Beyond the Flat World - Part 3: From Coal to Currency: How Europe Engineered a $17 Trillion Neighborhood Economy Through Treaties and Trust

The narrative of regionalization is nowhere more evident, or more thoroughly constructed, than in Europe. While many global supply chains, including those in North America and Asia, developed primarily through corporate initiative and market forces, Europe’s integration was fundamentally built “through diplomacy.”

The European project began in the ruins of the post-World War II landscape, driven by the desire of former enemies to secure peace and rebuild prosperity through trade. Over six decades of continuous effort, European governments, businesses, and populations—totaling some 450 million citizens—bound themselves together into a common market, which evolved into a political union. This integration was propelled by a continuous stream of treaties, including those signed in Rome, Brussels, Maastricht, Amsterdam, Nice, and Lisbon.

The result of this institutionalized regionalism is profound: Europe is now the biggest manufacturing exporter in the world. Its brands, from Mercedes-Benz to L’Oréal, have become fundamentally European. Crucially, over two-thirds of what goes abroad from European countries stays within Europe—a higher share than in any other regional hub globally.

The Cradle of the Automobile and the Post-War Push

The success of European regionalism can be seen in the resurgence of industrial centers like Stuttgart, Germany, the city known as “the cradle of the automobile.” Devastated by Allied bombing during the war, Stuttgart quickly rebounded. Daimler-Benz anchored this post-war revival, benefiting significantly when German car sales surged from thousands to millions annually in the 1950s and 1960s.

However, Stuttgart’s economic success transcends the German narrative, owing much to the burgeoning European project. Once Daimler-Benz conquered the German market, it looked immediately abroad, leveraging Europe’s newly created customs union. Mercedes quickly became Europe’s leading luxury car, with its trucks and buses becoming mainstays in cities from Amsterdam to Copenhagen.

More impactful for Stuttgart’s wider economy were the hundreds of medium-sized enterprises—Germany’s famed Mittelstand—that specialized in auto parts. Companies like Bosch and Mahle expanded throughout Europe’s core, supplying transmissions, axles, pistons, and batteries to Italian, French, and British rivals (Fiat, Peugeot, Jaguar, Renault). This regional base was essential for Bosch and Mahle to become two of the world’s biggest providers of powertrain and fuel injection systems.

The Initial Treaties and the Customs Union

The U.S.-led Marshall Plan was the first step toward institutional cooperation, requiring the sixteen recipient nations to jointly figure out how to allocate the U.S. funds. Following this, the European Coal and Steel Community (ECSC), proposed by French statesman Jean Monnet, brought France and Germany together to manage the raw materials vital for war.

The next major diplomatic leap was the creation of the European Economic Community (EEC), orchestrated largely by the smaller Benelux countries (the Netherlands, Luxembourg, and Belgium). The 1957 Treaty of Rome formalized the EEC, uniting six member states (West Germany, France, Italy, Belgium, Netherlands, Luxembourg) in a customs union.

The economic effects were startling:

• Over the decade and a half following the treaty’s start in 1958, commerce within the group surged.
• Productivity soared; German, French, and Italian industrial workers outpaced their American and British counterparts.
• GDP and wages leaped, leading to a remarkable period where incomes grew more in one generation (1947–1975) than in the previous 150 years.

The Single Market Breakthrough

Fearing Europe was falling behind global competitors, diplomats successfully negotiated the Single European Act of 1986. This act was a grand bargain that ushered in the first true regional marketplace. Its primary workaround was mutual recognition: governments agreed that whatever met one member’s standards automatically met their own, allowing products sold in one country to be sold in all.

The implementation of the single market was a game-changer for European business:

1. Electrolux: The appliance maker had previously owned dozens of local brands across fifteen countries, but national differences kept its operations siloed. With the common market, Electrolux rationalized production—consolidating refrigerator management in Stockholm and laundry machine production near Venice.

2. Carrefour: The French retailer initially struggled to expand into neighboring countries because of differing zoning rules and legal limits. The single market gave Carrefour “a renewed European impetus.” Today, while a global player, over three-quarters of its twelve thousand stores and yearly sales come overwhelmingly from Europe.

The Ultimate Integration: Monetary Union

While trade liberalization through treaties was fundamental, Europe pursued its deepest integration through a single currency.

The Maastricht Treaty (1992) superseded the EEC, creating the more expansive European Union (EU) and laying out a decade-long path for the adoption of an overarching currency. The plan included:

• The creation of the European Central Bank (ECB) to oversee monetary policy and set region-wide interest rates.
• Strict convergence rules requiring aspiring members to control public spending, debt, inflation, and interest rates before adopting the Euro.

In 2002, twelve nations exchanged their local coins and bills for the Euro. This single currency eventually spanned nearly 350 million people and over a tenth of the global economy.

Limits and Resilience: The Case of Brexit

Europe’s path has not been without crises or dissent. The ultimate stress test came with Brexit. Despite decades of integration, the UK left the EU in 2020. The decision carried significant economic weight: the UK government forecasted that its GDP would shrink by over 5 percent over fifteen years, leading to declining trade, investment, and jobs.

However, Brexit did not trigger the EU’s collapse as some predicted. Instead, the EU’s popularity among its remaining citizens surged to its highest level in decades. Through financial catastrophes (2008), currency crises, and migration events, the union has consistently demonstrated remarkable resilience.

Conclusion

Europe’s diplomatic and institutional approach to regionalization has succeeded in creating a deeply integrated economic engine. By continuously strengthening the legal scaffolding—from the foundational treaties that eliminated tariffs to the single currency and mutual recognition rules that dismantled non-tariff barriers—Europe ensured that proximity became a permanent, structural advantage.

The success of Europe confirms the core lesson of regionalization: when countries commit to deepening ties with their neighbors, they create a stronger, more resilient home base, allowing their firms to become more competitive globally. Isolation, as the initial shock of Brexit demonstrated, comes at a substantial, measurable cost.