize their tax systems, growth rates and social policies. In the end, individual nations will have to yield substantial control over their monetary policies and government spending to the Common Market's so far embryonic federal institutions. Under Charles de Gaulle, France declined to give up such prerogatives of sovereignty, and considerable reluctance persists today. Accordingly, last week's accord provided a step-by-step ten-year timetable for monetary integration.

Hot Lines. In the first, three-year phase, the Common Market countries agreed to narrow their exchange rates and coordinate economic policies. To do so, their central banks are setting up "hotline" telephones to permit instant conferences about concerted action in the exchange markets. The Six will also jointly set guidelines for member countries' public spending as a means of bringing each nation's economic expansion--and inflation--into line with that of the others. West Germany's Foreign Minister Walter Scheel, fearful that his country might have to provide unlimited monetary support for spendthrift partners, insisted at Brussels on a "prudence clause." It enables any member to pull out of the monetary union entirely by 1975 if it is not satisfied with the pace of progress.

Pressure from the Dollar. For all the caution, there is, as French Foreign Minister Maurice Schumann commented, "a strong incentive built into the plan to move forward." Indeed so. The Europeans were propelled into unexpectedly early accord by the profligacy of the U.S. For most of two decades. European nations have been accumulating dollars at a rising rate as a result of U.S. balance of payments deficits. Common Market countries complain that the flow of dollars affects interest rates, finances the takeover of European firms by U.S. companies and promotes inflation on the Continent, since central banks have to issue their own currencies to buy up excess dollars in the marketplace. Singly, European nations have little defense against the flood. Any country that raises the value of its own currency in relation to the dollar would in effect be raising the price of the goods it sells to its trading partners.

"Our actions have had a disrupting effect on the international financial markets," explains Yale Professor Robert Triffin, a leading monetary authority and member of TIME'S Board of Economists. "The Common Market countries realized that by refusing to act together they have lost monetary sovereignty to the U.S. To recover some degree of control, they had to act jointly."

A European currency would rival the U.S. dollar as a medium of international exchange. By acting in concert, the Common Market countries could raise the value of their currencies, in effect devaluing the dollar. Washington would welcome that event, since effective devaluation would make American goods more competitive abroad. But should the Europeans, with their new-found unity, decide to limit the amount of dollars they accept, the consequences could be quite painful for the U.S.

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