11th February 1996

The 1996 intergovernment conference to put new flesh on the Maastricht treaty ­ a document that instead needs desperately to be slimmed ­ will effectively start at next month's meeting of the 15 heads of European Community government in Turin. We should pray that two main points are grasped by all those gathering there, especially Helmut Kohl.

First point for Kohl in Fiat Motors' Turin: Germany, like Japan, will never again see a successful motor factory started on its territory, even if those two countries continue to lead in auto technology and management. Manufacturing will increasingly be transferred to cheaper-labour Sunderland, or Suzhuo (the town in red China where even local government is to be run by a Singapore multinational), or Vietnam, or the Czech Republic. The BMW car assembly plant in Vietnam pays some workers $1 a day. In Germany a worker costs BMW more than $30 an hour, half of it paid to the Bonn government to fund welfare. Kohl's aim now is to force his EC partners to take up some of his 4m unemployment, by using the EC's social chapter to block their workers from further undercutting German ones.

Second point for Kohl: the main peacemaking need for the EC is to expand (maybe to more than 30 members) by absorbing the ex-communist lands. Kohl's lament at Louvain, that we should fear more European wars unless we press on to full political union among the EC's present 15 members, is fortunately as out of date as his Hitler Jugend uniform at age 15 in 1945. And for the same glad reason ­ because Germany, in free-trade Europe, has developed into too sensible a country to go to war with its neighbours.

If the formerly united Yugoslavia had been in the EC, my guess is it would still have split into Serbia, Croatia, Bosnia ­ but not through civil war, because a nannying EC could early on have said: "The first of you three that even approaches violence will be expelled from the union." The main cause of war was that the three ex-Yugoslav tribes had been locked resentfully in the sort of political and federal union, complete with single currency, that the madmen of Maastricht want to impose on today's diverse 15 members. We need to try to edge the EC umbrella over fragments from the old Soviet Disunion, but not to explode new Chechnyas by ruling that membership must involve them in full political union with Moscow and us.

Instead, members of a new EC should sign up just to the few rules really needed for free trade and a single market, maybe plus the European convention on human rights. Other EC functions should be unbundled into packages, and made voluntary for any country that (dottily?) wants to embrace them. The articles providing a timetable for a compulsory single currency should be written out of the treaties. Any poor country that tries to order its currency to goose step beside the German mark, through each stage of each trade cycle, will suffer dreadful emigration. Any rich country trying this will make full employment an unattainable fantasy.

More than 80% of the EC's budget, to which Britain is the second largest net contributor, goes to the common agricultural policy (CAP), plus structural funds to poor south local governments such as Sicily's (which distort their economies by wrong politicians' investments amid corruption). France wants to placate its violent farmers by a CAP making all Europe pay twice the world market price for some foods, thus turning those foods into surplus mountains which we then have to subsidise to export. I would rather Britain politely opted out and cut our inflation to a minus by importing France's subsidised food exports.

There are a dozen other bundled EC policies: regulatory, transport, environmental, immigrational. I would opt out of most. Before March 29 in Turin, John Major is to produce a white paper on his views. Lobbies crowd in on him. I feel closest to the European Research Group (ERG) from 35 political parties in 24 countries. One ERG publication last week startled those of us who had granted that federal union and a single currency helped America.

In a memo to the ERG, Howard Flight, who raised his Guinness Flight firm to £2 billion of assets under management in the past decade, noted events after the 1865 post-civil-war integration of the Confederate dollar into the Yankee economy. It took the South 100 years of depression under a common dollar to catch up, amid huge emigration of the poorest southerners to the North. That explains the many black faces in Detroit which have not been tactfully handled. A Kohl Turin next month will lead to 100 years of such problems in north Europe.