European Integration: Scope and Limits

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European Integration Scope and Limits

Martin Holmes

European Integration

Also by Martin Holmes BEYOND EUROPE THATCHERISM: Scope and Limits, 1983–7 THE EUROSCEPTICAL READER (editor) THE FAILURE OF THE HEATH GOVERNMENT THE FIRST THATCHER GOVERNMENT: Contemporary Conservatism and Economic Change THE LABOUR GOVERNMENT, 1974–9: Political Aims and Economic Reality

European Integration Scope and Limits Martin Holmes Lecturer in Politics St Hugh’s College Oxford

© Martin Holmes 2001 For details of original publication of the chapters in this book, please see the footnotes on chapter-opening pages. All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 0LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2001 by PALGRAVE Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world PALGRAVE is the new global academic imprint of St. Martin’s Press LLC Scholarly and Reference Division and Palgrave Publishers Ltd (formerly Macmillan Press Ltd). ISBN 0–333–91446–5 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Holmes, Martin. European integration : scope and limits / Martin Holmes. p. cm. Includes bibliographical references and index. ISBN 0–333–91446–5 1. European Union. 2. European Union—Great Britain. I. Title. JN30 .H67 2000 341.242'2—dc21 00–041487 10 10

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Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire

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Contents

Acknowledgements

vii

List of Abbreviations and Acronyms 1

Introduction: Scope and Limits (2000)

viii 1

Part I Britain and European Integration 2

The Conservative Party and Europe (1994)

11

3

John Major and Europe: The Failure of a Policy (1997)

27

William Hague’s European Policy (2000)

53

4

Part II 5 6 7

Economic Integration

From Single Market to Single Currency: Evaluating Europe’s Economic Experiment (1995)

75

The European Economy East and West: Convergence or Divergence? (1996)

109

The Transatlantic Implication of European Monetary Union (1997)

121

Part III Political integration 8 9 10

European Federal Integration: The Case Against (1996)

147

Franco–German Friendship and the Destination of Federalism (1999)

163

Reviewing Europe: Selected Book Reviews 1991–7 (1999)

181

Index

207 v

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Acknowledgements My greatest debt in writing this book is owed to the Commissioning Editors of Macmillan, originally Tim Farmiloe, and subsequently his successor Josie Dixon, who provided encouragement and enthusiasm as well as handling the manuscript with speed, courtesy and efficiency. I would also like to thank Jonathan Collett and Yahya El-Droubie for invaluable assistance with research and document scanning, respectively. Thanks and acknowledgements are due to Peter Aspden, Literary Editor of The Financial Times; Martin Ince, Deputy Editor of the THES; Dr Chris Rowley, editor of the Asia-Pacific Business Review; and Keith Carson, the Editor of Eurofacts, for permission to reproduce the reviews in Chapter 10. The Principal and Fellows of St Hugh’s College have provided an atmosphere appreciative of scholarship and conducive to research and I am grateful to them. Needless to say any errors in the following pages are my responsibility alone. St Hugh’s College Oxford

M ARTIN HOLMES

vii

List of Abbreviations and Acronyms

APEC ASEAN CAP CEE CFP COMECON EC ECB ECJ ECSC EEC EFTA EMI EMS EMU EPU ERM ESCB EU FDI GATT GDP G7 IGC IMF MAD MEP MPR NTB OECD OPEC

Asia-Pacific Economic Cooperation Association of Southeast Asian Nations Common Agricultural Policy Central and Eastern Europe Common Fisheries Policy Council for Mutual Economic Aid European Community European Central Bank European Court of Justice European Coal and Steel Community European Economic Community European Free Trade Association European Monetary Institute European Monetary system Economic and Monetary Union European Payments Union Exchange Rate Mechanism European System of Central Banks European Union foreign direct investment General Agreement on Tariffs and Trade gross domestic product Group of Seven Intergovernmental Conference International Monetary Fund mutually assured destruction Member of the European Parliament mutual product recognition non-tariff barrier Organisation for Economic Cooperation and Development Organisation of Petroleum Exporting Countries viii

Acknowledgements

PPP QMV UKIP UNCTAD VAT VER WTO

purchasing power parity qualified majority voting United Kingdom Independence Party United Nations Commission for Trade and Development Value Added Tax voluntary export restriction World Trade Organisation

ix


1 Introduction: Scope and Limits (2000)*

The scope of European integration The resilience of the European Union (EU), in the pursuit of its integrationist project, has been a defining characteristic of the 1990s. Despite the slowdown in the European economy – culminating in a decade of low growth and high unemployment – the political elite of the member states has rarely allowed national political considerations to override the objectives set out in the Maastricht and Amsterdam treaties. Nor has the increasingly hostile climate of public opinion, albeit spread unevenly across the EU, persuaded the mainstream government-forming political parties to adopt Euroscepticism. In most countries, the Eurosceptic banner has been held aloft by fringe parties of left or right, which have little chance of participating in government, even with the assistance of coalition-friendly, proportional representation electoral systems. Thus, in Germany, although public opinion polls showed consistently strong reservations about the abolition of the mark, the cross-party elite consensus favouring the Euro held firm. Perhaps the most important moment at which the determination to complete the integrationist project was manifest was the handling of the Danish referendum ‘no’ vote in June 1992. If the vote had been respected, the Maastricht Treaty would have been null and void with the chances of realizing the ambitions of the Kohl–Mitterrand–Delors generation put on hold. The decision * Written for this volume. 1

2


to force the Danes to vote again in May 1993, abetted by the embarrassed Danish government, and enthusiastically seized upon by other member states, emphatically demonstrated a political will to allow nothing – not least the democratically expressed wishes of the voters – from obstructing the path to ever-closer European Union. Of course, it may be argued that the cancellation of the result of the first Danish referendum marked the moment when the avowedly democratic nature of European integration was shown to be hollow and bogus. But equally, the decision showed the mastery of Europe by the elite which had guided the integrationist project as a ‘top-down’, rather than a ‘bottom-up’, political phenomenon. Political will had triumphed over popular legitimacy in order to ratify the Maastricht design. Historically, European integration has been driven by a Franco– German friendship which has remained unshakable. Despite the predictions that the relationship would cool, or even dissolve, the 1990s reinforced the centrality of the Paris–Bonn axis to the process of integration. Indeed, if the Franco–German relationship can survive the practical difficulties of the birth of the Euro, it can survive anything. The German elite has never doubted the wisdom of its quest for federation and the search for a new identity as Europeans to replace the historically tarnished identity as Germans. For the French, the Gaullist years raised doubts as to the extent and desirability of pure supranationalism which, in other circumstances, might have left an enduring legacy. But the French elite turned its back on traditional Gaullism so comprehensively that, by the 1990s, it was unthinkable that a French government, notwithstanding the vagaries of ‘cohabitation’, would assert the popular scepticism which was exhibited in the September 1992 referendum. Tying united Germany down in a supranational Europe, stripped of its national currencies, became the rationale of French policy. By the turn of the millennium, the scope of the EU integration was also evident in the power and size of the political institutions which had been created. Although the EU is not, as yet, a fully federal state, it is certainly an embryonic federal state – a country called Europe. Institutions such as the Commission, the European Parliament, the Court of Justice, have been buttressed by the immensely powerful European Central Bank (ECB) whose impact

Introduction

3

may well be greater in advancing long-run political union than in delivering short-term economic prosperity through sound money. Moreover, the extension of qualified majority voting (QMV), in the Maastricht and Amsterdam treaties, has already transferred vast powers from the member states, as was intended. The 2000 Intergovernmental Conference (IGC) will travel still further down this road. But institutional innovation alone was never an end in itself. Rather, the political architecture of the EU has been a function of the ideology of Europeanism, which seeks to project the EU as a dominant political force in the lives of its ‘citizens’, as well as projecting the EU as a superpower on the world stage, capable of cutting the United States down to size. The ideology of Europeanism has been more important to the scope of integration in the 1990s than the steady but predictable growth of supranational bodies. The continent long associated with grand theorizing, with schemes of utopian social engineering, culminating in fascism and communism, has now produced the new ideological formulation of Europeanism. It may lack the brutality of its twentieth-century antecedents, but twenty-first century Europeanism will be more committed to integration than to democracy – as the Danish referendum rerun graphically demonstrated – and is more committed to the vast extension of pan-European state power than to the protection of individual liberties. In Christopher Booker’s phrase, the ideology of Europeanism exhibits a ‘soft totalitarianism’ of bureaucratic overload and intervention, rather than the ‘hard totalitarianism’ of the mid-twentieth-century dictatorships. The scope of EU integration has also been apparent in the rigidities of economic thought, which have survived intact since the 1950s. The EU is still the protectionist customs union of 1957 with no intention of becoming a genuine free-trade area from the Atlantic to the Urals. The principles behind the Common Agricultural Policy (CAP) remain unchanged from 1957, with the EU elite oblivious to calls for its dismantling or significant reform from either the World Trade Organisation (WTO) or from consumers. Even the European Coal and Steel Community (ECSC) still protects coal and steel in a primitive cartel which operates particularly to the disadvantage of Central and Eastern European

4


producers. Such policies are the building blocks of integration. What the EU elite likes about the CAP is that it is a common policy which sets an example of integration to be copied in other spheres of economic activity. Thus, the spread of common policies – Maastricht increased the number from 18 to 30 – exemplifies the scope of EU action and power. Similarly unchanged from the 1950s is the mercantilist economic philosophy which was originally presented as combining the best of both the opposing worlds of Anglo–Saxon capitalism and Soviet communism. But equidistance between Marx and the market has now become, post-Cold War, a hostility to the freemarket policies of globalization which are associated with the Anglo–Saxon economic model. To be sure, the EU has accepted the case for macroeconomic reform by ditching Keynesian demand management for monetary discipline and budget deficit reduction targets. Inflation is low, and is likely to remain so while the ECB demonstrates it monetary credentials. But microeconomic or structural reform of welfare policy, labour market rigidities, the overregulation of small businesses and pension liabilities remain rhetorical rather than real. The French reduced working week, the Social Chapter, the working-hours directive, the undiluted power of continental trade unions and the castigation of efficient competition as ‘social dumping’ all show a dogged resistance to free-market globalization. By holding globalization at bay, by regarding it as an unwelcome distraction, rather than a welcome challenge, the EU demonstrates the primacy of geographicallybased integration over the impersonal and geographically neutral forces of the market. Thus far the EU has succeeded in its aim. But the price which may be paid will eventually be an inability to copy best practices in the world economy. The EU is likely to fall further behind North America in living standards and in the development of new technology in order to preserve the scope of European integration unsullied by external market pressures. The trade off to achieve the scope of integration will be an increased comparative economic backwardness. The EU’s preference for the stability of its existing ‘social model’ may be a liability to its citizens in an age where economic progress is associated with the risk-takers, rather than the risk-averse. In short, the scope of European integration is still enormous,

Introduction

5

given the foundations laid over the last 50 years. But it is equally true that the scope of European integration as a political ideology also reveals its limits. The alternative Anglo–Saxon economic and social model will increasingly prevail in a technologically complex post-industrial world.

The limits of European integration Although the creation of the European superstate has hitherto been immune from the tides of public opinion – especially the increased Euroscepticism of the 1990s – it remains to be seen whether the European project can retain sufficient public support to reach its fully federal destination. It may even be argued that the pace of integration slowed in the late 1990s, at least partly because the EU elite did not wish to be too far out of line with the public mood. The Amsterdam Treaty was, therefore, less significant as a benchmark of intensified integration than had once been anticipated. The EU has had to deal with a higher level of public criticism than at any time in its history. The Danish vote against Maastricht legitimized popular opposition, even if the EU eventually rescued the treaty. The French referendum vote in September 1992 was so close that Euroscepticism has remained a feature of French political life ever since, in the process helping to splinter the remnants of the Gaullist movement. Even in Ireland referendums have produced smaller majorities in favour of European integration. In Germany public opinion is yet to be convinced of the wisdom of abolishing the mark, while a similar caution also confronts monetary union in Sweden. Public opinion has also swung against the EU Commission following its resignation in disgrace in February 1999 and in the bizarre way in which the Commissioners prolonged their tenure by remaining at their desks. The extent of fraud, corruption and sleaze – as demonstrated not only by Eurosceptics but also by the EU’s own Court of Auditors – has dented the view that integration is an altruistic and selfless objective, aimed at safeguarding peace and prosperity. If the European elite is perceived in the future as just another set of politicians, whose standards of probity are suspect, then popular support for the European ideal may erode still further. The failure to tackle either CAP reform

6


or the excesses of the EU budget at the Berlin summit in March 1999 does not augur well for an EU run on honest and transparent lines. Nor is it likely that Romano Prodi, whose own financial propriety has been called into question in the Italian domestic political context, will demonstrate the reformist zeal required to resurrect the Commission’s reputation. Public opinion is thus likely to remain critical of the EU’s glaring budgetary imperfections for the foreseeable future. Nowhere in Europe is Euroscepticism more entrenched than Britain. Indeed, in the long list of British exceptionalism, the lack of support for political integration has been a distinctive feature. Opinion in the United Kingdom – both popular and informed – has been permanently divided on the merits of either membership or further integration. The 1975 referendum, far from settling the question of Britain’s relationship with Europe, became a reference point of scepticism, given the pledges made by the ‘yes’ campaigners, that there would be neither a transfer of essential national sovereignty nor any imposition of monetary union. As continental politicians have regularly acknowledged, the EU has a ‘British problem’. Despite periodic attempts by UK governments to pursue a ‘heart of Europe’ strategy the fact remains that Britain is the least enthusiastic participant in the move towards federation. Not only does British public opinion recoil from EU initiatives, but a clear pattern exists at the governmental level of growing disillusionment. Prime ministers from James Callaghan onwards have come to power vowing better relations and improved cordiality with their EU counterparts. But during their term of office, they become more sceptical about the plans for harmonization and coordination which cross their desks, or the schemes which dominate the EU summit agendas. Margaret Thatcher began as a supporter of British membership of the EC, but ended as its most famous sceptic following the 1988 Bruges speech, and her rejection of the Delors Plan for Monetary Union. John Major began with a ‘heart of Europe’ charm offensive, but ended by castigating the fatally flawed European ‘social model’ in February 1997. Tony Blair began as an almost fanatical supporter of the EU, but has seen his reform plans shredded and his Atlanticism ridiculed. By the end of his tenure in Downing Street, the likelihood is

Introduction

7

that Mr Blair will be wiser and more sceptical than in May 1997. A future British government could play a crucial role in either limiting European integration – or extricating Britain from it – by the use of the national veto or by undertaking a fundamental renegotiation of the United Kingdom’s relationship with the EU. Such a development offers to the British an escape from policies they did not design, cannot reform and ought not to endure – the CAP, the Common Fisheries Policy (CFP), and the ‘one-size-fits-all’ interest rate straitjacket of the Eurozone. But the Continentals would also gain from a looser renegotiated relationship with the United Kingdom. In return for Britain’s liberation from unsuitable EU policies, the Continentals could pursue their federal ambitions much faster without the ‘awkward partner’ holding them back. Paradoxically, EU integration would proceed quicker if Britain’s relationship were more akin to that of Norway, Iceland, or Switzerland. A free-trade-only deal with the EU would make more sense, on both sides of the English Channel, than the current acrimonious status quo. The Central and Eastern Europeans also have the potential to limit the integrationist impulse. Their agenda has never been federalist in the Jean Monnet, Helmut Kohl or Jacques Delors mould. If the leading success stories – the Czech Republic, Poland, Hungary, Slovenia and Estonia – are denied EU admission their developmental model is more likely to follow the Anglo– Saxon preference for free markets and free trade, taking advantage of globalization. As such, they will prove how to succeed, like the EFTA countries, without the burden of EU membership. But if they are permitted to join the EU, their populations may prove to be as sceptical as the British once they discover that their elites have sold out their new democracies to a federal Europe of QMV, in which crucial economic decisions are made over which they have minimal influence. If the Central Europeans primarily join to gain access to the single market for their exports, but find that political integration is a price that must be paid, then Euroscepticism will acquire many fresh adherents who, before membership, give the EU elite the benefit of the doubt. Ultimately, the greatest limit to the process of European unity is the force of market reality which globalization represents. However powerful the EU may become, however integrated its

8


many common policies may be, however loudly it proclaims its ideology of European exclusivity, the EU cannot repeal the laws of supply and demand. The EU may indeed become a superpower, but its people will be neither fully free nor sufficiently prosperous if national democracies are undermined and if opportunities for economic liberalization are spurned. European integration remains a 1950s’ notion of geographical regionalism, which the age of high technology and globalization is already passing by.

Part I Britain and European Integration


The Conservative Party and Europe 11

2 The Conservative Party and Europe (1994)*

The origins of the EEC It is axiomatic to regard the Conservative Party as split from top to bottom on the issue of British membership of the European Union. During the passage of the Maastricht Treaty through the House of Commons a year ago (1993) open divisions created what was little short of a civil war within the party. Indeed it was one of those rare constitutional occasions when the government had to table a motion of confidence to ensure that the legislation to ratify the Treaty was passed; had the Conservative rebels not backed down, a general election would have ensued. In the end, the rebels did toe the party line, the Maastricht Treaty was ratified by the House of Commons, and only one rebel refused to vote in the Conservative Lobby, Mr Rupert Allason, who was subsequently deprived of the whip. But the issue has not gone away as Norman Lamont’s 1994 party conference plea to contemplate withdrawal from the EU starkly demonstrated. Even federalists on the left recognised the validity of the question he posed. Peter Kellner writing in The Sunday Times admitted that: Before the end of this decade, Britain may have to decide whether to join a federal Europe (my choice) or become a distant spectator (Lamont’s). One does not need to admire

* Bruges Group publication (1994). 11

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Britain and European Integration

his record as chancellor, or his behaviour since, to acknowledge that Lamont has a powerful case when he argues that the choice is stark: there is no middle way.1 To understand how the Conservative Party has got itself into this situation of near permanent civil war on the issue of membership of the European Union, it is necessary to examine the history of this issue. In 1957 the continental powers set up the European Economic Community with three essential objectives, none of which were shared by Conservatives at the time. Firstly, the Continentals had concluded that the cause of war, particularly between France and Germany (1870, 1914 and 1939), had been the nation state. They wanted to create a united federal Europe which would permanently preserve peace. From the start, the founding fathers of the European Community, Monnet, Schumann, Adenauer and de Gasperi, envisaged a form of federal political integration as a parallel development to economic integration. As a way of providing Germany with a political rehabilitation after the horrors of Hitler this project was particularly strongly supported by Chancellor Adenauer and, of course, it was personified in the close relationship between Adenauer and de Gaulle after de Gaulle’s return to power in 1958. 2 Secondly were the economic origins of the EEC which clearly followed the Continental mercantilist tradition. Thus from the start the EEC was not a free trade area but a customs union in which there would be a reduction in internal tariffs between the member states, but where external tariffs would be imposed against non-members. Initially, those external tariffs were somewhat modest, except in the areas that were not covered by the General Agreement on Tariffs and Trade (GATT), for example, agriculture. The Common Agricultural Policy (CAP) was an exemplification of a customs union mentality, with notoriously high tariffs imposed on products from outside. The European Coal and Steel Community (ECSC), which was incorporated into the EEC, was essentially a European protectionist cartel involving a customs union approach. Thirdly the Continentals in the 1950s hoped that its political growth would enable the EEC to become an alternative to a world


dominated by two non-European super-powers – the Americans and the Soviets. The EEC was not a Cold War organisation. President Kennedy, Henry Kissinger and many other Americans were fundamentally wrong to regard the EEC as a Cold War organisation which one day would become the economic arm of NATO. The Europeans never intended that to be the case. All along the EEC was an alternative to the Cold War. In 1951 Jean Monnet had bemoaned that Europe was a pawn in the Soviet–American power struggle, a sentiment widely shared on the Continent. The global ideological struggle of the super-powers contrasted with the insular Euro-centrism of the EEC. Many Europeans resented the fact that, for the first time in 2000 years, world affairs were not being decided in Europe. Indeed, on the contrary, they felt acutely the division of their continent, the great fault line of the Cold War, running through Europe. A popular belief, especially on the left, argued that the super-powers had much in common by sharing out the world between themselves in a cosy arrangement to allocate each other spheres of influence. As far as Europe was concerned, the Europeans were not in control of their own political agenda, not least because security policy was devised by the Americans through NATO. By 1957 the EEC aimed to secure peace in Europe between France and Germany ultimately through political union; it constructed a customs union based on mercantilist economic thinking essentially out of keeping with the spirit of GATT; and it envisaged an alternative to USSR–USA domination with a European voice equal to that of the superpowers.

Conservatives reject membership Conservatives in the 1950s kept out of these arrangements because they did not share the continental analysis. Firstly British leaders, particularly Churchill and Eden, did not accept that World War II had been caused by nation states. If there was a lesson the British had learned from World War II, it was the vital importance of the strength and sinews of British patriotism which during the dark days of 1940 and beyond had kept fascist Europe at bay. World War II had been caused by fascism, particularly its German manifestation, Nazism.

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In contrast to the Continentals, a second lesson was to maintain the United States as a strong and close ally. The Conservatives in the 1950s were determined to keep the United States playing a dominant role in NATO, because they knew that peace would be imperilled if there was any return to American isolationism. One of Churchill’s indictments of Chamberlain was that he had not taken seriously a secure treaty of friendship with the United States in the crucial years in which the Nazis were on the march leading up to the events in September 1939. Thirdly the economic lessons which the British had learned from the 1930s and 1940s were quite different from those of the Continentals. At Bretton Woods the British negotiators strongly supported the removal of tariff barriers. Indeed both Labour and Conservative governments did not want to repeat the unhappy experience of the Ottawa conference of 1932, whereby Britain had imposed retaliatory tariffs around the British Empire in response to the Americans’ own 1930 protectionist Smoot–Hawley Act. In the discussions of the post-war international economy at Bretton Woods, John Maynard Keynes had agreed with Cordell Hull and Harry Dexter White who argued that if goods cannot cross borders, armies will. The British liked the post-war international economic settlement, which concentrated on keeping world trade moving. GATT was based on multilateral world trade, which suited Britain’s global pattern of trade and world-wide economic interests in contrast to the Continental preference for regional integration based on customs union theory. Indeed, the whole customs union – regional bloc approach was exactly what the British and the Americans wanted to get away from in the late 1940s and early 1950s. Fourthly, again in contrast to the Continentals, the British defence consensus, shared as much by Bevin as by Churchill, viewed the Cold War as a reality in which Britain had to be the leading European defender of the values espoused by the West. Governments of this period, particularly the Conservatives in 1951–64, strongly supported a partisan approach in the Cold War, involving the possession of nuclear weapons, and fully supporting NATO strategy of locating American nuclear weapons in Britain. This pro-American policy represented deterrence against the Soviet Union which had then, as it did throughout the Cold War,


a preponderant domination in terms of conventional forces. The British rejected the ambivalent Euro-centric view of the Cold War nor – outside the Labour left and CND – were they resentful of dependence on the United States when the Soviet Union was so obviously a formidable military threat. All Conservative statesmen approved of NATO membership and accepted with fortitude and no little pride the role of senior European partner of the Americans. However, while disagreeing with the Continentals, the Conservatives did not oppose or seek to prevent the process of integration on the Continent. European union was all well and good but Britain would not partake in it. Churchill had effectively argued this in his famous Zurich speech in 1946, and in May 1953 he stated: We are with Europe but not of it. We are linked but not comprised. We are interested and associated, but not absorbed. We do not intend to be merged in a European federal system. Churchill thus provided the authentic voice of British conservatism in the mid 1950s as the Continentals were openly discussing the moves towards greater integration which bore fruit with the Treaty of Rome in 1957. Anthony Eden, who succeeded Churchill in 1955, took an even more robust line, being quite clearly opposed to British participation. With brilliant prescience Eden predicted that: the experiment of the six cannot succeed without federation and I think it most probable that if we join the six we shall be faced with that decision in a few years time . . . I am sure that it must be federation in the sense of one Parliament, one foreign policy, one currency etc. So far as I can judge events on the Continent of Europe, I do not want to become part of such a federation. 3

Macmillan’s U-turn So why then, by the early 1960s, did Macmillan, and his generation of Conservatives, change their minds? Why did a Conservative

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government make the application to join in 1961, which was rejected by de Gaulle in 1963?4 There are three aspects which explain Macmillan’s approach to the whole question of European integration. Firstly Macmillan personified a generation of Conservatives who accepted the inevitability of the end of Empire and realised that Britain could no longer afford an imperial role. They accepted what Paul Kennedy later described as ‘imperial overstretch’. With a few exceptions in the Monday Club they accepted what Macmillan himself called ‘the winds of change blowing through the continent of Africa’. But many Conservatives were deeply traumatised by the loss of British global power as the process of decolonisation accelerated. Macmillan resented the fact that the British had been humiliated at Suez in 1956, which demonstrated both Britain’s economic impotence and loss of diplomatic influence when the Americans and the Soviets voted together at the United Nations to condemn the British, French and Israeli action. Macmillan was acutely aware of the decline of British power which he did not accept as a corollary of decolonisation. He and his generation of Conservatives wanted to find a way in which British power could be rekindled, a way in which our influence could continue to spread beneficially beyond Britain’s borders.

Substitute Empire? Essentially the European Community was to that generation of Conservatives an ideal substitute Empire. Why not join the European Community? Why not provide it with leadership? If Britain could join Europe, then surely with our diplomatic experience, our skills in negotiation, our special relationship with the United States and with the successful transformation of Empire to Commonwealth as a model of peaceful evolution, we could provide the Europeans with political leadership? The Conservatives essentially saw the EC as a fledgling, young organisation which British leadership could shape and mould. In the process British power would be revived and the trauma of the end of Empire and the Suez humiliation surmounted.


Economic panacea? Secondly, Macmillan and his generation of Conservatives saw in the European Community an economic panacea. Here was a way in which the British economy could overcome so many of its problems without resorting to a radical and painful domestic economic overhaul. In 1958 the Society of Conservative Lawyers argued for a radical change to Britain’s industrial relations structure if the economy’s performance was to be improved. The culture of management spending half the day on the golf course and the trade unions who would strike as a first resort, not a last resort, was already firmly embodied in the national consciousness not least because of Peter Sellers’ brilliantly satirical film ‘I’m All Right Jack’. But the industrial relations jungle which was clearly visible in the fifties was too much of a tough challenge for Macmillan. Nor did the Conservative governments, with the exception of steel in 1953, tackle the vexed question of nationalised industries whose performance was already lamentable. Privatisation was not on the agenda. Macmillan and his ministers were not prepared, as Margaret Thatcher was a generation later, to take on the forces of British socialism in a head-on clash. But what better way could there be of solving these economic problems painlessly than by joining a fast-growing Continental customs union, in which Germany – with its Wirtschaftswunder created by Ludwig Erhard – was clearly the engine of economic growth; the EC became a painless, easy panacea to a Conservative government frightened of confronting difficult problems of structural economic decline.

Barrier to socialism? The third of the reasons why the Conservatives changed their minds over EEC entry relates to the way the political wind in the early sixties was blowing from the left. Conservatives feared that the return to power of the Labour Party would push British society further to the left, threatening the consumer-led affluence and social stability of the post-1951 era. The solid achievements of thirteen years of unbroken office were threatened by Harold Wilson’s talk of the ‘white heat of technological revolution’

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and a modern, egalitarian, socialist Britain. The fear of socialism was very important in pushing many Conservatives, not only in the early sixties but also in the early seventies, towards a European destination. They saw in the Treaty of Rome a capitalist club; they saw in membership of the EEC a barrier to Socialism. That this view was expressed primarily in private makes it no less significant. It was not of course a barrier which would prevent socialism completely, especially if the British people were to keep voting Labour, but at least it would slow down the process. The rules and regulations of the Treaty of Rome, for example on subsidies and nationalisation, would make it more difficult for Labour governments. Indeed, Labour’s own doubts about the European Economic Community hastened Conservative enthusiasm. In 1962 Hugh Gaitskell, in his famous conference speech, opposed EEC entry, castigated the CAP and spoke of the threat to parliamentary sovereignty so graphically that he feared the end of 1000 years of British history. The British parliament, he declared, would have no more power in relation to a federal Europe than California had in relation to a federal United States of America.5 Those to the left of Gaitskell objected to the EEC as a ‘capitalist club’ thus confirming the view among Conservatives that it must be a good thing. Many Conservatives from Macmillan to Heath, from Howe to Heseltine, were to link Labour’s opposition to the EEC with Labour’s ideological predilection for state control, nationalisation and planning. And when the Soviet Union attacked the EEC what more proof was required that Britain would be safer and more prosperous within it? For these three reasons the Macmillan generation sought membership of the EEC. In seeking to join for these reasons it is necessary to stress that the Continentals were not to blame. Macmillan deluded himself without any assistance from the original six. No-one can argue that the Continentals ever said to the British, ‘Come and join us, because we lack leadership.’ Indeed the EC, from the very start, was a mature organisation which had a clear focus of leadership in the Franco–German friendship. The whole idea of the European Community was that a bedrock of Franco–German friendship should make impossible the antagonism which had produced three wars in the previous


seventy years. De Gaulle and Adenauer were colossal figures in European political history. No-one looking at the process of European integration, or at the way the Community developed between 1957 and 1962, could seriously have claimed that it lacked leadership. Leadership was already there, solidified in the Franco–German friendship and buttressed by the new political institutions, notably the EEC Commission, of a supranational organisation. Nor did the Continentals ever at any stage offer to bail out the British economy. Nor, of course, did the Continentals ever claim that the EEC would be a barrier to Socialism. On the contrary, the EEC was always based on a close consensus between Christian Democrats on the one hand and Social Democrats on the other. The fusion of Christian Democracy and Social Democracy produced a consensus which has lasted throughout the entire experience of European integration. Continental Socialists never saw the EEC as an exclusively capitalist club, which would restrict social democracy, restrict the powers of the trade unions, and restrict interventionist governments in terms of welfare and public provision. From the start the Conservatives deluded themselves into believing that the EEC would be a solution to the domestic problems which they faced.

Why de Gaulle’s veto was ignored But the Macmillan government was unsuccessful in its quest for membership. De Gaulle in January 1963 vetoed Macmillan’s application to join. It is instructive to look at exactly what de Gaulle said. So often de Gaulle is presented in federalist history books as some kind of nationalistic bigot, an unhinged, xenophobic, anti-British, anti-American ranter who had personal reasons of pure spite and vindictiveness in vetoing the British application. Indeed, sometimes just to mention de Gaulle in this context will draw a roar of hearty guffaws and laughter from a supposedly informed audience. In reality de Gaulle’s veto was explained in a highly rational, intellectual and historically valid manner. He argued that: England, in effect is insular. She is maritime. She is linked through her exchanges, her markets, her supply lines to the

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most distant countries. She pursues essentially industrial and commercial activities and only slightly agricultural ones. She has, in all her doings, very marked and very original habits and traditions. In short, England’s nature, England’s structure, England’s very situation differs profoundly from those of the Continentals.’ What de Gaulle argued was not too dissimilar from what Churchill, Eden and the British Conservatives had said originally in the 1950s, that the Continental tradition and the British tradition, both in politics and economics, are different and cannot be reconciled within the EEC. In many ways de Gaulle’s statement can be interpreted as a pro-British back-handed compliment by highlighting those differences in trade, commerce and foreign policy which had traditionally been the source of British strength not weakness. Macmillan, however, ignored what de Gaulle said. In the House of Commons, just a few weeks later, Macmillan feigned not to know the reasons why de Gaulle issued his veto. The Conservatives did not look carefully enough at the arguments de Gaulle used, which consequently led them over the next decade to the belief that the original reasons for membership were valid and that it was only a matter of time – until de Gaulle retired – before Britain could become the leading member of the EEC. Thus after de Gaulle’s veto Macmillan was supremely confident enough to tell the Commons: As Europe’s revival began to succeed the European outlook began to widen. There were some who have kept the narrow view, who still seem to regard a united Europe as a restricted or autarchic community on a protectionist basis; in other words they would like a community which would retain all the errors of high protectionism which had often been the policy of some of the constituent nations . . . One of the main reasons why there was such universal support for our entry was the belief of our friends, as well as many of our critics, that Britain, added to this company, would give as well as take, that she would contribute to the tradition of outward looking development.6


Instead of taking de Gaulle’s arguments seriously, Macmillan persisted in his belief that Britain could change the EEC’s essential character. Thus from 1961 onwards the reasons for membership which Conservatives advanced were always fatally flawed. Firstly, the belief that Britain could be a leader in Europe was always an unattainable aspiration. For four decades every Conservative leader has argued that Britain needs to be in there to lead Europe; we need to be there at the conference table so that our case can be put; that if only the Continentals will listen to the majesty of our argument, they will see that the British case is valid. The Cabinet Papers which are now available under the thirty-year rule clearly indicate how the British believed they could change the EEC from within. In August 1961 the Cabinet suggested that: The United Kingdom can transform the EEC into an outward looking group of nations mindful of its responsibilities to the world as a whole. 7 In essence this was the substitute Empire, with Britain leading, transforming, and changing the EEC as if the Community were not already a mature organisation with its own aims and objectives. For over thirty years Conservatives have cavalierly projected their own vision of Europe on to the EEC in an overeager anticipation that British leadership will prevail. Sir Richard Nugent, MP for Guildford, told the Commons in 1962 that: if Britain went in we should give a lead to those influences which are looking outwards and we should make them the dominating force within the Community.8 In June 1993, echoing the language and optimism of the 1960s, the then Employment Secretary Michael Howard predicted that: Over the next few years we have a chance to create a Europe in Britain’s image. The flexibility, the competitiveness, the resistance to regulation which we prize so highly will be increasingly attractive to our European partners. The straitjacket of uniformity will be recognised as intolerable. Common sense is on our side. 9

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Although the original aims of the EEC remain unchanged, Conservative leaders from 1961 onwards have argued that Europe is soon to go our way, that we should be at the ‘heart of Europe’ to influence events not ‘standing on the sidelines’ and that past failures to convince our European ‘partners’ were bad luck not bad judgement. Essentially what Conservatives have done is to look at a Europe they would like to create, rather than at the EEC as it really is. Virtually every John Major speech on Europe is a classic example of this genre. In October 1991 he told the Conservative conference that ‘being at the centre of Europe means we are in a better position to influence the way in which it goes’. Similarly in September 1994 in the Netherlands he brimmed with optimism. Outlining his vision for Europe in the 1990s, he argued that the 1950s’ vision is no longer relevant. He urged a 1990s’ vision of Europe in which the nation state is the primary political unit. The Continentals, however, are not listening and were never amenable to that type of argument. Chancellor Kohl and M. Mitterrand have absolutely no intention of changing their agenda of European Federal Union on the Maastricht model to suit the agenda John Major outlined in his Netherlands speech. As Denis Greenhill, permanent under-secretary at the Foreign Office at the time of EEC entry has commented: Those British who were interested misjudged the extent to which they were able to shape the development of the Community, whilst the ‘Founding Fathers’ were careful not to disclose their ultimate federal objectives. History will record how we were steadily outsmarted between 1972 and 1992.10 There are profound consequences for British policy as a result of this approach. Each failure to reverse the Federal trend has its own ratchet effect by which the powers of the British parliament are constantly being transferred to Brussels, albeit in a series of seemingly trivial incidents. But when taken together the loss of power is so extensive that a loss of sovereignty itself is now threatened by the full implementation of the Maastricht Treaty. As well as seeking the ‘substitute Empire’ Conservatives have always exaggerated the economic gains of EC membership and consistently failed to predict the drawbacks. We have laboured


under the CAP which is universally scorned and derided in Britain. It imposes a cost of £28 per week or £1500 per year extra on the food bills of the average household. We found out that the exchange rate mechanism of the European Monetary System was a device which deepened and prolonged the recession, caused a massive number of bankruptcies, a sharp rise in unemployment, and destroyed the rates of economic growth successfully built up in the eighties. In 1991 at the height of the ERM experiment Britain had –2.5% economic growth. In 1992 we still had –1% growth and the economy has only recovered since the £ was mercifully forced out of the ERM on ‘White Wednesday’, 16 September 1992.11 Similarly the argument about trade has worked out to Britain’s disadvantage. Britain requires global free trade.12 We need to be at the heart of GATT and the new World Trade Organisation. According to figures published in February 1994, 58% of our total exports are to the rest of the world compared to 42% to the EU. The EC, because it is a Customs Union, is much too insular, mercantilist and protectionist to suit Britain’s pattern of global trade. And the scandal of the budgetary contributions has plagued virtually every government since Britain joined in 1973. The threat to revoke the 1984 Rebate Agreement on budgetary contribution still hangs over British policy. Even with the rebate our projected net contribution to the EU in 1996/7 will be £3.6 billion or £69 million each week, the equivalent of an extra 2p on income tax at the standard rate. Macmillan, Heath and their supporters were wrong to argue that EEC membership would be the great panacea for our economy. Far from it, our economy would have prospered far more outside the European Economic Community than it has done inside.13 But what of Macmillan’s third argument that EC membership would be a barrier to socialism? One of the myths which Margaret Thatcher dispelled was that is was not politically possible for Conservatives to fight a head-on battle against socialism. Previous generations of Conservatives had tried to take the rough edges off socialism by conducting a series of compromises with it. The nationalised industries would be better managed than under Labour, for example. What Mrs Thatcher proved was that it was possible to defeat socialism and to roll back those areas of the socialist state, such as nationalisation and regulation, while

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maintaining electoral credibility and a broad appeal. The arguments before 1979 had been that a Conservative government, if it fought socialism head-on, would forfeit electoral support in an age of consensus when voters tended to favour the centre ground. Mrs Thatcher proved that it was possible to win three consecutive elections on a right-wing platform aimed at dismantling the socialist state – in her own words ‘banishing socialism to the periphery of British public life’. Yet the irony now is that EU membership implies socialist projects which threaten the Thatcher legacy. Under intense pressure from within the Party, John Major was forced to opt-out of the Social Chapter of the Maastricht Treaty. But social and labour market regulations by the back door of the Qualified Majority Voting (QMV) system have been a repeated feature of the EU’s attempt to circumvent the Social Chapter opt-out. There appears precious little that can be done about this while Britain remains an EU member. Viewed in the 1990s, when British socialism has been domestically defeated, and when Tony Blair’s Labour Party has adjusted itself to many of the changes Mrs Thatcher introduced, it is ironic that the greatest threat of renewed socialism emerges from the EU itself. This outcome is the very opposite of that predicted by Conservatives in the sixties and seventies.

Beyond Maastricht: the Conservative choice What then of the future? How can we assess the Conservative Party’s European experience? It is clear that Conservatives, in the near future, have to make some fundamental choices. It is no longer sufficient for a Conservative leader simply to paint a picture of the type of Europe that Britain would like to lead. This approach has been tested to destruction and the Continentals are mightily unimpressed by it. The Maastricht Treaty has been ratified but it has not yet been fully implemented. In 1996 the intergovernmental conferences will decide on the full implementation of that Treaty. This provides a golden opportunity, an heroic pretext, for John Major and the Conservative Party to look afresh at the whole relationship with the European Union.14 In 1996 John Major should renegotiate a free trade deal with the EC to safeguard Britain’s economic interests and to ensure


that we have a full and functioning single market with the EU countries. But he also needs to remove any possibility of political union, a single currency and the moves towards integration that are the very essence of the Community, as pursued by the federalist troika of the Commission, the French and the Germans. If John Major can renegotiate a deal to this effect he will solve the thirty-year-old problem of the Conservative Party and EEC membership. But if such a deal is not forthcoming John Major should cast aside the failures of those thirty years by leading his party and his country out of the federal superstate which the Continentals are determined to create. Britain should withdraw from the EU rather than acquiesce in a federal state which few in the Conservative Party welcome and which the vast majority fears. If the Conservative Party is not to tear itself apart – and possibly to split in two – over the issue of Europe, John Major has until 1996 to work out a strategy whereby Britain can be extricated from those parts of the EU that we can never change and which do not suit us. The Prime Minister has two years to effect this diplomatic negotiation. If he can do it, then his leadership of his party will be transformed. He will become not only a successful politician, but also one of the great Conservative statesmen. What is clear is that the grim federalist future predicted in 1970 by Conservative MP Neil Marten is almost upon us: Where does it end up? It ends up quite clearly with a European Parliament – there is one now of course – but it will be strengthened . . . it will go on. It will get budgetary power and so on, it will be directly elected and in the end it will vote on a majority vote. It will have a common foreign policy, a common defence policy, common social, money and even now they’re talking about a common education policy. So in the end this is what will rule this country and the British Parliament will be reduced, and I do not say that this is exaggeration, it will be reduced to the status of a County Council as we know it. And that, ladies and gentlemen, is forever.15 For John Major, the Conservative party, and the people of Britain time is running out.

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Notes 1 Sunday Times, 16/10/94. 2 For an astute view of French participation, see Alexander Werth, De Gaulle (Pelican, 1965), Ch. 10. 3 Quoted in David Dutton, ‘Anticipating Maastricht: The Conservative Party and Britain’s First Application to join the EC’, Contemporary Record, Vol. 7, No. 3, Winter 1993. 4 For an excellent account of Macmillan’s negotiations with de Gaulle see Alan Sked, Time for Principle (Bruges Group publication, 1992). 5 Like Anthony Eden, Gaitskell accurately predicted the federalist destination of the EEC. He told the Commons on 7 November 1962, Hansard, Vol. 666, col. 1018: The government are arguing more and more that the case for entry into the Common Market is political. The Prime Minister devoted almost the whole of a pamphlet to this. He spoke of the European Community ‘with the ability to stand on an equal footing with the great power groupings of the world . . .’ What do the government propose? They say that Europe is going to be the great new force standing equally with Russia and the United States. How can we conceive this happening unless there is a single Foreign Secretary to express that policy and a single Prime Minister, and therefore a single Legislature? This is federation. This is the logic of it. At least, if it is not that, it is the supranational majority decision Council. 6 Hansard, Vol. 671, cols 957–8. 7 Quoted in Contemporary Record, May–August 1961, Cabinet review, Vol. 6, No. 3, Winter 1992. 8 Hansard, Vol. 666, col. 1029. 9 Quoted in The Times, 9/6/93. 10 Quoted by Andrew Roberts, The European Journal, May 1994. 11 For an accurate prediction of the outcome of ERM membership see Martin Holmes, Times Higher Education Supplement, 26/10/90. 12 See Bill Jamieson, Britain Beyond Europe (Duckworth, 1994), for an excellent discussion of Britain’s global trade and export opportunities. 13 See Christopher Booker and Bill Jamieson, Sunday Telegraph, 9/10/94, estimating a total cost of £235 billion since 1973. 14 For further discussion of this theme, see Martin Holmes, Beyond Europe: Selected Essays 1989–93 (Nelson & Pollard Publishing, 1993). 15 Neil Marten, speaking on the Thames Television programme, ‘Europe the Great Debate’, 11/8/70.

3 John Major and Europe: The Failure of a Policy (1997)*

Introduction As the Major era has now come to an end it is possible to consider his premiership in its entirety, to evaluate exactly what John Major’s European policy actually was. His term of office can be split into three distinct parts. Firstly, between November 1990 when he became Conservative party leader, and the General Election in April 1992, Major pursued a policy of compromise in order to hold his party together because the question of Europe threatened to split it apart. The second period was that of Euro-enthusiasm, between the victory in the April 1992 election and September 1993, which was characterised by Major’s enthusiasm for the ERM and by the passage through the House of Commons of the Maastricht Treaty. In the third period, from September 1993 up to and including the 1997 General Election, Major reverted to the policy of compromise. During the compromise Mark II the issue of Europe became a function of party management, as Major endeavoured to preserve a fragile semblance of party unity. Ultimately Major’s European policy contributed mightily to his election defeat.

Compromise Mark I John Major became the Conservative party leader in 1990 because he was the ideal compromise candidate; someone who could * Bruges Group publication (1997). 27

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unite the party; a healer not a warrior; a pragmatist not an ideologue; a person who would appeal to the Thatcherites but equally who would co-operate with the Heseltinies; a man who could rally the party with a General Election less than two years away. As John W. Young has argued, ‘with an election necessary by June 1992, and deeper division between pro- and anti-Europeans in the Conservative Party thanks to the leadership contest, he had to prevent EC issues upsetting domestic politics’.1 It is not surprising, having become leader in circumstances of an internal civil war as bitter as anything which had occurred since 1975, that John Major’s strategy was to avoid ideological conflict within the party. He was, of course, temperamentally attuned to this approach, having stated in a somewhat neglected interview with the Sunday Telegraph in 1989, that he took his ideas from the ether, not from the written word, admitting that ‘I work almost by instinct; to me something either feels right or it feels wrong’.2 It is in this internal party context that Major’s 1990–2 European policy should be assessed. In those eighteen months, although Major stated that Britain should be at the heart of Europe, and although he made friends with Helmut Kohl – it was ‘my good friend Helmut’ rather than ‘Herr Bundeskanzler’ – he was careful not to offend the Thatcherites by making equally clear that he would be prepared to stand up for British interests just as had been his predecessor. According to his close political advisors Sarah Hogg and Stephen Hill: The message of the ‘Heart of Europe’ speech has been misrepresented since. It was never code for a federalist agenda. It was a signal that Britain was going to play an active part in the Maastricht negotiations. In the velvet glove of European sentiment, there were some iron messages. Accurately forecasting the year ahead, John Major warned that ‘Britain will relish the debate and the argument. That is the essence of doing business in today’s Community’. 3 This observation has been supported – albeit in politically posthumous terms – by Major himself, who told his biographer, Dr Anthony Seldon, that his choice of words had been a mistake and that he meant to say that Britain should be at the heart of

John Major and Europe 29

the debate on Europe.4 During 1991, therefore, Major appeared to face both ways on Europe, as the imperatives of party management demanded. Different and competing sentiments would coalesce in the same speech, indeed sometimes in the same paragraph of the same speech. Addressing the Conservative party conference on 11 October 1991, three consecutive sentences characterised this ambiguity: We can’t go on as we were in terms of Europe: we should be at the centre of Europe if we are going to properly protect our interests. But being in the centre of Europe doesn’t mean we’ve sold out, doesn’t mean we’ve suddenly become Europhiles and adopt every fetish that emerges from the European Commission. Of course not. What it does mean is that we are in a better position to influence the way in which Europe goes. While contradictory in terms of a consistent approach to European policy, this strategy of compromise was successful. Major held his party together. Although, as his sympathetic biographer Bruce Anderson admits, there was some confusion as to where exactly John Major stood on Europe, 5 this was still regarded by the Continentals as an improvement on Mrs Thatcher’s open hostility. On the question of the ERM, Mr Major emphasised that although he strongly supported the Pound’s membership this did not necessarily imply an endorsement of a single European currency. Whilst the policy emanating from Europe unambiguously envisaged ERM membership as an integral part of the process outlined in the Delors Report and the Maastricht Treaty, this was not necessarily embraced by Major. According to the Prime Minister, ‘ERM entry does not mean that we are now on a road leading inexorably to a single currency’.6 But the Delors Report and the Maastricht Treaty did imply exactly that, notwithstanding the Stage III opt-out. Similarly, Major’s preservation of party balance dominated the negotiations which led up to the signing of the Maastricht Treaty in December 1991. Heseltine, Howe, Hurd, Heath – the Eurofanatics in the Conservative party – would have been happy with the Treaty lock, stock and barrel.

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They had no substantial ideological objections to a Treaty which so inspired Britain’s ‘partners’. Indeed Mr Heath confessed that he had no objections to the Social Chapter, declaring that Major’s approach was music to his ears. The Thatcherites by contrast made clear that it was, in Mrs Thatcher’s own words, ‘a treaty too far’. They urged Major not to sign up and, if possible, to use the British veto. In her memoirs Mrs Thatcher argues that Major’s approach ‘although it won plaudits, . . . left the fundamental problems [of Britain’s relationship with Europe] unsolved’. 7 Major skilfully contrived a carefully crafted compromise between these two positions within his party. He signed up to the Treaty, including the commitments to Stages I and II of monetary union. However, he negotiated three qualifications to appease the Eurosceptics. The word ‘federal’ was deleted from the Treaty, even though, to the continentals, this was a purely semantic change. Britain was exempted from the Social Chapter, which Mrs Thatcher had once characterised as Marxist. And thirdly, a decision in relation to monetary union was deferred for approval by the British parliament until Stage III commenced.8 The compromise over Maastricht effectively postponed the conflict within the Conservative party until after the 1992 election. Whatever may be deduced from Major’s policy for lacking a consistent and coherent European strategy, it was successful in party political terms by demonstrating his ability as a party manager. As Butler and Kavanagh correctly observe, ‘Mr Major was able to claim Maastricht as a success; Mrs Thatcher stayed silent and Europe, seen by many as a rock on which the Conservatives would founder, ceased to be a political hazard – at least for the time being’.9 Equally, Sked and Cook are right to argue that this temporary political peace was bought at the expense of the national interest in that ‘in order to prove his credentials Major had to agree to greater European integration. He had to endorse everything Mrs Thatcher had said no to including EMU and EPU’.10 Not for the first time under Major, the national interest played second fiddle to internal party cohesion. This was also the case during the 1992 campaign as Major discreetly persuaded his party to adopt a collective vow of silence on the issue of Europe. Maastricht was not an issue between the parties because Labour was just as divided. Neil Kinnock no


more wanted to have internal divisions on Europe made public than did John Major. Between 1990 and 1992, Major’s strategy of compromise to win the election worked effectively, at the expense of disguising and postponing, rather than eliminating, internal party disagreement.

April 1992–September 1993: siding with the Euroenthusiasts Between April 1992 and the autumn of 1993, Major sided decisively with the supporters of European integration within his party. In this period there was no doubt that his principal political enemies were not on the Opposition benches but were the Conservative Eurosceptics. They were ‘bastards’ who were ‘spreading poison’; and he was going to ‘flipping crucify them’. 11 On a more positive note he purred, in a foreword to a foreign office propaganda booklet issued to celebrate the July–December 1992 British EC presidency, that ‘for us, in Britain, Europe is part of our lives. As an island some of our traditions differ. But our history and culture are linked closely to those of other European nations’. 12 The Prime Minister even found time in his busy schedule to select personally the logo of the UK presidency, a rampant lion named Rory, who strutted purposefully among the EC flag of yellow stars on a blue background. 13 Moreover, Major developed a respect for Jacques Delors’ ability as an economist, to the surprise of the more economically literate British civil servants. 14 In particular, Major’s Euroenthusiasm focused on two policies on which he staked his reputation and the survival of his government. The first was adherence to the Pound’s membership of the ERM. The second was the passage of the Maastricht Treaty through the House of Commons. Major had long argued that the recession, which had been the longest and deepest since the 1930s, with –2.5% growth in 1991 and –1% growth in 1992, would be dispelled because of the successful strategy of the Pound’s membership of the ERM. This belief was central to government economic policy to the extent that it was a panacea. Membership of the ERM would be a guarantee of low inflation with the monetary discipline which had been the hallmark of the

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Deutschmark. Additionally, such stability would enable the European Single Market to succeed, and with it the prospect that when German interest rates came down, British interest rates would do the same, but without rekindling inflation. It would be the best of all worlds, with the Pound in the ERM’s proven zone of currency stability. Confidently the 1992 Conservative manifesto proclaimed that ‘in due course we will move to the narrow bands of the ERM’. 15 John Major’s belief in the ERM was long-standing. Mrs Thatcher’s memoirs recall his growing enthusiasm, from April 1990 to October, when the Pound joined, to the extent that ‘intellectually he was drifting with the tide’.16 In Nigel Lawson’s view, Major was converted to the cause of ERM entry by the Treasury mandarinate. 17 This view is given added authority by what Major himself told to his biographer Nesta Wyn Ellis: Every day I sat at the Treasury [as Chancellor] and I saw Sterling being kicked around by rumour. And when Sterling is being kicked around, the economy is being kicked around because it affects monetary policy, and monetary policy ripples through and affects everything else. The more I realised, day after day, was that the most priceless gift you could offer British business over the medium term was a stable exchange rate and a stable inflation rate. And what was the best mechanism to achieve this, or the best and most proven mechanism to achieve it over the years would be an Exchange Rate Mechanism. 18 Indeed, so upbeat was John Major in the summer of 1992 that in one television interview he even speculated that one day, in the not-too-distant future, the Pound would be as strong as the Deutschmark and perhaps might even replace it as the anchor currency of the ERM. This was the high water mark of Major’s unequivocal belief in his ERM strategy. Thus on 7 September 1992, a matter of days before the Pound left the ERM, he confidently asserted that: What lies at the heart of the Community is one very simple idea. It is the notion that by binding together the nations of Europe in a common economic framework it would be possible


to build an inextricable network of shared interests that would render war between former enemies impossible . . . the Commission’s prescription for . . . changes in economic and monetary arrangements must reflect real changes in economic behaviour in the market place, and must work with the grain of the market and not against it. This is of course what the ERM does, and will continue successfully to do, whatever happens to the Maastricht Treaty. 19 Just three days later he told the Scottish CBI, on 10 September 1992, that: all my life I have seen British Governments driven off their virtuous pursuit of low inflation by market problems or political pressures. I was under no illusions when I took Britain into the ERM. I said at the time that membership was no soft option. The soft option, the devaluer’s option, the inflationary option would be a betrayal of our future; and it is not the Government’s policy . . . All too often in the past the solution was the same – to let the exchange rate go. And every time – sooner or later – the result was the same: rising import prices, rising wages, rising inflation, and a long-term deterioration in Britain’s competitiveness which offset any short-term gain.20 Right up to its collapse on 16 September, the ERM was the bedrock of John Major’s economic and European policy. Bernard Connolly has perceptively argued that this belief endured to the bitter end: Major has shown himself time and again to be a keen supporter of the ERM – he used Mrs Thatcher’s political weakness to force Britain into the system in 1990; he attempted in the Maastricht negotiations to make membership a legally binding obligation; he was prepared to take the country to the brink of bankruptcy to stay in the system in September 1992.21 Of equal importance in this period of Euroenthusiasm was the passage of the Maastricht Treaty. After the 1992 election Major could not defer decisions on Maastricht any longer. He needed

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to pass the Bill through parliament to ensure that the Treaty – in which he took such negotiating pride – was ratified. To that end he was prepared to wage war against the Eurosceptics within his own party. 1992–3 was a period in which Major preferred to be sustained in office by votes from the Labour party, which took a bipartisan view of the Treaty, or by votes from the Liberal Democrats, or by votes from the Ulster Unionists, rather than concede to the Eurosceptics on his own benches. In the last resort, John Major was even prepared to risk a General Election by making the passage of the Treaty a motion of confidence. Predictably, this led to the first of the disciplinary measures against the Eurorebels when the Member of Parliament for Torbay, Rupert Allason, was deprived of the Whip. Major’s government was fortunate that – like the Heath government in the 1970s which passed the Act of Accession – parliamentary deliverance was forthcoming from the Opposition benches. As Peter Riddell puts it: Most of those involved knew the government would get its bill. Indeed, the Labour leadership privately accepted that all they could do was to delay passage of the bill and cause the government maximum embarrassment, which they duly did. But the Maastricht debate cannot merely be dismissed as a lengthy, and somewhat tiresome, charade which baffled ordinary voters outside the political world. The saga not only seriously weakened Mr Major’s authority and leadership but it showed that, on a few, rare issues, the executive can be constrained and restrained by the legislature. However this only applies on occasions when the government cannot rely on the full support of its own backbenchers.22 The passage of the Maastricht Treaty, therefore, was legislative priority number one for the 1992–7 Parliament. It was not amenable to an internal party compromise which would have shredded or substantially amended it. This policy stance was all the more remarkable because there were three clear and heroic opportunities when John Major could have said, had he wished to, that the Treaty would be abandoned. Firstly, in June 1992 following the Danish referendum, Major could have argued that the ‘No’ vote technically invalidated the Treaty and that therefore it would


not proceed in the British parliament. But on the contrary he quickly took the view, favoured on the continent and advocated by the federalist-minded Danish government, that the Danes should be made to vote again. Indeed according to the 1996 BBC programme ‘The Poisoned Chalice’, 23 Major and Hurd decided on the morning after the Danish vote, on the advice of the Whips and without summoning a Cabinet meeting, to force through the Maastricht Bill. Such a decision greatly assisted those who hoped that that such stoical resolution by the British government would help to buy sufficient time for a second, and successful, Danish referendum. John Major, by pursuing this zealous integrationist strategy, performed a signal service to the federalist cause. When the full extent of the implications of making the Danes vote again sunk in, party and press opinion had moved sharply in a Eurosceptical direction. The intellectual case against Treaty ratification was overwhelming but Major was determined not to relent. Thus William Wallace observed that: The Daily Telegraph, the unofficial ‘house organ’ of the Conservative party, had passed under the control of Conrad Black, a Canadian newspaper proprietor whose belief in the closeness of transatlantic Anglo–Saxon ties was matched by his admiration for both Reagan and Thatcher. In the Sunday Telegraph and The Spectator, which revived under his ownership to become the leading political weekly of the right, resistance to ‘Europe’ and admiration for the USA were leading themes, often accompanied by suspicion of the ‘Europeanizing’ Foreign Office. The Times and Sunday Times, and their popular tabloid stablemates the Sun and the News of the World, had become under Rupert Murdoch’s ownership both vigorously supportive of Mrs Thatcher and strongly anti-European.24 The second opportunity to abandon the passage of the Treaty came after the Pound’s withdrawal from the ERM on ‘White Wednesday’, 16 September 1992. Major could have argued that the exit of the Pound from the ERM invalidated the Treaty because ERM membership was essential to the entire process of monetary union. He had every reason to argue that it would be inconceivable to contemplate the abolition of the Pound and

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the acceptance of the single currency without the Pound being inside the ERM. Moreover, the Treaty presupposed that countries such as Britain, who were at the time in the wide 6% band, would move to the 2 1⁄4% narrow band. Yet Major’s government had moved, albeit at the behest of the market, in the opposite direction. Here was another realistic opportunity when Major could have decided that the circumstances affecting the Treaty had materially changed and that therefore its passage would be terminated. But he chose not to do so. He made it clear that the Treaty would proceed in the House of Commons. Major preferred, as Edmund Dell has noted, to sacrifice his Chancellor of the Exchequer to disguise his own culpability: On 16 September 1992, ‘Black Wednesday’, the Major government ignominiously suspended sterling from membership of the ERM after swearing on a stack of bibles that it would not devalue, let alone creep away from the ERM itself with its tail between its legs. Major’s great act of policy as Chancellor had collapsed. On Black Wednesday, it was not merely the credibility of sterling that was undermined but that of the Major government as well . . . Major is unique in that he was already Prime Minister when his credibility as Chancellor was so unmercifully drained. No one seriously expected him to resign as Prime Minister for what he had done as Chancellor. A sacrificial lamb was, after all, available in the form of his friend and successor as Chancellor, Norman Lamont, though he was allowed a short stay of execution before being despatched eighteen months later. 25 That Major was always unlikely to ditch the Treaty because of the ERM fiasco can be ascertained by his policy decision during White Wednesday itself to raise interest rates to 15%. If this decision, as Philip Stephens argues,26 was the Prime Minister’s personal preferred option, it indicates a touching dedication to the ERM and an unwillingness to face the reality of its implosion even at that late stage. If Major was disinclined to blame the ERM – he spoke only of ‘fault lines’ – he was also disinclined to drop the Maastricht Treaty in which the ERM featured with almost theological prominence.


Thirdly, came the extraordinary events at the Conservative party conference in October 1992, perhaps one of the most remarkable conferences since the 1963 resignation of Harold Macmillan. In speech after speech, the winds of change blowing in the party in a Eurosceptical direction were gale-force. Norman Tebbit and other Eurosceptics were cheered to the rafters. John Major at the end of that week could have said in his leader’s speech, ‘I have listened to you; I have heard you; I understand what you say; I will lead you; the Treaty will not pass’. Had he done so, it would in all probability have greatly united his party, with the exception of a small group of Heathite Eurofanatics. But he chose not to do so. He confirmed that the Treaty would proceed irrespective of the arguments which had prevailed and the strength of feeling in the party. If these three factors are considered together, it is apparent that John Major was a Euroenthusiast, loyal to the ERM and Maastricht, favouring greater integration with Europe. He staked his own authority on the passage of the Treaty which he saw as vital to Britain’s role in Europe, and he was prepared to take on and defeat, even attempting to humiliate, the Thatcherite Eurosceptics in his party to achieve that end. In so doing John Major revealed his true political plumage. Additionally in the glad confident morning of integrationist fervour the Prime Minister constantly asserted that the Maastricht Treaty decentralised power because of the concept of subsidiarity.27 This pretence was maintained even after the European Commission’s own explanation of Maastricht as ‘conferring more powers on the Community’.28 Later, as compromise Mark II developed, the emphasis on subsidiarity was toned down.

1993–7: compromise Mark II Between September 1993 and the General Election defeat in 1997, John Major reverted to the strategy of party management, or compromise Mark II. During those four years he uttered strong sentiments in favour of European integration, as strong as those which he expressed between 1992 and 1993. But equally in the same period, sometimes only weeks apart, Major could sound distinctly Eurosceptical. In pursuit of Euroenthusiasm, he deprived eight Conservative Members of Parliament of the Whip in

38


November 1994. In a parliament characterised by many rebellions – pit closures, Value Added Tax, Post Office privatisation – not a single Member of Parliament lost the Whip for dissent on those issues. But when eight Members voted against increases in Britain’s budgetary contribution to the EC in November 1994 they were severely punished. A ninth Member, Sir Richard Body, voluntarily withdrew the Whip in sympathy with his colleagues. By any standards this was a draconian punishment which had not been hitherto regarded as conducive to the Whips’ management of the Conservative party, at least when it was in power. Indeed, withdrawing the Whip was usually associated with the ideological difficulties within the Labour party during the Bevanite era. To many grassroots Conservatives this was an extraordinary and extreme reaction to the Eurosceptic rebels, who were transformed into instant martyrs. That the party hierarchy shamelessly pursued a ‘dirty tricks’ campaign against the rebels only increased the admiration and sympathy for them.29 The Whip was restored six months later as a result of the fact that they toured the television and radio studios of Britain, and were deluged with mail from Conservatives who regarded them as heroes. Some of the whipless rebels became better known to the general public than many members of John Major’s Cabinet who were, arguably, household names only in their own households. The withdrawal of the Whip was highly significant in assessing the extent to which Major was prepared to pursue the pro-integrationist line. He also made clear that anyone who contemplated withdrawal from the European Union was living in ‘cloud-cuckoo land’. He reiterated that the increasingly serious heavyweight criticism of the European Union was incompatible with his policies. Addressing businessmen at the Ritz hotel in London on 7 December 1994, he emphasised: I don’t have a shred of doubt that our interests are for us to be in the European Union, building the sort of European Union we want. Where would so much of your trade be if we were not? What would be the position if we found ourselves outside real influence? What would happen in terms of the regulations and directives if we were not in there pitching?


I doubt there’s more than a handful of people in this room who don’t believe that our interests emphatically lie in Europe. It is about time some of you got up and said that loudly and clearly. It is about time you stopped having this debate run by a handful of people who are fundamentally opposed to Europe and who seem to turn every part of the debate against what is happening in Europe. 30 However, calling on the business community to turn on the sceptics who had been over influencing the debate betrayed a growing anxiety at the growth of Euroscepticism. Accordingly, Major only considered the alternatives to European Union membership in order to rubbish them. As far as he was concerned Britain was an unconditional member of the European Union in which the benefits outweighed the costs. He even evoked the prospects of European integration to advance the Northern Irish ‘peace process’. During the secret negotiations with Republicans which preceded the August 1994 ceasefire Major’s representative told Provisional Sinn Fein: The final solution is union [i.e. a united Ireland]. The historical train – Europe – determines that. We are committed to Europe. Unionists will have to change. This island will be as one. . . . Confidentiality was of the utmost importance. Only Major, Mayhew, Hurd and secretary to the cabinet [Butler] knew of all this.31 Ironically, therefore, Europe could have a constitutional and political dimension for Northern Ireland but not for the vital matter of economic and monetary union. The Prime Minister obstinately refused to consider the question of the Single European Currency in the constitutional terms which the Eurosceptics urged. He refused to consider it as an issue with profound political as well as economic implications. He stuck to the view that there would be circumstances in which the Single European Currency would be beneficial to Britain if the convergence criteria were met. 32 And it was with great reluctance that he conceded that in the event of his Government recommending that course of action there would have to be a referendum of

40


the British people. Thus between 1993 and 1997 Mr Major was still capable of categorically supporting the policy of European integration. But equally, in the same period, Major was capable of espousing a different message. There are eight important examples of Eurosceptical pronouncements by Major between 1993 and 1997. The first of them, in September 1993, was the article he wrote in The Economist. Adopting a marked Eurosceptical tone he wrote that: We take some convincing on any proposal from Brussels. For us, the nation state is here to stay. . . . We counted the financial cost of our membership. Others counted their financial gain. We subjected each proposal to the scrutiny of Parliament. They relaxed in the sure knowledge that their public opinion uncritically endorsed the European idea. Hang the detail. Never mind the concession of power to Brussels. . . . The vision of the founders of the Community was a fine one. What we have seen in the last two years is not so much a swing against Europe as a demand for a different kind of Europe. The structures and strategies envisaged in the Treaty of Rome are the product of Europe in the 1950s. It is natural they should be clung to by a generation of European politicians whose views were moulded in the 1950s and 1960s. But the new mood in Europe demands a new approach. . . . The challenge to this generation of European leaders is to build a Community for the whole of Europe. That is a bigger vision. . . . It is for the nations to build Europe, not for Europe to attempt to supersede nations. I want to see the Community become a wide nation, embracing the whole of democratic Europe, in a single market and with common security arrangements firmly linked to NATO.33 Such a Eurosceptical article begged the question of why Major had tortured and contorted his party over the previous eighteen months by passing the Maastricht Bill through Parliament. How could The Economist article be squared with the man of Maastricht which Major had so willingly become? As Lord Beloff has accurately pointed out:


It was not so much that the Euro-sceptics could not assent to the essentials of the Prime Minister’s position as set out in his celebrated article in The Economist . . . as that they doubted his ability to persuade the other countries of its wisdom and felt that he was neglecting the very different trends that were taking shape in the discussions elsewhere of the Union’s future, and the continued activity of the Community’s institutions in directions considered by them inimical to Britain’s interests.34 But Mr Major’s scepticism never reached the intellectual point of departure from which such a fundamental first principle would have been considered. Secondly, there was a revealing and interesting interview which Major gave to Der Spiegel on 25 April 1994. This interview began a series of pronouncements in which he took a somewhat critical view of the timetable for the Single Currency. Der Spiegel mused that ‘London and Bonn seem . . . to share increasing doubts on monetary union’, to which Major replied: My scepticism is about the economic impact of it. Let us presuppose we moved to a single currency in the sort of date specified before 1997, 1998, 1999. If we were to move to a single currency and it were to be successful, you would need proper convergence of the economies across Europe. They would all need to be operating at the same sort of efficiency. I know of no one who believes that is remotely likely, it simply is not going to happen.35 A year later, during the leadership contest with John Redwood, Mr Major described the economic arrangements for monetary union as ‘Euro-crap’ which was hardly the sort of language usually associated with acceptance of the principle of monetary union enshrined in the Maastricht Treaty. Thirdly, John Major turned his attention to the increasing volume of European regulation. In the 1980s it was believed that the European single market, the 1992 project, would produce something akin to the Thatcherisation of Europe. But by the mid 1990s it was clear that the single market was not based on Thatcherite deregulation, which the Conservatives favoured, but

42


on what the Continentals called standardisation and in Britain was better known as harmonisation. Many businesses, as Christopher Booker has revealed, experienced a whole welter of directives and regulations in contrast to the original expectation of reducing impediments to trade and enterprise. John Major addressed these fears in a speech on 27 July 1994, arguing that: we did not manage to stem the tide of European regulation during the 1980s. Now we have put up breakwaters: the principle of ‘minimum interference’ we secured at Maastricht; and, of course, our opt-out from the Social Chapter, enshrined in a legally binding protocol. With the German government, we are working to reduce regulations across Europe. The tide is turning. The number of proposals for new directives tabled by the European Commissions has fallen from 185 in 1990 to some 25 so far this year. 36 Fourthly, an even more more significant speech was delivered by John Major in the Netherlands in which he specifically attacked the whole concept of a federal Europe, and advocated a Europe of nation-states. Such a vision was incompatible with Maastricht, and was scathingly rejected in virtually every European affairs speech made by Helmut Kohl or François Mitterrand. In his Leiden speech there was little doubt that Major was rattling the cage of the Franco–German axis, and the European Commission, by arguing that: The vision of the Founding Fathers of the European Community was proved right for its age. But it will not do now . . . Popular enthusiasm for the Union has waned . . . The Maastricht Treaty strained the limits of acceptability to Europe’s electors. Europe’s peoples in general retain their favour and confidence in the nation-state. I believe that the nationstate will remain the basic political unit for Europe . . . I see real danger, in talk of a ‘hard core’, inner and outer circles, a two-tier Europe. I recoil from ideas for a Union in which some would be more equal than others. There is not, and should never be, an exclusive hard core of countries or of policies . . .


Whatever one’s view of EMU Stage III – and I have thought it right to reserve the United Kingdom’s position – the introduction of a common currency without proper prior economic convergence would be a disaster . . . The European Parliament sees itself as the future democratic focus of the Union. But this is a flawed ambition, because the European Union is an association of States, deriving its basic democratic legitimacy through national parliaments. The task for 1996 is for the European Parliament to grow into its existing powers.37 Such a speech of Eurosceptical ferocity put Major on a collision course with Chancellor Kohl, with Mitterrand and then Chirac, with the Commission, and with continental majority opinion which repudiated the whole concept of a Europe of nation-states. Helmut Kohl had argued that the Europe of nation-states had failed, that it had led to the world wars, and that such an outdated model of sovereign nations was incompatible with Germany’s vision for the future.38 The fifth example of Major’s tilt towards Euroscepticism dealt with monetary policy and the single currency. Speaking at the ‘Conservative Way Forward’ dinner, on 3 February 1995, the Prime Minister said: We cannot accept that sterling should be part of a Single Currency in 1996 or 1997. We don’t believe anyone could sensibly want to go ahead then, but, if they do, we wouldn’t be with them . . . What we will aim for is a more flexible European Union. That is the only way forward which makes sense as Europe enlarges. . . . Nor will we agree to a more prescriptive, centralist Europe, or removal of the nation-states’ veto. The Cabinet are clear about that and our European partners know our views. Moreover, although they may only mutter it sotto voce, a number of our partners agree with us on these points. . . . We need to re-examine and review the institutions of the European Union. 39 Similarly, he told the 1995 Conservative party conference that ‘if Europe goes federalist a Conservative Britain will not’. 40 On

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another occasion the Prime Minister in ostensibly patriotic vein promised ‘the United Kingdom – the greatest cradle of culture and academic and scientific and political achievement in modern times – that’s not some trifle to be lightly set at risk . . . it is the highest cause this party knows – and we will defend it with every fibre of our being’.41 But such robust language was not backed with action, either in the case of the beef ban or the crucifixion of the fishing industry. The sixth example of Major’s Euroscepticism was his Brussels speech of February 1997 in which he attacked the Social Chapter, and the Continental model of a social Europe: Europe is not winning. 181⁄ 2 million people are unemployed – the size of Denmark, Finland and Sweden put together. We are not creating enough new jobs . . . Over the last 20 years America has created 36 million new jobs of which 31 million were in the private sector. In that time, the EU as a whole only created five million new jobs, of which only one million were in the private sector . . . I believe the answer lies in the policies Europe has followed . . . The European Social Model is fundamentally flawed. It deprives today’s companies of the chance to compete, and drives away tomorrow’s investment and new jobs. Over-regulation does not work. And, as a result, nor do millions of Europeans. The figures say it all. For every £100 paid in wages Germany non-wage costs add on an extra £31, in France £41 and in Italy £44. In Britain, it is only £15. 42 But the Prime Minister did not take his argument to the logical conclusion that only by leaving the European Union could Britain avoid incorporation into the continental ‘Rhineland’ model, which he again attacked at an election press conference on 16 April. John Major’s seventh Eurosceptical intervention occurred in an interview in February 1997 with New Yorker magazine.43 Having hitherto refused to contemplate the political and constitutional implications of monetary union, he confessed that ‘I wouldn’t like to be the Chancellor of the Exchequer who went to the despatch box and said “Well, I no longer have any control over interest rates, I am sorry they have gone up 3%, but it’s nothing to do with me, Guv”’. Alas, this promising Eurosceptical reasoning


was not repeated during the election campaign, when Mr Major retreated to his ‘negotiate and decide’ bunker.44 The eighth and final example of Euroscepticism was contained in the 1997 Conservative election manifesto which, reputedly, bore Mr Major’s imprint. This document promised that: We believe that in an uncertain, competitive world, the nation state is a rock of security. A nation’s common heritage, culture, values and outlook are a precious source of stability. Nationhood gives people a sense of belonging. The government has a positive vision for the European Union as a partnership of nations. We want to be in Europe but not run by Europe.45 Alas, such a noble vision was not on offer as the federal express of European integration gathered speed towards the Amsterdam summit. Such an aspiration remained a poignant wish-list.

Conclusion In evaluating Mr Major’s European policy, 1990–7, there are two conclusions to be drawn. Firstly, when it mattered Major was a Euroenthusiast. When a Bill was required to pass through the House of Commons, he was enthusiastic to support European integration. When a treaty needed to be ratified, when budgetary contributions had to be approved following a European summit, when it really mattered, Major supported European integration and was prepared to divide and discipline his party to the point of bitter conflict. But when it did not matter as much, when legislation was not necessary, Major made Eurosceptical noises to keep his party together. In that regard John Major followed the same policy in relation to his party and Europe as that which was pursued by Harold Wilson. He treated the issue as a function of party management and in so doing John Major neglected the national interest. He devised a strategy to keep his deeply divided party together especially in the period 1993–7 when the disputes over Europe reached a ferocious pitch.46 Major did not want to offend either the influential senior supporters of European integration; Douglas Hurd, Michael Heseltine, Ken Clarke,

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Lord Howe, Ted Heath, Tristan Garel-Jones, John Gummer, Edwina Currie, Douglas Hogg, and the luminaries of the CBI. He wanted to keep them on his side. But equally he wanted to placate and appease the Eurosceptics, whose growing political and organisational influence he could not ignore. As Dr Keith Alderman has argued: Political commentators habitually use hyperbole in describing intra-party disputes. In this case it was fully justified. Maastricht was a highly corrosive issue for the Conservative Party. Its 1992 conference was one of the most divisive in living memory. Exchanges within the parliamentary party were often vituperative. There was a tendency to blame the Eurosceptics for many, if not all, of the government’s numerous problems during the session . . . Much of the animosity towards the rebels arose from the organised nature of their activities. Over the years, divisions over Europe had produced numerous groups critical of developments within the EC. The most prominent were the European Reform Group and the Bruges Group. But back-bench opposition to Maastricht was co-ordinated by a newly-formed grouping – the ‘Fresh Start’ group. Its core comprised many of the 22 Conservatives who had opposed the Second Reading. Originally a fairly loose and informal grouping styling itself the ‘suicide squad’ or ‘renegades’ its organisation became more formal in September 1992.47 The consequence of such profound division was that John Major was more a chief whip than a party leader. Yet it may be argued that his balancing act worked. He kept his party together by subordinating the national interest to party management.48 A classic example was his approach to the Single European Currency. 49 That his government did not know enough about the Single European Currency to make a principled decision was a policy stance which lacked all intellectual and political credibility. 50 The Delors report of 1989 outlined the fundamental objective which was fully debated at the time. Indeed John Major came up with his own alternative, the ‘hard ecu’ plan. The Maastricht Treaty additionally advocated attaining the Single


European Currency through the convergence criteria, which was debated ad nauseam. Every single country in the European Union considered the issue in principle. Major’s policy of not making up his mind – ‘wait and see’ or ‘negotiate and decide’ – could not command respect from either Euroenthusiasts or Eurosceptics. In truth, there was nothing further to negotiate once the other countries had decided to go ahead with monetary union, on the assumption that they could meet, or indeed fudge, the convergence criteria. Major neglected the national interest – whether in favour of the Single Currency or against it – in order to procure a phoney party unity. Indeed, it is this dark secret that bound Major and his Euroenthusiast supporters together, blinding them to the impending electoral nemesis. The compelling irony is that Major did have sufficient political leeway to have ruled out the abolition of the pound for the duration of his premiership. David Smith, an astute critic of the government’s European policy from his vantage point at the Sunday Times has justifiably asserted, in the wake of ‘White Wednesday’, that: The puzzle, the great ‘what if?’ of the Major premiership, is why he did not rule out Britain’s participation in a European single currency for as long as he was prime minister. Had he done so, he would have met no opposition from his chancellor: Norman Lamont was an avowed opponent of Emu. The biggest pro-Europeans in his cabinet, Kenneth Clarke and Michael Heseltine, both of whom wanted an early return to the ERM, were in no position to force through their views. Heseltine was weakened by his handling of the autumn 1992 pit closures, Clarke would have been a lone voice.51 The second conclusion is that John Major, while successfully holding together his party, missed the opportunity to lead it in a genuinely Eurosceptical direction. He failed to adjust to the changed agenda of the inrushing intellectual Eurosceptical tide. Norman Lamont questioned the economic advantages of membership; 52 David Heathcoat-Amory questioned the whole validity of ‘wait and see’ on monetary union;53 and John Redwood raised the question of a renegotiated membership. 54 But all to no avail; Major pursued the politics of compromise and refused to consider

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European issues from first principles. A cunning and indeed Machiavellian politician, Major’s strategy of compromise to an extent succeeded. But the Conservative party became, behind the facade of unity, totally split from top to bottom over Europe. The different wings of the party – irreconcilably divided on this issue – in a rational world would have divorced one another long since. John Major kept the party show on the road at the expense of defying the Conservative instinct of Euroscepticism. Just as Harold Wilson kept the Labour party together on Europe in the early 1970s in opposition, this is no mean political feat. But there is a crucial difference between Major and Wilson. Wilson was able to achieve that feat of unity while working with the grain of the British people and in accordance with the mood of party opinion. By contrast, John Major defied public opinion during the period 1990 to 1997 as it moved decisively in a more Eurosceptical direction. Business opinion, opinion poll surveys, 55 even the pronouncements of Tony Blair (not least his March 1997 article in The Sun), 56 all indicated the decline of Eurointegration and the emergence of a greater level of Euroscepticism. Consequently, Major successfully held his party together but at the cost of hastening its electoral defeat. Indeed, as Booker and North argue, Major’s European policy corroded the fabric of the Conservative party and eroded its ability to sustain its term of office: So great was the frustration and bitterness felt by many of the normally loyal membership that this created a sense of grassroots alienation from the leadership quite without precedent in the Party’s history. Formerly diehard party workers departed in droves. Donations and subscriptions collapsed. Only the most ferocious efforts by Party managers to suppress public evidence of what was going on succeeded in obscuring the full scale of the Tory Party’s internal disaster from general view. 57 Similarly, as Sir Charles Powell has ironically pointed out, the Conservative party which ousted Mrs Thatcher as leader has never been more in tune with her Euroscepticism: Six years ago the Conservative Party dispensed with Lady Thatcher as Prime Minister for saying No, No, No to a more


federal Europe. John Major’s Government embarked instead on a ‘charm offensive’ designed to put Britain ‘at the heart of Europe’. That reflected a touching belief that being nice to our partners in Europe, after years of handbagging them over Britain’s budget contribution, would incline them to lower their sights and moderate their treasured goal of a single currency. It also reflected the deep-seated delusion of British diplomacy that the gulf between Britain and the rest of Europe on the future shape and direction of the European Union is capable of being bridged . . . Now the same Conservative Party which sacked Lady Thatcher is falling over itself to say No, No, No to Europe as vigorously as she once did. 58 Unconvincingly posing as a Thatcherite man of Bruges during the 1997 election her successor could not escape the legacy of a premiership built on Maastricht and the single currency ‘wait and see’ equivocation. The final verdict must be that John Major had the great opportunity to have led the country toward a fundamental renegotiation of Britain’s relationship with continental Europe. He could have raised the possibility of outright withdrawal had he not been obsessed with the reaction of the Conservative Eurofanatics. He could have accepted the truth that Britain was incapable of changing the European Union from within, because continental interests and values are profoundly different from our own. He could have led his party rather than managed it. John Major had the chance to have broken free from the shackles of compromise which bound him in 1990.59 He could have built on the foundations of his predecessor’s 1988 Bruges speech. But he did none of these things. On Europe, John Major blew it. As Neville Chamberlain is remembered as the Prime Minister of Munich, so will John Major be remembered as the Prime Minister of Maastricht. Major’s European policy was an unequivocal failure, the legacy of which the Conservative party will wrestle with in Opposition for perhaps too long.

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Notes 1 J.W. Young, Britain and European Unity 1945–92 (Macmillan, 1992), p. 161. 2 For an interesting insight into Mr Major’s thinking, see the Sunday Telegraph, 8/10/89. 3 S. Hogg and S. Hill, Too Close to Call (Little, Brown & Co., 1995), p. 79. 4 Sunday Telegraph, 30/3/97. 5 B. Anderson, John Major (Headline, 1992), p. 392. 6 Quoted in N. Wyn Ellis, John Major: A Personal Biography (Futura, 1991), p. 339. 7 M. Thatcher, The Path to Power (HarperCollins, 1995), p. 483. 8 Whether this opt-out was essentially negotiated by Major or by Chancellor Norman Lamont is discussed in ‘The Poisoned Chalice’, BBC2, 30/5/96. 9 D.E. Butler and D. Kavanagh, The British General Election of 1992 (Macmillan, 1992), 20–1. 10 A. Sked and C. Cook, Post-war Britain 1945–1992 (Penguin, 1993), p. 561. 11 Mr Major used stronger, rather more industrial, language than the word ‘flipping’. 12 UK Presidency of the EC (Foreign Office Publication, 1992), p. 3. 13 Ibid., p. 20. 14 See C. Grant, Delors (Nicholas Brealey Publications, 1994), p. 170. 15 Conservative Party manifesto, 1992. 16 M. Thatcher, Downing Street Years (HarperCollins, 1993), pp. 720–1. 17 N. Lawson, The View from No. 11 (Bantam Press, 1992), p. 1008. 18 N. Wyn Ellis, op. cit., p. 336. 19 Speech, 7/9/92, at Queen Elizabeth II conference centre, London. 20 Speech, 10/9/92, to Scottish CBI. 21 B. Connolly, The Rotten Heart of Europe (Faber & Faber, 1995), p. 376. 22 P. Riddell in A. Seldon and D. Kavanagh (eds), The Major Effect (Macmillan, 1994), p. 53. 23 ‘The Poisoned Chalice’, BBC2, 30/5/96. 24 W. Wallace in A. Seldon and D. Kavanagh (eds), ibid., p. 286. 25 E. Dell, The Chancellors (HarperCollins, 1996), p. 546. 26 P. Stephens, Politics and the Pound (Macmillan, 1996), pp. 250–1. 27 See Hansard, 20/5/92, Vol. 208, pp. 265–6. 28 EC Commission, Toward European Union (1992). 29 For an excellent analysis of ‘dirty tricks’ against the Eurosceptics, see T. Gorman, The Bastards (Pan, 1993); for a powerful survey of intolerance towards Conservative backbench dissent see E. Nicholson, Secret Society (Indigo, 1996). 30 Speech at the Ritz hotel, London, 7/12/94. 31 Quoted in E. Mallie and D. McKittrick, The Fight for Peace (Heinemann, 1996), pp. 248–9. 32 Mr Major even made this the theme of a Conservative election broadcast on 16 April 1997.


33 The Economist, 25/9/93, pp. 27–9. 34 Lord Beloff, Britain and European Union: Dialogue of the Deaf (Macmillan, 1996), pp. 140–1. 35 Interview in Der Spiegel, 25/4/94. 36 Speech, 27/7/94. 37 Speech at Leiden, 7/9/94. 38 See ‘Nation State’s Day is Over, Britain Told’, The Times, 3/2/96. Kohl had also told Le Monde, 11/5/95, that Maastricht laid the basis for political union in Europe. 39 Speech at ‘Conservative Way Forward’ dinner, 3/2/95. 40 Speech to Conservative conference, 13/10/95. 41 Quoted in S. Haseler, The English Tribe (Macmillan, 1996), p. 65. 42 Speech in Brussels, 4/2/97. 43 New Yorker, February 1997. 44 See for example his stonewalling interview with Dominic Lawson, in Sunday Telegraph, 20/4/97. 45 Conservative Party manifesto, 1997, p. 45. 46 The extent of Mr Major’s strategy in relation to the party conference is revealed in M. Ball, The Conservative Conference and Euro-sceptical Motions (Bruges Group publication, 1996). 47 Keith Alderman, ‘Legislating on Maastricht’, Contemporary Record, Vol., 7, No. 3, Winter 1993 48 See also M. Holmes, The Conservative Party and Europe (Bruges Group publication, 1994). 49 For an insight into Michael Heseltine’s powerful role in policy-making, see M. Crick, Michael Heseltine: A Biography (Hamish Hamilton, 1997), pp. 432–4. 50 For further detailed discussion, see M. Holmes, From Single Market to Single Currency: Evaluating Europe’s Economic Experiment (Bruges Group publication, 1995, Chapter 5 in this volume). 51 Sunday Times, 20/4/97. 52 See N. Lamont’s 1994 Selsdon Group speech reprinted in M. Holmes (ed.), The Eurosceptical Reader (Macmillan, 1996), Ch. 7. 53 D. Heathcoat-Amory, A Single European Currency: Why the UK must say No (Bruges Group publication, 1996). 54 J. Redwood, Our Currency, Our Country (Penguin, 1997), Chapter 16. 55 A MORI poll in The Times, 17/4/97, indicated equal support at 40% for those wishing to stay in or leave the EU. 56 Tony Blair’s article on Europe, The Sun, 17/3/97. 57 C. Booker and R. North, The Castle of Lies: Why Britain Must Get Out of Europe (Duckworth, 1996), p. 183. For the statistical details of declining Conservative party membership, see M. Pinto-Duschinsky, The Times, 23/4/97. 58 Sunday Telegraph, 27/4/97. 59 For an interesting consideration of the Thatcherite legacy, and Mr Major’s interpretation of it, see J. Charmley, A History of Conservative Politics 1900–1996 (Macmillan, 1996), Chapters 11–13.


4 William Hague’s European Policy (2000)*

Introduction Ever since Mrs Thatcher delivered her controversial Bruges speech in September 1988 it has become a familiar axiom of British politics that the Conservative party is fundamentally divided over Europe. Changes of leadership and policy have witnessed only deeper divisions as the party has become more divided than at any time since the appeasement battles of the 1930s or even the Corn Laws repeal catharsis of the 1840s. John Major’s equivocation and attempt at compromise was no more able to unite the party than Mrs Thatcher’s ‘No! No! No!’; and as William Hague has already discovered, his Eurosceptical policy stance has transformed the former Euroenthusiast loyalists into eloquent rebels who are as equally deaf to pleas for unity as were the whipless Westminster Eight in the 1992–7 parliament. However, it may be argued that although Mr Hague has been unable to contrive a genuine party unity his sceptical policy on Europe commands greater assent within the party by working with, rather than against, the grain of opinion both within the parliamentary party and at constituency level. Mr Hague’s approach – to European integration in general and the single currency in particular – may enhance his leadership in contrast to John Major’s collapse of authority and alienation from the party’s Eurosceptical mainstream. Considerable evidence of events since 1 May 1997 points clearly in this direction. * Bruges Group publication (2000). 53

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Overall European policy Before assessing William Hague’s policy changes it is necessary to categorise John Major’s overall approach to European integration.1 Mr Major’s term of office can be split into three distinct parts [see Chapter 3 in this volume]. Firstly, between November 1990 when he became Conservative party leader, and the General Election in April 1992, Major pursued a policy of compromise in order to hold his party together as the question of Europe threatened to split it apart. The second period was that of Euroenthusiasm, between the victory in the April 1992 election and September 1993, which was characterised by Major’s support for the ERM and by the passage through the House of Commons of the Maastricht Treaty. In the third period, from September 1993 up to and including the 1997 General Election, Major reverted to the policy of compromise. During compromise Mark II the issue of Europe became a function of party management, as Major endeavoured to preserve a fragile semblance of party unity. Ultimately Major’s European policy contributed mightily to his election defeat. Not surprisingly the pursuit of a different policy on Europe was the top priority for Mr Major’s successor as party leader. Since his election as leader William Hague pledged his opposition to the Amsterdam Treaty to the point of imposing a three-linewhip against it. Surprisingly, in view of the dissatisfaction of the Eurointegrationists, only one MP, Edward Heath, defied the whip by abstaining. Mr Hague even called for a referendum on Amsterdam and advocated a ‘No’ vote in the (admittedly unlikely) event of it being held. Moreover, he stood as the Eurosceptical candidate in the final Conservative leadership ballot against Ken Clarke’s celebrated Euroenthusiasm; subsequently he has publicly repudiated Mr Clarke, Michael Heseltine, and others who have criticised his European policy, pointedly refusing to be swayed by ‘former cabinet ministers’. Recalling how Sir Keith Joseph had apologised in opposition for the errors of the Heath government Mr Hague apologised for the ERM fiasco in his first speech as leader to the Conservative conference, in stark contrast to the approach of his predecessor who viewed the crisis of September 1992 as either bad luck or

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mismanagement by the Bundesbank. Mr Hague has appointed known Eurosceptics to his Shadow Cabinet who were either frozen out under Major (Iain Duncan Smith) or who resigned in agonised principled opposition to Major’s policy (David Heathcoat-Amory). When Euroenthusiasts David Curry and Ian Taylor resigned from the front bench Mr Hague made no serious effort to dissuade them and used the opportunity to demonstrate the strength of his leadership. The Tory leader, campaigning in the Paisley South by-election, said he would prefer them to go: ‘It is better to resign if they have a genuine disagreement with the party than if we tried to cover it up. I would rather people resigned so that we have a united team and so that we can get a clear message across to the country’.2 Moreover the portfolio distribution with the Shadow Cabinet initially rewarded the Eurosceptics with Peter Lilley (Shadow Chancellor), John Redwood (Trade and Industry) and Michael Howard (Shadow Foreign Secretary) holding influential and senior positions. Mr Redwood, having returned to the backbenches in 1995 prior to challenging Mr Major for the Conservative leadership, is no stranger to taking a strong Eurosceptical line. But Mr Lilley and Mr Howard, free from the shackles of a collective Cabinet responsibility which prevented them from speaking out, spoke of little else between 1997–1999 than their hostility to further European centralisation. Further re-shuffles in 1999 consolidated the Eurosceptic flavour of the opposition front bench, notably with the promotion of Howard Flight and John Bercow. Mr Hague’s policy pronouncements on Europe have all been noticeably sceptical. In May 1998 he told the INSEAD Business School at Fontainebleau that: There is a limit to European political integration. We are near that limit now. I intend to make three arguments. The first is economic. The European policies that were a natural response to the problems of post-war reconstruction are not necessarily appropriate for the future. In place of the ideas of intervention and regulation we need to create a free and flexible Europe. My second argument is strategic. The fall of the Berlin Wall has completely changed the challenge facing European states. Bringing prosperity and stability to newly free states is now

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the most urgent of Europe’s tasks. And the third argument is political. Push political integration too far and accountability and democracy become impossible to sustain.3 Rejecting the charge that he was anti-European or nationalistic he criticised the EU from an internationalist perspective reminiscent of Mrs Thatcher’s 1988 Bruges speech. To Mr Hague: It is not the critics of the current direction of the European Union who are isolationist, out of date or even anti-European. Rather it is the EU’s direction which is in danger of becoming isolationist. It is its post-war assumptions that are increasingly out of date. And it is the danger of integration and the abandonment of our continent’s diversity and pluralism that is anti-European. True internationalism is about the relationship between states rather than their integration into a single state; the nation-state is not an outmoded concept, but is the best vessel for true democracy. The task for our generation is to persuade the European Union that it has to stop addressing the problems of the 1940s with solutions devised in the 1950s, and start facing up to the challenges of the new century. To the post-war generation the success of corporatist and interventionist economics was barely contested. Interventionism was at the heart of Monnet’s vision and has led the drive towards political integration throughout the EU’s history. But for some reason the failure of interventionism in the West and the spectacular collapse of communism in the East does not seem to have dented the EU’s faith in the power of the state. There is still great confidence, for example, in the efficacy of Government intervention and the ability to provide social protection through labour market regulations. These are old economic solutions and they are not right for new economic circumstances. For we now live in a world of opportunities unimaginable even a generation ago. 4 A year later, on 12 May 1999, he told Conservative candidates in the 10 June European Parliamentary elections that ‘we believe there should be limits to European integration and that we are near those limits now’.5 Under the omnipresent and all-purpose


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slogan ‘Britain in Europe, not run by Europe’, Mr Hague’s theme was hostile both to the EU Commission and to the Blair government’s ineffective attempts to reform the EU: The British people believe that Britain’s place lies firmly within the European Union, but that we should work to make it the right kind of European Union. This should be a European Union which does less but does it better, not an EU run by a ‘clingon Commission’ which has defied democracy and ignored accountability. The lead taken by Conservative MEPs in highlighting the mismanagement of the Commission was crucial to its resignation in March. Back then we were promised by Tony Blair that this would be an opportunity for Brussels to put its house in order. But what has happened since? Today, these same Commissioners are still at their desks – including those implicated directly by the independent report into maladministration. They have been allowed to cling on to power in a caretaker capacity. Worse, they are taking decisions which will have a profound impact on all of our lives. They have proposed a new Social Chapter law on fixed-term contracts, they floated plans to end Britain’s reduced rate of VAT on art imports, they have even adopted a draft EU budget for the year 2000. All of this after Jacques Santer promised the European Parliament that no new policy initiatives would be taken until a new Commission was appointed. That Commission should be made up of entirely new faces when it takes office next year. In the meantime, Romano Prodi should talk less about European governments and European armies and spend more time making sure his caretaker commissioners stick to the basics.6 A similar line was apparent in Mr Hague’s Budapest speech just a day later. Relishing the theme of enlargement to assist the new democracies of central Europe, which Mrs Thatcher had also conspicuously championed, the Conservative leader suggested that a new Treaty provision could allow countries not to participate in fresh legislative action at an EU level which they preferred to handle at national level. The Amsterdam Treaty was a particular target:

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At the beginning of this month, the Amsterdam Treaty came into force. It was meant to be the treaty for enlargement. Faced with the need to make practical changes to their institutions and structures, Europe’s leaders balked at it. What emerged from Amsterdam is a blueprint for a deeper not wider Europe. None of the necessary reforms has been tackled: neither the liberalisation of agricultural policy, not the decentralisation of power, not the streamlining of the Brussels bureaucracy, nor even the practical, precise institutional changes needed for enlargement to happen. Far from preparing for expansion, the EU is going down precisely the opposite path, taking yet more powers from the nation-states to the centre.7 As far as practical policies were concerned Mr Hague cited the EU pleas for tax harmonisation as eroding the basis of national democratic decision-making: Tax harmonisation is another example of Europe heading in the wrong direction. Commissioner de Silguy says that ‘for integrated financial markets to work we must harmonise taxes’. I reject the whole idea of tax harmonisation. After eighteen years of Conservative Government, taxes in Britain became the lowest of any major European country. Tim Congdon’s excellent study published this month by the think-tank Politeia shows that in Britain taxes could have to rise by as much as a fifth to bring them into line with the rest of the EU. The current head of the German Bundesbank has said that a European currency will lead to member nations transferring their sovereignty over financial and wage policy as well as in monetary affairs. It is an illusion to think that states can hold on to their autonomy. Lose the power to tax and spend, and I believe you lose one of the most important things that makes you an independent nation.8 Following the Conservatives’ success in the European Parliamentary elections – albeit on a 23% record low turn-out – Mr Hague regarded his European policy as having been vindicated.9 Thus he confidently told the Congress for Democracy conference, hosted by MP Michael Spicer, that the most significant change over the past year had been the election result:


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Thanks to the Conservative Party, the British people have also had their first chance to express their opinion at the ballot box. I say thanks to the Conservative Party because if Labour and Liberal politicians had their way then the European Elections would have had nothing to do with European issues or the single currency. Labour’s tactic was to pretend the European elections were not actually taking place, but the only person they managed to fool was their own campaign coordinator, Margaret Beckett, who directed operations from her battle-caravan in France. The Liberals tried another tactic and talked about anything and everything that had nothing to do with Europe. They were so successful that they lost in every single one of their English Westminster seats. We made sure that the European Elections were about Europe. And the British people made sure that they sent a clear and unmistakable message to the Government that they want to be in Europe not run by Europe and that they want to keep the pound.10 At the 1999 Conservative party conference Mr Hague again reiterated his support for EU membership while promising that a Conservative administration would ensure that any EU Treaty ‘must contain a flexibility clause or else I tell you there will be no Treaty’.11 Elaborating on this theme a week later in The Times he stated that ‘to create that flexible and enlarged EU, we propose a new European Treaty provision which would allow countries not to participate in new European legislation which they wanted to handle at national level, excluding the . . . single market and an open free-trading competitive Europe’. 12 But such a legal innovation was not, according to the then Shadow Foreign Secretary John Maples, a mandate to re-negotiate existing Treaties, 13 which is exactly what many Conservative Eurosceptics have most recently urged. Moreover Mr Hague’s policy certainly appeared to provide an appropriate response to the federalist push of new EU Commission President Romano Prodi who, since April 1999, has advocated political union to counterbalance monetary union, envisaged integration on a level not seen since the Roman Empire, and suggested enlargement to the East as a pretext for greater Qualified Majority Voting (QMV) and an end to the national veto. Thus by the end of 1999 Mr Hague had established the most

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Eurosceptical policy since 1990, ironically aligning the Conservative party with the profound distrust of further European integration which precipitated Mrs Thatcher’s downfall two years after the 1988 Bruges speech. In so doing Mr Hague has broken with the policy of the Major years especially in his willingness to reject outright the Amsterdam Treaty. Mr Hague has thus overturned the precedent of previous Conservative approval for the Treaty of Rome, the Single European Act, and the Maastricht Treaty of European Union. In short, the style, substance and personnel of European policy have been radically altered by Mr Hague although without a reduction in the intensity of dispute within the party. Indeed the emergence of the Mainstream organisation of pro-integrationists in November 1997 indicates the continuing susceptibility of ‘partywithin-a-party’ political factions. Thus William Hague’s overall policy of Euroscepticism has formed a recognisable framework in which to assess the more specific issue of Economic and Monetary Union.

Single currency policy Although Mr Hague’s policy on the future of the pound had endured its own periods of uncertainty and lack of clarity, there is no doubt that the new leader has unequivocally ditched Mr Major’s ‘wait and see’ (or negotiate and decide) approach. To argue that Mr Major’s policy caused confusion is an understatement. The Prime Minister obstinately refused to consider the question of the Single European Currency in the constitutional terms which the Eurosceptics urged. He refused to consider it as an issue with profound political as well as economic implications. He stuck to the view that there would be circumstances in which the Single European Currency would be beneficial to Britain if the convergence criteria were met. And it was with great reluctance that he conceded that in the event of his Government recommending that course of action there would have to be a referendum of the British people. It is to Mr Hague’s credit that he moved swiftly to jettison such a legacy. Instead of ‘wait and see’ Mr Hague has ruled out the single currency for this parliament and the next, equivalent


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to ten years. Although this approach was first suggested during the party leadership campaign he somewhat diluted it before the 1997 Conservative party conference to a policy of ruling out EMU ‘for the foreseeable future’. This change of tactic was only temporary and the original hardline policy was reinstated as a result of strong pressure from the backbenches and from within the Shadow Cabinet. The resulting resignations of two front bench spokesmen, and the withdrawal of the whip from Peter Temple-Morris, strengthened Mr Hague’s leadership position. It is unlikely that the policy will be changed again, except possibly in an even more Eurosceptical direction. Thus Mr Hague’s 1997 post-Conservative conference policy was trenchantly expressed as follows: I say no to a single currency in the lifetime of this Parliament. And what’s more, I intend to say no to a single currency at the next election, subject to the democratic approval of the members of my party. The economic dangers are just too great. If we adopt the same currency as France or Italy or Spain, where unemployment is much higher, and competitiveness is much lower, then we risk an economic catastrophe. Remember Black Wednesday, when we crashed out of the ERM? At least then we could leave the system. With a single currency there are no exits. And there are fundamental constitutional questions to be asked too. For example, would a single currency require decisions on tax levels and government spending to be decided in Brussels and lead to a United States of Europe, as many people think? These questions have to be answered.14 Similarly Mr Hague told the November 1997 CBI Conference that ‘unlike the ERM, the single currency exists for all time. British business could find itself trapped in a burning building with no exits’, adding that ‘if the nightmare of our experience in the ERM teaches us anything it is not to steer by the siren voices of a supposed consensus, but to exercise the independent judgement of a cool head’. The prolonged ovation he received from CBI members may indicate that the pro-EMU views of the CBI leadership are not as representative of British industry as is often claimed. Mr Hague can also take heart from the more sceptical

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stance on EMU of the Institute of Directors, the British Management Data Foundation, the Federation of Small Businesses, and individual branches of the Institute of Export. After the overwhelming ballot of Conservative party members to support his policy Mr Hague has reiterated his backing for the Pound. In his May 1998 Fontainebleau speech he attacked the harmonisation of taxes implicit in monetary union, returning to the same threat during the 1999 European Parliamentary election campaign: Conservatives recognise joining the single currency would involve huge risks for Britain. We believe that the sixth largest economy in the world can make a success of its own currency if it wishes to do so. That is why we oppose the Labour and Liberal Democrat policy of trying to bounce Britain into scrapping the pound by stealth, regardless of the economic and political consequences. Conservatives believe that high taxes destroy enterprise, that red tape destroys jobs, that high spending and state intervention undermine freedom. That is why we oppose the direction which Europe is now heading in, with high taxes and high spending, and more red tape and intervention. The left is taking us in that direction because for the first time in Europe, both the Council of Ministers and the European Parliament are in the hands of left-wing politicians.15 Similarly he told his Budapest audience that ‘I believe it is common sense to see the euro working in good times and in bad before we even consider abolishing the pound. That is why the Conservative party will oppose joining the euro at the next election’.16 In July 1999 Mr Hague identified no fewer than eight reasons to keep the Pound, prominent among them being: keeping the pound means we can run the British economy in the interests of British businesses and British jobs. Monetary sovereignty, like any other kind of sovereignty, is not the ability to do whatever you want; but it is the ability to make your own choices. With our own currency, interest rates can be set specifically for our economic conditions, to reflect the supply


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and demand for credit in this country. That is a huge advantage for any country, but particularly in Britain where the large number of home-owners with mortgages makes our economy particularly sensitive to changes in interest rates. Having the freedom to adjust Britain’s interest rates relative to the rest of the world can help us offset temporary economic imbalances in a reasonably benign way. Depriving ourselves of that policy tool would force us to rely on drastic and destabilising adjustments to budgetary policy. The alternatives are inflation or unemployment. 17 In November 1999 he told the CBI annual conference that the Euro was one of the EU’s ‘daft ideas’, adding with much justification that ‘in the age of the multinational company and the increasingly borderless trading across the world, particularly in electronic commerce, nation-states must develop competitive advantage. The last thing you want to do is to harmonise taxes with other countries and adopt the rules and regulations of other countries’.18 Mr Hague’s approach has been given added validity by the decision of Chancellor Gordon Brown, on behalf of Her Majesty’s Government, to rule out British membership of the single currency for the duration of this parliament. Thus both government and opposition ruled out the Stage III membership in 1999, a decision which eluded John Major. The difficulty for Mr Hague is that the Blair government has expressed its willingness to join EMU eventually in the belief that there are no insuperable constitutional barriers. To be sure Mr Brown appears to have cooled towards the Euro in the light of its economic under-performance and the unattainability of the celebrated five economic tests. Meanwhile Robin Cook has warmed towards the euro citing its initial acceptance as proof of its credibility. 19 But neither Blair, Brown nor Cook have any political objection to the principle of embracing a single currency with its one-size-fits-all interest rate. Of course many Conservatives would like a commitment to exclude the single currency permanently on constitutional grounds of parliamentary sovereignty. So far Mr Hague has not given this undertaking preferring to construct a party coalition of principled Eurosceptics opponents with those opposed pragmatically to

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membership within ten years. Events may force a rethink of this aspect of policy before the next election especially as divisions over Europe within the party are as much about politics as economics. The Conservatives are also vulnerable to Labour accusations of avoiding the question of principle which Gordon Brown favourably addressed. Peter Mandelson had thus taunted that: Many in the Tory party clearly subscribe to the view that a single currency would mean – as Michael Portillo once put it – ‘giving up the government of the UK’ and thus cannot be contemplated. William Hague himself was once in this camp, saying at his leadership campaign launch, ‘I am against a single currency in principle. We should not be part of a single currency’. Peter Lilley, the Shadow Chancellor, clearly shares those views, since he told the Commons that ‘we cannot accept that it is right to sign up in principle to a single currency’. The logical conclusion of this view is clearly to rule out membership of the single currency for ever, since any economic advantage Britain might gain is not relevant. It is, I believe, the wrong view to take, but it is perfectly intellectually coherent . . . The Shadow Cabinet, however, by refusing to resolve the issue of principle will not even be able to engage. It has chosen a policy that reflects the views of none of them but tries to reconcile the views of them all. That was a recipe for disaster for the Conservatives in government. It will be no different for them in opposition as events show.20 If such a line of argument becomes more commonplace from Labour (and Liberal Democrat) spokesmen it is likely to provoke fresh ideological division within the Conservative party unless the leadership sharpens up its assessment of the constitutional effects of the abolition of the Pound.

Conclusion William Hague has not been able to heal Conservative wounds on Europe nor to construct a policy which would genuinely unite the party. Given the legacy of 1990–97 nor could anyone else,


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at least among the 1997 leadership election candidates. But Mr Hague has not allowed the impossibility of providing unity to paralyse policy. He has boldly pushed policy in the Eurosceptical direction which has become predominant in the wake of Maastricht, and in so doing has more closely aligned the leader, the shadow cabinet, the parliamentary party and the party activists. 21 On Europe, as Prime Minister, John Major had power but no authority; in opposition William Hague has growing authority but no power. But with the single currency ruled out until at least after 2002 time is on Mr Hague’s side to improve and clarify still further his European policy, especially where ambiguities and political pitfalls remain. Firstly Mr Hague must listen to, and engage in, the debate within the Conservative party. In particular ‘In Europe, not run by Europe’ cannot become an alternative to further policy evolution. The diversity of the debate within the Conservative party since 1997 is too complex to be reduced to sound-bite slogans. Ken Clarke and Michael Heseltine have aligned themselves with the Prime Minister’s Britain in Europe campaign designed to convert public opinion to the cause of the Euro. Douglas Hurd has advocated a new EU Treaty to spell out clearly the exact relationship between national and supranational responsibilities. In June 1998 Lord Hurd suggested that ‘The concept of a defining treaty would dismay alike the enthusiasts for a United States of Europe and those fundamentally hostile to European integration and anxious to repatriate powers to the nation. But it might appeal to those, both enthusiasts and sceptics, in order to find a workable way of sustaining and enlarging the European Union.’22 Peter Lilley, before his dismissal from the Shadow Cabinet, raised profound questions about the Euro which went beyond the purely monetary: Our economy has a different structure and a different cycle from those on the continent. The structural differences are easy to identify. We conduct more of our trade outside the EU than any other member. We are Europe’s only oil exporter. We have a uniquely high level of home ownership. We have a much larger equity market than France or Germany. Chancellor Kohl has said ‘we want the political unification of Europe.

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If there is no monetary union, then there cannot be political union, and vice versa’. The simple fact is that there has never been a currency without a government to run it. It is easy to see why this is so. If countries face problems . . . they will press for fiscal discipline from their partners. Already the EU leaders, including our own Chancellor, are talking of ‘eliminating harmful tax competition’. The Austrian Presidency has put it at the top of their agenda for the next six months. Already the Commission say there is a need for greater fiscal disbursements at EU level’. Already there is talk of the need for much greater funds to be spent centrally inside any monetary union. It is equally absurd to suggest that Britain will inevitably have to abandon the Pound when a large Eurozone is established next door. The Dollar is a successful single currency covering the 50 states of the USA. Yet next door, Canada, a medium-sized economy, has its own currency. I asked a group of Canadian and American business people if they thought Canada was being left behind because she has not joined in a currency union with the US Dollar. They thought I was barking mad.23 In similar vein the then Shadow Chancellor Francis Maude has argued that Britain’s economy will remain cyclically and structurally incompatible with that of the Euro area and that any convergence would pull, squeeze and distort the UK economy ‘like a woman in the Victorian era submitting herself to be forced into an agonisingly tight corset in order to make her figure conform to the dictates of fashion’.24 To Michael Portillo, who remains scrupulously loyal to Mr Hague’s position after his by-election victory and elevation to the shadow cabinet, the Euro is an instrument of political integration which is ultimately undemocratic. Going beyond Mr Hague’s cautious considerations of the politics of monetary union, Mr Portillo has warned that: The European Union is entirely made up of member states that are democracies. But the European Union itself is not democratic. Neither the Commission, nor the Council of Ministers nor the European Central Bank is democratically accountable, and neither can they be made so because Europe


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is not a nation. It follows that the more we transfer decisionmaking away from the democratic member states to the undemocratic European Union, the less shall we enjoy democratic accountability. Moving away from democratic control is retrograde in itself, but it is also highly dangerous, because disillusion and grievance provide a breeding ground for nationalism and extremism. In the interests of security, of tolerance and harmony between nations, in the interests of preserving the most valued gain of the post-war period which is democracy, we should turn from the headlong rush towards European political integration, in which the single currency is a decisive step.25 This argument has also been trenchantly made by Conservative peer Lord Beloff in an article published after his death in March 1999: The Government’s decision to bring about the entry of Britain into the single currency seems to ignore the fact that continental statesmen have a different set of objectives from those hitherto asserted by British Governments, of whatever political complexion. All the talk about substituting ‘influence’ for sovereignty denotes either a misunderstanding of the European project and its founding treaties, or a hope that the country can be persuaded to abandon centuries of self-government for a minority voice among foreigners. The issues involved in joining the single currency are all too clear – the end of the United Kingdom as an independent country. 26 And Lady Thatcher herself reputedly told a private gathering that she favoured withdrawal from the EU although she publicly endorsed William Hague’s policy stance. 27 Notwithstanding the Euroenthuiasts led by Ken Clarke, such views all point in one direction: that membership of an increasingly federal EU is incompatible with British interests. The debate among Conservatives has already crossed the Rubicon of considering fundamental renegotiation, or outright withdrawal, from the EU. 28 This is the problem with Mr Hague’s ‘In Europe not run by Europe’ mantra.

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EU membership already involves being run by Europe as the Single European Act, Maastricht, and Amsterdam all too easily attest. The Maastricht Treaty alone involved over 111 extra instances of QMV; the Amsterdam Treaty added a further 16. The irony of Mr Hague’s slogan is that it originated with the 1997 Conservative election manifesto 29 which promised ‘we want to be in Europe but not run by Europe’ and is the one aspect of John Major’s legacy which Mr Hague has not abandoned. Although the 1999 European Parliamentary election appeared superficially to vindicate Mr Hague’s slogan, its outcome can also justify a toughening of the Conservative stance. Whilst the proEuro Conservative party led by former MEP John Stevens made no electoral impact, the United Kingdom Independence Party (UKIP) won an impressive 7% of the national vote and obtained, under the party-list system, 3 seats. If UKIP voters, who are mainly former Conservatives, fail to back Mr Hague at the next general election the Conservative cause – and that of preserving the Pound – could be severely damaged. Moving Conservative policy to a position of renegotiation of Britain’s relationship with the EU would not exactly steal UKIP’s clothes but would be a significant step in that direction. But Mr Hague, in the wake of the European elections, reasserted on BBC’s Newsnight that leaving the EU would be disastrous, thus missing an heroic pretext to move on from ‘In Europe, not run by Europe’ to a more intellectually coherent policy. Perhaps William Hague has been hitherto intimidated by Labour and Liberal Democrat politicans who claim that renegotiation is merely a codeword for withdrawal. Of course there are circumstances where this would indeed be so; but equally renegotiation could be approached on the same basis as the 1974–75 Labour government to whom withdrawal was an option only if the renegotiation failed. It may also be argued that subsequent Treaty revisions, especially Maastricht, entailed a level of innovation and change amounting to renegotiation. Additionally any renegotiation which extended over the first half of a parliament would give sufficient time to assess whether the EU was likely to reform on the basis of free-market Anglo–Saxon economics, to abandon its anti-Americanism, and to promote inter-governmentalism over supranationalism as Conrad Black has optimistically speculated.30


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If EU reform on such a basis became a reality – rather than empty rhetoric – then renegotiation would prove even easier and smoother than in 1974–75. But in the absence of such a transformation of the EU to reflect British interests and values, renegotiation offers sufficient alternative outcomes – including withdrawal – to permit a cool reassessment of UK interests. Thus far EU membership is an experiment which has only vindicated de Gaulle’s veto in 1963 based on irreconcilable differences between Britain and the continent. It may also be argued that Mr Hague’s aversion to meaningful renegotiation appears to contradict his Budapest speech in May 1999 in which he called for a less legalistic, enlarged Europe with multiple opt-outs to suit individual country preferences. To be sure withdrawal has to remain an option if renegotiation fails, but the Conservative party could still favour a policy of renegotiation in the expectation that it might succeed as a result of skilful patient diplomacy plus the continental wish to supply British markets. After all it is the UK which has the large trade deficit with the EU since 1973. Moreover as Michael Gove has argued, 31 even in the circumstances of withdrawal the continentals would be highly unwilling to erect tariff barriers when they enjoy the benefits of a healthy trade surplus. But even if they did, this would be a price worth paying to escape the CAP, CFP, the £8 billion annual budgetary contribution, the threat of ‘Social Model’ legislation, and the imposition of the Euro. Renegotiation is the logical next step to the diverse à la carte Europe which Mr Hague advocated in Budapest. Perhaps the greatest irony of the present situation is that it is Mr Hague’s success in defending the Pound on the grounds of the viability and vibrancy of the UK economy which has inadvertently stimulated the demands for renegotiation (and withdrawal). The arguments for retaining the Pound – especially the ranking of the UK economy as the world’s 4th largest – are the same arguments for breaking free from the EU straitjacket to embrace the challenges of globalization to which the UK economy is so well suited. 32 It is not necessary to be a signed-up supporter of European integration to agree with Hugo Young that it is inconsistent and dishonest to seek a middle way of favouring the EU but rejecting the Euro.33 The plain fact is that the euro project

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exemplifies the EU and cannot be disentangled from it.34 The Euro stems from the Maastricht Treaty which combined the twin objectives of monetary union and political union. Approving of – or rejecting – one of these objectives is to take the same view of the other. William Hague’s European policy has yet to grasp this nettle. He hopes that his middle way will keep on board both Ken Clarke and his allies as well as the much more numerous Eurosceptics. The peril of this approach is that Mr Hague will repeat – albeit on different political ground – John Major’s equivocation in the run-up to the 1997 General Election. Far from weakening his position, the renegotiation option would strengthen Mr Hague by removing the taunt that ‘In Europe not run by Europe’ is a meaningless piety which has been overtaken by events. After 27 years of EU membership, which have been characterised by acrimony rather than harmony, Britain needs a government to renegotiate a satisfactory relationship with the continent based on free trade not political union. Mrs Thatcher was unable to reach such a destination because of her removal from office; Mr Major was unwilling to undertake such a renegotiation in the wake of the Maastricht Treaty which he tragically prized. Mr Hague now has a golden opportunity to embrace the policy of fundamental renegotiation – with withdrawal an acknowledged option should diplomacy fail. William Hague should seize the opportunity or else his successor as Conservative leader surely will. Notes 1 For contrasting views of Major’s European policy see M. Holmes, John Major and Europe: The Failure of a Policy (Bruges Group publication 1997), and A. Seldon, John Major: A Political Life (Weidenfeld & Nicolson, 1997). 2 Quoted in The Times, 4/11/97. 3 Speech at INSEAD, Fontainebleau, 19/5/98. 4 Ibid. 5 Conservative Central Office Press Statement, 12/5/99. 6 Ibid. 7 Speech in Budapest, 13/5/99. 8 Ibid. 9 For an analysis of the voting, see The Times, 15/6/99 10 Congress for Democracy speech, 9/7/99. 11 Speech to Conservative conference, 7/10/99.


12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

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The Times, 14/10/99. Letter to The Times, 12/10/99. News of the World article, 26/10/97. Op cit., 12/5/99. Op cit., 13/5/99. Op cit., 9/7/99. Financial Times, 1/11/99. See Hugo Young, Guardian, 7/9/99. Article in Daily Telegraph, 30/10/97. For further discussion of this theme see M. Holmes (ed.), The Eurosceptical Reader (Macmillan 1996), Ch 8. Reported in Evening Standard, 17/6/98. Speech in London, 3/7/98. Nick Ridley Memorial Lecture, 3/2/99. Speech in London, 14/1/98. Article in The Times, 3/6/99. See The Times, 16/8/99. Notably the contributions of John Redwood and Norman Lamont before the 1997 General Election. Conservative Party. 1997 General Election Manifesto. Daily Telegraph, 2/8/99. The Times, 31/8/99. For further discussion of this theme see Bill Jamieson Britain: Free to Choose (Global Britain publication 1998). Guardian, 7/1/99. See M. Holmes, Franco–German Friendship and the Destination of Federalism, Bruges Group publication 1999 (Chapter 9 in this volume).


Part II Economic Integration


5 From Single Market to Single Currency: Evaluating Europe’s Economic Experiment (1995)*

The Single Market Origins The EC’s Single Market is currently being hailed as a resounding success by Euroenthusiasts of all persuasions. To supporters of this view the benefits of Britain’s access to the Single Market by themselves preclude any deeper discussion of other aspects of EC membership such as the CAP, the Common Fisheries Policy, the Budgetary contributions or even the loss of parliamentary self-governance. But how successful is the Single Market? How can its progress since 1 January 1993 be gauged? Do its advantages really outweigh its drawbacks? For too long these questions have not been properly addressed: the Single Market is simply assumed to work well rather than is proved to do so. A Eurorealist analysis of the Single Market is long overdue. To understand the Single Market process, it is necessary to consider its economic background. To most observers, the European Community (EC) was considered to be an economic success between its foundation in 1957 and the oil price shock of 1973. In this period, all the EC countries enjoyed substantial economic growth, full employment, and relatively low inflation, following the continental model of welfare capitalism. A fundamentally * Bruges Group publication (1995). 75

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market economy was supplemented by a substantial welfare state with a high level of fiscal transfer payments. By the mid 1970s it was clear that the EC was more economically successful than the COMECON countries of Central and Eastern Europe; it was also clear that the economic strength of the EC was greater than that of the EFTA countries, even though living standards in the EFTA countries were marginally higher. Moreover the prosperity of the EC up to the mid 1970s was very much dependent on Germany as an engine of economic growth. During this period the internal EEC tariffs fell fast, a process which was largely completed by 1967. However, the oil crisis of 1973–4, which included the quadrupling of the price of oil and a major transfer of wealth away from the European economies towards OPEC, created a crisis which the EC was unable to solve. The inadequacy of the response to this crisis ultimately led to the Single Market economic revival plan of the mid 1980s. Many of the European countries initially tried to reflate their economies when the increase in oil prices occurred. They believed that if they increased the level of aggregate demand, this would enable them to avoid the effects of higher unemployment and lower growth. In virtually every case, the outcome was higher inflation. The level of European inflation increased markedly from the mid 1970s onwards. Similarly there was a marked increase in unemployment and a lowering of the European level of economic growth. The levels of unemployment which had been between 2% and 4% up to the mid 1970s subsequently increased to between 4% and 9%. Additionally, the whole system of welfare provision in Europe was always based on a high level of government revenue, which in turn was dependent on a high level of economic growth.1 As soon as the oil crisis hit the European economies, their growth rates fell, precipitating a considerable revenue shortfall; the result was budget deficits and a greater difficulty financing the welfare state. The EC countries reacted to the oil price crisis and to the transfer of wealth to the OPEC countries with less skill than was the case either in the United States, or in AsiaPacific. By the early 1980s, the EC countries could no longer boast an unbroken period of economic growth, a European economic miracle. Consequently in terms of overall economic performance they began to fall behind the global competitors

From Single Market to Single Currency

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especially the tiger economies of Asia-Pacific. Indeed, most Europeans in the early 1980s had little knowledge of Asia-Pacific, did not regard it as economically significant, and were slow even to understand the strength and resilience of the Japanese economy. By the mid-1980s, however, the truth had dawned. The EC became aware that the decade between 1973 and 1983 had seen a comparative slippage in economic performance in relation to the rest of the world. Herein lies the origin of the Single Market process which aimed to increase European competitiveness, and to inject dynamism into the European economy without necessarily creating a massive inflationary surge. The objective was the illusory combination of economic growth while maintaining stable prices and stable monetary policies. It can be argued, with much justification, that the EC should have responded by reducing labour costs, curbing welfare expenditure, accelerating privatisation, resisting external protectionist temptations, and dismantling the ‘industry policy’ network of subsidies. But such solutions were too politically painful for countries which lacked a free-market tradition. The Single Market had the advantage of being politically non-controversial as well as advancing the cause of European integration which was now being pursued with the greatest intensity since the 1950s under the interventionist leadership of Jacques Delors. The Single Market process was therefore devised in the mid1980s as a supply-side measure. Its principle creators Paolo Cecchini 2 and Lord Cockfield3 argued that if Europe would reduce its non-tariff barriers such as the waiting time at borders, the result would be a beneficial increase in the internal mobility of labour, goods and capital. The Single Market process was therefore aimed at the reduction of all non-tariff barriers to complement the corresponding reduction in internal tariffs. According to Cecchini and Cockfield, this would give a massive boost to the European economy, creating 1.8 million new jobs, and increasing by up to 4.5% the level of economic growth within the EC. The obvious way to realise such an objective was through ‘mutual product recognition’, or MPR. The idea of MPR was that if a product is on sale or is manufactured in any of the member states, it can then be sold in all the others. Danish beer, for

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example, could not be sold in Germany because of brewing laws dating back to the fourteenth century; according to MPR, the Germans would have to remove those laws, enabling Danish beer to be sold in Germany as well as anywhere else in the EC. The concept of MPR was to remove national laws and standards which discriminated against products by prohibiting their sale. The advantage of MPR was its simplicity. All the European Commission had to do was to identify each barrier and remove it. MPR would not involve harmonisation; it was not a common standards scheme. It was a way of preventing standards in any one country from obstructing trade between member states. MPR aimed to maximise European trade by removing all the barriers to trade which national standards had hitherto erected. The British government supported the Single Market based on MPR, believing that the Single European Act would work to this effect. This author chaired a meeting in London in 1989 at which Mrs Thatcher’s Secretary of State for Trade and Industry, Lord Young, said that the Single Market meant the ‘Thatcherisation of Europe’, because MPR would remove the internal non-tariff barriers. But this initial enthusiasm did not live up to expectations. By 1994 Lord Young was attacking the ‘Brussels principle of equal misery otherwise known as harmonisation’.4 The reason for his disillusionment was obvious. The version of the Single Market preferred by the continental countries, and particularly by the European Commission, including its ubiquitous President, Jacques Delors, was standardisation, better known in Britain as harmonisation. It led to the opposite approach to MPR. With harmonisation, the task of the Commission was to establish standards for each product, and to ensure a uniform system of compliance. The Single Market was channelled into setting standards for health, safety at work, product size, product quality, and ensuring that each national manufacturer changed its products accordingly. The EC Commission gleefully promoted common standards throughout Europe, not least because Commission power and responsibility rapidly expanded. The consequences of this approach have even been attacked by the former EC Commission Vice-President Lord Tugendhat who told a Chatham House audience that:


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I believe, a major component of the widespread disillusion [with the EC] stems from the legislation needed to bring the Single Market into being. That legislation has proved to be unprecedentedly intrusive. Partly, there is the question of sheer scale – 282 individual items of European legislation required to bring it into effect. Partly too it is a result of so many existing national rules and regulations on technical standards, health, safety, environment and other matters being so detailed that in order to create a level playing field EU regulations had to follow suit. As a result it has been brought into what Douglas Hurd has described as ‘the nooks and crannies’ of national life all over the European Union. This is by no means only the result of Commission initiatives. The Single Market has become the means by which individual member states have sought to push their own agendas on social, environmental and other matters. This has added to the volume of proposals the Commission has brought forward. 5 By the time the Single Market came into view, on 1 January 1993, it was clear that its philosophy was based upon harmonisation or standardisation: MPR had been effectively lost, except in non-controversial areas. MPR might prevail if there was no dispute about a product, but given the complexity of modern industrial society, it was almost certain that the Commission at some stage would be called upon to adjudicate in terms of the various standards which were being applied. From the start the Single Market was being transformed into a uniform market over which the EC Commission acted as judge and jury. As a result the Single Market is deficient in four different areas: harmonisation; competition policy; external tariffs and protectionism; and Value Added Tax. Harmonisation Firstly, harmonisation, which, according to Douglas Hurd has penetrated the ‘nooks and crannies’ of everyday life. But such high level government criticism is not new. Back in 1974 Prime Minister Harold Wilson commented that ‘There is too much talk about harmonisation . . . a Euro-loaf, Euro-beer . . . An imperial

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pint is good enough for me and for the British people and we want it to stay that way’.6 His successor, James Callaghan, recalling his time as Foreign Secretary, noted in his memoirs that: I found myself corresponding with the Chancellor, Denis Healey, about import levels of apricot halves and canned fruit salad, and with Peter Shore about mutton and lamb. I recall one low point when nine Foreign Ministers from the major countries of Europe solemnly assembled in Brussels to spend several hours discussing how to resolve our differences on standardising a fixed position of rear-view mirrors on agricultural tractors.7 Michael Heseltine, the President of the Board of Trade and Secretary of State for Trade and Industry, in his 1987 book Where There’s a Will, entitled a chapter ‘Our European Destiny’. Anticipating the benefits of the Single Market he argued: One of Britain’s two commissioners, Arthur Cockfield, has put forward a detailed plan for making a reality of Europe’s internal markets. The idea of creating a European market in which goods, services, people, and capital can move without hindrance is not a new one; it was the core of the Treaty of Rome. But this plan is by far the most ambitious attempt to make it a reality. The Cockfield plan seeks systematically to remove within seven years all the physical, technical, and fiscal barriers which divide the Community. 300 legislative proposals have been put forward to create this great market; to encourage trade flows and reduce unacceptable administrative costs, the physical barriers have to go. Technical barriers frustrate the creation of a Common Market for industrial goods; as a result, manufacturers in Europe are forced to focus on their own national rather than European markets, with consequent increases in costs. Every day consumer goods have to be adapted to different standards. More than 80 different types of television sets are made to meet different national standards. 16 types of electric shaver are made. Air fares within Europe are held artificially high by national regulation and cosy monopolies.8


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But Michael Heseltine, as Minister of the Board of Trade said of the Single Market in March 1994 that: the Single Market is over-regulated, over-protected, overcentralised. We now have Eurosclerosis; we burden our businesses with extra costs, preventing labour markets from working properly, stifling the regenerative process of the capitalist system. 9 If someone initially as enthusiastic as Michael Heseltine has expressed such criticism it is no surprise that Eurosceptics have been even more critical. Thus Christopher Booker in his columns in the press and in his book The Mad Officials 10 has catalogued many of the absurdities of harmonisation. For instance, the Commission plans to harmonise the size of buses in Europe by switching from double decker to single decker. The British, and the Germans in Berlin, often prefer double decker buses; but the Commission wants to prohibit manufacture to enforce harmonisation. This approach is the opposite of MPR: under MPR, all buses, single or double decker, could be on sale anywhere in the EC and the consumer would choose. Also threatened by the directive are the bus industry exports to Asia-Pacific, where there is a preference for double deckers. As Mr Booker points out such proposals ‘will deal a devastating blow to British manufacturers and to our bus and coach operators. Their costs would amount to so many billions of pounds that their trade organisations find it hard to estimate an overall figure’. 11 Just as ludicrous is the 10,000 word European directive on the curve in cucumbers; according to the Commission, cucumbers should not curve by more than 5 cm. It does not matter if a cucumber curves, as generations of consumers know full well. Why should Brussels want to regulate the curve in a cucumber unless this is regulation for regulation’s sake? Harmonisation zeal now affects lettuces. Lettuces grown in Britain, because of the climate, require fertiliser, unlike lettuces grown in Southern Europe. MPR would simply permit all lettuces grown with or without fertiliser to be sold anywhere; what the Commission has done is to issue a lettuce harmonisation directive, preventing the production of lettuces with fertilisers. Five thousand jobs are now

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at risk in an industry with a £65 million turnover. 12 Equally unjustifiable is a harmonisation directive on the emissions from crematoria and mortuaries. Apparently all the crematoria in Europe have to standardise their emissions from the burning of corpses. Crematoria rarely export their services; it is not the focus of a massive European trade. People who die in Britain do not usually have their cremations, for example, in Greece; it does not matter if our crematoria design is different from the Greek. Why should they all be the same design? Another harmonisation obsession concerns forestry as Christopher Booker has described: There is something called the directive on Forestry Reproductive Materials, number 66/404. This is a very curious piece of legislation because it was originally taken from a German forestry law of 1963, and this in turn was copied from a so-called Forestry Race Law introduced by the Nazis in 1934 to preserve the genetic purity of forests in the Third Reich. The intention of that now nearly-30-year old EC directive is the same – to preserve the genetic purity of trees. And of course it has been translated into regulations by the authorities here in Britain, and applied more rigorously than anywhere else in Europe. The trouble is that British oak trees have a natural tendency to hybridise. This means that there are only a few strands of oaks in British woods and forests which meet the exacting purity standards laid down by the directive. And it is now a criminal offence to sell acorns from any other trees. 13 Other industries to suffer severe disruption because of harmonisation include whisky distilling, herbal medicines, slaughterhouses and meat production, cheese and milk products,14 and retailing. In March 1995 the Sunday Express reported harmonisation plans aimed at abolishing imperial measures with fines and prison for shopkeepers who weigh produce in pounds and ounces. Their report illustrated the plight of one typical shopkeeper Mrs Diane Brandon of Devon: ‘I’d rather go to jail than give up pounds and ounces’, says Diane, 42. – And swingeing new Euro laws mean she may


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have to do just that. For Trade Minister Michael Heseltine is pushing for £5,000 fines for shopkeepers who stick to imperial measures that have been good enough for centuries, with prison for non-payers. Kilos and grammes are to be introduced over a five-year period from October. But not if Diane, who runs Osmond Stores in Uffculme, near Tiverton, Devon, with husband Michael, 46, has anything to do with it. ‘If we don’t do something to stop this now’, she says, ‘then we are just on a big Euro roller coaster. We serve 2,500 customers in this village and the surrounding area and I believe most of them will want to keep the traditional measures’. Under the Euro rules, shopkeepers will have to display prices of pre-packed food in kilos and will not be allowed to display a conversion chart.15 Such harmonisation increases costs, leads to higher unemployment, and unnecessarily increases burdens on business. Harmonisation has cut the choice for the consumer, creating not a single market, but a uniform market. There is a great difference between a single market where the consumer is king, and a uniform market where the European Commission decides on product determination. Unfortunately it is a uniform market which the EC Commission directives are rapidly producing. Competition policy The second deficiency of the Single Market concerns competition policy. During the build up to ‘1992’ the EC stated that it would be open to investment from outside. Consequently, there was an increase in investment from the United States and from Asia–Pacific. Companies were informed that if they invested in any one European country, they would have access to the domestic market of all the others. However, a number of interesting cases have shown that the rhetoric of openness has run ahead of the reality. For example, the American company Procter & Gamble, having set up their factory to manufacture baby products such as nappies, found that their share of the market was increasing to such an extent that European competitors complained to the Commission, who investigated Procter & Gamble for obtaining an excessive market share. Procter & Gamble are

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not in breach of any rule or regulation; they have not been using unfair competitive tactics, and they are not in breach of antimonopoly laws. They are not in breach of a member state law or EC law; they have simply done well in selling their products to Europeans. Nonetheless, the Commission’s investigation instructed Procter and Gamble to divest important parts of its European business. As the Wall Street Journal reported: Procter & Gamble said it was ‘surprised and disappointed’ by the commission’s decision to investigate its potential domination of the feminine-hygiene sector in Germany. ‘We don’t understand it, especially after our plans to divest not only the diaper business, but also parts of the feminine hygiene business of VPS’, a Procter & Gamble spokesman said in Brussels . . . At the group’s headquarters in Cincinnati, Ohio, Procter & Gamble Chairman Edwin L. Artz expressed frustration with the Commission’s reservations. ‘We have done our utmost to meet possible concerns about the impact of the sale in other produce markets by excluding the VPS feminine-hygiene business volume’, he lamented. ‘The resulting share position for Procter & Gamble will not restrict competition in any European product category’.16 The same problem has been faced by the Nissan motor car company, which found colossal restrictions on its exports to the EC because of protective tariffs and voluntary export restraints (VERs). Taking advantage of the Single Market, Nissan built a factory in Britain, with the hope of exporting cars throughout Europe. However, France and Italy complained that although the Nissan cars are built in Britain they are still Japanese cars and should therefore be subjected to tariffs. The Commission is still determining the outcome of this case. When Gillette invested in the Single Market, they did so with the hope of being able to sell their razors in all countries; the result has been a massive increase in the sale of Gillette products. But domestic European manufacturers objected on the grounds that Gillette’s market share had become too great. Yet the reality is that Gillette’s products are much better, and better priced, than the European products.


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They are also more imaginatively advertised. For these reasons Gillette is thriving; it is not because the company is in breach of regulations or has violated laws concerning monopolies. In all these cases, the notion of a Europe open for business has been exaggerated. Even powerful multi-nationals are not immune from spiteful restrictions on product sales and market access. The policy of the EC is that foreign investment is welcome as long as it is not particularly successful. If an outside company is too successful, and if the European consumer buys its products, the domestic European manufacturers will soon want to erect the equivalent of trade barriers. The result is that EC economies have been losing out to the US in the competition for foreign direct investment, according to a study by the Organisation for Economic Cooperation and Development in June 1995. Inflows of foreign direct investment to the US economy nearly tripled to $60.07 billion in 1994 from $21.37 billion in 1993. The 1994 figure also marked a six-fold increase from the $9.89 billion of such investment into the US in 1992. The totals underscore perceptions that the US has emerged as a favoured destination among OECD economies for multinational companies because of its big market and its competitive cost base. Recent major investments in the US by companies such as Germany’s Daimler-Benz AG and British Telecommunications have sharply driven up the pool of foreign funds invested in American industry. In Europe, Italy saw foreign-investment inflows slow 34% to $2.48 billion in 1994, while French inflows slipped 13% to $10.5 billion. German inflows were actually negative in 1994 after slipping to $241 million in 1993 from $2.38 billion in 1992. The UK saw its inflows fall 24% in 1994 to $11.06 billion from $14.54 billion a year earlier.17 Competition policy has thus become a barrier to customer choice rather than an enhancement of it. This can be demonstrated by the fact that several industries are still largely immune from competition. Air travel, accountancy, insurance and telecommunications are not yet fully covered by the Single Market; yet all of these industries are large and important. There is no Single Market in ferry travel. Greece has exemption until 2004 on the provisions for competition on ferries between its various islands. Competition is distorted by high industrial subsidies to ‘national champions’ which now emerge as ‘European champions’ – Airbus

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Industries, Thompson Bull, Philips, Fiat and Renault, and most of the EC’s steel industries. Even an EC Commission report on the Single Market in June 1995 was primarily devoted to bemoaning obstacles to free movement of goods because of inadequate compliance with directives. 18 But such an approach is a tacit admission that the harmonisation philosophy has proved unsatisfactory in practice. The final objective should not be total compliance for its own sake but greater choice for European consumers. If MPR had prevailed as the guiding philosophy in the mid 1980s the consumer would now have better choice in many products. External Protectionism The third defect of the Single Market is the way in which external tariffs and protectionism has increased.19 Many European companies, while accepting greater internal competition, have demanded by way of compensation greater protection from imports and external competition. As Anthony Cowgill accurately predicted in November 1991, ‘Reducing border restrictions for example will have no effect on the competitive edge of British manufacturing industry – in fact the EC may well damage the international competitiveness of British companies if it persists in becoming more protectionist and if it starts carrying out centralist social engineering measures’.20 There has been a noticeable increase in external tariff and non-tariff barriers in the run up to, and in the operation of, the Single Market. The EC favours internal competition, but is prone to keep out products from non-member states,21 in particular competition from the United States, Asia-Pacific, and from Central and Eastern Europe. Many Eastern European economies are now performing very well. The Czech Republic’s economic miracle has become the successful model to emulate. Eastern European countries are now able to export to Western Europe products of a fairly high quality at a good price. But EC protectionist devices have continued to proliferate, especially in the ‘sensitive’ areas of textiles, coal and steel, and agriculture. Both the 1991 GATT and IMF reports condemned such external EC protectionism and a 1994 UNCTAD report noted that:


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in 1993, Hungary, for example, still saw 30% of its exports to the EU subjected to some form of nontariff trade barriers. These barriers included such things as quantitative restrictions and minimum pricing rules. The figure for the Czech Republic and Slovakia was 25%, for Poland 16.6% and Romania 36%. With the exception of Poland, all of these countries are experiencing about the same level of obstruction as in 1989. The EU’s failure to liberalize the so-called ‘sensitive’ sectors (i.e. iron and steel, chemicals, textiles and agriculture) is particularly damaging to the East because of their own dependence on these sectors. Some 50% of all of Poland’s exports to the EU last year came from these ‘sensitive’ sectors. For Hungary, the figure is 54%, Romania 65% and Bulgaria 70%. What may seem like a minor trade restriction on goods from Central and Eastern Europe may in fact be responsible for greatly retarding the pace of economic reform.22 The proliferation of ‘anti-dumping’ rules has been a favoured EC measure to discriminate against Central and Eastern Europe even though such rules are especially damaging to EC consumers and to companies who require Eastern European imports as part of the production cycle. In May 1993 the EC imposed anti-dumping duties of up to 21.7% on imports of seamless iron and nonalloy steel pipes from Hungary, Croatia and Poland after the Commission estimated that such products had dumping margins of up to 50%. Such policies are petty, spiteful, and lacking in any economic justification based as they are on political considerations of placating inefficient EC producers.23 Central European political leaders have rightly complained. Hungarian Prime Minister Gyula Horn has stated that ‘the EU should realise that we live in the market too and it shouldn’t place restrictions on the import of our goods. After all we won the Third World War for the West’;24 Czech premier Václav Klaus told the 1994 Mont Perelin Society conference that: the collapse of the Iron Curtain does not require restructuring and transformation on its eastern side only. The western side needs to adjust as well and the necessity of doing that is no less urgent. Attempts to postpone the painful economic

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and social process by protectionism and by trade discrimination [against] former communist countries can only worsen problems on both sides. 25 No wonder that President Clinton told the EC that ‘if the Eastern Europeans cannot export their goods they may export instability even against their own will’. 26 Value Added Tax The fourth area of Single Market deficiency concerns Value Added Tax. The European Single Market is based on a single taxation strategy for indirect taxes rates. In July 1992 European Community countries approved a minimum level of VAT of 15% on nearly all products and services. This high level of indirect tax is imposed throughout the EC on different economies, products, direct tax systems, levels of growth and employment. The outcome is effectively to harmonise the tax regime by harmonising indirect taxes upwards. Such a regime creates particular problems with regard to the assessment of levels of inflation. Treasury estimates suggest that the actual level of inflation is up to 1% lower because of the distortions caused by VAT (and other indirect taxes). One practical objection to VAT is that it is difficult to collect. It transforms every business into an unpaid tax collection agency. Large companies can perhaps cope with this; they employ accountants in any case and can absorb the costs. But the small business sector finds it hard to absorb the costs of collecting, assessing, and quantifying VAT. In North America, for example, where there is no equivalent to VAT, it is no coincidence that the small business sector is much larger and more dynamic; the small businesses become medium-sized businesses more quickly, partly because this burden is absent. The VAT harmonisation burden hits the small and medium-sized sector of the European economy, which is consequently less able to expand than its competitors in equivalent economies in Asia-Pacific or in North America. According to the House of Commons Select Committee on Public Accounts, in a report on VAT in August 1994, 2 billion pounds of VAT each year goes uncollected because traders either cannot understand the system, cannot be bothered to find out, or deliberately dodge payment. The report painted a nightmarish picture of


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businessmen ensnared in a web of rules and regulations so complex that only a minority pay their full VAT dues. Members of Parliament noted with concern that VAT is governed by 156 main regulations, and that there have been 209 regulatory changes in the last nine years.27 Despite the good intentions of the Single Market, its achievements still lag far behind its rhetoric; nor is it likely to succeed unless the emphasis is returned from harmonisation to MPR. External protectionism based on mercantilist economics should be abandoned in favour of freer global markets in accordance with the spirit and objectives of the World Trade Organisation (WTO). VAT harmonisation serves no worthwhile economic purpose and its removal would provide a supply side boost to the European economy. And non-EC companies investing in the Single Market should not be subject to politically motivated or maliciously inspired restrictions of their market share. Changes along these lines will promote consumer choice and enhance economic growth. So far however the Single Market experiment has, on balance, done more harm than good.

Economic and monetary union Introduction European monetary union is a very old idea. The Roman Empire effectively exercised a single currency system, and during the last few hundred years, particularly the eighteenth and nineteenth centuries, gold and silver were effectively common European currencies which existed alongside national currencies. Napoleon planned a customs union and monetary union, and during World War Two, not surprisingly, there were German plans for a European currency once Hitler had been victorious. The Maastricht Treaty is the second attempt to bring about monetary union within the EC. Originally the Werner Report of 1970 advocated monetary union by 1980. But because of the world oil crisis, during which the price of oil quadrupled, and inflation and unemployment rose sharply, the focus shifted away from monetary union, and the plans were dropped. This time the EC is determined to succeed driven as much by the logic of federal integration which led to the Maastricht Treaty as by purely economic considerations.

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Single market, single currency Perhaps the best known economic argument for economic and monetary union (EMU) is that if Europe has a single market it needs to have a single currency. So the argument runs, the United States has a single market, and it has a single currency, the dollar; similarly, Japan has a single market, and it has a single currency, the yen. The European Commission once argued that if the Americans really wanted to assist the European economy, they would permit each of the 50 states of the Union to have its own currency, creating similar circumstances to those in Europe. In making such a satirical observation, the EC has advanced the argument that to remove the barriers to trade and commerce it is necessary to remove the currencies of the member states. The second argument in favour of monetary union is that it will reduce transaction costs. For travellers, tourists, and businessmen a single currency eliminates unnecessary currency conversion. So the argument runs, it would be easier to do business across the EC without the problems caused by volatility in exchange rates, which might make the difference between profit and loss. Models of EMU To achieve this end, three particular models for economic and monetary union have been considered. The parallel currency model was suggested in 1989 by the then Chancellor of the Exchequer, Nigel Lawson, who proposed that the currency of each member state should be legal tender in all the other member states; so that, for example, the pound sterling could be used in all the other countries, as could the Greek drachma. In reality this would mean the creation of a deutschmark zone, because the German currency is the strongest with a proven record of low inflation. Mr Lawson made clear that this would not mean the abolition of each national currency; people in Britain, if they wished to retain the pound, could do so. And, as he told a press conference, this would not mean that to buy stamps at a post office in the heart of rural England, it would be necessary to use Italian lira or Greek drachmae. This plan was comprehensively rejected; the other 11 European countries were unconvinced of its merits. The second suggested model of monetary union was the com-


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mon currency proposal which was half-heartedly advocated by Nigel Lawson’s successor John Major. Mr Major, when he became Chancellor of the Exchequer, was a household name; alas, only in the Major household. Perhaps his plan for the common currency would make his name in Europe? Major suggested that the existing ecu should be made into a hard currency which could be issued by a European Central Bank, but which would co-exist with each national currency. Under this model, an additional currency in Europe, the ecu, could be used in all the member states alongside their national currencies. John Major argued that the advantage of this proposal was that it would bring about competition between currencies, so that the good currencies would drive out the bad. In this way, it was hoped, there would be an anti-inflationary incentive, and an anti-inflationary discipline in the system. For example, business would want the hard ecu to have the lowest level of inflation of all the existing currencies; so if the German inflation rate was only 1%, there would be an incentive for the European Central Bank to make sure that the inflation rate for the ecu was no more than 1%. But if the ecu rate was 1% and in Greece inflation was 15%, people would switch to the ecu. In these circumstances, the ecu would gain in popularity because it would keep its value. Naturally, contracts, international business, trade and commerce would be much more likely to be conducted in the ecu if it kept its value than if it did not. If it turned out to be inflationary, then people would prefer to conduct business in their national currencies. But John Major’s 1990 proposal, contained in a Treasury paper just 16 pages long, was rejected. Instead the EC countries opted for a single currency which would replace existing national currencies. From the outset the assumption was that EC economies would converge in the runup to monetary union. Although the evidence of the 1990s suggests divergence between EC countries the notion of convergence has suffused all discussion since the Delors committee reported in April 1989. The Delors Report proposed a three-stage movement towards a single currency.28 In the first stage, all the currencies of the member states would join the Exchange Rate Mechanism (ERM) of the European monetary system. Each currency would be tied to the deutschmark within either the narrow bands of

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the ERM, at the time 2 1–4 %, or the wide bands, at the time 6%. The second stage would be an irrevocable locking of currencies at their parity against the deutschmark as part of a fixed exchange rate regime. Only at the third stage would there be the move to a single currency issued by a European Central Bank. The value of the single currency would theoretically be determined by the monetary policies of the independent central bank with the national currencies converted to the single currency at the existing rate to which they were irrevocably locked to the deutschmark. The stark truth of this approach was that the national currencies would be abolished. Their fate would be similar to that of the East German Ostmark after currency union in July 1990. The acceptance of the Delors Report29 proved to be the basis for debate between 1989 and the negotiations for the Maastricht Treaty which were concluded in December 1991, though final ratification was postponed until November 1993. The Maastricht Treaty The Maastricht Treaty stuck remarkably close to the Delors Report model.30 As well as the three-stage move to EMU, convergence criteria established targets for inflation, debt/GDP ratio, budget deficits at no more than 3% of GDP, and the requirement for all currencies to join the narrow band rather than the wide band of the ERM. These convergence criteria beefed up the arrangements of the original Delors Report in the expectation that the European economy was actually converging. The Maastricht Treaty stated that in 1997 a decision would be taken about whether to move to Stage III and how many of the countries had met the criteria to do so. Thus the Treaty proposed in Article 3(A), ‘the irrevocable fixing of exchange rates leading to the introduction of a single currency, the ECU, the definition and conduct of a single monetary policy and exchange rate policy’. To this end, it recommends the establishment of a European System of Central Banks (ESCB) and a European Central Bank (ECB), independent of EC institutions and the governments of member states. Consequently Article 107 reads, ‘when exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and the Statute of the ESCB, neither the ECB, nor a national central bank, nor any member of their decision-making


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bodies shall seek or take instructions . . . from any Government of a Member State’. Article 103(1) states that ‘Member States shall regard their economic policies as a matter of common concern and shall co-ordinate them’, while Article 103(2) stipulates that ‘the Council shall, acting by a qualified majority on a recommendation from the Commission, formulate a draft for the broad guidelines of the economic policies of the Member States’. Moreover, Article 102 (3) states that, ‘in order to ensure closer co-ordination of economic policies and sustained convergence of the economic performances of Member States, the Council shall, on the basis of reports submitted by the Commission, monitor the economic developments in each of the Member States . . . and regularly carry out an overall assessment.’ Furthermore, under Article 103(4) ‘where it is established . . . that the economic policies of a Member State prove not to be consistent with the broad guidelines . . . or that they risk jeopardising the proper functioning of economic and monetary union, the Council may, acting on a qualified majority on a recommendation from the Commission, make the necessary recommendations to the Member State concerned’. The development and implementation of monetary policy will be completely subordinate to EC control. Article 105(2) states that ‘the basic tasks to be carried through the ESCB shall be: to define and implement the monetary policy of the Community; to conduct foreign exchange operations; to hold and manage the official foreign reserves of the Member States’. This will be achieved through the provisions of Article 108(1) whereby ‘the ECB shall be consulted by national authorities regarding any draft legislative provision’ and that the ECB ‘may frame opinions for submission to the appropriate national authorities on matters within its fields of competence’. Moreover, Articles 105(4) and 108(3) state that ‘the ECB shall have the exclusive right to authorise the issue of bank-notes within the Community’, such that ‘Member States may issue coins subject to ECB approval of the volume of the issue’. These intentions were broadly adhered to at a meeting of the European finance ministers at Versailles in April 1995. The threestage plan leading to the single currency was re-endorsed albeit with an amended timetable. Consequently in 1998 a decision

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was taken as to which countries would qualify for monetary union in 1999. A period of fixed exchange rates from 1999 will now lead to the single currency by the new target date of 2002. Solemn discussions have begun on the single currency’s name. Thus, despite predictions at the time, the turmoil on the international currency markets since 1992 has not led to an abandonment of the whole project. At a finance ministers’ meeting on 2 August 1993, the old system of narrow and wide ERM bands was scrapped, to be replaced by a very wide band of 15%. To adhere to the original Stage III timetable the EC has now proposed that in 1999 there will be an ERM mark two, of four years of fixed exchange rates leading to EMU. From 2002, the single currency will be introduced on the assumption that member states have met the convergence criteria. What can be concluded from these events? The single currency is going to happen. The EC desperately wants to introduce it and has a new plan to do so. The only thing that has changed in the last six years since the publication of the Delors Report is the timetable. The principle of the single currency has not changed; the principle of three stages has not changed; the principle of using the ERM has not changed; and the principle of abolishing the existing currencies has not changed. Monetary union is being driven by the political will of the member states and the European Commission which regards the 1992–3 implosion of the ERM as the justification for EMU not as a reason for its abandonment. John Major’s claim that the single currency may not happen defies the facts and stated intentions of the EC. In April 1994 in an under-reported interview with Der Spiegel, Mr Major stated that ‘if we were to move to a single currency and it were to be successful, you would need proper convergence of the economies across Europe. They would all need to be operating at the same sort of efficiency. I know of no one who believes that is remotely likely, it simply is not going to happen’. 31 During the 1995 Conservative leadership election campaign, Mr Major reiterated his belief that the single currency may never occur, oblivious to the decision at the EU’s June 1995 Cannes summit (which he attended) to proceed to Stage III in 1999 and to prepare the scenario for switching from national currencies at the December 1995 Madrid summit.32 Similarly the


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EC’s Monetary Affairs Commissioner Yves-Thibault de Silguy told the European Parliament that, under the Commission’s plans, once exchange rates were fixed, most transactions between private banks and the European Central Bank would take place in ecus, as would the bulk of interbank transactions. This would allow for a ‘critical mass’ of the EU’s financial system to shift to the new currency. Mr de Silguy told the Parliament that once exchange rates were fixed it would take another two to four years for ‘the man in the street’ to have the single currency coins or notes in his pocket. He indicated that this period was needed not only for technical reasons but also to woo the public. ‘You have to teach people to love the currency’, he said.33 In accordance with these plans the EMI President Alexandre Lamfalussy suggested a competition to select the best bank notes design for the single currency because a decision was ‘urgent’. 34 There is no evidence to suggest that the current temporary breakdown of the ERM has dented the resolve of the EC. It is too important for the construction of the federal Europe of Maastricht for the EC to abandon the plans for EMU. Too much political credibility is invested in it, and too many careers depend upon it. As Karl-Otto Poehl, the former Bundesbank President, has argued ‘a small monetary union could be founded almost immediately if the political will were at hand’. 35 Moreover a single currency is essential to the creation of a single European government which has been at the heart of the integrationist project since the 1950s. As Sked and Cook noted, ‘the real impetus behind monetary union was political: Europe could only become a single state if it had a single currency. Hence the political objection to the Delors Report by Mrs Thatcher: it was really designed to put an end to British national sovereignty’.36 The common currency was rejected because it is incompatible with political union. The 1990 hard ecu model is consistent with national sovereignty because each country still retains the power to issue its own currency, to have its own budgetary and monetary policy, and its own central bank. But the politics of the EC has ruled that out because the scheme would conflict with the desire for political integration. If there is a single currency, there is a single monetary system with one central bank and only one currency. And if there is a single central bank and

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monetary policy, there will be one budgetary policy. If there is one budgetary policy, there will be one fiscal and taxation policy. If there is one monetary policy, one budgetary policy and one fiscal policy, there will be one government. Kenneth Clarke’s claim that the Irish Republic maintained its political sovereignty up to the 1970s while sharing the pound sterling is a false analogy with EMU. The Irish Republic never gave up its right to issue its own currency after obtaining its constitutional independence in 1922. Under Maastricht the member states would give up for ever the right to issue their own currency. As Norman Lamont has commented, ‘under the Maastricht Treaty it would be illegal for Britain to re-establish its own currency. That’s why the federalists are so keen on it’.37 Economic objections The more honest federalists such as Chancellor Kohl have always admitted that political and monetary union are intertwined. But some in the EC prefer to see EMU as an offspring of the Single Market. For example, the European Commission has argued that it is necessary to have a single currency if there is to be a successful single market. Among those disputing this claim is the former president of the German Bundesbank, Dr Helmut Schlesinger, who in a speech in Los Angeles in April 1993, said that: Many economists feel that the single European market will only have been completed economically if Europe actually also has a single currency. Nothing expresses this conviction better than the well known slogan, ‘one market, one money’. However, I believe it to be somewhat shortsighted simply to regard the European monetary union as the logical conclusion to the process of economic integration. The monetary union is rather a step with a significance of its very own. A single market can exist and be beneficial without inevitably requiring further moves towards integration in the monetary sphere. Nobody to my knowledge is calling for the creation of a single North American currency, as the consequential establishment of a North American free trade area.38


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As Dr Schlesinger argues, the analogy which the Commission has hitherto used is inappropriate. The Commission has repeated that Europe should be compared to the United States; but Dr Schlesinger’s argument is that Europe should be compared to the whole region of North America – the United States, Canada, and Mexico. But NAFTA does not have a plan for a single currency. There are no plans to abolish the Canadian dollar or the Mexican peso, nor need there be. The same argument applies to Asia-Pacific. The European Commission has always referred to Japan, but it has not adequately considered the other countries. In Asia-Pacific, either with ASEAN or with APEC, there are no plans for a single currency. Free-trade zones are emerging and internal trade barriers are coming down without the abolition of the existing currencies and the imposition of an Asia-Pacific currency. The one-dimensional Europe–Japan analogy the EC Commission has proposed is inaccurate. In the debate in Britain hitherto, advocates of EMU have assumed – rather than proved – that the single currency will keep its value.39 They point to the Delors Report and the Maastricht Treaty which provide for an independent European central bank immune from political interference. They anticipate that the ECB would be as independent for Europe as the Bundesbank is for Germany and the Federal Reserve is for the United States. But this stress on operational independence is an incomplete rendering of recent German monetary history. The reason why the deutschmark has maintained its value since 1949 is partly due to the independence of the Bundesbank; however that is a necessary but not a sufficient condition. Equally significant is that German central bankers are petrified of inflation because of the inter-war years of hyper-inflation, when in 1923 inflation was measured not in percentage terms but to the power of ten. Inflation destroyed the savings of the middle classes, turning them to Hitler. When the slump followed after 1929, many of the 7 million unemployed also turned to the Nazis. To the German mentality, after World War Two, inflation is associated with the collapse of society, civil disorder, and the rise of fascism. In other words, it is the mentality of central bankers, and their fear of inflation because of these historical truths, which makes them so determined that the deutschmark will keep its value. In assessing any

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plan for EMU it is impossible to take the central bankers out of central banking. All systems of central banking depend on the individual decisions of central bankers. Independence from the politicians does not by itself guarantee low inflation. A European central bank on the model outlined in the Maastricht Treaty (Article 109a) would contain, at most, seven German representatives out of twenty-one. But other central bank governors sitting round the ECB table have definitions of low inflation which are higher than that of the Germans. Fifteen central bank governors may produce fifteen definitions of low inflation. Perhaps only the German representative would prefer zero inflation. If decisions are taken on the basis of compromise between different levels of inflation, it is likely that a European single currency will have a higher inflation rate than the recently abolished deutschmark. The foreign exchange markets would be likely to judge a new European currency in terms of its inflation rate compared to the former deutschmark, or compared to the existing Swiss franc. The Maastricht Treaty, albeit with its provisions for establishing an independent central bank, does not guarantee low inflation. Nor does operational independence always have the redoubtable reputation it does in Frankfurt. Any analysis of the American Federal Reserve suggests periods in which it has lost control of inflation, most notably in the late 1970s when inflation reached 16%. Similarly the Federal Reserve has been heavily criticised in the work of Milton Friedman and Anna Schwartz for its reaction to the 1929 Wall Street crash when monetary policy became absurdly tight. A wise central banker can be politically dependent; a foolish one can be independent. Moreover, as Tony Cowgill has argued, how would the ECB set monetary policy for Europe as a whole if, in the event of a steep rise in oil prices, its effects are so different among member states? Germany is highly dependent on imported oil and gas; France uses nuclear power for a high proportion of energy needs; and the UK would witness a beneficial effect on its North Sea sector.40 The operational independence stressed by the Maastricht Treaty does not address this question. Operational independence by itself is a necessary but not a sufficient condition for low inflation. A European currency on the Maastricht model, irrespective of its timetabling, would


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not keep its value in the way that the deutschmark has done. In these circumstances, incidentally, the City of London would be better off with the pound outside EMU. Eddie George has argued that ‘the confidence in London’s future position does not depend on the UK being in the vanguard of a move to EMU’, 41 while Professor Tim Congdon has rightly noted that: The City . . . has nothing to gain from Britain’s participation in EMU. Indeed, an argument could be made that our international financial industries could suffer from greater political integration in Europe. At present most of these industries are relatively free from government regulation. For example, banks in London can decide for themselves how large their cash reserves need to be in relation to their foreign currency liabilities, including their liabilities in European currencies. If Britain adopted a single European currency, banks in the City might be forced to hold the same cash reserves as banks elsewhere in Europe. These imposed reserves would almost certainly be higher than those facing banks outside Europe altogether. Because no interest is paid on such reserves, they reduce profitability and are unpopular with banks’ managements. 42 The third objection to EMU relates to levels of growth and employment. Critics of the single currency have always maintained that if the existing currencies of the member states are tied to the deutschmark in the ERM at an overvalued level then the inevitable result is lower growth and higher unemployment. This is the principal reason why unemployment in Europe during the early 1990s, and during the mid 1990s recovery, has been far higher than in the United States or in Asia-Pacific. Interest rates have been kept high in order to keep the value of currencies high against the deutschmark. The policy of high interest rate levels as the central tenet of exchange rate targeting has penalised the companies of Europe whose international competitors saw interest rates fall. The result has been lower growth, lower output and higher unemployment. Martin Feldstein, the Professor of Economics at Harvard and former chairman of the Council of Economic Advisers predicted in June 1992 that:

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Monetary union is not needed to achieve the advantages of a free trade zone. On the contrary, an artificially contrived monetary union might actually reduce the volume of trade, and would almost certainly increase the level of unemployment. 43 This proved an accurate assessment of the consequences of artificially induced European exchange rates as a result of ERM overvaluations. Another example which further backs up these observations concerns Germany. Unification in monetary terms, in July 1990, was successful; the deutschmark replaced the ostmark. But the level of growth and employment in the former East Germany increased markedly because the ostmark, at the point of abolition, was grotesquely overvalued in relation to the deutschmark. We now know that the Bundesbank had argued for a market rate conversion of 10 ostmarks for each deutschmark. But Chancellor Kohl, in order to win the general election of December 1990, opted for a politically popular exchange rate of 1:1, swamping the former East Germany with deutschmarks. The consequences were predictable. Wage rates in the former DDR rose to 70% of those in West Germany, when they should have been only 30% of the West German rate. Monetary union thus created a disincentive to the hiring of workers who were subsequently unemployed in the former East Germany. If the German experience is replicated throughout the EC, with each currency overvalued against the deutschmark at the moment of its abolition, the whole continent will have to contend with lower growth rates and higher unemployment.44 Nor can such unemployment be solved by redistributive fiscal transfers through regional policy. Budgetary policy cannot solve a problem whose origin is monetary. As Professor Pedro Schwartz of the University of Madrid correctly predicted in 1990: Free currency competition and flexible exchange rates are the cheapest kind of regional policy. During the time when a poorer region lags behind, a relatively weak exchange rate can help the region compete. The Delors Report’s answer to the regional harshness of an imposed single currency is to propose handing out grants to underprivileged regions. But it will be near to impossible to


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fine-tune these handouts to compensate for the difference between transaction-cost benefits of a single currency, and losses that result from being forced to use the German interest rate. Given the political mechanisms of the Common Market, this proposal could well develop into another subsidy mess like Europe’s Common Agricultural Policy. 45 This important lesson was learned the hard way in Britain following the decision to join the ERM in 1990. Virtually everyone supported that decision: the CBI, the trade unions, the Conservative party, the Labour party, the Liberal party, most academic economists, the City of London, the Bank of England, and the research departments of most of the large banks. In October 1990, when the pound did join the ERM, this author predicted in an article in the Times Higher Education Supplement that: By joining the ERM with a grotesquely overvalued pound, Britain is locked into a semi-fixed exchange rate regime which will gravely damage industry, hinder exports, exacerbate the balance of payments deficit, reduce output, increase bankruptcies, lower economic growth, and increase unemployment. By joining the ERM, the government will repeat the follies of 1925 when Churchill returned the pound to the gold standard followed by a massive increase in unemployment and of the overvalued pound of the Bretton Woods era. ERM entry under current conditions presages several years of an unnecessary masochistic squeeze on the real economy, with the unemployed its immediate victim.46 Between October 1990 and September 1992 that is exactly what happened. The pound was hopelessly overvalued. The government stubbornly maintained its defence of the existing parity of 2.95 deutschmarks in the wide 6% band. High real interest rates were set in the expectation of defending that parity; but it was clear to the rest of the world in general and to the foreign exchange markets in particular that the pound was unsustainably overvalued. The government’s view was that a strong currency creates a strong economy. Never has there been a greater economic fallacy. A strong currency is the result of a strong economy,

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and not the other way round, as any cursory experience of the artificially rigged currencies of the former COMECON countries graphically testifies. Despite the government’s exhortations the markets never accepted the pound’s ERM parity against the deutschmark and Britain duly left the ERM on 16 September 1992. Mercifully the pound has yet to return, despite Kenneth Clarke’s preference that it should do so. Judging by the effects on France, Ireland, Spain and Portugal, it seems clear that the experience of the ERM for virtually all the member states was the same. For example, in Denmark during 1993 because of the ERM, nominal interest rates were 10%, the inflation rate was 1%, with the real interest rate 9%. The rate of growth was zero and unemployment was 10%. The operation of the ERM by the system of exchange rate targeting against the deutschmark has gravely damaged the European economy. Ironically this outcome was even predicted by the Wilson government’s own propaganda which urged a ‘Yes’ vote in the 1975 referendum. Referring to the then [recent] demise of the Werner Report the government argued that: There was a threat to employment in Britain from the movement in the Common Market towards an Economic and Monetary Union. This could have forced us to accept fixed exchange rates for the pound, restricting industrial growth and so putting jobs at risk. This threat has been removed. 47 Alas the threat is still very real. If after 1999 Britain returns to a remodelled ERM, with each currency tied to the deutschmark and with interest rates set not according to domestic monetary circumstances, but to target the exchange rate, then a repetition of the same experience is inevitable. The current plans for monetary union, which depend on a fixed exchange rate regime, will repeat the same mistakes which led to the implosion of the ERM in August 1993. It is of course technically possible to achieve monetary union.48 The question is, will the cost be too great? Dr Hans Tietmeyer, the Bundesbank President, in a speech in Berlin on 9 September 1994, argued that:


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Stable exchange rates cannot be determined by government ordinance or fixed arbitrarily by policy makers. Ultimately, durably fixed exchange rates are possible only in cases where economic performance is sufficiently convergent and economic policies have identical aims and models. In recent years, Europe has had to experience yet again how much damage can be done by fixing exchange rates in the absence of due convergence between economies if the fixed exchange rate has to be defended by unlimited central bank intervention.49 Reinforcing this powerful argument, on 20 April 1995, Dr Tietmeyer commented further that: [the Bundesbank] is not pursuing an exchange rate target by our decision [on interest rates] even if observers, largely foreign, do not wish to believe it. We know in fact that monetary policy alone has only a limited influence on exchange rates, and that a monetary policy oriented on exchange rates can easily cause deviation from the internal course of stability, particularly in an anchor currency country. 50 Dr Tietmeyer admits that the Bundesbank is not particularly enthusiastic about any return to the old ERM system; although the German government favours such a return, and favours the single currency, the Bundesbank is aware that rigidly linking European currencies to the deutschmark did not work well before and is not likely to work again. Such fears are echoed by Sir Alan Walters whose critique of the ERM over the past decade has been so trenchant and accurate. In October 1993 Sir Alan predicted that ‘I am sure we will rejoin the ERM. It will be put together again like Humpty-Dumpty next year. I do not believe Major’s assurances that we will not rejoin. I also fear the EEC will introduce powers to impose a transaction tax on foreign currencies to discourage speculation against European currencies and to protect their reserves. But I do not believe you can “fix” the ERM’. 51 Even Eddie George, the Governor of the Bank of England, contemplating the relationship between unemployment and a single currency on 31 January 1995 argued that:

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It seems quite possible that a part of the answer to the widely differing levels of structural unemployment will need to be relative real wage adjustment. It is hard to imagine that this could be brought about through a reduction in nominal wages in the high unemployment countries, and without that it is possible that there would be a need for exchange rate adjustment to help bring about a real wage adjustment. Inadequate conversion would be likely to mean slower growth and higher or rapidly rising unemployment in some countries than in others. In that case, the imbalances could only be addressed through some combination of three possible adjustment mechanisms: one, long-term stagnation and unemployment in some parts of the monetary union; two, migration; three, fiscal transfers to the higher unemployment countries. None of these mechanisms appears particularly attractive, and if the tension were substantial then they could become politically divisive. The important thing is that we should recognise the economic significance of monetary union and debate the economic issues dispassionately.52 Monetary union therefore risks high unemployment and low growth in the medium to long term. A single European currency after 2002 would be the ERM in perpetuity. Political as well as monetary union will prevent member states from making the necessary economic response of regulating their own interest rates.53 In the worst possible case, the single currency would neither keep its value nor would guarantee a reasonable level of employment or growth. The quicker the British government activates its famous Maastricht opt-out and repudiates monetary union in principle, the better for all concerned. Notes 1 In the 10 years to 1976, the EC’s growth rate averaged 4% a year, compared with 2.6% for America. Since 1976 European growth has halved to 2.2%, while America has grown by 2.5%. Japan has had a growth rate of nearly 4% a year over the same period. 2 The Cecchini Report (EC publication, 1988). 3 Lord Cockfield, The European Union: Creating the Single Market ( John Wiley, 1994), gives a personal account of the single market process which highlights the dynamism of the EC Commission in forging


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the 1992 process into a frontier-free harmonised Europe. 4 Lord Young, speech at the Institute of Directors Convention 26/4/94. 5 Speech at Chatham House, 14/6/95. 6 Harold Wilson (September 1974) quoted in S. George, An Awkward Partner (Oxford University Press, 1990), p. 87 7 James Callaghan, Time and Chance (Collins, 1987), p. 304. 8 Michael Heseltine, Where There’s a Will (Hutchinson, 1987), p. 259. 9 Michael Heseltine, speech 3/3/94. 10 Christopher Booker and Richard North, The Mad Officials (Constable, 1994). 11 Christopher Booker, speech at the Institute of Directors, 23 February 1995. 12 Ibid. 13 Ibid. 14 Harmonisation effects on the French cheese industry were condemned by Prince Charles at a dinner of the France–Britain Association, 3/3/92. 15 Sunday Express, 5/3/95. 16 Wall Street Journal – Europe, 22/2/94. 17 Reported in Wall Street Journal – Europe, 26/6/95. 18 See ‘EU Study Finds Obstacles on Path to Single Market’, Wall Street Journal – Europe, 16/6/95. 19 For an excellent analysis of this trend see Martin Wolf, The Resistible Appeal of Fortress Europe (CPS/AEI, 1994) and B. Hindley et al., Trade Policy Review (CPS, 1994). 20 Anthony Cowgill, British Management Data Foundation publication, 7/1/92. 21 The Times reported, 15/7/94, that thousands of Mr Spock dolls will be refused entry to Britain this year because the pointy-eared Star Trek character from the planet Vulcan is ‘non-human’ and falls foul of new trade quotas. The European Union is restricting toy imports from outside the Community to protect EU manufacturers. Member states are using a 44-year-old international agreement setting quotas for the type of toys that can be imported – human or non-human and animals, wooden and stuffed. It is up to Customs to decide how the rules are interpreted. Under the system, Captain Kirk toys get the green fight, but a limit has been set on the number of Mr Spocks from China. Any more than the allotted number will be turned away by Customs. Customs commented that ‘Robin is safe and so is Batman, because he is actually a human. But Mr Spock is not, and will be subject to careful checks. We are still considering the status of Noddy and Big Ears, but will be as lenient as possible’. The Department of Trade and Industry said Mr Spock fell under regulation 950349: ‘He will have to find some other way to beam himself in’. The decision has infuriated British toy traders because about a third of toys in shops originate in China. A spokesman for the European Union said that the quotas had been fitted to a worldwide administrative

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framework agreed many years ago. Similarly The Sunday Times noted, 31/7/94, that under the EC’s Measures to Encourage the Development of the European Audio Visual Industry thousands of pounds’ worth of subsidies are to be paid to European cinemas not to show American films but to screen European titles instead. UNCTAD Report 1994 reported in the Wall Street Journal – Europe, 23/11/94. For an excellent case report against anti-dumping policy see Sir Alan Walters, ‘Economic Viewpoint’, Evening Standard, 14/10/91. Wall Street Journal – Europe, 25/6/94. Ibid., 6/10/94. Speech to the French National Assembly, June 1994. The Cost to Business of complying with VAT Requirements (HMSO, 1994) (reported in The Times, 5/8/94). For an initial critique of the Delors Report, see Martin Holmes, ‘European Monetary System is not for Britain’, Wall Street Journal – Europe, 6/6/89 and Britain and the EMS? (Bruges Group publication, 1989). Sympathetic analysis of the Delors Report included D. Gros and N. Thygesen, European Monetary Integration (Longman, 1992) and M. Fratiani and J. von Hagen, The European Monetary System and European Monetary Union (Westview, 1992). For an account favourable to this process see A. Britton and D. Mayes, Achieving Monetary Union in Europe (Sage/NIESR, 1992). Interview, Der Spiegel, 25/4/94. See The Times, 28/6/95. Reported in Wall Street Journal – Europe, 26/5/95. The Times, 20/6/95. Article in Wall Street Journal – Europe, 1/2/95, emphasis added. A. Sked and C. Cook, Post-war Britain: A Political History 1945–92 (Penguin, 1993), p. 541. Speech in Oxford, 17/2/95. Speech in Los Angeles, 16/4/93. See, for example, the Kingsdown Enquiry, June 1995. Tony Cowgill, speech 23/2/95, reported by BMDF. Speech at Bath, 2/10/91. Sunday Telegraph, 20/10/91. The Economist, 13/6/92. See R. Barrell (ed.), Economic Convergence and Monetary Union in Europe (Sage/NIESR, 1992) for an optimistic view of this process. Wall Street Journal – Europe, 18/6/90. THES, 26/10/90. HM Government, 1975 Referendum advice. See P. Temperton (ed.), The European Currency Crisis (Probus, 1993) and C. Border et al., European Currency Crisis and After (MUP, 1995). Speech in Berlin, 9/9/94. Press Conference, 20/4/95.


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51 Reported in Sunday Telegraph, 31/10/93. 52 Speech 31/1/95. 53 National interest is not confined to interest rates determination. As Tim Melville-Ross argued in The Times, 7/3/95, the housing market and pensions would also be gravely affected: In Britain, for example, 80 per cent of all personal debt is in the form of mortgages, and 90 per cent of all mortgage debt is variablerate. By contrast, most consumer debt in France and Germany is fixed-rate. So what would happen when the European central bank put up interest rates to control inflation? Simple. The British house buyer would be hit far harder than his French or German counterparts, with devastating consequences for the British housing market. Which is not exactly the way to ensure even economic development across the Community. Or consider pensions: Britain has more funded pension provision than the rest of the EU put together. Most of our future pensions obligations are covered in this way. Not so France, Germany and Italy, which rely on pay-as-you-go schemes. The governments of these states are at their wits’ ends trying to devise means of coping with the demographic timebomb which will mean that ‘somebody’ will have to pay for the pensions of the increasing numbers retiring in the next 20–30 years. So who will pay? Governments will either have to tax more heavily or borrow on a huge scale. Higher borrowing means higher interest rates. Thus, within a European monetary union, Britain would find itself with higher interest rates as a result of higher borrowing elsewhere. Should monetary union lead to fiscal union, British citizens might also find themselves paying higher taxes to subsidise pensioners abroad.


6 The European Economy East and West: Convergence or Divergence? (1996)*

Introduction After the revolutions of 1989, for the first time since before World War I, it is possible to envisage the complete open integration of the European economy. Two terrible World Wars, and the rise of Fascism and Hitler, prevented a consideration of the European economy as a whole. After World War II, as Communism advanced in the wake of the Red Army, the continent was divided by the Iron Curtain. Until recently, for eighty years, as Europe has been divided and ravaged by war, it has been impossible to contemplate the prospects for a market economy integration of the whole European economy. In this paper I want to consider the full integration of the European economy, including not only the countries in western Europe (in the European Union and the European Free Trade Association), but the former communist countries in Central and Eastern Europe. To what extent is it feasible to have an integrated free-market and free-trading European economy from the Atlantic to the Urals (to use the famous phrase of French President, Charles de Gaulle)?1 When the countries of Central and Eastern Europe freed themselves from domination by Moscow and liberated themselves from Communism, moves to democracy and free market economies * European Journal (May 1996). 109

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were undertaken with enthusiasm and determination. But in order to join the European Union, the Western Europeans required from those countries that they undertake three important reforms. Firstly, they had to de-criminalise small-scale enterprise, allow the entrepreneur room to breathe, and create a market economy from the bottom.2 Secondly, they had to privatise their existing enterprises, to ensure that a market economy existed across the whole spectrum of economic activity. And thirdly, they had to make sure that their economies were sound in terms of macro-economic stability by controlling budget deficits, reducing inflation, and ensuring that public finances were managed prudently. Of course, these three reforms presented a stiff challenge to the Eastern Europeans.3 Small-scale enterprise As far as small-scale enterprise was concerned, it is important not to forget that the Communists suppressed this to the extent that it was illegal to start and own a business. Profits were regarded as socially evil; anyone who was engaged in business unofficially was liable to arrest and imprisonment. As The Economist commented, before the Gorbachev era the Soviet Union used to shoot its best businessmen every year, on charges ranging from corruption to malicious hooliganism. Seventy years of communism was not able to crush the entrepreneurial spirit, and most countries have seen the re-emergence of a capitalist class. The difficulty has not been a lack of entrepreneurs, but a lack of managers who can work towards satisfying the customer rather than working in the communist system to satisfy the central planners.4 Western technical assistance has been necessary in many cases for enabling a managerial class to be created. Marketing, advertising, accountancy, all those worthy but dull aspects of business that are taken for granted, have had to be learned from scratch in Central and Eastern Europe. However, by the mid-1990s, small-scale enterprise has become a burgeoning sector of the economy in the East. Large-scale privatisation The privatisation of larger enterprises has been more difficult, not only because they were controlled by the government and

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had to operate according to the Marxist central plan, but because most were chronically insolvent. A variety of methods have been used. The Hungarians, for instance, prefer ‘spontaneous privatisation’ by selling enterprises on the international capital market to large foreign multi-nationals. Another popular method of privatisation is to sell shares in each company to the citizens of the country. This ‘coupon privatisation’ has worked successfully in the Czech Republic and Poland. Alternatively there is privatisation by auction or worker/management buyouts. Macro-economic stabilisation Macro-economic stabilisation posed a multitude of difficulties. In many countries, towards the end of communism, there was a total economic collapse. Inflation was hopelessly out of control. (I was in Poland in 1988, when inflation reached 120%; in Yugoslavia a year later, the inflation rate was 2500% per annum.) The Communist central banks had printed money to buy people’s allegiance in the hope of avoiding the final collapse. The European Union naturally requested that countries put their house in order by enacting programmes of macro-economic stabilisation. The International Monetary Fund has provided loans, and foreignexchange credit, to import vital goods and raw materials, while at the same time limiting budget deficits. Of course this can be a painful process, because adjusting public spending downwards may mean reductions in pensions or welfare payments.5

Economic divergence in East and West By and large, the countries of Central and Eastern Europe have done the three things that we in the West wanted them to do. They have liberated small-scale enterprise, they have privatised the larger companies, and they have now attained macro-economic stability. But in considering the region as a whole it is now clear that there has been a divergence in economic performance. The progress which countries have made has not been uniform or at the same speed. The boldest reformers, Poland,6 the Czech Republic and Hungary have had economic miracles. Their economic growth is impressive. They have in a relatively short period of time transformed themselves from Communist economies to market

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economies. These success stories, the fast-track countries, have surpassed the expectations of 1989. At the next level are those countries which have done quite well, but have perhaps made a few mistakes. In this category of moderate successes are Slovenia, Latvia, Lithuania, Estonia, Albania,7 Slovakia and Macedonia. In the third category of countries, despite some progress to marketisation, there is still much work to do. Russia, much of the former Soviet Union, Romania, Bulgaria, and most of former Yugoslavia are in this situation. When comparing the economic miracle fast-track success stories to the moderate performers, and again to the slow performers, the clear picture emerges of strong economic divergence. This pattern of change has profound implications for the whole of Europe. One of the most interesting developments is the way in which the performance of the leading three – Hungary, Poland and the Czech Republic – has surprised many economic analysts. So much so that the Central European Economic Review has argued that, at the current rate of progress, these dynamic Eastern European tiger economies would catch up with some of the slow performers in the European Union by the year 2000.8 The Czechs would first overtake Greece, an outcome which has already happened according to calculations based on Purchasing Power Parity (PPP). Thereafter it is predicted that the Czechs, Poles, and Hungarians would catch up fast with other poor performers in the European Union: Portugal, Spain, Southern Italy, and the Irish Republic.9 These struggling economies in Western Europe now find that the success stories in Eastern Europe are fast approaching their level of living standards. The consequence is that for the first time in fifty years, we can no longer look at the European economy as if all the rich countries were in the West and the poor countries in the East. That conventional analysis of the last fifty years will no longer suffice. The changes in Central and Eastern Europe are now changing the economic map of Europe. 10 The economic performance indicators now show that the Eastern European success stories pose a new challenge for the European Union. But to what extent does this phenomenon reflect upon the struggling countries of the European Union? What has gone wrong with Spain, Portugal, Greece, Southern Italy, and Ireland, to be


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overtaken in that way? The short answer is that in Western Europe there is also a growing economic divergence. Although the key buzz word in the European Union economy is convergence, the reality is the opposite. The European single market has revealed a wide and growing divergence between the rich economies – Germany, the Scandinavian economies, and to an extent Britain – and the slow growth economies in Southern Europe.11 The Germans, the Dutch, and the Scandinavians are becoming better off in relation to the Portuguese, Spaniards, Greeks and Irish. This divergence is not officially admitted in the political vocabulary of the European Union, but it is evident in the economic inability to meet the Maastricht Treaty criteria for monetary union. More than anything it is reflected in the currency markets. It is the German Mark that is the strong world currency. The strength of the European Economy is based on the strength of unified Germany, 80 million people, the world’s second largest exporter behind the United States.12 On the foreign exchange markets, in terms of the rate of economic growth, levels of investment, and rates of return on the stock market, Germany dwarfs the Southern European economies. In both Eastern and Western Europe, the reality is growing economic divergence, which necessitates imaginative new policies. There are many economists who support the idea of a wider integration of the whole European economy based on diversity rather than narrow integration based on harmonisation.13 I have made no secret of the fact that I would like to see a genuine European free trade zone or a wider European free trade association. The division of Europe based on the Cold War is at an end. The military division of Europe has collapsed. The Warsaw pact and Soviet Union are no more. It makes economic sense to have a wider European grouping for trade and mutually beneficial co-operation. Why has the European Union been reluctant to embrace the countries of Central and Eastern Europe? What can now be done to foster successful wider integration? To this end there are three specific suggestions as to how the European Union can remove the barriers which it has placed in the way of the countries of Central and Eastern Europe.

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Three suggestions for reform Trade liberalisation Firstly, the European Union should open up its trade to the countries of Eastern Europe. One of the most legitimate demands from the East is that they require access to Western markets. During the years when Europe was divided, not surprisingly the European Union was uncomfortable with trading with the Communist countries. Consequently the European Union erected high tariff barriers against the goods from the Communist side. However, although the Berlin Wall has come down, an invisible trade wall of protection remains. The time is now right for the European Union to bring down those high trade barriers which discriminate against the new democracies in the East. And in particular, the European Union should dismantle the Common Agricultural Policy,14 which prevents the agricultural produce from Eastern Europe reaching eager Western consumers. Similarly, a strong case exists to dismantle the European Coal and Steel Community, which prevents coal and steel products from Central Europe reaching the Western European market. Nor should the European Union persist with a trading regime of protectionist barriers in textiles where the Eastern nations possess a laudable and healthy comparative advantage. This point is not some esoteric economic argument, but is central to the whole process of transformation in Eastern Europe. Any economy which develops a sustainable level of economic growth needs to export. This is the history of virtually every successful economy in the world, including that of the United States, and of course including that of South Korea and the other Asian tiger economies.15 The stronger such economies become domestically, the more they will be capable of exporting on a global basis. If the sectors in which the Eastern Europeans have a comparative advantage are considered, it is clear that agriculture, coal and steel, and textiles are vital to their ability to earn foreign exchange. Currently this potential is blocked because of those tariff and non-tariff barriers imposed during the Cold War by the European Union.16 Many of the leaders in Eastern Europe have become rightly aggrieved. The Hungarian Prime Minister, Mr Horn, has said ‘The Euro-


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pean Union should realise that we live in the market too, and it shouldn’t place restrictions on the import of our goods. After all, we won the Third World War for the West’. The Czech Prime Minister, Václav Klaus, has said ‘The collapse of the Iron Curtain does not require restructuring and transformation on its eastern side only. The western side needs to adjust as well, and the necessity of doing that is no less urgent. Attempts to postpone the painful economic and social process by protectionism, by trade discrimination against former communist countries can only worsen problems on both sides’. Both George Bush and Bill Clinton have spoken out on this issue. George Bush attacked the ‘Iron Curtain of protectionism’ while Bill Clinton, speaking in Paris in 1995, said that ‘If the Eastern Europeans cannot export their goods, they may export instability even against their own will’. President Clinton’s speech was met with absolute silence, which was eloquent testimony to the wisdom of his words.17 The wider conceptual point is important. If the Eastern Europeans can export their products to the European Union in the West, they will acquire foreign exchange with which they will buy products from Western Europe. That is how trade works, as David Ricardo proved over 200 years ago; trade is not a zerosum game with winners and losers, but is mutually beneficial. 18 Moreover, if the Western Europeans buy the products from Eastern Europe, the Eastern Europeans are much more likely to be better disposed towards the West. Similarly, what is the point of encouraging Western European companies to invest in Eastern Europe if they cannot then export their products back to the European Union? There are powerful arguments of European Union self-interest in relaxing those protectionist policies which are an unwelcome left-over from the Cold War. Such changes would help to create the wider integration of the European Economy, a genuine European free-trade zone to benefit the people of the whole continent.19 Cohesion Fund development The second fundamental change that is now overdue is the necessity for the European Union to reconsider its policy of regional aid. Recently rechristened in the Maastricht Treaty as ‘the Cohesion Policy’, it is distributed through the European Union’s

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‘Cohesion Funds’. By this method, the richer countries of Northern Europe transfer resources to the poorer countries in Southern Europe. The Germans effectively pay the bulk of the cost although there are also contributions from the British, the Dutch, and the Scandinavians. The policy is a transfer of wealth through a redistributive fiscal mechanism, to Spain,20 Portugal, Greece, Ireland and Southern Italy. This policy, although well intentioned, is completely counter-productive. It is based on aid, not trade. What it has done, perversely, is to create a welfare dependency in the Southern European countries. Instead of looking to trade their way to higher prosperity, they look instead for a hand-out from Brussels. This aid has distorted their politics into a pork-barrel, boondoggle, clientelistic and incestuous method of maximising the available money from the compliant contributor countries. In virtually all the southern countries both government and opposition politicians claim that they can extract more subsidies from the European Union. The net effect of this policy is to create a type of dependency whereby such countries are increasingly unable to look to their own economic salvation. Moreover, the day may come when the Germans, perhaps in the next generation, will be reluctant to provide the additional resources in this way. Indeed, it can be powerfully argued that one of the reasons for the poor performance of the Southern European countries has been these hand-outs, which have sapped their entrepreneurial spirit, making them less capable of success in the single European market. It is no wonder that the Central and Eastern Europeans are catching them up so fast. The Central and Eastern Europeans are now succeeding by themselves. They are looking to their own economic resources, and in so doing they can hold their heads up with pride. For the Spanish, Portuguese, Irish and Greeks, the perpetual rattling of the begging bowl under the noses of the Germans is demeaning to those countries, as well as potentially destabilising within Germany itself. The time has come to scrap the ‘Cohesion Funds’ as they serve absolutely no worthwhile economic purpose. Should the Central and Eastern European countries join the Economic Union, the ‘Cohesion Funds’ at the moment would be extended to them. But, if by the year 2000 Poland, the Czech Republic and Hungary join the European Union with strong econ-


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omies, it may well be the case that they will have to contribute to the ‘Cohesion Fund’ subsidisation of Spain, Portugal, Greece and Ireland. If the Poles, Czechs, and Hungarians catch up and overtake the struggling EU economies, their citizens may be reluctant to join the European Union if they see that the fruits of their endeavours and their newly created wealth will be transferred, for no other reason than pork-barrel politics, to the Mediterranean countries. The ‘Cohesion Funds’ are now a barrier to a wider European integration, and their abolition is as necessary as it appears unlikely. Common currency not single currency The third and final of the reforms that needs to be enacted by the European Union concerns the current plans for a single European currency. By 1999 the European Community will commence Stage III of economic and monetary union, with the establishment of a Single European Currency (the Euro) which will become legal tender amongst EU members by the year 2002. This single currency plan involves the abolition of all the existing currencies, including the Deutschmark, and their replacement by the Euro.21 Economic and monetary union on this model will surely create an unwelcome problem as far as the wider integration of the continent is concerned. The Central and Eastern European countries do not welcome any further turmoil as far as their monetary policies are concerned. By 2002, the Eastern Europeans will have transformed their currencies from the worthless inflationary inheritance from the communists into hard currencies which keep their value. The Eastern European countries are already becoming increasingly proud of their post-communist currencies. It will be a disincentive to them to join the European Union if they have to abolish those new currencies in the process. In fact, there are few things more likely to dissuade them than the massive currency turmoil involved in moving to the Euro. In many countries in Central and Eastern Europe the abolition of currencies is always associated with bad times; psychologically, they now feel that they have solved the problem of currency instability by the macro-economic stabilisation measures which have been successfully undertaken. There is no economic advantage to the Central and Eastern European countries when contemplating EU

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membership if they have to abolish currencies which they have recently established as fully convertible. Ideally, the European Union should abandon its entire monetary experiment. But on the assumption that – however desirable – the abandonment of a European currency is now politically impossible, it would be preferable for the European Union to revert to the Common Currency plan originally advocated by John Major in 1990.22 Instead of the EU current plan, whereby the single currency would replace the existing currencies, a Common European Currency would exist alongside the existing currencies. Within Western Europe the mark, franc and pound will be supplemented by the Euro, indeed the Euro would compete with such currencies to ensure that inflation is low. There would be an automatic benchmark of low inflation because the Deutschmark would not need to be abolished. 23 As well as being far better for Western Europe, it would also be much better for the Central and Eastern Europeans. They could join the European Union without the massive currency turmoil that will be involved in the abolition of their existing currencies, and in the imposition of a new currency. Nor would it be necessary to embark on a painful process of transferring political sovereignty. European integration on a wider continental level would be much more easily facilitated.

Conclusion At the moment, these three proposals are unlikely to feature highly on the agenda of the European Union. But the time has come to think beyond the conventional political agenda. The problems now faced by the Central and Eastern European countries are the result of the short-sighted and short-term policies of the European Union. The European Union is perpetuating an economic division of Europe long after other such divisions have evaporated. To illustrate this point, it is worth quoting the former Polish President, Lech Walesa, who said in April 1991: We’ve handed Europe victory on a plate, the opportunity to link all Europe up on a healthy basis, yet just look at what Europe is doing. It does not want to get involved, it hums


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and haws. Generations have fought for this great chance. Well now we have it. The question is, will we screw it up? Everything ought to be possible – entry into NATO, the European Community, everything. But what are we doing? Just waiting for the next earthquake – it’s amazing, incredible! 24 I believe that Lech Walesa’s words are as relevant in 1996 as they were in 1991. The time has come to heed his wise words. Notes 1 I have analysed this prospect in previous works. See M. Holmes, ‘Eastern Europe and the EEC’, in P. Minford (ed.), The Costs of Europe (Manchester University Press, 1992); M. Holmes, Beyond Europe (Nelson & Pollard Publishing, 1993), Chs 7–10. 2 For an excellent analysis of this process see P.J.J. Welfens and P. Jasinski, Privatisation and Direct Foreign Investment Transforming Economies (Dartmouth, 1994) 3 See also W.A. Adams and J.W. Brock, Adam Smith goes to Moscow (Princeton University Press, 1993) 4 For this problem and other legacies of communism see Elizabeth and Jan Winiecki, The Structural Legacy of the Soviet-type Economy (CRCE, 1992). 5 The political and electoral consequences have witnessed the defeat of reformist parties and the return to power of ‘post-communist’ parties in many countries. In most cases this has slowed but not reversed the economic reform process. 6 See J. Beksiak et al., The Polish Transformation (CRCE, 1990). 7 See F. Luthans and S. Lee, ‘There are Lessons to be Learned as Albania Undergoes a Paradigm Shift’, International Journal of Organisation Analysis, Vol. 2, No. 1 (1994). 8 Central European Economic Review (Wall Street Journal publication, February 1995). 9 For a sceptical view of recent developments in the Irish economy, see M. Holmes, ‘Ireland’s Exchange Miracle’, Commercial Issues, No. 26 (Sydney, 1996). 10 For a general overview of the region, see R.J. Crampton, Eastern Europe in the 20th Century (Routledge, 1994). 11 See M. Holmes, From Single Market to Single Currency Evaluating Europe’s Economic Experiment (Bruges Group publication, 1995, Chapter 5 in this volume); D. Marsh, Germany and Europe: The Crisis of Unity (Mandarin, 1996), R., Bideleux and R. Taylor (eds), European Integration and Disintegration: East and West (Routledge, 1996). 12 See Brian Reading, The Fourth Reich (Weidenfeld & Nicolson, 1995). 13 See M. Holmes (ed.), The Eurosceptical Reader (Macmillan, 1996).

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14 See D.G. Johnson, Less than Meets the Eye: The Modest Impact of CAP Reform (CPS, 1995). 15 For an excellent overview see A. Oxley, The Challenge of Free Trade (Harvester Wheatsheaf, 1990). 16 This point is also addressed by Brian Hindley, ‘Trade Policy of the European Community’, in Brian Hindley, The Costs of Europe (Manchester University Press, 1992). 17 Quoted in M. Holmes, From Single Market to Single Currency. 18 David Ricardo, Principles of Political Economy and Taxation (Pelican Books, 1971 edn). 19 Such an approach is entirely consistent with Article 110 of the Treaty of Rome whose promotion of external free trade has been hitherto neglected. 20 For a critical appraisal of the Spanish economy, see O. Holman, Integrating Southern Europe: EC Expansion and the Transnationalisation of Spain (Routledge, 1996). 21 For recent analyses see ‘Brussels Sets Stiff Terms for Budget Delinquents’, The Times, London, 17/10/96; D. Heathcoat-Amory, ‘Just Say No to the Single Currency’, Wall Street Journal – Europe, 14/10/96. A highly optimistic viewpoint is provided by C. Johnson, Out with the Pound: In with the Euro (Penguin Books, 1996), in contrast, see B. Connolly, Reserve(d) Areas (AIG publication, September 1996). 22 Mr Major was Chancellor of the Exchequer at the time. The then Prime Minister, Margaret Thatcher, was hostile to European monetary union. 23 See ‘Other Voices’ (Central European Economic Review, Vol. 14, No. 8, October 1996). 24 Quoted in Wall Street Journal – Europe, 24/4/91.

7 The Transatlantic Implications of European Monetary Union (1997)*

Introduction There are I believe five major implications of monetary union for the transatlantic relationship all of them damaging, and all of them will retard genuine co-operation between Europe and the North American continent, but before I come in detail to those five points it is necessary to make some important introductory points. Firstly let me say that I am a strong supporter of the Transatlantic relationship and an unequivocal supporter of NATO, believing in co-operation between Europe and North America. However, I am not a supporter of the process of internal political and economic integration within the European Union. I believe that Europe should remain a continent; it should not seek to become a country, with its own flag, its own anthem, its own currency, and its own political system, leading to a centralized federal political entity. My own position is very similar to that as espoused by former Prime Minister Margaret Thatcher in the 1988 Bruges speech when she argued in favour of European cooperation and free trade between nation states but opposed any centralized superstate. Of course there are many people who would prefer a Europe of nation states but tolerate the current process * Lecture at Middlesex University College, London (1997). 121

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of integration. This is the policy of the present government as it was of John Major’s government. This is not my view. I am positively opposed to the current process of integration in Europe both for political reasons, because I think it is undemocratic, and for economic reasons, because I am a globalist, not a European regionalist. Free trade on a global basis, is preferable to a European customs union. Let me admit at once that this is a minority view on both sides of the Atlantic and I am sure it is a minority view among contributors to this conference. It has always been the case that American administrations from Harry Truman onwards have supported European integration, largely because during the Cold War, the United States wanted to bolster the interests of the Western World and NATO by encouraging European co-operation. Moreover many Americans thought that the process of European integration would be similar to the process of the integration of the United States itself. Just as 50 states have joined the union and free market economics has come to dominate in the United States, so European integration would create a replica of the United States in Europe leading ultimately to a United States of Europe which would be a trading partner co-operating with the United States in a true Atlantic partnership. Central to this process was the way in which the American administrations wanted to create a quite different Germany from that of the Hitlerzeit by encouraging a democratic federal West Germany committed to the western alliance. The Secretary of State Dean Acheson, in his memoirs Present at the Creation wrote of his meeting with Konrad Adenauer: His great concern was to integrate Germany completely into Western Europe. Indeed, he gave this end priority over the reunification of unhappy divided Germany, and could see why her neighbours might look upon it as almost a precondition to reunification. He wanted Germans to be citizens of Europe, to cooperate, with France especially, in developing common interests and outlook and in burying the rivalries of the past few centuries. Their common heritage had come to them down the Rhine, as the successors of Charlemagne, who guarded European civilization when human sacrifice was still practiced in eastern Germany. They must lead in the rebirth of Europe.1

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The Americans also encouraged British governments to join the process. When the Churchill and Eden government decided that they would support European integration but not partake of it, the American administration made clear its opposition. The Americans later encouraged the Macmillan, Wilson and Heath governments to join the EEC. During 1974–75, when there was the prospect during the renegotiation of the terms of entry by the Wilson government, that Britain might be expelled from the European Community or might withdraw, Henry Kissinger personally intervened to dissuade Jim Callaghan, the Foreign Secretary, from contemplating this option. The United States hoped that, when the British joined, they would make the European community Atlanticist. The Americans believed that the British could lead, shape, mould and change Europe, a view which was, even then, over-optimistic and exaggerated any capacity of changing what was essentially a Franco–German enterprise. It is now more widely understood that the single European currency is likely to happen because it is part of a political project which began in the 1950s with the Treaty of Rome and which reached maturity with the Maastricht Treaty which was ratified in 1993. From the start political will has fuelled the creation of a political and federal super state, in which the continental countries and the founding fathers of Europe integration intended to intertwine political and economic integration. As Helmut Kohl has admitted on the relationship of the single currency to political union, ‘we want the political unification of Europe. If there is no monetary union there cannot be political union and vice versa. A European police force and army lie at the end of the road to political union’. Monetary union is inconsistent with British sovereignty and self government which is why virtually all Eurosceptics are opposed to it on principle. What remains surprising is that some British supporters of EMU downplay, or ignore, its political dimension by citing only reduced transaction costs and the avoidance of exchange rate risk.

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1970s’ external shocks Another reason why the continentals are so determined to go ahead with the single currency is because they want the current plan to avoid the fate of its 1970s’ predecessor, the Werner Report. Werner envisaged European monetary union by 1980 and many of the features of that 1970 plan were later incorporated into the 1989 Delors Report. Werner envisaged EC currencies being freely convertible; the parities being irrevocably fixed; community currencies being replaced by one single currency; the centralization of monetary and credit policy; a unified policy on capital markets; a centralised budgetary policy; institutional changes to influence national budgets and a Community central banking system. Delors reinvented the ERM as the instrument for achieving monetary union and the convergence criteria were added by the Maastricht treaty. Essentially the 1990s’ plan is a microwaved version of the 1970s’ plan. But external shocks meant that Werner proved abortive. Firstly there was the collapse of the Bretton Woods system of the fixed exchange rates; secondly there was the oil price crisis of 1973–74 when the price of oil quadrupled; and thirdly the British renegotiation of the terms of EEC entry by the Wilson government completely dominated the diplomatic agenda up to the 1975 referendum. Those three factors together meant that it was not possible to complete the project by 1980 because European leaders lacked the necessary political will. The current generation of European federalists consequently are absolutely determined that this time no external shocks will derail the project, despite the fact that the 1990s’ external shocks have been of a similar magnitude to those which proved fatal in the 1970s.

1990s’ external shocks Firstly the Danes voted in June 1992 to reject the Maastricht Treaty lock stock and barrel. That democratic judgement invalidated the treaty even according to the legal requirements of the treaty itself, but the European elite, ignoring that fact, made the Danes vote again in a disgraceful contempt of democracy. Secondly between 1992 and 1993 the Exchange Rate Mechanism,


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which was the device to bring about a single European currency, imploded. The narrow (21⁄4%) and wide (6%) bands were abandoned and extended to a 15% band as a result of the finance ministers’ meeting 2 August 1993. It may be argued that this invalidated the whole project of monetary union which was based on the inviolability of the narrow bands. But the European elite ignored that external shock. Thirdly, as the March 1998 EMI report conceded, with the exception of Luxembourg, none of the other participating countries have met the convergence criteria which the Maastricht treaty itself laid out. A whole series of smoke and mirrors’ technical adjustments have occurred in country after country. The Italian special ‘Eurotax’, the French fiddle with the telecom pension arrangements, the Belgian attempt to completely redesign how their public sector deficit is construed, and the Irish attempt to claim that money they received for agricultural subsidies and Cohesion Funds is a product of their own economy rather than handed out by net EU budget contributors, have enabled the convergence criteria to be ignored. The evidence from the 1990s is that the European elite is absolutely determined to procure the single currency. Being guided by political will, and fearful of what happened last time, nothing is going to stop them. As former chancellor and Maastricht negotiator Norman Lamont has argued: How can anyone believe in the impartial rule of law in the EU any longer? Treaties are meaningless and ignored when they are inconvenient. Politics drives all. When we negotiated the convergence criteria at Maastricht in 1992 we meant them to be observed and not to be fudged in this way. It is quite clear that the convergence criteria laid down at Maastricht have been seriously breached by several countries: Article 104c and Protocol 5 of the Maastricht Treaty indicate that qualifying countries must have a debt to GDP ratio of less than 60% ‘unless the ratio is sufficiently diminishing and approaching the reference value’. Since Maastricht was signed Germany’s debt to GDP ratio has increased from 44.1% to 61.2%, Austria’s from 58% to 68.9%, Spain’s from 48.3% to 69.8%, Portugal’s from 60.7% to 62.4% and Italy’s from 108.7% to 122%. Belgium’s has fallen by over 5 percentage points but remains

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at 123.6, twice the level specified in Maastricht. How can a tax like Italy’s Eurotax to be levied in 1997, and to be repaid in 1999 up to 70%, be described as a ‘lasting reduction in the fiscal deficit’? 2 One possible future external shock has been raised by Dr Walter Eltis, who argued in a paper published by the CPS in 1997 that, between 1999 when Stage 3 of the project begins and the 2002 when the single currency replaces the European currencies, international currency dealers still have the opportunity to wreck the whole project. Dr Eltis argues that what happened to the ERM between 1992–93 might happen in the 3-year intervening period. As Dr Eltis puts it: It is beginning to be understood that its creators perpetrated an incredible blunder by leaving [the euro] wide open to international speculation for 36 months between the start date of 1 January 1999, when all the participating currencies will remain legal tender, and 31 December 2001 when they will finally be superseded by the Euro. A collapse during the three years in which national currencies will remain legal tender would create an opening for banks and hedge funds to profit hugely at the expense of the participating government as in 1992. Some of Europe’s governments will have an inescapable obligation to defend with all the resources at their disposal the exchange rate structure agreed at the end of 1998, while George Soros and others who command international financial resources will be free to express a costless preference for the Deutsche mark or the guilder over the lira, the peseta or the franc. A breakdown in agreed exchange rates cannot possibly result in a rise in their value against the mark. But if there is any breach in the EMU dyke, hedge funds will again make billions from the resulting fall of the lira, the peseta, the French franc or indeed the Belgian franc. The creators of EMU have astonishingly agreed to allow the world’s financial community three complete years of a costless one-way option. 3 It is certainly possible there will be another external shock resulting from foreign exchange turbulence. But even if that occurs


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the European elite will still carry on with the project. One prominent supporter of EMU, Professor Richard Portes may thus be correct to argue that the EU would treat any asymmetric shock as a ‘debt crisis’ rather than a ‘currency crisis’. In response to Dr Eltis’ supposition Professor Portes retorts that: This will not be a fixed exchange rate system, and hence not subject to speculative attack. If holders of Italian lire (say) want D-marks instead, the Bundesbank will be willing to purchase as much as the entire Italian money supply at the fixed accounting rate. It would accumulate claims denominated in euros, with an explicit ‘exchange-rate guarantee’ from governments. Not to honour the guarantee would be to abrogate the Maastricht Treaty, with huge political costs – not an option for a central bank. And the monetary operations necessary to neutralise the consequences of such ‘currency substitution’ will be straightforward. If depositors in (say) Italian banks did want to move all their funds into German banks, and they were not reassured (and hence deterred) by the willingness of the monetary authorities to execute these transactions without limit, then Italian banks would be in trouble. But the Italian government could fill the hole in their balance sheets if it wished to do so. There could of course be a run on the government debt of a country in the euro region – just as New York got into trouble some years ago (and Italy came close in 1989). But that would be a debt crisis, not a currency crisis. Most if not all government debt will be redenominated into euros.4 The previous three external shocks should, by all rational calculations, have already terminated EMU. But another shock of the size which Dr Eltis anticipates would still be technically possible to ignore as Professor Portes anticipates given political will, paper, ink and a printing press. However ill-advised EMU may be it is a near certainty that there will be a European single currency.

Changing American opinion However in the last few years opinion in the United States is starting to shift, and the somewhat simplistic belief that European

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integration is necessarily always beneficial to the transatlantic partnership is not held as religiously as before. Economists, business people, and professors of Business Schools are much more critical of the economics of European integration. Political scientists and sociologists still expect the United States of Europe to be similar to the United States of America, a replica which by implication is a form of flattery. Recently there have been a number of highly critical comments in the United States regarding the whole process of Europe integration which would have been inconceivable just a few years ago. In the Wall Street Journal – Europe Gerald Frost has reviewed European Integration and American Interests: What the New Europe Really Means for the United States, edited by Jeffrey Gedmin and published by the American Enterprise Institute. As Mr Frost observes some authors continue to argue that a politically integrated Europe would provide a strong second pillar to the alliance. But many others correctly perceive that the new Europe will not imitate the free-trading, free-market habits of the US and that a politically integrated Europe is far less likely to follow US leadership on foreign-policy questions than the states from which the new federal entity is being constructed. Others call into question its democratic credentials. Together with other indicators, such arguments suggest that a major sea change of opinion – perhaps to be followed by changes to policy – may soon be under way. In an article in the Sunday Times Irwin Stelzer noted that: as Europe opts for policies reducing its competitiveness in world markets, it inevitably drifts towards protectionism. That is how Americans see the European Commission’s intervention in the merger of Boeing and McDonnell Douglas. The claim of Karel Van Miert, competition commissioner, that he is intervening only to test the merger’s effect on competition is risible. Rather, he is trying to protect Europe’s Airbus from the greater competition the merged American company may offer. Any doubts that this is the case were dispelled when Van Miert also decided to challenge the signing by an American airline, Delta, of a long-term contract to buy jets from an American supplier, Boeing. Such protectionist measures are necessary because European labour costs make it difficult for European companies


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to compete with American ones. And those labour costs are high because Europe wants to maintain a welfare state more generous than America’s, which the French deride as acceptable to barbaric Anglo–Saxons but not to their own, more refined, sensibilities. In short, it seems Europe wants to preserve its welfare states and at the same cut unemployment by closing its markets to American goods. 5 Similarly criticism of monetary union is now common place. Robert Samuelson of Newsweek, writing in The Washington Post commented that: [The Euro] is a lunatic idea, but to be honest, one that I thought would collapse of its own stupidity. Unfortunately, it hasn’t and so here goes. Europe suffers from an obsession with economic security that translates into economic stagnation. It over-regulates industry. High payroll taxes penalise hiring. Even Europeans don’t contend that a single currency would cure these ills automatically. The argument is that the requirements establishing the Euro would force countries to make reforms that would revitalise their economies. Though seductive, the logic won’t wash. If all Europe’s countries met these requirements, it’s questionable whether their economies would surge. Their problems stem from excessively restrictive taxes, regulations, labour practices and welfare programs that wouldn’t necessarily be affected. What can we do? Not much. American officials ought to stop treating the project with a respectful silence and express the skepticism that it deserves. Otherwise, our only hope is that the Europeans will come to their senses. The single currency is an economic version of the Maginot Line, the long string of fortresses that the French thought would prevent World War II. Like the Euro, it was a grand delusion. 6 There are now voices in the United States which are saying exactly what I and other Eurosceptics have been saying for a decade or more; there is a proper debate in the United States about European integration, whether it really is leading to greater transatlantic co-operation, or whether the European project has

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a quite different objective. This brings me to those five areas where the single currency will adversely effect the possibility of increased transatlantic cooperation.

Optimal currency area Firstly, the European union is not and shows no sign of becoming an optimal currency area. It is not a replica of the economy in the United States in the way the European Commission constantly claims.7 In the United States a common language and a flexible labour market make possible an optimal currency area, but these two crucial and necessary factors are absent from the EMU process. In his brilliant lecture at the London School of Economics Václav Klaus, the Prime Minister of the Czech Republic, make exactly this point.8 He argued that any traditional economics text book, in the section on optimal currency areas, will stress microeconomic criteria; yet such microeconomic considerations are absent from the convergence criteria of the Maastricht Treaty. It is clear that as the European Union gets closer to the single currency the economies within it are diverging not converging. In 1992 Martin Feldstein, the Professor of Economics at Harvard and former chairman of the Council of Economic Advisors, writing about European Monetary Union, correctly predicted that ‘Monetary union is not needed to achieve the advantages of a free trade zone. On the contrary, an artificially contrived monetary union might actually reduce the volume of trade, and would almost certainly increase the level of unemployment.’ 9 Similarly Professor Milton Friedman has argued that: The relevant question is not whether the euro is economically viable – it is if the member states are willing to exercise the necessary discipline, as they did from 1870 to 1914 under the gold standard – but whether it is preferable to flexible exchange rates. Does the gain from greater discipline and lower transaction costs outweigh the loss from dispensing with an effective adjustment mechanism and having to rely entirely on price and wage changes to absorb differential impacts of economic events on the different countries? My considered opinion has long been that the loss outweigh the gain. The potential


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members of the EMU do not have sufficiently flexible wages and prices or sufficiently mobile workers, or a sufficiently effective fiscal compensatory mechanism, to serve as a satisfactory substitute for flexible exchange rates.10 This view is echoed by Johns Hopkins economics professor, Steve H. Hawke, who has predicted that: This grand scheme poses a dilemma. A unified currency area can function well only if markets within it are flexible. But European markets, particularly labor markets, are notoriously inflexible. Setting aside the natural limitations of language and culture, European labor markets suffer from government-imposed rigidities: high minimum wages, confiscatory labor taxes, overgenerous unemployment benefits, national social security entitlements, nonportability of pension rights and public subsidies to ailing industries. To produce the benefits advertised by the propagandists of the European Monetary Union, member countries would have to embrace US style flexible labor markets. Not a chance. The mere mention of flexible markets constitutes blasphemy in Brussels. Indeed, the Eurocrats claim that Anglo–Saxon deregulation would mean ‘a return to Dickensian sweatshops’.11 Thus the United States has a deregulated full employment economy in contrast to the EU. United States has 5.3% unemployed compared to 11% in the European Union. And American growth rates have outperformed the European Union for the last 21 years. The obvious conclusion is that the European Union is not an optimal currency area, and is not becoming an economic replica of the United States. A single currency under the current plans would lead to divergence between the European and the American economies which would retard genuine co-operation. Workable on the continent? But to what extent will the single currency work for the continentals? There are those who argued that it is quite possible for a single currency to work in a geographical area as large as the European continent because a single currency works well over

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the large geographical area that is the United States of America. The European Commission on many occasions has argued that the American economy has a single currency and therefore the European economy should have a single currency. It has even suggested satirically that if America wanted to have the same arrangements as Europe then it would need to create fifty different currencies. Without any doubt the United States works well as an optimal currency area. It has a single monetary policy and an independent bank, the Federal Reserve, which historically has worked well to guarantee currency stability. But any deeper consideration of the economic details shows that the EC Commission’s analogy breaks down. The American economy works well as an optimal currency area because there is freedom of movement resulting from a flexible labour market so that any external shocks to parts of the American economy can be absorbed by workers moving from one state to another. This process occurred in the United States in the mid-1980s, for example, when the rustbowl smokestack depression of the northeast lead to a considerable migration of workers to the booming south and southwest computer and technology based Sunbelt states. Moreover this process of flexible labour mobility is greatly facilitated by a common language. A third factor which enables the Americans to have a successful optimal currency area is that the tax regime is also flexible. Effectively there are 51 tax regimes, with the federal tax regime supplementing each state’s own individualistic tax regime. Each of the 50 states works out its tax regime to suit its own interests. Some states such as Texas have no income tax, whereas New York has the reverse. Iowa has a gambling tax in contrast to neighbouring Nebraska. While monetary policy is rigid, fiscal policy is very flexible and adaptable to local needs and democratic decisions. In continental Europe none of those three criteria apply. On the contrary, there is a sclerotic and rigid labour market dominated, in the worst instances, by Scargill-style trade unions which prevent any meaningful relationship between the supply and demand for labour. Nor is there a common European language. It is very difficult for workers to move even within countries, as the problems between north and south Italy and German unification prove. Labour mobility is inhibited within countries let


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alone between them. Additionally, over the last decade, Europe has embraced a rigid and inflexible tax structure based on a minimum level Valued Added Tax across the whole continent at 15%. This politically inspired rigidity is the very opposite approach to fiscal policy that is pursued by the Americans. For all these reasons the European economy is not analogous to the American economy. If a single European currency is imposed on divergent economies, a single interest rate will produce either circumstances of uncontrolled inflation or circumstances of depression, low growth and high unemployment in different regions. If the exchange rate cannot take the strain (in the absence of exchange rates) then the strain will be taken by growth and employment condemning areas of the EU to a near permanent recession. The damaging consequences of such an outcome are profound and long term. As the Bradford University research has graphically illustrated, under EMU: Long before structural changes may be encouraged by the operation of market forces, any sizeable asymmetric shock would undermine an EMU project, unable to resolve the fundamental problem of how a single, federal monetary authority can design and implement a single economic programme which can respond to changes in the external economic environment affecting individual nations in markedly different ways. Therefore, the persistence of asymmetric shocks would continually undermine the efforts of the federal EU authorities to reduce unemployment and income inequalities, which will therefore increasingly diverge across the EMU zone. The inability of a single currency, on its present basis, to solve this problem will fester disillusionment with the European integration project until it begins to unravel with devastating consequences.12 In these circumstances there would, however, be no prospect of liberation similar to the one which enabled Britain to escape from the ERM on ‘White Wednesday’ in September 1992. This argument has been made as often as it has been ignored by the European Union. Professor Wilhelm Nölling of Hamburg University, and a Bundesbank Council member 1982–92, argues that ‘Europe’s

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most pressing challenge is combatting mass unemployment. Yet monetary union would impose a costly straitjacket that would make a bad situation worse. Fixing exchange rates will remove states’ ability to make corrections needed to economic policies by changing the exchange rate. Instead of such flexibility the rigidities of monetary union would lead to more unemployment.13 Moreover as Professor Anthony Thirlwall has cogently argued, 14 the stability pact fines – agreed at the 1996 Dublin summit – for countries whose budget deficits exceed 3% of GDP makes no distinction between structural and cyclical deficits. In a recessionary shock, therefore, fines of up to 0.2% of GDP would compound both the recession and the deficit. Similarly Eddie George, Governor of the Bank of England, has stated that: the Euro member countries will have no possibility to adjust either interest rates or the exchange rate independently and they will have somewhat limited scope for independent fiscal adjustment. So the risk is that a ‘one size fits all’ interest rate could result in economic weakness and unemployment in some areas, if the central bank pursued a firm monetary policy, or unwanted inflation in others if it were more accommodating. Without genuinely sustainable convergence – I emphasise the word sustainable – serious tensions could emerge between different countries living with a single monetary policy. 15 The Governor of the Bank of England is absolutely right to conclude that, in effect, the EU is not an optimal currency area. Workable for Britain? But if the single currency is ill advised for the continent it is even less suited for the United Kingdom, whose economy is structurally and fundamentally different from the continental economies. Britain needs to retain the ability to set its own interest rates, and to maintain full control over taxation and fiscal policy. The best relationship that Britain can have with the continental economies is free trade. Alas a free-trade area, unencumbered with political union, has proved elusive both before and after British EEC membership in 1973. The truth remains that the UK


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economy is fundamentally different from the continental economies for the following ten reasons which ought to necessitate the indefinite maintenance of the pound and an indefinite rejection of the single currency. Ten UK objections 1 The UK business cycle is nearly always out of line with the continental business cycle. At the moment UK interest rates at 7.25% contrast with around 3% on the continent. For 20 years or more the British business cycle has become less, not more, aligned with that of other EU nations.16 2 Britain has a different trade and investment pattern from the continentals. We are globalists with a profound interest in world-wide trade. Only the Germans have anything remotely similar to our global trade profile among the EU members. Britain has a balance of payments surplus with every continent on the planet except Europe. In 1996 there was a surplus of £9 billion with the rest of the world but a deficit of £12 billion with the European Union. Over the last 23 years since Britain joined the EEC, the accumulative balance of payments deficit with the European union is £151 billion compared to a surplus with the rest of the world of £70 billion. Profound differences in trading patterns between Britain and the EU are likely to grow as the United Kingdom welcomes the globalization which Europe fears. 3 The pound often moves on the foreign exchange markets in line with the dollar rather than with any continental currency, which reflects both the similarities in economic interests and economic philosophy between Britain and the United States. Both nations prefer free trade, free markets, and the global approach to economics based on Anglo–Saxon economic thought originating with Adam Smith and David Ricardo. The mercantilist philosophy still dominated the economic thinking on the continent as the promotion of the European ‘Social Model’ indicates. 4 The UK housing market is totally different from the continental housing market because of variable mortgage interest rates and because housing costs are far greater as a portion of household expenditure. Mortgage payments in the United

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Kingdom are on average 10.9% of income compared to 3.5% on the continent. Britain should never permit interest rates, which affect every mortgage, to be set by an unaccountable European Central Bank. Britain has lower taxes as a proportion of GDP (35%) compared with the continental average (42%).17 Tax harmonization will push up British levels to the continental level taking us back close to the penal tax policies which predated the Thatcher government in 1979. Moreover European governments’ spending now accounts for 49.5% of GDP compared to 37% in 1970, while current US government spending accounts for only 32% of GDP, having risen only 2% in the last fifteen years. 18 The implication of EU policy has been clearly stated by both Yves-Thibault de Silguy, the EMU Commissioner, and by Mario Monti, the Tax Commissioner, who have called for tax ‘harmonization’ to ‘prohibit fiscal dumping’.19 Such a policy would penalise Britain and would remove one of the most important incentives to the burgeoning foreign direct investment in the UK. No wonder that even John Major – albeit since leaving office – has castigated the tax harmonization folly. 20 The funding of pensions is totally different in the United Kingdom compared to that on the continent, being much more soundly based as a contributory system with less potential debt overhang. Indeed the House of Commons Social Security Select Committee argued that in a single currency British taxpayers could end up paying at least partially for the pension liabilities of the continentals. Britain has a flexible labour market as a result of 1980s’ Thatcherite reforms compared to the inflexible labour market which is such a marked feature in Europe. Under a single currency it would only be a matter of time before the United Kingdom would be forced to adopt the continental labour practices, as part of the harmonization process of economic and monetary union.21 Britain has found it very difficult to digest some of the existing common policies of the European Union such as the Common Agricultural Policy (CAP), the common fisheries policy (CFP), and the budgetary policy whereby the United Kingdom is a net contributor year after year. Severe structural differ-


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ences between the British and the European economies lie at the heart of these difficulties. British agriculture, for example, constitutes a much smaller sector in relation to the rest of the economy than on the continent. Not surprisingly successive British governments have, in vain, urged ‘reform’ of the CAP but British interests would be even better served not by reabsorbing the CAP but by disgorging it. The deficiencies of the CFP are well documented and government justification of its consequences amounts to little more than a pitiful exercise in damage limitation. If digesting these policies is difficult enough a single monetary policy would be even more indigestible. 9 Britain has a far greater level of privatization and deregulation than on the continent as a result of the privatization policy of the Thatcher and Major governments. No equivalent policies have been pursued in Europe outside the new democratic market economics of central and Eastern Europe. 10 The pound is a petro-currency unlike any continental currency. The value of the pound can be profoundly affected by an oil crisis in the opposite direction to the continental currencies. For all these reasons the UK economy is complementary to, and dissimilar from, the continental economies.22 The United Kingdom needs free trade with its European neighbours but must retain control of its own economy, maintain its own currency, set its own interest rates, and ultimately safeguard its own democracy. 23 The similarities between the UK and American economies vividly contrast with the structural differences between the UK economy and continental Europe. As these factors become better appreciated on both sides of the Atlantic initial enthusiasm for EMU will decline. In short it is not in America’s interest for the United Kingdom to join a monetary union which is not an optimal currency area, as the damage to the UK economy would eventually also damage the US economy.

Different tax regimes The tax regime in the European Union is totally different from the tax regime in the United States and single European currency will exacerbate this difference. The key component of the tax

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regime of the European union is Valued Added Tax (VAT) which is levied up a minimum rate of 15% across all 15 countries irrespective of their economic circumstances. There is no equivalent of this rigidity in the United States and nor indeed in Asia-Pacific. If the VAT regime becomes ever more severe, if it is followed by harmonization of direct taxes and property taxes, it will exacerbate the differences between the European economy and the North American economy, making more difficult genuine transatlantic cooperation. The big problem with VAT is that it is a tax on the factors of production. Any tax on the factors of production reduces production and output. VAT is a great way of raising revenue, but at the expense of reducing economic growth. VAT is acceptable for the multinational large companies which employ many accountants anyway, but it is a vicious and crushing burden on the small and medium size business sector. This is one of the reasons why small business flourishes in North America but is stunted and retarded in Europe. The House of Commons Select Committee Report on VAT in 1994 ‘painted a nightmarish picture of businessmen ensnared in a web of rules and regulations so complex that only a minority pay their full VAT dues. Members of Parliament noted with concern that VAT is governed by 156 main regulations, and that there have been 209 regulatory changes in the last nine years.’ 24 A single European currency will simply intensify this process at the expense of genuine transatlantic co-operation. Most recently American opinion has become especially sceptical about this aspect of European monetary union. Nobel economics laureate James M. Buchanan has argued that: efforts to regularize or harmonize fiscal and regulatory controls (including taxes) across all of Europe are similar to all cartellike proposals: they are designed to stifle competition at the expense of citizens. Competition among units will itself generate pressures toward uniformities in tax and regulatory structures. But enforced uniformities prior the working out of competition remove all potential advantages of federalized structures.25 Fellow Nobel laureate Milton Friedman concurs, forcefully pointing out that:


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The key need for the single market is to avoid the use of taxes as a surrogate for barriers to trade – that is, as concealed subsidies or duties. Beyond that, competition, not identity, among countries in government taxation and spending is highly desirable. How can competition be good in the provision of private goods and services but bad in the provision of governmental goods and services? A government tax and spending cartel is as objectionable as a private cartel. 26 Professor Arthur Laffer has also criticised tax harmonisation as follows: The biggest regional monopolies in Europe are the overbearing governments using the rule of law to exact huge sums from their unwitting citizenries. Goodness knows the last thing Europeans need is a transnational legal structure allowing their bloated governments to collude in setting tax rates. Tax harmonization is the English language euphemism for collusion. No matter how warm and fuzzy it sounds, tax harmonization is the single biggest threat Europeans face in their quest for lasting prosperity. If they aren’t allowed to vote on taxes directly, people do vote for the governments of their choice with their feet. Tax harmonization takes away that choice. It should come as no surprise that there is total unanimity among the governments of Europe that tax harmonization is a good thing. It’s their way to protect their monopoly on the power to tax. 27 Similarly Professor Robert Mundell of Columbia University has argued that: If countries with efficient tax structures were required to adopt the taxes of their less efficiently taxed partners, the area as a whole would be worse off. Tax reform is beneficial only if the tax structures of most of the countries are changed for the better. The issue is not so much that countries should have the same tax system as that they should have an efficient tax system. No one should argue that a country with very low

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tariffs and taxes would be better off adopting the high tariffs and taxes of its neighbors.28

Trade policy The big difference between Europe and the United States over trade policy is not a question of political pressure lobbying to procure pork barrel protectionism. The difference is ideological because in North America, at least since Smoot–Hawley, trade policy ceased to be ideological in a way that it has always been in Europe. The European Union uses trade policy as an ideological tool to foster European integration. The pursuit of an European identity is what Airbus is all about. Europeanism has become an ideology to which trade policy is subordinated. What the Europeans like about the CAP is not so much the agriculture but the fact that it’s common; it is a building block for integration which is not amenable to rationality. It is impossible to have an intelligent debate on trade in the European Union because ideology gets in the way. EU ideology advocates the customs union model which is a 20th-century version of the Mercantilist approach of the 17th century. That is why the CAP will never be reformed, that is why the European Union is so protectionist with regard to textiles, damaging Third World countries, particularly in the Indian sub-continent. That is why the outdated European Coal and Steel Community is totally unreformable. 29 For these reasons I think that North America will continue down the path of liberalizing markets, which other distinguished speakers have described, but that the European Union will stay essentially autarchic. The North American Free Trade Area (NAFTA), as George Bush, Margaret Thatcher and more recently Newt Gingrich and Conrad Black have advocated, ought to develop as the transatlantic free trade area (TAFTA). Tragically it is the European Union which keeps this off the agenda.

Interest rates and exchange rates There is fundamental difference between the United States and European Union in interest rate and exchange rate policy. In the United States Alan Greenspan does not follow the dogma of


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exchange rates monetarism. By and large the Federal Reserve sets interest rates to suit the domestic monetary circumstances in the United States to sensibly balance inflation and unemployment. Thus President Clinton’s speech in Colorado30 rightly praised Alan Greenspan’s approach. By contrast the continentals have failed in Europe by pursuing exchange rate targeting and exchange rate monetarism. During the recession in the early 1990s, when the rest of the world cut their interest rates, in Europe interest rates rose sharply. Not surprisingly Europe’s rate of growth has been much lower and the rate of unemployment much higher than in North America. There is a fundamental difference in interest rates policy and exchange rate policy which weakens the transatlantic partnership. A single European currency would make this worse. It would very soon be a political virility symbol for those who believe that a strong currency creates a strong economy. But any reputable economist will argue that the truth is the other way round; a strong currency is the consequence of a strong economy.

Foreign direct investment During the world investment boom over the last decade, the European Union has been losing out to North America, to the Asian-Pacific countries, and to Eastern Europeans. For example 32% of the Czech Republic economy is now comprised of FDI. 40% of all American and Japanese investment in the European Union is here in Britain. Compared to other parts of the world Europe has under-performed because of its rigid labour market, its high tax regime, over-regulation and harmonization. The European Union has lost out in terms of this great global investment boom. The OECD 1995 report argued that the EU economies have been losing out to the United States in the competition for FDI. Inflows of FDI to the US economy nearly tripled to $60.07 billion in 1994 from $21.37 billion in 1993. The 1994 figure also marked a six-fold increase from the $9.89 billion of such investment into the United States in 1992. The totals underscore perceptions that the United States has emerged as a favoured destination among OECD economies for multinational companies because of its big market and its competitive base. In Europe,

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Italy saw foreign-investment inflows slow 34%, while French inflows slipped 13% and the United Kingdom slipped 24%. Once again there is divergence between the EU economies and North America which a single currency would only worsen.

Conclusion In conclusion what we are seeing now is a clash between two quite different economic experiments. The Anglo–Saxon free-market model in being pursued by North America, and to a lesser extent by the rest of the world, but not by the European Union. The European Union’s mercantilist middle way is the ‘Rhineland’ version of capitalism to which John Major referred during the 1997 election campaign. The European Union’s economic philosophy is different from that of North America in that economic philosophy in Europe is intertwined with the political project to create a European superstate. This is no less than a new ideology. It is driven by the desire to have a European identity for just about everything, economic and political. Such Europeanism is hostile towards globalism. The North American model works well with the grain of globalism, as Bill Clinton’s Colorado speech indicated, but I cannot remember a single EU leader making that kind of speech because the Europeans see globalism not as a welcome challenge, but as a unwelcome distraction. The single European currency when it comes will make these differences worse. I am not arguing that the continentals should change their approach; that would be arrogant and would fail to understand the reasons why they have embarked on their project. But what I do urge is that it is about time that we now start recognizing that these differences are for real. The American and EU economies are not converging and the differences are not going to go away. We have to confront the reality that European integration is damaging the process of transatlantic partnership and that enough evidence indicates that the Eurosceptics have won this argument and now occupy the intellectual high ground. We need to understand that the United States and European Union are moving in fundamentally different directions and the quicker we understand that the better it will be.


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Notes 1 Dean Acheson, Present at the Creation (Signet Books, 1970), p. 446. 2 Norman Lamont, Bruges Group Press Release, 25/3/98. 3 Walter Eltis, The Creation and Destruction of EMU (CPS publication, 25/3/98 1997). 4 Richard Portes, The Risk of a Currency Crisis in EMU (CEPR, 1998). See also Wolfgang Münchau, ‘Speculation Perils Persist at Endgame’, Financial Times, 24/2/98. 5 Sunday Times, 8/6/97. 6 Washington Post, 8/1/97. 7 See, for example, the 1989 Delors Report on economic and monetary union. 8 Speech delivered at the LSE, 17/6/97. 9 Article in The Economist, 13/6/92. 10 Article in the Wall Street Journal – Europe, 23/6/97. 11 Ibid. 12 See B. Burkitt, M. Baimbridge and P. Whyman, A Price not Worth Paying (CIB publication, 1997). 13 Wilhelm Nölling, ‘Doubting the Single Currency’, The European Journal, 1996, May. 14 See Professor Anthony Thirlwall, ‘The Folly of the Euro’, European Journal, March 1998. 15 Speech in Hong Kong, 23/9/97. 16 For an excellent analysis of this point, see Daniel Hannan, Eurofacts, 7/11/97. 17 The Times, 16/4/98, reported that French companies and businesses are registering in Britain to reduce their tax liabilities, to the outrage and consternation of the French government. 18 See David Roche, ‘EMU needs a New Social Contract’, Wall Street Journal – Europe, 6/4/98, and ‘Letter from America’, The Times, 21/4/98. 19 See European Journal, January 1998, p. 21. 20 John Major, article in Daily Telegraph, 15/4/98. 21 For a discussion of this prospect, see John Grahl, After Maastricht: A Guide to European Monetary Union, (Lawrence & Wishart, 1998). 22 For a further discussion of this theme, see M. Baimbridge, B. Burkitt and P. Whyman, Is Europe Ready for EMU?: Theory Evidence and Consequences (Bruges Group, Occasional Paper, No. 31, 1998). 23 For an extensive examination of these points, see M. Holmes (ed.), The Eurosceptical Reader (Macmillan, 1996). 24 HMSO publication, 1994, reported in The Times, 5/8/94. For a further discussion of this theme see M. Holmes, From Single Market to Single Currency: Evaluating Europe’s Economic Experiment (Bruges Group publication, 1995, Chapter 5 in his volume). 25 Wall Street Journal – Europe, 29/7/98. 26 Ibid.

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27 Ibid. 28 Ibid. 29 See I. Stelzer, ‘Euro Trade Barriers Fire Up Protectionists’, Sunday Times, 3/8/97. 30 Speech in Colorado by President Clinton, 19/6/97.

Part III Political Integration


8 European Federal Integration: The Case Against (1996)*

Introduction I would like to challenge the three main arguments which have been advanced in recent years in favour of a federal or integrated Europe (I am using ‘federal’ and ‘integrated’ interchangeably). Firstly, is the argument that European integration has prevented war in Europe. Secondly, is the argument that the nation-state and national sovereignty are obsolete, and that supranational federalism is a superior form of governmental institution. And thirdly, is the argument that the European Union is economically successful, so that in John Major’s famous phrase, Britain should be ‘at the heart of it’. 1

Peace in Europe since 1945? Let me start with the first of these propositions; that the European Community has kept the peace in Europe for the past fifty years. So the argument runs, the wars between France and Germany in 1870, World War One 1914–18, and World War Two 1939–45, were caused by nationalism. But whereas the virus of nationalism led to these terrible conflicts, since 1945, as the nationstates have gradually surrendered their powers and sovereignty to the institutions of the European Community, a new era of co-operation in Europe has made war unthinkable.2 But how true * Lecture at Gresham College, London (1996). 147

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is this contention? I would argue that it is a grotesque distortion of history. World War Two was quite different from the war of 1870, and World War One. World War Two was not a conventional war fought between armies on a battlefield; it was a war in which, for the first time in the modern age, civilians were deliberately targeted for annihilation. World War Two was not simply a continuation of a historical theme which begins in 1870. Moreover the cause of World War Two, as any half decent British history textbook will testify, was not nationalism, but fascism. In particular it was the German variation of fascism, National Socialism, which was culpable, as Hitler wilfully and deliberately planned a World War. The Third Reich was intent on both conquest and genocide as the ultimate manifestation of Nazi ideology.3 Mussolini’s Italy, the Vichy regime in France, and collaborators in many countries enabled the fascists who came to power to magnify the horrors which Hitler planned. Fifty years ago the Nuremberg trials rightly concluded that the German fascists were guilty of crimes against humanity and planning an aggressive war. Nationalism and fascism were not the same thing. During World War Two, in the many cases of anti-fascist resistance, it was love of one’s country – nationalism, patriotism – which was the most important single reason for defiance of Nazi rule. The greatest nationalist and patriot in Britain was Winston Churchill. That most nationalist of Frenchmen, General de Gaulle, personified the spirit of indomitable resistance to the Nazis and their Vichyite supporters. Equally significant is the way in which the Soviet Union resisted the fascist invaders. Stalin called on the people of the Soviet Union to fight not for Bolshevism, or Lenin or Marx; he called on them to fight for Mother Russia. He revived the Russian Orthodox church specifically for that purpose, and encouraged Islam in Soviet Central Asia. Similarly the heroism displayed in those countries where the resistance to fascism was greatest, such as Poland, proved that those who sacrificed their lives in the common anti-fascist struggle were often the greatest nationalists and patriots. In 1944 during the Warsaw uprising, Polish nationalists and patriots fought street by street, block by block, floor by floor, room by room against the Nazis. In Greece and Yugoslavia the resistance movements were divided between

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nationalists and communists and nationalist resistance, exemplified by supreme heroic self-sacrifice, occurred in Norway, Czechoslovakia, and Crete. In Germany itself many of the 3 million political opponents whom Hitler imprisoned were representative of traditional conservative and religious beliefs including the vast majority of the July 1944 Von Stauffenberg bomb plotters. Admiral Canaris who passed on vital intelligence information to the Allies was the personification of a patriotic – and decent – German. In June 1933 Hitler banned the patriotic and traditionalist German National Party, led by Hugenberg, along with parties of the left. The Nazis crushed the democratic and patriotic right just as swiftly and brutally as the Social Democrats and Communists. 4 To be a nationalist – in World War Two or today – does not imply a hatred of other countries or a predilection for war. Love of one’s own country does not necessarily lead to antagonism to one’s neighbours any more than love of one’s own family implies hatred of non-family members. National pride is a powerful force for good if channelled into representative political institutions, culture, art, historic heritage, sport, literature and collective self-esteem. Such patriotic sentiments ultimately played a vital role in the defeat of the Axis powers. To be sure, during World War Two, although the role played by communists in the resistance to fascism grew in strength after June 1941, it was often nationalists who bravely carried the torch of freedom from start to finish. But just as it is untrue that nationalism caused World War Two, is it also untrue that the moves towards European integration have preserved the peace since 1945? Any analysis must start with Germany. After 1945, it is impossible to speak of Germany having the same degree of freedom and latitude in its foreign policy which it enjoyed before 1939. After 1945 Germany was divided for 45 years. West Germany had on its soil up to 350 000 American troops and 55 000 British troops. East Germany had upward of 500 000 Soviet troops on, or proximate to, its territory. In these circumstances, it is impossible to conceive of Germany having the ability to start another war. Equally significant is the fact that the German government and people after 1945 clearly repudiated fascism. Under the post-war settlement in the West the Germans have been impeccably democratic;

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that is why I strongly supported German unification in 1990. On a visit to Prague in 1990, I applauded the Czech President, Václav Havel, who declared that he supported German unification because Germany was now democratic. In considering the evolution of Germany since 1945, it does not appear at any stage that the Germans ever wanted to repeat the horrors of the Hitlerzeit, or that even if they wanted to (which they didn’t) they would have been in no position to so do. What then has kept the peace in Europe in this period? Again, any half decent history book will provide the answer. It was the balance of terror in the Cold War which kept the peace in Europe, and in particular it was the role played by NATO. After its establishment in 1949 the heart of NATO doctrine was the possession of nuclear weapons as a deterrent, leading to ‘mutually assured destruction’ and the balance of nuclear terror. It is a paradox (as so many things in international relations are); but that paradox helped to keep the peace because it deterred Soviet aggression. A cursory glance at the chronology of the post-war period reveals that European integration reaches its maturity in 1957 with the Treaty of Rome and the establishment of the European Economic Community, a full eight years after the establishment of NATO. The truth is this: far from being the cause of peace in Europe since 1945, European integration is the consequence of peace in Europe. It was NATO and the balance of nuclear terror which was responsible for peace in Europe, and because of the success of NATO the European Economic Community could embark upon the process of European integration as early as 1957. There are those who argue that the stability of the balance of terror was all too close to the stability of the graveyard, that there could have been a nuclear holocaust, and that peace in Europe was fragile. There is much truth in this argument. So what led to the end of the Cold War? What was it that now enables us to sleep safely in our beds in the knowledge that there will not be a nuclear holocaust in Europe because of a superpower crisis? The answer is not the European Community, nor European integration, nor even the ubiquitous figures of Jean Monnet and Jacques Delors. The primary responsibility for the ending of the Cold War in Europe lies with Mikhail Gorbachev, Ronald Reagan and Margaret Thatcher. Gorbachev was for real;


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he genuinely wanted to reform the Soviet system, and to dissolve its Eastern European empire. And who linked up with him in that process? It was the dissident movements in Central and Eastern Europe: Lech Walesa and Solidarity in Poland; Charter 77 in Czechoslovakia; Neues Forum in East Germany; the ecological movement in Bulgaria; and the Hungarian radical reformers. They linked up with Gorbachev when they could see that the Brezhnev Doctrine was gone for ever. It is no coincidence that the Nobel Peace Prize was won by Lech Walesa, not by a European Commissioner, or a Western European Eurofederalist politician. Credit is also due to the United States under Ronald Reagan, and to Margaret Thatcher, the then British Prime Minister, for recognising that it was possible to ‘do business with’ Gorbachev; by giving him the political support which he needed to carry forward peaceably his domestic revolution, Reagan and Thatcher enabled the Cold War to end. It is a grotesque oversimplification and an insult to the intelligence to be constantly told by European integrationists that it is the European Community which is responsible for peace in Europe. The European Community is the consequence of peace in Europe, not the originator thereof. Additionally, as the Cold War ended in the late 1980s, the European Community was an unhelpful bystander obsessed with its own internal trivialities exemplified by the Single European Act and the moves which culminated in the Maastricht Treaty. Gorbachev, Reagan, Bush, Thatcher, Walesa, Havel and others combined to end the Cold War despite European integration not because of it.

The obsolescence of the nation-state? Let me come secondly to the proposition that the nation state is obsolete, that national sovereignty is outdated, and that federalism is a much more sensible form of political organisation. Thus Helmut Kohl told his Louvain University audience in February 1996 that the nation-state is associated with war and should be superseded by European integration. As Eurointegrationists tell us, many federal states are models of political success. Of course it is true that in certain circumstances, federalism worked very well. As a regular visitor to Germany, the United States, and

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Australia, I can attest that in such federal countries their systems of government work well. They are all successful, healthy, vibrant, pluralistic democracies. But any examination as to why those federal states work well yields a clear pattern. Federalism works if its component parts are regions, provinces, cantons, or former colonies. Federalism works well only if the component parts are not nations. However much Americans may owe allegiance to their individual state – Iowa, Hawaii, Nebraska, etc. – those states remain states. No citizen of those states would claim that they are nations. The same applies to Germany. In Bavaria, for instance, there is a great pride in King Ludwig whose picture hangs on the walls of many a beer house. But no Bavarian would argue that Bavaria is a nation. The German system works so well because it is comprised not of nations but of regions. But if we look at those historic attempts at federalism whereby nations have been straitjacketed into a federal system, we find only failure. This was one of the reasons why the Soviet system imploded; it was a federal state, based on the pretence that everyone was a Soviet citizen, everyone was a worker, and that the social cement of communism would transcend feelings of religion, nationality and culture. The same analysis applies to the tragic collapse into barbarism in the former Yugoslavia.5 No-one felt that they were Yugoslavs – except for Tito and his Communist supporters. Less extreme and bloody contemporary examples of the failure of federal states to contain and subdue national sentiment include Canada, Nigeria, the Central African Federation, India, and the Malaysian/Singaporean Federation. The failure of Indonesia to incorporate East Timor into the Indonesian Federal State is because the East Timorese regard themselves as a nation worthy of self-governance, not as a province or region of their larger and stronger neighbour. Federal states that are composed of nations whose people have no ultimate allegiance to, nor affection for, the federal state, are doomed to collapse. Federalism only works in certain political circumstances; it is not a political doctrine of universal application. But if a federal state were to be created which included the existing fifteen members of the European Community, such a federal state, because it would be made up of nations whose people have no ultimate allegiance to that federal state, would


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be more likely to suffer a fate similar to that of the former Soviet Union or Yugoslavia than it would to work successfully on the model of Australia, Germany, or the United States. Such an analysis raises the important question of national sovereignty. Eurointegrationists proclaim that national sovereignty is obsolete. To anyone who knows Europe such a view does not impress, for example, the Czechs and the Poles. For them the disastrous consequences of World War Two ended in 1989. They want their independence to match their pride. National sovereignty is intertwined with their newly rediscovered democratic freedom. As Czech President Václav Havel argued in 1990, ‘We want a Europe of independent nations and sovereign states . . . not divided into blocs and pacts’.6 Similarly the then Estonian Prime Minister Mart Laar declared in 1994 that: Estonia did not win freedom from the necessity of Moscow’s assent to measures, only in order to gain that of Brussels. A united Europe must not turn into a soulless conglomerate; a monotone slab of conformity is less attractive than a colourful mosaic of free nations where everyone has their separate roles and distinct rights. Presumably, the accession of the Central and Eastern European States to the EU will help to achieve that goal.7 National sovereignty is a relevant concept not only in Europe. As the world community proved, the liberation of Kuwait from Iraqi occupation in 1991 was a reassertion of the sovereign rights of small countries. Predictably those voices in Europe most hostile to nation-states and most favourable to federal integration were the least supportive of Desert Shield and Desert Storm and the most critical of the United States and Britain.8 But national sovereignty and national self-determination usually involves national self-government. That is the historic meaning of national sovereignty in the British context. In fact constitutional historians prefer the term ‘parliamentary sovereignty’, because parliamentary sovereignty not only denotes self-governance, but also democratic self-governance. 9 Since the seventeenth century our political system has emerged on a parliamentarist model, through a process of democratic evolution:

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the victory of the parliamentary forces over Charles I, the Glorious Revolution and the Bill of Rights, the Emancipation of Catholics and Non-conformists, the freedom given to the Trade Unions following the heroism of the Tolpuddle Martyrs, the growth of freedom of the press, the extension of the franchise in the nineteenth century, votes for women, and the extension of the vote to eighteen-year-olds. The crucial feature of the British political system in the modern age, which distinguishes it from other systems, is that if we want to, we can throw out a government, lock, stock and barrel, as occurred in 1945, 1964, 1970, 1974, and 1979. Despite its faults at least the British people possess the means through the notion of parliamentary sovereignty to exercise the supremacy of ruled over rulers. Parliamentary sovereignty and the accountability of the executive are thus intertwined as the dual bulwarks of our political freedom. Those federalists who argue that parliamentary sovereignty is obsolete are in effect arguing that democracy is obsolete. Indeed, parliamentary sovereignty is arguably just the posh, text book term for democratic self-rule. By contrast, if we consider what is promised in the Maastricht Treaty – the European Union of an integrated and federal superstate – it is clear that it would never again be possible to throw out any government lock stock and barrel, because we would not control our own destiny. With a diminution of sovereignty comes a diminution of democracy. Sovereignty, however, is not the same as power. Whether Britain has an empire or not, whether we are economically prosperous or not, whether we are governed well, indifferently, or badly, tells us little about sovereignty. Sovereignty is the ability to determine the form of government under which we live, a principle which the British people should not trade away. We should live under the laws made by our own parliament, and no other laws. Equally we should not seek to impose our laws on others, especially through such an administratively convenient but democratically deficient device as Qualified Majority Voting (QMV).10 In a federal Europe, with its consequent centralisation – Jacques Delors predicted that 80% of all decisions would be taken in Brussels by 1998 – the national parliaments of each country will be castrated. No country would be able to determine its own fate through its own democratic


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process. A federal Europe would mean that those countries, for example, which had elected a left-wing government would find the policies of such a government overruled if the majority in Europe was right-wing. Such an outcome (and vice versa) would be a recipe for acrimony, and would be the negation of democracy and self-governance. Yet QMV promises as much in the Maastricht Treaty. But while our tradition is parliamentarist, the tradition of government on the continent is not, with a few notable exceptions such as Switzerland and Scandinavia. On the continent the political tradition is the administrative state. Originating in seventeenth-century France under Louis XIV, and personified by his megalomaniacal finance minister Colbert, governance was an unending process of centralisation. The executive possesses political power and is usually bolstered by a gigantic, all-pervasive bureaucracy. The law courts obey the instructions of the executive; and the parliament – if there is one, which often there isn’t – is a tame tabby cat assembly, without teeth or claws. The administrative state model of government has prevailed on the continent, running all the way from seventeenth-century France through German unification in the nineteenth century, through Bismarck, all the way to the Third Reich. Similarly it is the chief characteristic of Italian unification, leading directly to Mussolini. Indeed, it is a very short journey from the administrative state model to fascism. 11 That is why those countries with a parliamentarist tradition never went fascist – Britain, Switzerland, Scandinavia. But if we look at the political institutions of the European Community, it is clear where power lies. It is with the executive, the European Commission. And the Commission is bolstered by an intrusive, all-pervasive bureaucracy. The European Court of Justice usually favours the Executive by seeking to extend EC jurisdiction; and the European Parliament is an assembly which does not legislate. It is a tame tabby cat parliament without teeth or claws, consistent with the administrative state model. For the British people to surrender their parliamentary sovereignty to an integrated Europe would be to hand over power to a decisionmaking process which is fundamentally undemocratic. The European Commission is unelected; the Court of Justice is

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unelected; the Court of Auditors is unelected; and worst of all, an embryonic European Central Bank – intent on determining our interest rates – would be unelected.12 The American Revolution made famous the saying, ‘no taxation without representation’. If the British people hand over the ability to control their economy to a European Central Bank, the consequence would be to hand over the parliamentary freedom for which thousands of people in our history have made the ultimate sacrifice. Democratic accountability and national sovereignty are as important today as ever before. Whatever we think of individual politicians and their policies, our system of government itself should not be negotiable. In retaining the concept of parliamentary sovereignty we should co-operate with other countries as necessary in international bodies. Internationalism not isolationism has always been the Eurosceptical watchword in respect to GATT/ WTO, the Commonwealth, the G7, NATO, the United Nations, and the ‘special relationship’ with the United States. But internationalism – unlike supranational federal integration – does not imply the acceptance of laws made by institutions which are not directly accountable to us and from which we have no redress or exit.

Economic success? Supporters of a federal Europe have long since argued that the European Community is an economic success story, and that Britain has an economic destiny within it. But why should the European Community be regarded as an economic success story? The answer is obvious; during the Cold War, the countries of central and eastern Europe languished under a Communist regime which retarded their economic growth and depressed their living standards. Some countries were slipping towards Third World status – Romania, for example, where I was a visitor, albeit unintended, during the start of the Revolution – by the time communism collapsed. Any comparison between the European Community countries of Western Europe and the Eastern bloc countries threw into sharp relief the growing backwardness of the latter. Viewed in this way, the European Community was a fantastic success. But now that we are in the post-Cold War world, this comparison


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will no longer do. It is no longer sufficient to compare the European Community to our eastern European neighbours; that is too insular an approach, a ‘Little European’ approach. Instead it is necessary to look at the wider world. Over the last ten years or so, the rate of economic growth in the European Community has been lower than that in the United States, and much lower still than that in Japan. Since 1985, when the European Community launched its Single Market programme with the intention of catching up with the Americans, in reality there has been a further divergence. The Americans and the Asian countries have pulled further ahead of Europe in terms of employment creation, profitability and economic growth. And not only that, but the Asian tiger economies have been rapidly approaching the living standards of the European Community and even, on purchasing power parity calculations, exceeding them. Moreover, several dynamic Eastern European tiger economies have now emerged. In February 1995, the Central European Economic Review13 argued that Hungary, the Czech Republic and Poland would overtake Greece and threaten to overhaul Spain, Portugal and Ireland by the year 2000. The German based American economist Darrell Delamaide, using purchasing power parity definitions, considers that the Czech Republic already has overtaken Greece. Not only is the European Union bedevilled by low growth, for a rich part of the world, its level of unemployment is scandalously high. In the United States, unemployment in 1995 was 5.5%; in Asia, 3%; it was over 10% in the European Union. This is a sheer waste of talent and energy, accompanied by social misery; this is not just one bad year’s unemployment, but a consequence of decades of permanently high unemployment. The primary cause is well documented; by keeping interest rates too high, in order to artificially procure a single European currency, the recession of the early l990’s crushed the already faltering EC economy. When the rest of the world cut interest rates and relaxed monetary policy, the European Union increased interest rates in the teeth of the recession, causing more bankruptcies, under-investment and high unemployment. 14 Such a macroeconomic policy response exacerbated the European Union’s already serious structural unemployment and low growth caused by the inflexibility of the VAT regime, excessive wage and non-wage burdens on

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business, bloated welfare budgets and inefficient industries artificially cosseted by external protectionist tariffs. Britain’s involvement dates back to the 1960s. The view then was that British trade was growing strongly with the Continental countries, particularly in manufactured goods – selling more washing machines to Dusseldorf, as Harold Wilson put it – suggesting that if we joined the EEC, our home market would be 320 million people rather than just 55 million. Arguments for joining the Common Market reflected such economic reasons. But the British economy has been transformed since the 1960s. Of Britain’s export earning industries in the l990s, manufacturing is slimmed-down rather than volume, exporting on an essentially global not merely European basis. Since the 1960s we discovered North Sea oil, which is priced in dollars and is part of a global market, not a European market. The revolution in financial services, itself part of the consequences of the revolution in technology, now provides global 24-hour stock exchange and foreign exchange markets. The massive impetus that has given the City of London and the financial sector was undreamt of thirty years ago.15 And expanding industries like tourism, which no-one remotely thought would make such a remarkable contribution to the balance of payments thirty years ago, now bring in billions of pounds of foreign exchange each year. The whole structure of Britain’s trade is global; it does not confine itself to Western Europe, as the advocates of EEC membership twenty years ago presupposed. In 1995 Britain’s balance of payments deficit with the European Community was 7 billion pounds; with the rest of the world, 5 billion pounds surplus. In the last decade, the accumulated deficit with the European Community amounted to 105 billion pounds; with the rest of the world a 13 billion pound surplus. 16 Nor am I falling into the naive error of regarding a deficit as bad. A deficit with the European Community is irrelevant provided that there exists a world trading environment to earn our surplus globally. Unfortunately the European Community is a customs union which has high external barriers to Britain’s great disadvantage. We in Britain needed to have a successful, not just a modest outcome from the Uruguay round of GATT; we needed to liberate world markets. Instead, Britain is trapped in a protectionist European Community which


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suffocates moves to global trade liberalisation. Its policy on agriculture (CAP) not only disadvantages British consumers, but also disadvantages the food-exporting countries of the Third World.17 Nearly a quarter century after joining, we find ourselves in an organisation that was not designed for us and does not suit our interests.18 Of course there are countries in the European Community for whom membership makes sense because their trade is primarily with each other. A country such as Belgium exports very little outside the European Community, so it may make economic sense for it to be a member. But it makes no sense for Britain. We export 39% of our total GDP – a higher proportion than Japan – requiring fresh access to global markets. The narrow, strait-jacketed customs union is too restrictive for British trade interests. There are other economic disadvantages as well. The Chancellor of the Exchequer has been desperate to find money for tax cuts. Perhaps I can point him in the right direction – the 8 billion pounds EC budgetary contribution. Alternatively, that 8 billion pounds could double the married couple’s old-age pension. The CAP is a monster out of control, costing each family on average £28 per week in higher food prices. The Single Market 1992 project has produced a plethora of unnecessary harmonisation measures which damage business by imposing greater regulatory burdens to the advantage only of those bureaucrats who dream up, and enforce, a multitude of petty tyrannies. The Common Fisheries Policy is a disaster with government policy a pitiful exercise in damage limitation. Value Added Tax (VAT) is a tax on the factors of production which is now levied at a 15% minimum rate. Britain’s experience of the European Community in economic terms can be summarised as follows: we can survive within it, but we would prosper outside it.

Conclusion One of the greatest Eurosceptics was the late Professor A.J.P. Taylor, who rejected the thesis that Britain suffered such a great decline after World War Two that the only remedy was to join the European Community. He rejected the thesis that we had to trade off our democracy for some supposed political advantage of ‘leading’

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Europe or some putative economic gain. In 1966, Professor Taylor wrote his magisterial English History 1914–45, in which, in the very last chapter, he surveyed the post-war world. He argued that: Future historians may see World War Two as the last struggle for the European balance of power or for the maintenance of empire. This was not how it appeared to those who had lived through it. The British people had set out to destroy Hitler and National Socialism; victory at all costs. They succeeded. No English soldier who rode with the tanks into liberated Belgium or saw the German murder camps at Dachau or Buchenwald could doubt that the war had been a noble crusade. The British were the only people who went through both World Wars from beginning to end; yet they remained a peaceful and civilised people, tolerant, patient and generous. Traditional values lost much of their force. Other values took their place. Imperial greatness was on the way out. The welfare state was on the way in. The British Empire declined, but the condition of the people improved. Few now sang ‘Land of Hope and Glory’. Few even sang ‘England, arise’. But England had risen just the same.19 In 1990 Professor Taylor died of Parkinson’s disease. But he and his generation of Eurosceptics have handed on the torch of democratic self-government to the next generation, who will in turn hand it on again. Notes 1 Speech in Bonn, 11/3/91. 2 See, for example, J. Pinder, European Community: The Building of a Union (Oxford, 1991), Ch. 1. 3 This was certainly Winston Churchill’s view. See, for example, his World Broadcast, 22/6/41. 4 See William Shirer, The Rise and Fall of the Third Reich (Pan Books, 1964 edition), Ch. 7. 5 For a prescient study of Yugoslavia, see Nora Beloff, Tito’s Flawed Legacy (Gollancz, 1985). 6 Speech to the Polish Parliament, 21/1/90. 7 Speech in London, 10/5/94. 8 The Belgian government, for example, refused to sell certain items


9 10 11 12

13 14 15 16 17 18

19

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of military equipment to Britain as a mark of its displeasure at Desert Storm. For an excellent overview, see Noel Malcolm, Sense on Sovereignty, CPS Autumn Address, 1991. The Maastricht Treaty increased the applicability of QMV by 111 instances. For an excellent discussion of this issue see, Nevil Johnson, Britain and the community: The Right way Forward, CPS Policy Study, 133, 1993. See Martin Holmes, From Single Market to Single Currency: Evaluating Europe’s Economic Experiment (Bruges Group publication 1995, Chapter 5 in this volume). Central European Economic Review, Wall Street Journal publication, February 1995. See Martin Holmes, Beyond Europe: Selected Essays 1989–93 (Nelson & Pollard Publishing, 1993), Chs. 4–6. See Bill Jamieson, Worlds Apart? (Bruges Group publication, 1995). For further details, see Ian Milne, Defending British Interests: Jobs, Trade and Investment, Eurofacts Review, December 1995. See Martin Wolf, The Resistible Appeal of Fortress Europe (Trade Policy Centre, CPS; 1994). As to how successive Tory governments from Macmillan’s onwards deluded themselves that Britain could lead, shape and change the European Community to suit British interests, see Martin Holmes, The Conservative Party and Europe (Bruges Group publication 1994, Chapter 2 in this volume). A.J.P. Taylor, English History 1914–45 (Pelican, 1970 edition), p. 727.


9 Franco–German Friendship and the Destination of Federalism (1999)*

Introduction Just as the early years of the Major government focused on forging a new cooperative relationship with the EU – the ‘heart of Europe’ strategy – so the election victory of New Labour in May 1997 has rekindled the idea that British leadership in Europe can coincide with greater harmony in the pursuit of common objectives. Tony Blair has forcefully articulated his hope that Britain can lead in Europe through a policy of constructive engagement rather than reluctant semi-detachment. Addressing the 1997 Labour conference he declared that ‘it is our destiny to lead in Europe. And Europe needs us. For we have a vision of Europe . . . a people’s Europe’.1 In his celebrated speech to the French National Assembly in March 1998 he stated that ‘we have had the courage to create the European Union. We must now have the courage to reform it’.2 Similarly, writing in The Times in December 1998 he declared that, ‘I want Britain to be a leading partner in Europe, engaged in shaping its future . . . And I can deliver it . . . There are real debates in Europe. Do we want economic reform or corporatism? Do we want a Europe which is building bridges or barriers to the US? . . . And there is a genuine debate about the European Social Model’. 3 * Bruges Group, Occasional Paper, No. 35 (1999). 163

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But for such aspirations and hopes to be realized Mr Blair must change the way the EU has traditionally developed – through the engine of integration driven by the intimate friendship between France and Germany. Such a policy inevitably begs a number of questions. Can the UK transform the bipolar Franco–German leadership into a tripolar relationship? Is the EU amenable to British leadership while British interests often differ from those of France and Germany? Can Mr Blair forge personal relations with his France and German counterparts which transcend national policy differences? Or is the EU likely to develop as it has done hitherto around the Paris–Bonn axis? To what extent does talk of British leadership imply changing the continent to make it more like Britain, more Atlanticist, less protectionist and more deregulated with flexible labour markets? To answer these questions it is necessary to examine in detail the nature of the Franco–German relationship and to consider whether or not its future course will conform to its recent postWorld War II experience. Any prospect of a tripolar EU must therefore begin with the conventional bipolar model of integration dating back to the 1950s.

1950s’ objectives It is axiomatic to argue that Franco–German friendship has been the driving force behind the destination of European federalism. Immediately after 1945 the genuine desire of both countries was to be the best of friends, not the worst of enemies. On both sides, there was a sincere wish to bury the hatchet and to forge the European integrationist project. The French believed that European integration would enable Germany to be bound to a process which would ensure that Europe would be peaceful, especially if an integrated supranational Europe could replace the traditional system of competing nation states operating a volatile balance of power. Similarly Germans believed that European integration and friendship with France were vital to Germany’s rehabilitation. 4 Through European integration, the Germans could atone for the genocidal crimes of the Third Reich by way of distancing themselves from the Hitlerzeit. Thus each generation of Germans has proved to be user-friendly to their immediate

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French neighbours. Consequently, after 1945, both countries were determined that 1870, 1914 and 1939 could never happen again and they were equally determined to reconstruct Europe on a supranational basis to ensure the permanence of the peace.5 Thus, recalling a 1949 visit to Germany, American Secretary of State Dean Acheson thought that: Adenauer’s great concern was to integrate Germany completely into Western Europe. Indeed, he gave this end priority over the reunification of unhappily divided Germany, and could see why her neighbours might look upon it as almost a precondition to reunification. He wanted Germans to be citizens of Europe, to cooperate, with France especially, in developing common interests and outlook and in burying the rivalries of the past few centuries. Their common heritage had come to them down the Rhine, as the successors of Charlemagne, who guarded European civilization when human sacrifice was still practised in eastern Germany. They must lead in the rebirth of Europe. 6 For the Germans the desire to distance themselves from the Hitlerzeit, and to seek a rehabilitation within a European context, was a genuinely cathartic feature of the Federal Republic. Every generation feels that they have to prove again their democratic credentials. This psychological transmission mechanism, in some perverse way, is similar to the transmission mechanism whereby, for 2000 years, Christians blamed the Jews for the death of Christ, a process which ultimately culminated in the holocaust; after 1945, because the rest of the world holds the Germans to account for the holocaust, each generation of Germans has to repudiate fascism. This pathway to national redemption leads through European integration to the familiar process whereby the Germans are prepared to use their colossal financial muscle to pay for the Common Agricultural Policy, the Cohesion Fund, and the cost of the new entrants, whether the Iberian countries and Greece, or most likely in the near future, central and eastern European enlargement. The Germans spend their wealth to effectively finance European integration as part of the process of re-establishing themselves as a normal, decent, civilized country that is not only respected for its financial power, but also admired and liked.7

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In the immediate period of the 1950s leading up to the Treaty of Rome and the emergence of the European Community, the French and the Germans were agreed on the three main principles on which European integration has been based ever since. Firstly, the Franco–German friendship would ensure the peace to make sure conflict could not happen again. Secondly, they were agreed that the European Community’s economic superstructure would be based on an essentially customs union or mercantilist political economy. On the one hand they rejected Communism, but on the other hand they also rejected the Anglo– Saxon free market, preferring equidistance between Marx and the market. Jointly the French and Germans initiated a custom unions with overtly protectionist external tariffs rather than a free trade area or a free trade zone. As far as the French were concerned, this was uncontroversial, but the German elite debated the merits of a free trade area, which Finance Minister Ludwig Erhard preferred, versus a customs union. A political battle ensued which Adenauer, who favoured a customs union, ultimately won. Adenauer was motivated primarily by political considerations, especially friendship with France, rather than by the more technical economic analysis of Erhard who considered that a customs union would lead not to trade creation but to trade diversion.8 Thirdly, the French and Germans were agreed that European integration would be political; it would be supranational, not just international, incorporating the influence of such thinkers such as Monnet, Spinelli, Spaak, De Gasperi and Schuman. This supranational approach laid the foundation for important political institutions: the Commission, the Council of Ministers, the European Assembly, later renamed Parliament, and the European Court of Justice. At the end of the process it was envisaged that Europe would be economically strong, politically independent, and eventually able to become the third superpower, capable of looking either the Soviets or the Americans in the eye. After all had not Jean Monnet warned in 1951 that Europe was a pawn in the battle between the superpowers? Ultimately the vision was of a superpower or a superstate which would exist at a supranational, not just an international level. Thus far the Franco– German relationship is relatively harmonious and straightforward


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to explain. But the return to power in France in 1958 of Charles de Gaulle had profound consequences.

De Gaulle, Germany and Europe The conventional view of history sees de Gaulle as fundamentally opposed to European integration. Many textbooks, particularly those written by the supporters of federal integration, have demonized de Gaulle. It is very tempting, given his high political profile, and given his attacks on the European Commission as mere ‘technocrats’, to view de Gaulle as an out-and-out opponent of European integration. Many history books, copied from each other in an unhealthy process of inter-historian incest, have handed down to generations of readers a simplistic and distorted view of de Gaulle. But de Gaulle’s policies between 1958 and 1969 were much more sophisticated, and de Gaulle was far from a one-dimensional figure opposed to European integration. For instance, as far as friendship with Germany was concerned, de Gaulle continued in the Fifth Republic the policies of the Fourth Republic. Indeed, the relationship between de Gaulle and Adenauer was probably closer than that between Adenauer and any other of the many political leaders in the Fourth Republic. De Gaulle strongly supported the friendship with Germany, which culminated in the January 1963 Elysée Treaty. He relished visiting Germany which he praised as ‘a great nation’, and he equally enjoyed Adenauer’s visits to France. 9 De Gaulle consistently worked with the grain of Franco–German friendship.10 Similarly, de Gaulle supported the basic economics of European integration. He was neither a Marxist nor did he believe in the Adam Smith, David Ricardo, Anglo–Saxon model. In France de Gaulle followed middle way dirigiste, mercantilist economics. He even indulged in occasional limited strategic nationalization, while viciously attacking the communists at election time, most notably in the 1968 National Assembly elections which followed the May événements. There was no attempt by de Gaulle to dismantle the basic economic structure of European integration. He approved of the Common Agricultural Policy, and he liked even more the fact that Germans were prepared to subsidize it. The CAP went down well in rural France, where the vote was often

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almost equally split between the Communists and the Gaullists, enabling de Gaulle to consolidate his rural power base. He supported the European Coal and Steel Community, a rigged cartel which helped French steel by protecting it from external market penetration. Nor was de Gaulle opposed to European integration as far as the creation of a strong, powerful Europe was concerned. A Europe which would stand up to the superpowers was entirely in line with de Gaulle’s thinking. De Gaulle was often hostile to the superpowers. He enjoyed his tour of Cambodia and South East Asia where he attacked with relish the American position in Vietnam. On his visit to the Soviet Union in 1966 he probably made one of the most anti-Soviet statements ever uttered on Soviet soil by a visiting head of state by declaring that, while ideologies would come and go, Mother Russia would go on forever. This was a remarkably accurate and prescient analysis; Bolshevism is long gone, but Mother Russia has remained in defiance of Soviet claims that Communism had superseded nationalism, and that the Soviet Union was permanent. De Gaulle was not out of line with the policies he inherited as far as integration with Europe was concerned and as far as friendship with Germany was concerned. It is only in two specific areas that de Gaulle can be portrayed as hostile to European integration. Firstly he did not believe in supranationalism. He did not appreciate the technocrats in Brussels, nor was he attracted to the idea of handing over the power which he had vested in himself in the Fifth Republic – having cleaned up the Fourth Republic – to unelected bureaucrats. In that respect, de Gaulle was noticeably similar to Margaret Thatcher who also had little time for what she saw as an arrogant, selfserving elite in Brussels with its addiction to a personal gravy train. De Gaulle could never have been a supranationalist, because he envisaged a strong Europe under French leadership. Of course, the Germans would possess the economic clout;11 of course the German economic miracle clearly outperformed the French economy. De Gaulle had no illusions about that. But he saw France as providing the political leadership on an international, not a supranational, model especially as far as relations with the superpowers were concerned. Whereas the Germans envisaged a


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supranational Europe standing up to the superpowers, in which the member states were mere regions or provinces, de Gaulle saw a strong international Europe standing up to the superpowers led by the French, and articulated by de Gaulle himself. The other area where de Gaulle was opposed to European integration was his opposition to enlargement. The British discovered in the applications both in 1961, and again in 1967, that they had the support of the existing member states with the exception of France. Regarding the French veto a myth has been constructed that Britain was right to join the European Community and, indeed, should have joined earlier.12 According to this viewpoint it was a tragedy that one wretched man, de Gaulle, prevented Britain from reaching its true continental destiny. The evidence however suggests that de Gaulle’s view of Britain was far from hostile as it has often been portrayed. It is true that de Gaulle did not want Britain to join the European Community as an American ‘Trojan horse’, and that de Gaulle feared a process of creeping Atlanticism. But de Gaulle was not motivated by xenophobia, hatred, malice and irrationality in the way that has been described. 13 In January 1963 when de Gaulle vetoed the first British application he did give specific and concrete reasons, and yet, just two weeks later in the House of Commons, Harold Macmillan claimed that his government did not know the reasons for de Gaulle’s rejection of Britain’s application.14 Especially within the Conservative party, and among informed opinion, the myth grew up that there was some kind of irrationality to de Gaulle, as if he had some secret reason why he issued the veto. What exactly de Gaulle said in January 1963 to explain his policy on enlargement, was this: England in effect is insular. She is maritime. She is linked through her exchanges, her markets, her supply lines to the most distant countries. She pursues essentially industrial and commercial activities and only slightly agricultural ones. She has, in all her doings, very marked and very original habits and traditions. In short, England’s nature, England’s structure, England’s very situation differs profoundly from those of the Continentals. 15

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This quotation explodes the myth that de Gaulle did not have valid reasons or that he was motivated by some kind of malice. Arguably it was in many ways a very pro-British statement. Far from being anti-British, he paid a whole series of back-handed compliments. It was because the British pursued commerce and industry, rather than agriculture, that the British economy was the great success story of the 19th century, that the pound was the world’s leading trading currency, that the City of London was the great location of world finance and investment, and that the British Empire was bigger than the continental empires combined. And, of course, what de Gaulle conceded was that Britain had many global friends including the United States in the special relationship, the Commonwealth, and links with Latin America through trade which enabled Britain to become a global power both economically and politically. Far from the hostility which federalist writers have detected, de Gaulle merely admitted that England’s situation differs profoundly from those of the continentals. He simply pointed out important differences, refusing even to claim superiority for French or continental experience. As such, de Gaulle was saying from a French perspective exactly what Ernie Bevin in the 1940s, and Churchill and Eden in the 1950s, had said about European integration from the British perspective. The British had wished the project well but declined to join because the differences were too profound for Britain ever to be absorbed in a continental customs union with an supranational, federalist dimension.16 De Gaulle, from the continental side, in effect predicted that if Britain joined the EEC it would be a marriage made in hell. Looking back at de Gaulle’s veto in 1963, he has been fully vindicated.

Post-de Gaulle French policy Understandably much has been written about a Gaullist legacy, for instance, in keeping France out of the military structure of NATO while staying within the political structure and maintaining the force de frappe. Regarding the objectives of European integration, Gaullist policy was dropped soon afterwards, failing to survive into the 1970s and beyond. Firstly, George Pompidou reversed de Gaulle’s veto as far as the British EEC application


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was concerned. To be sure there was an important element of doing things differently from de Gaulle which pervaded the Pompidou presidency. (Perhaps this is the ‘number two’ syndrome when becoming the ‘number one’. Thus both John Major and George Bush did things differently from Margaret Thatcher and Ronald Reagan, as if for the sake of it.) Pompidou was determined to establish himself as a strong leader. He did not want to be seen as a ‘number two’, a twilight political figure in de Gaulle’s shadow, which helps to explain his decision to reverse his predecessor’s veto of British EEC membership. The second important development at a supranational level was the establishment of the Exchange Rate Mechanism (ERM), as the key aspect of the European Monetary System which was pioneered by Schmidt and Giscard in 1978–79. This was the single most important move in a supranational direction since the signing of the Treaty of Rome in 1957, because, out of the ERM, emerged not only the concept of a European zone of monetary stability, but the transformation of the Deutschmark as its anchor currency. Thus the Delors Report of 1989 sought to transform the ERM from a mere zone of monetary stability to a full economic and monetary union, a process which will reach its climax from 1999 to 2002. Anticipating further integration both Giscard and Schmidt looked at the benefits to Europe as a whole. Franco– German friendship was crucial to the establishment of the ERM as a system designed for all the EC currencies. Indeed Schmidt and Giscard were disappointed when British Prime Minister Jim Callaghan decided in 1979 that the pound should stay out of the system on the grounds that it would increase unemployment and reduce economic growth. 17 Arguably, in the light of events, Jim Callaghan was absolutely right. But the creation of the ERM was an important development for the European Community because it established the notion of supranationalism as far as currency integration was concerned. Interestingly enough, when the rest of the world, following the breakdown of Bretton Woods, was embracing floating exchange rates, the continentals embraced the opposite belief, being convinced that intra-European trade would increase if exchange rates were fixed. Hence the attempt to recreate a European version of Bretton Woods, except this time the Deutschmark would be the anchor currency.

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Thirdly the events following German unification indicated that the French political elite, including Mitterrand, had their doubts that German policy might realign towards a new Ostpolitik in which Germany would be more motivated by an economic colonization of the countries of central and eastern Europe which had liberated themselves from Communism. When this fear was at its height the French political elite opted lock, stock, and barrel for the single European currency, embraced federalism, and ditched any Gaullist concept of Europe. As a result the French were convinced that Germany would be tied down and anchored within western Europe if the Deutschmark was abolished and that, if the price to be paid was the abolition of the franc and its replacement by the single currency, then this price was well worth paying. Arguably the French political elite was already inclined toward monetary union because of the pioneering work of Jacques Delors, the ubiquitous President of the Commission, whose Report was published in April 1989. But by 1990, as the DDR imploded, the French accepted German unification because they no longer feared that this might dislodge German policy from its EC moorings. Chancellor Kohl confirmed the traditional integrationist policy, which culminated in the Maastricht Treaty, to French applause. France embraced monetary union, not only for economic reasons, but also for political reasons being reassured that monetary union would consolidate their relationship with a unified Germany. 18

German policy German policy was more straightforward in the decades leading up to unification. Ostpolitik was not intended to be an alternative to European integration in the west. Willy Brandt and Helmut Schmidt made it absolutely clear that Ostpolitik was understood as a function of East–West reconciliation in the era of detente. Thus, as David Marsh has argued, German policy was extremely accommodating to European integration: When Kohl was asked in February 1989, only nine months before the Wall fell, how he envisaged reunification one day actually happening, he could think of no more original reply


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than that he wanted ‘the political unity of Europe’. The answer was illuminating only in that it was sincere. There was no national agenda for unification; Kohl was more preoccupied by Brussels than Berlin. Up to the end of the 1980s, the pattern of West Germany’s relations with the rest of Europe had left little room to pose deeper questions on what Germany was, what Germany wanted and what Germany might become. In conducting foreign policy, West Germany was required to do no more than anticipate and fulfil its neighbours’ needs for a country that was conciliatory, stable and nonbelligerent.19 After German unification, however, Helmut Kohl and the German political elite were aware of French doubts. 20 They were simultaneously aware of Margaret Thatcher’s reservations about unification which provoked a general debate about Germany’s future intentions.21 In order to reinforce the image of themselves as user-friendly to Europe, to further distance themselves from the Third Reich, and to assuage any fears that there might be a Deutschmark hegemony, they embraced the abolition of the Deutschmark. Thus Helmut Kohl intoned that ‘European integration is in reality a question of war and peace in the 21st Century . . . we have no desire to return to the nation-state of old . . . which cannot solve the problems of the 21st century’, 22 and Bundesbank President Hans Tietmeyer echoed that for Monetary Union to work ‘a significant and permanent political union is required’.23 At the same time that the French elite was embracing the abolition of the franc, the German elite correspondingly and symmetrically embraced the abolition of their currency. Consequently when the external shocks of the Danish ‘No’ vote and the 1992–3 ERM meltdown occurred, France and Germany never flinched. They were jointly committed to seeing the process through to conclusion and their political will was the vital factor in understanding how and why European monetary integration has proceeded in the 1990s. Not surprisingly in this era of ultraclose cooperation the concept of a ‘Core-Europe’, as suggested by Wolfgang Schäuble and Karl Lamers’ CDU/CSU paper in September 1994, was particularly attractive as doubts grew over

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the economic feasibility of the Maastricht convergence criteria following the ERM breakdown. Renewing the political will between Paris and Bonn was a top priority. Both France and Germany were aware that external shocks had derailed the Werner Report plan for monetary union in the 1970s, and both countries were determined not to be so deflected in the 1990s.24 German unification ultimately strengthened Franco–German cooperation, from which two conclusions can be drawn. Firstly the irony of German policy is that the destruction of the Deutschmark will undermine one of the most important reasons why Germany has been a decent and civilized country since 1945. The Deutschmark is something for which most Germans have an affection and pride. It is one of the great success stories of the Federal Republic since 1949, proving that the Germans have made money not war. The abolition of the Deutschmark may well create amongst the German population, if not among the political elite, a sense of nostalgia and a feeling of regret. Unless the European single currency in the long run maintains its value as well as the Deutschmark, there will always be a lingering fear, once expressed by Bavarian Prime Minister Edmund Stoiber that the Deutschmark could be replaced by a ‘confetti currency’. Secondly, by embracing a policy of political federalism, the Germans are undermining their political system which is the other cornerstone of their post-war success. The German political system, based on the 1949 constitution, has worked well providing an intelligent balance between the federal structure in Bonn and the Länder. The political system intertwines with the fiscal and monetary system, with the role of the Bundesbank since 1957 having a clear political objective as well as a monetary objective. To Adenauer, and to most Germans, the Bundesbank had the function of guaranteeing low inflation to protect democracy from the hyper-inflation which paralysed the Weimar Republic. Moreover, the political culture has matured so that Germany is one of the few continental countries where fascism has made no headway since World War II. It was not the German but the Italian Employment minister who said that the problem with Wall Street is that it is run by the Jews. So called ‘post-fascists’ have not held positions in the German government. In Germany fascist parties which are anti-immigrant and anti-Semitic have


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not obtained 14% of the vote as have the Front National in France. Jörg Haider is Austrian not German. German political culture has been democratic and tolerant. Notwithstanding the vagaries of its electoral system, the German model works both politically and economically. To imperil this success by European integration is a step back in German history, not a step forward. What is now in prospect is a conflict between the objective of European integration and the domestic objectives of a strong currency and an impeccably democratic political system. Ironically, the Germans will both destroy their currency and, through the Maastricht and Amsterdam Treaties, transfer power from the democratically accountable German polity to a European polity which is clearly undemocratic. The vast majority of institutions which wield power in the EU are neither elected nor accountable and there are no plans for them to be so, particularly the European Commission, the Court of Auditors, the Court of Justice, and the European Central Bank. To these institutions, power will be transferred from Germany, and from other member states, undermining the democratic accountability which links ballot box to statute book. As Bill Cash has argued ‘European integration destroys the achievements of post-war German democracy just as it destroys the fabric of all other European nations’. 25 This process weakens the foundations of Germany’s stability since 1949, and if anything is likely to stir up the demons of the mid-century, it is the destruction of the German currency and the weakening of representative democracy in the name of the EU. A federal Europe, far from being dominated by Germany as is often assumed,26 will not be dominated by any one single country, nor indeed a combination of countries. The German domination fear is a function of the intergovernmental Europe from the Treaty of Rome to the Treaty of Maastricht. Post-Maastricht Europe, as it becomes a federation, will transfer power to the federal political institutions so that Germany will no more be able to dominate a federal EU than California can dominate the United States, or Bavaria can dominate Germany. But this weakening of Germany does not enhance the peace of the continent. Peace in Europe has sprung from a Germany that is prosperous and democratic, rather than from the German pursuit of European integration. Indeed, as Eurosceptics have often argued,

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European integration is the consequence of peace in Europe since 1945, not the cause of it. Peace in Europe was also based on the balance of terror in the Cold War culminating in the nuclear stand off between NATO and the Warsaw Pact. Moreover Germany, the power that had disturbed the peace in 1870, 1914 and 1939, was committed to NATO as well as committed to democracy. In pursuing to its logical conclusion the policies of European integration on which it has been embarked since the days of Adenauer, the Germans are making a sacrifice which is laden with risk, and possible tragedy.

Conclusion The Franco–German friendship on which European integration had been based is probably stronger now than ever before. This friendship is leading to the ultimate destination that was mapped out by Jean Monnet and other federalists in the 1950s. ‘Neofunctionalism’ is alive and well, so that through the European single currency, will develop greater political integration. Anyone in Britain who is tempted to look to France for a revival of Gaullism to derail this process, will be disappointed. The French have no intention of breaking the consensus with the Germans. Traditional Gaullism is dead. Similarly anyone in Britain who looks for salvation to the Bundesbank, or to German financial and business leaders, some of whose members have little enthusiasm for the abolition of the Deutschmark, will also be disappointed. The key decisions have already been taken by the German political and civil service elite, which is unequivocally committed to the Euro. Gerhard Schroeder and Oskar Lafontaine may grumble about the exact ECB interest rate level 27 which they would prefer but they are not in dispute with the principle of an independent ECB, which incidentally, is anything other than controlled by Germans. As experience from around the world indicates there is nothing uniquely German about the independence of central banks and the determination to guard their independence against political pressure. Those British politicians who hope that France and Germany may halt or repudiate European integration, or that Britain might intervene to form a troika with France and Germany to slow


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down the process of European federalism are deluding themselves. In his inaugural speech to the Bundestag Gerhard Schroeder clearly stated that: Because of the global financial crisis we must ensure that Europe speaks with one voice. The common currency must be a success. That means it must be, and must remain, stable. We will not question the stability orientation of European monetary policy. 28 Similarly, M. Vedrine, the French Foreign Minister, has argued that ‘Britain cannot play its role in Europe until it is a member of monetary union. We are very happy that the United Kingdom has a close relationship with Bonn, but this is something else. The Franco–German relationship remains the motor of the Union. Despite its weight, Great Britain cannot yet have in Europe the same role as those countries which have created the euro and will join it’.29 Equally candid Joschka Fischer, the German Foreign Minister, has suggested that ‘widening the Franco–German relationship into a triangle with Britain would be a disaster for Europe’. 30 Writing in the Leipziger Volkszeitung in December 1998 Herr Fischer predicted that the central task of Germany’s EU presidency, which began on 1 January 1999, was political integration ‘leading to a pan-European union’, an objective which is not shared by the Blair administration.31 It is not only the speed of integration but its destination which separates British aspiration from continental reality. As former Foreign Secretary Lord Owen has argued the Blair government’s policy is a vision of a Europe which Britain would like to create rather than the Europe that actually exists: Some in Britain dream of joining the Franco–German Alliance. It is now said that because of the SPD victory in Germany we will be able to develop a trilateral relationship with France and Germany to match the bilateral Franco–German relationship. Yet Oskar Lafontaine comes from the Saarland and is very close to France in all respects. Gerhard Schroeder is more sympathetic but will find the German bureaucracy totally set on the primacy of the Franco–German Alliance. Whitehall is

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now beginning to adjust the language and talk of a quadrilateral relationship including Italy, but this will cause even more resentment across the EU.32 Even The Economist, a journal long associated with British integration with Europe has conceded that: As some British diplomats acknowledge, no amount of clever new British initiatives is likely to be any match for the sheer density of Franco–German ties. Politicians and civil servants in Germany and France have simply got into the habit of close and regular consultations. By contrast, the number of senior Labour politicians with real knowledge of European politics is small. In trying to understand Europe, the Blairites often still reach for the comfort blanket of familiar categories – witness their habit of classifying German or French politicians as ‘New’ or ‘Old’ Labour. By contrast, the Blairites’ understanding of American politics and debates is much closer and more nuanced. For New Labour, as for the Tories, the Atlantic still often seems narrower than the Channel.33 In this sense too British hopes of exporting a deregulated, nonprotectionist, flexible labour market, economic model to the continent are also doomed. European monetary union – plus the political unification which will flow therefrom – is an alternative to Anglo–Saxon economic globalization not a manifestation of it. 34 Especially as 13 out of the 15 EU countries now boast left-of-centre governments the moves towards greater monetary integration will boost the concept of the European ‘Social’ model, ‘Socialist’ model or ‘Rhineland Capitalist’ model which specifically rejects the Thatcherized British economic model with which the Blair revolution in Labour ideology has made peace. At the heart of the intensification of the European ‘Social’ model are the French and German governments whose left of centre ideology will not permit any intrusion of the Anglo–Saxon free market, whether overtly Thatcherite or covertly Blairite. The economic doctrine of a federal Europe will continue to diverge from that of North America to which the British economy, after its Thatcherite reinvigoration, now conforms.35 Britain cannot ‘lead’


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Europe towards free market economics any more than it can ‘lead’ Europe toward a non-federal loose association of nation-states for whom sovereignty is respected.36 The stark truth is that the Franco–German friendship has set its compass for a federalist destination. 37 If the British people want to prevent their incorporation into a supranational, superpower Europe then they will have to do it themselves, by challenging the status quo of European Union membership. Notes 1 2 3 4 5 6 7

8

9

10 11 12 13

14 15 16

Speech to Labour party conference, 30/9/97. Speech to French National Assembly, 24/3/98. Article in The Times, 14/12/98. See T. Garton Ash, In Europe’s Name: Germany and the Divided Continent (Jonathan Cape, 1993), for a respected overall survey. For a fascinating insight into Franco–German relations, see Willy Brandt, People and Politics (Collins, 1978), Ch. 5. Dean Acheson, Present at the Creation (Signet Books, 1970), p. 446. This does not mean that the Germans do not negotiate toughly, including the threat to withhold financial support, as part of the political trade-off process. For example the seemingly belligerent negotiating stance of Chancellor Schroeder at the 1998 Vienna EU summit, calling for a reduction in Germany’s exorbitant budgetary contributions, was designed to secure promises of faster political integration in return for the continuation of German economic aid especially to the habitual net recipient countries of Greece, Spain, Portugal and Ireland. Erhard also had doubts about EEC political integration which he discussed with R.A. Butler in 1964. See Contemporary Record, October 1995, Cabinet Papers Review, pp. 462–3. See, for example, Alexander Werth, De Gaulle (Penguin, 1967 edn) and Jean Lacouture, De Gaulle: The Ruler 1945–70 (Har vill/ HarperCollins, 1993 edn). For a French account of this process see Dominique Bocquet, ‘The Future of the Franco/German Relationship’ (RIIA, Paper 71, 1997). For an interesting account of German economic development see David Marsh, The Bundesbank: The Bank that Rules Europe (Mandarin, 1992). See, for example, Roy Denman, Missed Chances (Indigo Books, 1997 edition, Ch. XI). For a further consideration of British policy see Martin Holmes, The Conservative Party and Europe (Bruges Group publication 1994, Chapter 2 in this volume). Hansard, 11/2/63, Vol. 671. Quoted in M. Holmes (1994), op. cit. See Max Beloff, Britain and European Union (Macmillan, 1996). For

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36

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an excellent account of Anthony Eden’s policy towards the EEC, see David Dutton, Anthony Eden: A Life and Reputation (Arnold, 1997). See James Callaghan, Time and Chance (Collins, 1987). For an alternative view, arguing that French support for further integration may be weakening, see Christian Deubner (RIIA, Paper 71, 1997, op. cit.). David Marsh, Germany and Europe: The Crisis of Unity (Mandarin, 1994), p. 138. See also A. Cole, German Politics, Vol. 2 (1993), Karl Haltenhaler, West European Politics (Vol. 20, No. 3, 1997), and A.S. Markovits and S. Reich, The German Predicament–Memory and Power in the New Europe (Cornell University Press, 1997), who quote that while in November 1989, 80% of the French public supported German unification, by the spring of 1990 this figure had slipped to 66%. See H. James and M. Stone, When the Wall Came Down (Routledge, 1992). Reported in The Times, 3/2/96. Speech at Karlsruhe, 13/10/97. See M. Holmes, From Single Market to Single Currency: Evaluating Europe’s Economic Experiment (Bruges Group publication, 1995, Chapter 5 in this volume). Bill Cash, British and German National Interests (European Foundation, September 1998), p. 8. See, for example, Brian Reading, The Fourth Reich (Weidenfeld & Nicolson, 1995), pp. 2–3. See, for example, Wall Sreet Journal–Europe, editorial 29/10/98. Quoted in The Times, 11/11/98. The Times, 6/10/98. The Times, 22/10/98. Reported in Daily Telegraph, 28/12/98. Quoted in European Journal, Vol. 6, No. 3, December 1998. The Economist, 10/10/98. See, for example, the speech of French Finance Minister Dominique Strauss Kahn, on the 15th anniversary of the CEPR, London, 9/11/98. A good example of this was the suggestion by Oskar Lafontaine of exchange rate bands for the world’s major currencies, which was forcefully rejected by US Treasury Secretary Robert Rubin and Federal Reserve Board Chairman Alan Greenspan. For an opposing view claiming British ability to lead in Europe, see Charles Grant, Can Britain lead in Europe? (Centre for European Reform, 1998), and Philip Stephens, Financial Times, 4/1/99. This process is fully supported by the European Commission, whose President, Jacques Santer, predicted that the introduction of the euro in January 1999 would lead to an intensification of political union.

10 Reviewing Europe: Selected Book Reviews 1991–7 (1999)*

Times Higher Educational Supplement, 1/11/91 Economic Policy After 1992 David Gowland and Stephen James (eds) 1 Britain, Germany and 1992: The Limits of Deregulation Stephen Woolcock, Michael Hodges and Kristin Schreiber 2 The academic market for books on 1992 and related topics is now so oversupplied that new books on this familiar theme require a specific Justification. By and large Economic Policy After 1992 succeeds in fulfilling this requirement. Editors David Gowland and Stephen James have assembled five additional contributors to a stimulating series of articles on aspects of the current EC debate covering financial policy, taxation, public purchasing, budgetary policy, industry policy and macro-economic strategy. Nonetheless the quality of the contributions varies widely. Keith Hartley’s excellent short article on public purchasing forcefully argues that the EC Commission ‘needs to be vigilant and active in repeatedly reminding its member states of the extra costs involved in using government contracts to support national champions’. Andrew M. Jones’ thoughtful consideration of tax harmonisation carefully balances the opposing viewpoints concluding that advocates of harmonisation must recognise, inter alia, that substantial costs will be imposed on member states.

* Bruges Group publication (1999). 181

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David Gowland’s authoritative article on financial policy is a model of analytical brevity although repudiating the case for leaving the ERM in ten lines is perhaps too brief to carry intellectual conviction. Stephen James, in an otherwise excellent chapter on industrial policy, is too ready to dismiss fears of a protectionist Fortress Europe. In April 1991 both GATT and the IMF castigated EC protectionism, the latter arguing that ‘the trade wall around the EEC has risen and will rise even further in the years ahead’. On the other hand the editors’ choice of Giovanni Palmerio to provide ‘1992: an Italian perspective’ fails dismally. His plea for regional policy plus protectionism shows no awareness of the complexity of that particular debate not least in Italy where Antonio Martino has powerfully argued the opposite case. Palmerio’s article lacks any scholarly edifice containing only one reference – and that to the Cecchini report. Equally unconvincing is the contribution by Profs Georgakopoulos and Hitiris on the EC budget. The damaging inconsistencies of the Common Agricultural Policy receive scant attention; its £17 per week per household burden of costs on domestic consumers is disregarded. Overall, however, this collection of articles is worthy of recommendation. The topics considered are treated in a concise and rigorous manner which will particularly appeal to undergraduate readers. By contrast to the broad approach of Gowland and James the Chatham House Paper, Britain Germany and 1992: The Limits of Deregulation is a highly specific and detailed study of international political economy. The authors, Stephen Woolcock, Michael Hodges and Kristin Schreiber have produced a very impressive analysis of the different approaches to 1992 of Britain and Germany which covers mergers, public procurement, technical standards, telecommunications and financial services. The authors write with clarity and authority and the book will have no trouble justifying itself in the congested ‘1992’ market. Although the study identifies some areas of policy convergence it is the difference in style and substance across a range of policies which stands out. British policy leading to 1992 is identified as being more voluntarist and market based than Germany’s consensual selec-

Selected Book Reviews 1991–7

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tive interventionism. The latter is, of course, close to mainstream thinking in the EC and the authors correctly argue that ‘the British voluntarist approach (whether in the form of self regulation of markets or negotiated collective bargaining at company level) will come under growing pressure from EC legislation’. Specifically, for example, the contrast between British antagonism and German enthusiasm for the Social Charter could hardly be greater. While British business has applauded the Thatcher trade union reforms to dismantle the 1970s corporate state, German business has reaffirmed its social dimension which ‘extends to company level and finds its statutory expression in Mitbestimmung (shared management) [to] provide employees with places on the supervisory boards of companies’. The authors, while careful to maintain scholarly objectivity, show more sympathy to the German model. My main caveat about the book is that it probably has not gone far enough in stressing the differences between the two countries particularly in economic terms. Although the Chatham House emphasis is essentially focused on political and international relations factors I felt that the authors might have found room to mention that Germany has a balance of payments surplus on visibles and a deficit on invisibles whereas for Britain it is – and always has been – the other way round. Britain and Germany have totally different patterns of trade and their trading interests at GATT have widely diverged as the December 1990 fiasco over the CAP and the July G7 meeting revealed. Moreover Germany buys very little from Britain while one third of Britain’s balance of payments deficit is with Germany. These economic factors may be more important in explaining the contrasting approaches to 1992 than the examples cited by the authors.

Times Higher Education Supplement, 19/11/93 Adam Smith Goes To Moscow. A Dialogue on Radical Reform Walter Adams and James W. Brock3 This is a gem of a book for which the authors Walter Adams, Professor of Economics at Trinity University, Texas, and James Brock, Professor of Business at Miami University, Ohio, deserve

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great credit. Although only 50 000 words long, the complex issues of the economic transformation to the market in Eastern Europe are ingeniously explored through a fictional dialogue between an advisor who preaches Adam Smith and a cynical politicallyhardened prime minister who is opposed to such remedies for his country. The flow is concise, fast and intellectually robust; it is liberally sprinkled with witty aphorisms and the ubiquitous Eastern Europe joke; pertinent reflections on western economies illuminate the argument and an apparatus of scholarly footnotes adds academic rigour. Although Robert Heilbronner’s introduction judged that the authors’ sympathy was ultimately with the prime minister – and against a swift transformation to the market – my own view that the authors have succeeded in engineering an intellectual draw which, in a footballing metaphor, would be a 4–4 thriller. The analytical precision of each viewpoint can be gauged by the fact that no fewer than seven areas of economic reform are covered in detail: the broad agenda, marketisation, monopolies, privatisation, macro-economic stabilisation, the proper role of government, and the tension between politics, culture and history on one hand and economics an the other. So impressive and vivid is the writing that the two protagonists acquire personalities so that a dilemma is created between the requirements of practical politics (the prime minister) and the necessity to promote the primacy of economics over political obstructionism (the advisor). The dialogue is not country specific – ignore the ‘Moscow’ in the title – which enables the discussion to range over the whole experience of Eastern Europe since 1989, drawing on examples from most of the post-communist economies. This very fact is significant in that the utter failure of communist economics enabled a radical Adam Smith approach to appear plausible in a way which is inhibited in social democratic western welfare capitalist states. Privatising health care has had more public support in Poland than Britain, for example. The advisor argues for a fully free market economy not a regulated, welfarist middle way on a Mitterrand, Harold Macmillan, or LBJ Great Society model. The Prime Minister, while no apologist for communism, believes that the transitional pain involved in the move to a free market is


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unacceptable unless the population is safeguarded against unemployment and social misery. A gradual move to the market, step by step, tempered by what is politically pragmatic is what the Prime Minister, albeit begrudgingly, will accept. To the advisor privatisation must occur quickly whatever method is chosen; to the Prime Minister privatisation creates problems of unfair land distribution, monopoly power, and the capacity of the excommunist nomenklatura elite to perpetuate its own power by controlling the process. To this reviewer, having been an advisor to Eastern European governments and having discussed economic transformation one to one with Macedonian Prime Minister Crvenkovski, the dialogue rings true to the dilemmas of reform. It would be a mistake to infer, however unintentionally, that most post-communist politicians are as sceptical of reform or most advisors as committed to the free market as the fictional dialogue would indicate. There are many advisors of the Jacques Attali/John Fleming kind who see little role for laissez-faire (though their regime at the European Bank for Reconstruction and Development has unquestionably diminished the intellectual credibility of economic interventionism). Nor should the IMF be seen as the bastion of pure monetarist rectitude. Equally many Eastern European politicians are fervent free-marketeers not least the Prime Minister of the Czech Republic Václav Klaus who has castigated the EEC as socialist and argued that the ‘Third Way’ between the market and socialism leads only to the Third World. Judged by the economic implosion of Tito’s Third Way, which substantially precipitated the tragic descent into civil war, Mr. Klaus has a valid point. Moreover even those Eastern politicians who in opposition, or on the campaign trail, have taken the view of Adams and Brock’s sceptical Prime Minister have found it necessary to pursue moves to the market when in power, particularly in the absence of any credible alternative. Thus the Lithuanian communists have maintained the reform process following their 1992 election victory; and the Polish Communists and their Agrarian allies have vowed to continue marketisation after their September 1993 election triumph. Even President Iliescu of Romania, who ran for office on an unashamedly communist economic platform, has now authorised privatisation and the encouragement of foreign

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investment having only two years ago scared off investment from Mercedes. My main reservation about the book concerns the lack of discussion of trade issues – beyond a couple of pages in the chapter on the monopoly problem. The biggest problem – or perhaps the most intractable – which the Eastern Europeans face is the continued lack of access to western markets because of protectionist barriers especially on the so-called ‘sensitive’ products of agriculture, steel, coal and textiles. The United States is a petty offender in this regard usually because of the entrenched strength of Congressional lobbies. Macedonian Prime Minister Crvenkovski informed me with exasperation that textile quotas to the USA had been cut because of the South Carolina textile lobby. Adams and Brock should have made more of justified complaints of this kind. But the real villain for protectionist barriers against Eastern Europe is the EEC which systematically excludes, or imposes colossal tariffs upon, the very products in which the Eastern Europeans have a comparative advantage and which the western European consumer is eager to buy. The Common Agricultural Policy does not merit one mention in Adam Smith Goes to Moscow but every policy maker in Eastern Europe is aware of its viciously damaging effects on exports, the acquisition of much needed foreign exchange, and the mutually beneficial growth of panEuropean trade. No wonder former Polish Prime Minister Suchocka told EC trade Commissioner Leon Brittan at their March 1993 meeting that ‘the time for financial aid and credit from the EC has passed. Today we need, above all, greater openness in the EC market for Polish products’. The importance of the trade issue to the Eastern Europeans demonstrates that the post-communist economies have made impressive progress on the lines advocated by Adams and Brock’s fictional advisor. The West asked the East to undertake the three crucial and interrelated tasks of macro-economic stabilisation, privatisation, and decriminalisation of small scale enterprise. Virtually all countries have embarked upon this journey, albeit at differing speeds and with differing levels of success. The fictional sceptical Prime Minister approach has rarely prevailed for long. But the East also asked the West for three areas of assistance. Both humanitarian aid and technical assistance have been forth-


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coming as requested, but access to Western markets has been either begrudgingly conceded after tortuous negotiations, or blatantly denied. In short, Eastern Europe has moved on from the simple dichotomy of Adams and Brock’s evaluation of whether and how to move to a market economy. It is because the decisions have been taken to move to the market that the next stage of development – export growth – has moved up the agenda. Nonetheless Adam Smith Goes to Moscow is a brilliant and fascinating read. But perhaps Adams and Brock’s sequel should be David Ricardo Goes to Brussels in order to liberate European trade from the Atlantic to the Urals.

Times Higher Education Supplement, 28/1/94 Making Trade Policy in the European Community J.P. Hayes4 Anyone who requires a full understanding of the many forces which shape EU external trade policy need look no further than this excellent book. Written under the aegis of the authoritative Trade Policy Research Centre at Reading University by Mr. J.P. Hayes, a veteran of the Trade & Finance division of the FCO, the World Bank, and the OECD, this study analyses in depth the role of EU institutions, the input from individual countries, the extent of pressure group lobbying, and – most significantly of all – the intellectual background ranging from liberal free trade theory to tightly closed mercantilism. Although Mr. Hayes’ personal experience is that of a participant and practitioner, his book is an academically rigorous contribution to political economy scholarship which shows an outstanding command of both primary and secondary source material. Not since the publication of R.C. Hine’s 1985 work on EEC trade policy has a book so comprehensively assessed the myriad of factors which made this subject so complex. Following on from Prof. Hine’s conclusion that external EEC trade policies were becoming more protectionist, Mr. Hayes elaborates upon the growth of EU policies such as anti-dumping, quantitative controls, voluntary export agreements and ‘orderly marketing’ agreements. He notes, quite rightly, the EU’s ambiguous attitude to GATT, distrusting American-inspired liberalism on the

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one hand but fearing retaliatory protectionism on the other. The EU appears to support GATT in principle – as Article 110 of the Treaty of Rome suggests – while objecting to specific measures which would liberalise, inter alia, European market access. Although the book does not deal with the Common Agricultural Policy – an omission the author justifies on grounds of space – the recent protracted Uruguay round would confirm the overall conclusion that protectionism is strongly rooted in EU policy. Such restrictive policies, as Mr. Hayes points out, are often of dubious internal economic benefit, discriminating essentially against EU consumers. Indeed the book’s conclusions in favour of trade liberalisation where possible, and in the questioning of the benefits of trade restrictions, are similar to those advanced by Alan Oxley, Australia’s GATT ambassador 1985–9, in his highly acclaimed The Challenge of Free Trade published in 1990. Like Oxley, Mr. Hayes is quite capable of referring to trade ‘concessions’ (with conspicuous inverted commas) to argue that trade liberalisation is not a zero sum game of winners and losers but is intrinsically and mutually beneficial. The most significant chapter concentrates upon the intellectual influences on trade policy in which Mr. Hayes evaluates the philosophical approach to trade which is often ignored by conventional textbook analyses. He stresses the lack of any liberal trade theory in France and how this has pushed the French to take a more hawkish stance, as the Uruguay round experience has so graphically illustrated. My only serious reservation is that the author somewhat neglects to provide a critique of customs union theory itself. How far do customs unions such as the EEC initially reduce internal trade barriers while in the medium to long term progressively increase them externally? Is this process likely to lead to short run trade creation but long run trade diversion? Did the EEC reach this stage in 1977 when, as Mr. Hayes argues, its protectionist contours become more visible? If the answer to these questions is affirmative, is customs union theory fatally flawed and the Fortress Europe an inevitable outcome? Judging by the depth of knowledge this book exhibits, no-one is better qualified to answer these questions than J. Hayes.


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Thinking the Unthinkable: Think-Tanks and the Economic Counter-Revolution, 1931–83 Richard Cockett5 This excellent book will further enhance Richard Cockett’s growing reputation for original scholarship already firmly established by his highly acclaimed studies of both press promotion of 1930s appeasement and David Astor’s Observer. In Thinking the Unthinkable he traces the origin, painfully slow development, political triumph and ultimate decline of free-market classical liberal think-tanks over a 50-year period. Cockett argues that an intellectual counter-revolution to collectivist and Keynesian notions paved the way for Thatcherism – and freemarket political economy elsewhere in the world – by the sheer power of ideas that captured the intellectual high ground. By demonstrating the superiority, in both theory and practice, of economic liberalism over statist intervention, the tide of mid20th-century intellectual fashion, which spawned Britain’s post-war consensus, was vanquished after 1979. The author has intentionally not written another history of Thatcherism; indeed his chronicle of the rehabilitation of freemarket liberalism effectively ends with Mrs Thatcher’s political success. This book traces the history of an idea, not the history of a political party. Such an enterprise is fascinating enough, not least in its originality. But it is the author’s scholarly methodology that makes this a brilliant book. Indeed it is a pleasure to read a work of contemporary history based on academically rigorous primary research rather than the currently fashionable tomes in which the author’s computer technology has outstripped both industry and intellect. Cockett’s research is painstaking and meticulous. The command of archival sources is awesome; the bibliography is extensive but not indiscriminate; the information of more than 70 personal interviews is used sparingly but with telling effect; primary documentation illuminates every chapter; quotations are given in full to avoid the out of context distortions that so often disfigure contemporary monographs; the appendices are a miniarchive of historical gold nuggets; and scholarly objectivity is scrupulously observed despite the ideologically controversial subject matter. Occasional flashes of dry humour are impishly inserted

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to lighten the text: in a book about intellectuals Chris Patten is described, with conspicuous inverted commas, as an ‘intellectual’ and Milton Friedman is ‘unusually articulate for an academic’. As may be expected the book evaluates the contributions of Hayek and Friedman – the former being more influential – as well as analysing the process whereby the Mont Pelerin Society was established in 1947 to promote classical liberalism. The intellectual isolation of the early Mont Pelerin participants is vividly portrayed, as is their overall preference for influencing the movement of ideas, particularly among influential opinion-formers rather than for activist campaigning within existing political parties. The specifically British developments focus on the foundation of the Institute of Economic Affairs and its gathering intellectual impact under the astute and talented leadership of Ralph Harris and Arthur Seldon. Cockett perceptively conveys the difficulties and disappointments the IEA experienced, not least during the U-turns away from market economics during the 1970–74 Heath government. Ironically Heath’s wretched failure provoked an explosion of new thinking, amenable to free-market radicalism. Consequently, by the mid 1970s, under Sir Keith Joseph’s aegis, the Centre for Policy Studies had broken new ground by encouraging its director Sir Alfred Sherman to think the unthinkable in preparation for government. Cockett convincingly argues that, just as the IEA changed the intellectual climate, and the CPS prepared for government, so the Adam Smith Institute produced the detailed micro-political blueprints for legislative change once the Thatcher Revolution had captured the citadels of power. Only by the mid-1980s did this self-regenerating process run out of steam. The free market critique of the Welfare State was ignored in favour of peripheral tinkering and diverted into the cul-desac of the’ ‘Poll Tax’, for which, as the author argues, few think-tanks wish to claim paternity. The failure to reform the Welfare State meant that the Thatcherites presided over a state sector that was scarcely different, from that they inherited. Indeed, between 1979–80 and 1990–91 the after inflation real increase in public spending was 37% for health, 35% for social security and 16% for education and science. An overall reduction in the burden of taxation – long championed by the free-market think-tanks – was frustrated by indirect tax


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rises, principally VAT, that offset income tax cuts. Moreover, they failed to foresee the fratricidal disputes over Europe that would threaten the Thatcherite free-market transformation more effectively than either of the two main opposition parties. As the author shrewdly observes, the Bruges Group was not founded until 1989, by which time the erosion of Mrs Thatcher’s authority, and the corrosion of her government’s purpose, were so far developed that the 1990 coup d’état was highly probable. But the intellectual origin of Mrs Thatcher’s downfall can be traced back to the incompatibility of her ideology with that predominant on the Continent. Thus Cockett persuasively argues that ‘It is ironic that at the very moment when Geoffrey Howe was finally breaking free from Britain’s fixed exchange rate regime in 1979, Britain’s European partners were embarking on the creation of the European Exchange Rate System, thereafter a slow fuse under the Thatcher government of 1980s, eventually detonating in 1990. Nothing that the economic liberal intellectual and propagandists wrote or said in the 1950s, 1960s or 1970s prepared the Conservative government for the complexities of dealing with the European issue in the 1980s. This was their failure.’ A further irony, which the author’s primary research material indicates, is that the issue of floating v. fixed exchange rates largely responsible for Mrs Thatcher’s downfall was one which the free-market liberals had long debated. Antony Fisher, whose financial benevolence established the IEA, had attacked fixed exchange rates (the then Bretton Woods system) in his 1947 book The Case for Freedom; and significantly the IEA’s first publication in 1955 was George Winder’s The Free Convertibility of Sterling, which also argued for a floating rate. In her famous implied rebuke to Nigel Lawson that ‘you can’t buck the markets’, Mrs Thatcher was following the long-established classical liberal position of anathema to a fixed rate for the pound. By the late 1980s, however, many of those who had marched with IEA over the years – such as Lawson and Samuel Brittan – had now deserted the pure free market preference for floating in favour of the continental destination inherent in European Community membership. In this way the monetarists, who had emerged triumphant over the Keynesians in the 1970s, fell out fatally among themselves in the late 1980s. Indeed the division

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between the domestic monetarists (Thatcher, Walters, Minford) who favoured a floating pound, v. the exchange rate monetarists (Lawson, Howe, Major) who favoured the Exchange Rate Mechanism was just as passionate as that of the old monetarist v. Keynesian battles of a decade before. Cockett’s absorbing, lively and stimulating account does not cover the details of this monetarist civil war, which falls just outside the author’s time frame. But no one is better equipped than Cockett to elucidate this debate should his next book carry on from where Thinking the Unthinkable left off.

The Financial Times, 30/6/95 Unemployment in Europe: Problems and Policies Valerie Symes6 Valerie Symes writes with authority and clarity about the problems of structural unemployment in Europe concentrating on its urban dimension; five illuminating case studies – Montpellier, Manchester, Barcelona, Rotterdam and Frankfurt-am-Main – add an impressive weight of carefully researched evidence to bolster the economic theory of three introductory chapters. Dr. Symes deserves great credit for the thoroughness of her primary research and for the ease with which a multitude of technical and statistical tables are clearly presented. While it would be going too far to say that she writes with the style and fluency of a Keynes or a Robbins, it is a pleasure to read a serious work of economic complexity which does not retreat into ‘psycho-babble’ of impenetrable jargon. Dr. Symes’ book will be appreciated, therefore, by the intelligent layman as well as the professional economist. As well as examining such aspects of urban unemployment as ethnicity, gender, demography, age, educational achievement, and occupational sector change, the author scrutinises the policy options suggested over the past decade at both national and EU levels. Rightly, a whole chapter is devoted to EU policy in which social funds and regional transfer payments have become institutionally prominent following the passage of the Maastricht Treaty. Although Dr. Symes is no proselytiser for any specific EU remedy, she is broadly sympathetic to its approach based as it is on microeconomic solutions.


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If the strength of this book is in its microeconomic detail so there also lies its intellectual weakness. The macroeconomic causes of high European unemployment are casually referred to but not adequately discussed. Twenty years ago most economists analysing unemployment overconcentrated on macroeconomics to the exclusion of microeconomics; Dr. Symes is typical of 1990s analysts in making the opposite mistake. She argues, for example, that European unemployment is higher than in than in the US and Asia-Pacific even though the European growth rate between 1981 and 1991 was only marginally lower. But the appalling EU growth rate since 1991 compared to America’s impressive performance and Asia-Pacific’s brilliant performance explodes this view. A macroeconomic analysis explains why. During the recession of the late ’80s and early ’90s the Americans and Asians sensibly cut their interest rates while the Europeans – urged on by the creation of a single currency through ERM narrow band convergence criteria – increased theirs in step with the Bundesbank. To compound this error the Europeans have maintained higher real interest rates ever since in the pursuit of exchange rate targeting of the franc fort type. In Denmark, for example, during 1992–4 inflation was around 1%, interest rates 10% and unemployment 10%. Structural factors were conspicuous by their absence; high unemployment was the direct consequence of a grotesquely overvalued exchange rate procured by maintaining a politically determined parity with the Dmark. Consequently, Britain’s lower level of unemployment, compared to its continental neighbours, explained by its liberation from the ERM in September 1992 which has provided a competitive advantage to exporters. Nor can fiscal expansion or fine-tuning, to which Dr. Symes refers, be a macroeconomic solution to an overtight monetary policy. Unless European interest rates are set to reflect domestic monetary circumstances – rather than to target exchange rates on the Maastricht model – unemployment will remain permanently high. Fiscal transfers, regional policy, and better training schemes attack the symptoms not the cause while in the process boosting budget deficits. The microeconomic and structural solutions which this book advocates have become a new orthodox version of an old remedy. In the 1930s when real, as opposed to nominal, interest rates

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were too high to bring about significant reductions in unemployment, all sorts of make-work microeconomic schemes were invented by Roosevelt in the United States and by the National Government in Britain. All such schemes, along with the curse of protectionism, failed to make a real difference. In the 1990s a similar obsession with microeconomic tinkering, plus the protectionism of the CAP and ‘industrial strategy’ advocates, are preventing the necessary re-evaluation of monetary policy. Noone denies that structural unemployment exists in Europe as the city surveys Dr. Symes cites clearly prove. But to ignore the cyclical nature of Europe’s unemployment, or to relegate cyclical factors to footnote status, does a disservice to the truth and to the unemployed themselves. Dr. Symes has written an excellent book on structural and urban unemployment in Europe albeit without tackling the real causes of the unemployment itself.

Asia–Pacific Business Review, Vol. 2, No. 3, Spring 1996 The Economics of the Common Market: Integration in the European Union Dennis Swann7 It is not difficult to see why Dennis Swann’s The Economics of the Common Market, is now into its eighth edition. Since its first publication in 1970 it has become an invaluable textbook to several generations of undergraduates who have appreciated its clear and concise style supplemented by voluminous up-todate statistical information. Indeed it is probably a compliment to say that The Economics of the Common Market has been more referred to than read; the extent of detailed economic data is highly impressive in a work of only 400 pages. No doubt a more comprehensive bibliography – and a more thorough and imaginative index – would assist students even more but these shortcomings must be the responsibility of Penguin rather than the author. The subject areas covered include customs union theory, monetary union, the 1992 Single Market, Regional Policy, Social Policy,


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the Common Agricultural Policy, Fisheries Policy, and the EU Budget. Nor are political developments neglected where they directly determine economic outcomes. Swann rightly examines the political economy of global challenges facing the EU not least its relationship to central and eastern Europe and the tangled and unsatisfactory relationship with the United States. Recent developments such as the 1993 Uruguay Round of GATT and the CAP Set aside reform are outlined with commendable factual clarity. Swann has few axes to grind; he is favourable to economic integration but he is not uncritical of several EU policies. He acknowledges – as few Euroenthusiasts are prepared to do – that the Single Market has some considerable way to go before it can be regarded as an unqualified success. But neither is he an economic Eurosceptic. The discussion of the ERM and monetary union, while acknowledging the problems of 1992–3, is broadly favourable to the eventual emergence of a single currency. The social dislocation of high unemployment and low growth is pushed well into the background and, Swann does not accept that the implosion of the ERM implies the abandonment of monetary union as an intellectually flawed concept. The ‘Walters critique’ of the ERM is mentioned but not critically analysed (and is incomprehensibly deleted from the index). Good though the book is as an undergraduate text – with an appeal to the general reader additionally – The Economics of the Common Market is dedicated to information not ideas. Its weakness lies in a failure to communicate the intellectual battle of economic philosophies which has been a constant feature of the economic integration process since the 1950s. The clash between continental mercantilism and Anglo–Saxon market-oriented economics is scarcely considered let alone judged. The undergraduate reader will not be tempted to take the study of European economics much further simply by reading Swann: as in many textbooks, factual assertion is no substitute for the kind of complicated analysis that includes broader value judgements. Nonetheless, the eighth edition of The Economics of the Common Market is good enough for my first-year undergraduates just as the first edition was good enough for me in 1970.

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Times Higher Education Supplement, 25/10/96 Managing the British Economy in the 1960s: A Treasury Perspective Sir Alex Cairncross8 The Economy of Ireland: Policy and Performance of a Small European Country J.W. O’Hagan (ed.) 9 Integrating Southern Europe: EC Expansion and the Transnationalization of Spain Otto Holman 10 European Integration and Disintegration: East and West Robert Bideleux and Richard Taylor (eds.) 11 The Politics of European Integration: A Reader Michael O’Neill12 The Stateless Market: The European Dilemma of Integration and Civilization Paul Kapteyn 13 Economic Growth in Europe since 1945 Nicholas Crafts and Gianni Toniolo (eds.)14 All but one of these books deal with the Europeanisation of what was once national political economy. The way in which individual countries have adapted to an increasingly integrated European economy, the role of the political institutions of the EU, and the prospects of expansion further eastwards are recurrent themes. The one exception is Sir Alec Cairncross’s superb Managing the British Economy in the 1960s: A Treasury Perspective. This is a book for the economic policy connoisseur in which Cairncross draws extensively on his wide experience as a participant in Treasury policy formulation. His analysis, admirably self-contained in 300 words, is supplemented by excellent statistical tables, a useful calendar of main events and a dramatic personae listing up to 80 key individuals. Cairncross’s verdict on the 1960s is sober and balanced; he has – for a policy insider – surprisingly few axes to grind. He rightly argues that, by and large, the international economic climate was conducive to expanding trade and full employment, and that the period was one of rising living standards with economic growth ‘a good deal faster than in the


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1950s and much faster than in the 1970s’. The countdown to, and consequences of, the 1967 devaluation are comprehensively described, throwing fresh light, incidentally, on the 1990s’ fashionable folly of decrying a competitive exchange rate in favour of ERM discipline leading ultimately to a single European currency. Indeed, partly as a consequence of devaluation, the healthy balance of payments surplus of 1970 contrasted with the considerable deficit of 1960. It is all the more remarkable, therefore, that within four years the British Economy had suffered the severe meltdown of the disastrous Heath administration. 1970–4 is outside the scope of Cairncross’s book but – as far as the great debate on Britain’s economic decline is concerned – he makes a powerful case for the exculpation of the 1960s governments. If Cairncross is right, the British economy, while underperforming in internationally comparative terms, was not on the road to a currency debauched stagflation when Harold Wilson lost office in June 1970. The fortune of the British economy is never too far from the fortune of the Irish economy as The Economy of Ireland, edited by J.W. O’Hagan makes clear. But since 1973 a more important dimension has been the link to the EU by which, as Jonathan Haughton argues, ‘Ireland has become a district of Western Europe, perhaps with little more autonomy than a typical state of the United States’. But the fifteen contributors, far from bemoaning this fact, either accept it as unavoidable, or positively revel in it. Covering virtually every aspect of the Irish economy in commendable depth, each chapter bar one contains a thorough analysis which will delight the generations of students who will plunder The Economy of Ireland as an essential text. Only Mary O’Sullivan’s weak and disappointing chapter on manufacturing and global competition fails to maintain the high academic standard; I have no way of knowing whether editor O’Hagan deliberately placed O’Sullivan’s contribution as the last but that is undoubtedly the best place for it. By contrast, among the most impressive contributions are Alan Matthews’ assessment of agricultural competitiveness and rural development, Dermot McAleese’s consideration of inflation and the balance of payments, and John O’Hagan’s comprehensive coverage of unemployment. The particular strength of O’Hagan’s analysis is its cross-reference to different types of

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unemployment in OECD countries; moreover, he wisely focuses on the nature and type of employment including the impact of technological change, the extent of skills mismatch, and the consequences of employment protection legislation. In the 1990s, he concludes, the problem is that a ‘large proportion of the Irish unemployed are long-term and that solutions must reach out to political and social factors which lie beyond conventional economic analysis’. While the contributors collectively make a good case for defending Ireland’s ‘district’ status within the EU, perhaps more could have been made of alternative developmental models. Has the massive EU subsidisation of the Irish economy inhibited the creation of competitiveness and entrepreneurial dynamism? Has the CAP prolonged the dependence on agriculture to the disadvantage of other sectors? Is high unemployment a price worth paying for eventual monetary union? Have investment, trade and tourism links with the United States been retarded by adherence to EU external trade protectionism? Would Ireland have prospered more if, like other small countries – Switzerland, Iceland and Norway – it had retained more of its economic sovereignty? Has Ireland liberated itself from Britain’s hegemony only to become an agricultural appendage to a German economic Reich? These questions require more convincing and imaginative answers than those which O’Hagan has assembled. Although Spain joined the EU more than a decade later than Ireland, many of the same problems of economic development have been encountered. Otto Holman’s Integrating Southern Europe: EC Expansion and the Transnationalization of Spain is an original and fascinating account of this process. Notwithstanding Holman’s predilection for impenetrable Marxist jargon – there is even a quotation from Mao Tse Tung, whose Five Essays on Philosophy (1977) appears in the bibliography – the substantive issues of post-Franco economic policy are often shrewdly assessed. Holman debunks the late Socialist government’s self-image as instigators of social and economic modernity, correctly observing that a ‘rapid deterioration of the Spanish economy started in 1991 and came openly to the fore in the post-Maastricht year’. Only generous fiscal transfers from the EU net contributor states have disguised an unbalanced under-utilised economy beset by up to 20% un-


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employment and a near-permanent recession. The receipt of such extensive largesse through the EU’s Cohesion Fund has created a clientelistic and corrupt politics of appeasing regional nationalism with grants and subsidies which tackle the symptoms not the causes of chronic unemployment. This pitiful situation has become even more pronounced following the left’s 1996 narrow election defeat whereby the new right-of-centre government is held hostage to regional blackmail in order to cobble together its parliamentary majority. Such political weakness is not conducive to purposeful economic policy. Holman pessimistically concludes that: It remains to be seen whether Spain can meet the EMU convergence criteria in due course, and if so, only at high social costs. In fact, while inevitably generating greater social cleavages at home and in risking major confrontations with both trade unions and the less competitive sections of Spanish business, the Socialist government’s pursuance of its European ambitions may nevertheless result in Spain ending up on the wrong side of a future two-tier Europe. Such an analysis runs directly counter to accepted wisdom but Holman makes a well-substantiated case which may be difficult to refute. Just as Ireland joined in the 1970s, and Spain in the 1980s, so it was expected that the post-communist countries of central and eastern Europe would join the EU in the 1990s. That prospect now appears more likely the other side of the millennium as is cogently argued in European Integration and Disintegration: East and West, edited by Robert Bideleux and Richard Taylor. The editors contribute no fewer than six of the fourteen chapters, which cover individual countries across the full breadth of Europe, as well as the more general themes of security policy, the COMECON experiment, and the EU’s eastern expansion. Setting the tone the editors state their belief ‘that the principles, practice and study of European integration should be taken in the round, avoiding a narrow and self-centred concern with the development of the Kleineuropa (Little Europe) of the EU’. Refreshingly they argue that ‘EU relations with Eastern Europe should be handled not as

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part of the “external relations” of the EU but as part of the internal relations of Europe as a whole’. The book’s contributors live up to the editors’ expectations. Several of the fourteen individual chapters are excellent, especially Bideleux’s introduction and Taylor’s analysis of Russia, in which the political impact and appeal of Zhirinovsky is convincingly assessed. Taylor is surely right to argue that Chechnya may not benefit Zhirinovsky – or other potential leaders who profess imperial Russian ambitions – if the political cost is borne by grieving mothers and widows. Taylor sympathetically considers Russia’s eternal option of looking either East or West and concludes, with much validity, that ‘there are powerful cultural and historical reasons why the Russians will never look to the real East for their paradigms: they have always regarded themselves as bulwarks of European civilisation against Asia, as bearers of Western cultural values to the East’. Other notable contributions include Bruce Haddock’s critique of the crisis of legitimacy of the Italian state, François Duchene’s unravelling of French motives for European integration, Frances Millard’s penetrative perspective on Poland, and Clive Ponting’s assessment of Churchill and Europe. Ponting is a lively and iconoclastic writer, who is not to the taste of the intellectually fastidious, but his chapter is tightly argued and assiduously documented from primary sources. He argues persuasively that Churchill was, in his 1946 Zurich speech, an important instigator of European integration but that he envisaged Britain as a supporter not as a participant. In his 1951 paper to Cabinet colleagues, Churchill unequivocally stated that ‘I have never thought that Britain . . . should become an integral part of a European federation’. Ponting concludes that to claim Churchill as the original pro-European Conservative is a serious misunderstanding of his views. Moreover, ‘even to claim him as a Thatcherite on Europe would misrepresent his position. He believed in an imperial Britain as a world power. On that basis Britain could never be part of a European Federation’. While Ponting may lack the finesse of scholarship which Professor Max Beloff has recently brought to this subject, he has, nonetheless, performed a signal service in assisting the process of rescuing Churchill from those who, erroneously, claim him as a friend and ideological soulmate. Churchill did not live to see British membership of the (then)


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EEC, nor the extent to which federation is now on the political agenda. Evaluating this process is the purpose of The Politics of European Integration: A Reader edited by the Jean Monnet Fellow in European Integration at Nottingham Trent University, Michael O’Neill. I am sure that I will not be the only reviewer, or reader, of this book to be baffled by its bizarre structure and organisational content. The first six chapters, covering 144 pages, provide a theoretical construct to the subject of integration. The level of repetition, augmented by jargonistic overkill, makes for dull reading; the few substantive points raised could surely have been summarised into two introductory chapters at most. The remaining 200 pages are devoted to 46 different documents deemed relevant to the integrationist theme. However, instead of being intelligently divided on the lines of historical background, economic integration, institutional supranationalism, and federalist theory, all 46 contributions are strung together without any subediting at all. The effect is a complete loss of intellectual precision and scholarly focus which leaves even the most avid of enthusiasts with a very long slog. Moreover the contributions offer no variety of viewpoint – all in principle favour integration – so that the degree of repetition is just as pronounced as for the elongated six-chapter introduction. Such a structure will certainly not be user-friendly to students who find the politics of European integration already complex enough. I would recommend to Michael O’Neill the reader from my own student days, European Community: Vision and Reality edited by James Barber and Bruce Reed (1973). Sub-divided into seven sections, and buttressed with a fine bibliography, the extracts range from Churchill’s Zurich speech (which does not make the O’Neill top 46) to the inter-relationship between EC law and national sovereignty. A more thoughtful approach to the same topic is provided by Paul Kapteyn, a lecturer in sociology at the University of Amsterdam, in The Stateless Market. Sensibly divided into three sections – history, negotiations and conclusions – Kapteyn analyses not only the familiar theoretical concepts but also their practical applicability in the two specific cases of Common Agricultural Policy fraud and the open borders policy of the Schengen Treaty. Without finding all his arguments persuasive – especially his underestimation of the forces of external trade protectionism –

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Kapteyn writes with authority and clarity, confronting the major issues in considerable analytical depth. Among the topics perceptively discussed are the origins of the CAP in the context of Franco–German relations, the political dimension of the Schengen Treaty negotiations, the incompatibility of Mrs Thatcher’s free market ideology to continental political economy, the role of German post-war guilt in propelling a federalist agenda, and the consequences of the Uruguay Round of GATT leading to the new World Trade Organisation (WTO). Kapteyn’s book was originally published in 1993 so that a number of references, not least to President Mitterand’s influence, have been superseded by events. Nonetheless undergraduate students should still find The Stateless Market a useful contribution to the literature. Last, and by no means least, is Economic Growth in Europe since 1945, edited by Nicholas Crafts and Gianni Toniolo. This is an awesome textbook of profound and rigorous economic analysis which will prove invaluable to generations of economics students – and other informed readers besides. Nick Crafts has already established his reputation as one of Britain’s foremost economic historians; this book will enhance his reputation further. Crafts and Toniolo provide both an excellent introductory chapter and a concluding chapter which reviews the preceding country studies of Denmark, Italy, West Germany, East Germany, Ireland, Spain, Portugal, Sweden, Holland, France, Belgium, and Britain. Additional to the formidable country analyses are Barry Eichengreen’s shrewd assessment of the decline of the post-war consensus, Andrea Boltho’s thoughtful dissection of exchange rate policy, and Marcus Olson’s stimulating review of the ‘varieties of Eurosclerosis’. The overall strength of Economic Growth in Europe since 1945 lies in the wise judgement of the editors to impose a thematic uniformity on the contributors so that the ‘golden years’ of 1950–73 can be contrasted with economic growth performance thereafter. This watershed division creates an intellectual reference point for each of the countries studied which enables the reader to draw comparative points across all 18 chapters. The lists of figures and tables, plus a comprehensively helpful bibliography, renders fully intelligible the myriad of footnotes and statistical data. The editors and contributors are to be congratulated on this work as are Cambridge University Press for its production and indexing.


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If the EU’s recent economic growth rate had been as impressive as this analysis of it, I suspect that the current tide of Euroscepticism would be but a meandering stream. While Europe’s growth rate lags so decisively behind that in North America and Asia-Pacific, serious and well-founded doubts about the further integration of the continent are sure to grow.

Book Review, Eurofacts, 8/8/97 Britain Held Hostage Lindsay Jenkins15 All Eurosceptics who heard Lindsay Jenkins’ speech to the 1995 Bruges Group conference, and who subsequently read her excellent paper on the ‘godfather’ of the EU, Altiero Spinelli, have been long awaiting her book. They will not be disappointed. Britain Held Hostage is both a chronological and a thematic account of the origins and development of European integration which accurately chronicles how Britain, through the venality of the Heath generation, slowly but surely surrendered its sovereignty. Ms Jenkins writes with authority, clarity and analytical precision and is the master of the extensive primary and secondary source material with which her account is commendably illustrated. Although inevitably she travels territory which has been covered by Bernard Connolly and John Laughland in their authoritative studies of the German origins of the ideology of ‘Europeanism’, she adds to their analysis a timely consideration of the role played by the Americans from the 1940s onwards. To be sure, there were those wise Americans, such as Cordell Hull, who were suspicious of the mercantilist customs union economics favoured by the continentals since the 17th century. In the Commerce and Agriculture Departments they correctly argued that the political economy of European integration was antithetical to the American’s globalistic trading policy. But the White House, guided especially by the State Department, viewed the EEC as an extension of Cold War politics whereby western interests would be bolstered against communism. The Americans saw European integration, in which Britain would actively participate, as a process which

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Washington could control; the continentals, by contrast, saw the same process as an alternative to Washington’s leadership enabling Europe, in the fullness of time, to stand up to either the American or the Soviets. In short, just like the British proponents of EEC membership, the Americans exaggerated – to the point of self-delusion – just how far they could lead, shape, change and mould Europe. Tragically, as Ms Jenkins argues, this delusion still grips the policy élites in Washington and London to this day. Although she rightly stresses the role of Dulles, Frankfurter and Acheson in this dismal process I was surprised that she did not have more to say about Henry Kissinger, who directly intervened to pressurise the Wilson government in general, and Jim Callaghan in particular, not to jeopardise Britain’s EEC membership by a genuine renegotiation of terms in 1974–5. Kissinger’s overarching theory of international relations – the geopolitics of his Harvard years – could easily embrace European unity as the way to outwit the Soviet Union in the battle for hearts and minds in western Europe, not least in Italy and France where communist parties were electorally formidable. Kissinger believed, for example, that if Ireland joined the EEC then it would be likely to join NATO and to abandon its traditional neutrality. Britain, to Kissinger, could be the bulwark of a pro-American integrationist process which shows just how far he – and the defeatist British governments of the day – deluded themselves that it would be possible to stall the Franco–German federal engine. Lindsay Jenkins tells a sad story of Britain’s misguided and unnecessary involvement in a process which, at least until Macmillan, the Attlee, Churchill and Eden governments had wisely left alone. As she proves, there is no middle way of changing the federalist impulse from within, nor any possibility that the continentals will renounce their 50-year-old project by embracing a Europe of nation states. Tragically, at the time of writing, the option of leaving the EU is as necessary as it is unlikely.


Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Dartmouth (1991). Pinter/RIIA (1991). Princeton University Press (OK) (1993). Macmillan (1993). HarperCollins (1994). Routledge (1995). Penguin (1995). Macmillan (1996). Macmillan (1996). Routledge (1996). Routledge (1996). Routledge (1996). Routledge (1996). Cambridge University Press (1996). Orange State Press (1997).

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Index

Accountancy, 85, 110 Acheson, Dean (1893–1971), 122, 165, 204 Adam Smith Goes to Moscow: A Dialogue on Radical Reform (Adams and Brock, 1993), 183–7 Adams, Professor Walter (Trinity University, Texas), 183–7 Adenauer, Konrad (1876–1967), 12, 19, 122, 165, 174, 176 and de Gaulle, 167 ‘favoured a customs union’, 166 Advertising, 85, 110 Agrarian [party] (Poland), 185 Agriculture, 114, 137, 186, 198; EC protectionism (1990s), 86, 87 see also Common Agricultural Policy Air fares, 80 Air travel, 85 Airbus Industrie, 85–6, 128, 140 Albania, 112 Alderman, Dr Keith, 46 Allason, Rupert (b 1951), 11, 34 American Enterprise Institute, 128 Amsterdam Summit (6.1997), 45 Amsterdam Treaty (1997), 1, 3, 5, 68, 175 extension of QMV, 3 Hague’s opposition to, 54 Hague’s ‘willingness to reject outright’, 60 ‘meant to be the treaty for enlargement’, 58 targeted by Hague (1999), 57–8 Anderson, Bruce, 29 Anglo-Saxon free market model, 4, 5, 7, 135, 143, 166, 167, 178, 184–5, 195

Anti-dumping, 87, 187 APEC (Asia-Pacific Economic Cooperation), 97 Apricot halves, 80 Artz, Edwin L., 84 ASEAN (Association of South-East Asian Nations), 97 Asian-Pacific countries, 88, 97, 193 bus exports to, 81 EC protectionism against, 86, 105(n21) faster growth than the EU (tiger economies, 1985–), 157 foreign direct investment, 141 investment in the EC, 83 ‘no equivalent’ of VAT in, 138 oil crisis (1973–4), 76–7 unemployment, 99 Atlanticism, 6, 164, 178 Attali, Jacques (b 1943), 185 Attlee, Clement (Lord Attlee, 1883–1967), 204 Auction, privatisation by, 111 Australia, 151–2 Austria, debt to GDP ratio, 125 Baby products, 83 Balance of payments Germany, 183 Ireland, 197 UK, 183 Balance of power, 160 Bank of England, 101, 103 Bank-notes, right to issue, 93 Bankruptcies, 23, 157 Banks, 99, 101, 126 Barber, James and Bruce Reed (1973), 201

207

208

Index

Barcelona, urban case study, 192 Barriers to trade, 139 Bavaria, 152, 175 Beckett, Margaret (b 1943), 59 Beef ban, 44 Beer, 77–8 Belgium, 125–6, 159, 160–1(n8), 202 Beloff, Professor Max (Lord Beloff, 1913–99), 40, 67, 200 Bercow, John (b 1963), 55 Berlin Summit (3.1999), 6 Bevin, Ernest (1881–1951), 14, 170 Bideleux, Robert and Richard Taylor (1996), 196, 199–200 Big business, 88 Bismarck, Otto von (1815–98), 155 Black, Conrad (b 1944), 35, 68, 140 ‘Black Wednesday’ (16.9.1992), 36, 61; same as ‘White Wednesday’, 23, 35, 36, 133 Blair, Anthony (‘Tony’) (b 1953), 48, 65, 163–4 Atlanticism ‘ridiculed’ (by EU), 6 ‘fanatical supporter of EU’, 6 ‘growing disillusionment with EU’, 6–7 promises of, 57 speech at the National Assembly, France (3.1998), 163 Blair administration (5.1997–) delusions of, 177 ‘ineffective attempts’ to reform the EU, 57 marginalised by Paris-Bonn friendship, 176–9 objectives differ from those of Germany, 177 Body, Sir Richard (b 1927), 38 Boeing, 128 Bolshevism, 148 Boltho, Andrea, 202 ‘Bonn’, 41 Book reviews, 181–205

Booker, Christopher (b 1937), 3, 42, 48, 81–2 Booker, C. and R. North (1996), 48 Borrowing, 107(n53) Bradford University, 133 Brandon, Mrs Diane (Devon shopkeeper), 82–3 ‘Brandt, Willy’ (pseudonym of Karl Herbert Frahm, 1913–92), 172 Bretton Woods system (1944–), 14, 101, 124, 171, 191 Brewing laws, 77–8 Brezhnev Doctrine, 151 Britain, see United Kingdom Britain in Europe campaign, 65 Britain, Germany and 1992: The Limits of Deregulation (Woolcock, Hodges and Schreiber, 1991), 181–3 Britain Held Hostage (Jenkins, 1997), 203–4 British Empire, 160, 170; search for an alternative to, 16 British Management Data Foundation, ‘more sceptical stance on EMU’, 61–2 British Telecommunications, 85 Brittan, Sir Leon (b 1939), 186 Brittan, Sir Samuel (b 1933), 191 Brock, Professor James W. (Miami University, Ohio), 183–7 Brown, James Gordon (b 1951), 63, 64, 66 Bruges Group (1989–), 46, 191, 203 Bruges speech (Thatcher, 9.1988), 6, 49, 53, 60, 121; Hague’s perspective (5.1998) reminiscent of, 56 Brussels: Major’s speech (2.1997) at, 44 ‘Brussels’, see European Commission Buchanan, James M. (b 1919), 138–9

Index

Buchenwald, 160 Budapest: Hague speech (13.5.1999) at, 57–8, 62, 69 Budget deficits, 92, 111, 134 Bulgaria, 112, 151 Bundesbank, 55, 58, 97, 103, 127, 174, 176, 193; ‘Frankfurt’, 98 Bush, George (b 1924), 115, 140, 151, 171 Business: ‘non-wage burdens’ on, 157–8 Business cycles, 135 Business opinion (UK), 51 Butler of Brockwell, Lord, 39 Butler, D.E. and D. Kavanagh (1992), 30 Butler, R.A. (Lord Butler of Saffron Walden, 1902–82), 179(n8)

Cabinet Papers, 21 Cairncross, Sir Alex (1911–98), 196–7 California, 18, 175 Callaghan, James (Lord Callaghan, b 1912), 6, 80, 171, 204 Cambodia, 168 Cambridge University Press, 202 Canada, 66, 97, 152 Canaris, Admiral W. (1887–1945), 149 Canned fruit salad, 80 Cannes summit (EU, 6.1995), 94 CAP, see Common Agricultural Policy Capital, 77, 80 Cartels, 138–9 Cash, William (b 1940), 175 CBI (Confederation of British Industry), 33, 46, 61, 63, 101 Cecchini, Paolo, 77 Cecchini Report, 182 CEE, see Central and Eastern Europe

209

Central African Federation, 152 Central banking, 95, 97–8, 127; see also particular central banks Central and Eastern Europe (CEE), 76, 88, 109, 156–7, 165, 172 ‘aggrieved’ leaders of, 114 ‘burgeoning small business sector’ (post-communism), 110 ‘democratic market economies’ of, 110, 137 dismantling of Soviet empire, 151 dissident movements (communist era), 151 ‘do not welcome any further monetary turmoil’, 117–18 economic reform (postcommunism), 112, 116, 183–7 electoral defeat of reformist parties, 119(n5) EU investment in, 115 EU protectionism against, 3–4, 86, 87, 114–15, 186–7 (self-defeating, 115) macroeconomic stabilisation, 111 privatisation, 110–11 Central European Economic Review, 112, 157 Central Europeans: ‘have potential to limit EU integrationist impulse’, 7 Central planning, [110–]111 Centre for Policy Studies (CPS), 190 CFP, see Common Fisheries Policy Challenge of Free Trade Oxley, 1990), 188 Chamberlain, Neville (1869–1940), 14, 49 Charlemagne (742–814), 122, 165 Charles, Prince (b 1948), 105(n14)

210

Index

Charter 77 (Czechoslovakia), 151 Chatham House, 78, 182, 183 Chechnya, 200 Cheese and milk products, 82, 105(n14) Chemicals, 87 China, 105(n21) Chirac, Jacques René (b 1932), 43 Christian Democrats, 19 Churchill, Sir Winston (1874–1965), 148, 204; ‘authentic voice of British conservatism’ (mid-1950s), 15 differences between the UK and the continent, 170 and Europe, 200–1 ‘follies’ (1925) of, 101 indictment of Chamberlain, 14 and post-war British defence consensus, 14 refused to partake in European integration process, 123 World War Two ‘not caused by nation-states’, 13 Zürich speech (1946), 200, 201 Cinema, 106(n21) City of London, 99, 101, 158, 170 Clarke, Kenneth (b 1940), 45, 47, 54, 65, 67, 70, 96, 102 Clinton, William Jefferson (‘Bill’) (b 1946), 88, 115, 141, 142 CND (Campaign for Nuclear Disarmament), 15 Coal, 86, 114, 186; see also ECSC Cockett, Richard, 189–92 Cockfield, Arthur (Lord Cockfield, b 1916), 77, 80, 104–5(n3) Cockfield Plan, 80 ‘Cohabitation’ (France), 2 Cohesion Fund (EU), 115–17, 125, 165, 199 Colbert, Jean Baptiste (1619–83), ‘megalomaniacal finance minister’, 155 Cold War, 14, 113, 114, 122, 176, 203

aftermath, 4 ‘balance of terror kept the peace’, 150 ended ‘despite European integration, not because of it’, 151 ‘responsibility for ending’ of, 150 ‘Third World War’, 87, 115 COMECON (Council for Mutual Economic Aid, 1949–91), 76, 102, 199 Common Agricultural Policy (CAP), 3–4, 5–6, [22–]23, 69, 75, 101, 136, 165, 182, 183, 186, 188, 194, 195, 198, 201–2 ‘approved by de Gaulle’, 167–8 castigated by Gaitskell (1962), 18 ‘disadvantages British consumers and Third World exporters’, 159 EU policy which the UK ‘did not design, cannot reform and ought not to endure’, 7 ‘exemplification of customs union mentality’, 12 ‘monster out of control’, 159 ‘need for liberalisation’ (Hague, 5.1999) of, 58 ‘should be dismantled’, 114 ‘will never be reformed’, 140 Common Currency plan (Major, 1990), 95, 118, 120(n22) Common Fisheries Policy (CFP), 7, 69, 75, 136, 137, 159, 195 ‘Common policies’, 4, 7–8, 25, 136, 140; see also CAP Commonwealth, 16, 156, 170 Communism, 3, 109, 166, 203 Bolshevism, 168 collapse of, 55, 56, 87, 109–10 ‘fails to supersede feelings of religion, nationality and culture’, 152

Index

in Italy and France, 204 Soviet, 4 ‘unable to crush entrepreneurial spirit’, 110 ‘worthless currencies’ under, 117 Communist countries, 114 Communists Germany (1930s), 149 Lithuania, 185 Poland, 185 Companies: European, 99 Competition, 4, 85, 139, 142 Competition policy: ‘deficiency’ of the EC, 83–6 Competitiveness, 33, 44, 63; Single Market devised as a solution to lack of, 77 Congdon, Professor Timothy (b 1951), 58, 99 Congress for Democracy Conference (7.1999), 58–9 Congressional lobbies (USA), 186 Connolly, Bernard, 33, 203 Conservative Party attempts by Major to hold together re Europe, 27 ballot of members by Hague, 62 bleak future (as at 1997) of, 49 ‘civil war’ in, 11–12, 28, 48, 53, 60 ‘crosses Rubicon of considering fundamental renegotiation, or outright withdrawal, from the EU’, 67 delusions about the EEC/EC, 21–3, 161n demands of management of, 28–9 ‘dirty tricks’ against Eurosceptics, 38, 50(n29) disintegration (pre-1997) of, 48, 51(n57) ‘does not share objectives of EEC founders’ (1957), 12 and Europe, 11–26

211

Eurosceptic rebels (1992–7 parliament), 11, 34, 37–8, 46 Euroscepticism of, 47, 48–9 ‘fatally flawed’ reasons for wishing to join EEC (1961–), 21 ‘fear of European superstate’, 25 ‘fear of Socialism’ (reason for seeking EEC membership), 17–18 ‘inrushing intellectual Eurosceptical tide’, 47 irony (1997) of the ousting (1990) of Mrs Thatcher, 48–9 leadership election (1995), 94 Maastricht ‘highly corrosive issue’ for, 46 manifesto (1992), 32 manifesto (1997), 45, 68 Monday Club, 16 myth of de Gaulle’s ‘irrationality’, 169 ‘no objection to continental integration’ (1950s), 15 options (post-Maastricht), 24–5 supports decision for pound sterling to join ERM (1990), 101 ‘thirty-year-old problem of EEC membership’, 25 Whips, 35, 38 see also individual party leaders Conservative Party conferences (1991), 29 (1992), 37, 46 (1994), 11 (1995), 43 (1997), 61 (1999), 59 Hague’s first speech as leader, 54 Conservative Way Forward, 43 Constitutional issues, 61, 63, 64 Consumer choice, 83–6

212

Index

Coventional text book analyses de Gaulle, 167 intellectual influences on trade policy, 188 Convergence criteria, see Maastricht convergence criteria Cook, Robert Finlayson (‘Robin’) (b 1946), 63 Corporatism, 163 Corruption, 5–6 Council of Economic Advisors, 130 Council of Ministers, 62, 66 Council for Mutual Economic Aid (COMECON, 1949–91), 76, 102, 199 Court of Auditors (EU), 5 Cowgill, Anthony, 86, 98 Crafts, Nicholas and Gianni Toniolo (1996), 196, 202–3 Crete, 149 Croatia, 87 Crvenkovski, B. (b 1962), 185, 186 Cucumbers, 81 Culture, 45 Currencies, 2, 137 abolition (post-Euro) of, 117 abolition of, 126 COMECON countries (‘artificially rigged’), 102 ‘common currency not single currency’, 117–18 divergence within the EU (1990s), 113 Eastern Europe, 117 ecu, 91, 95 (‘hard ecu’ plan, 46, 91, 95) French franc, 118, 126, 173 gold and silver, 89 guilder, 126 lira, 126, 127 NAFTA, 96–7 national, 89, 90, 92, 94 Ostmark, ‘overvaluation’ of, 100 peseta, 126 Roman Empire, 89

Swiss franc, 98 US dollar, 66, 90, 135 yen, 90 see also Deutschmark; ERM; Euro; European Single Currency; Pound sterling Currency markets, 94, 113 Currie, Edwina (b 1946), 45–6 Curry, David (b 1944), 55 Customs union theory, 14, 188 opposed by UK/USA, 14 Czech Republic, 116–17 ‘bold reformer’, 111 ‘coupon privatisation’ in, 111 economic miracle, 86 EU protectionism (1993) against, 87 foreign direct investment, 141 ‘leading success story’, 7 ‘overtakes Greece’, 112 ‘surprising performance’, 112 ‘tiger economy’, 157 Czechoslovakia, 149, 151 Czechs: retain belief in nationstate, 153 Dachau, 160 Daily Telegraph, 35 Daimler-Benz AG, 85 Danish beer, 77–8 David Ricardo Goes to Brussels (suggested book title), 187 DDR, see East Germany De Gaulle, Charles (1890–1970), 12, 16, 19, 69, 109, 148 and Adenauer, 167 ‘approved of the CAP’, 167 ‘attacked American policy re Vietnam’, 168 ‘did not believe in supranationalism’, 168 European policy (1958–69), 167–70 legacy of, 170–2 on ‘Mother Russia’ (1966), 168 ‘often hostile to superpowers’, 168

Index

‘opposition to enlargement of the EC’, 169 return to power (1958), 167 ‘rural power base’, 168 ‘sees France as providing political leadership’, 168 ‘similarities’ with Thatcher, 168 ‘supported the ECSC’, 168 veto of UK membership of the EEC, 19–20, 69, 169–70 (‘arguably pro-British’, 170; ‘fully vindicated’, 170) views (1963) of UK’s role, ‘not too dissimilar’ from those (1950s) of Churchill and Eden, 20 ‘strategic nationalisation’ by, 167 Debt to GDP ratio, 92, 125–6, 134 Decolonisation, 16 Delamaide, Darrell, 157 Dell, Edmund (1921–), 36 Delors, Jacques (b 1925), 1, 7, 31, 77, 78, 150, 154 Delors Report (4.1989), 29, 46, 97, 100, 106(n29–30), 124, 171, 172 initial critique of, 106(n28) ‘proposed three stage movement to single currency’, 91–2 slippage in timetable, 94 Thatcher’s objections to, 6, 95 see also Maastricht Treaty; Werner Report Delta (American airline), 128 Demand, 76 Demand management, 4 Democracy, 153–4 in the EC/EU, 2, 8, 57, 124, 159–60 ‘most valued gain of post-war period’ (Portillo, 1.1998), 67 moves in CEE towards, 109–10 overriding of, 2 safeguards for, 137

213

threat of EMU to, 66, 174–5 threat of inflation to, 174 Demographic timebomb, 107(n53) Denmark, 202 experience of the ERM, 102 referendums (June 1992, May 1993), 1–2, 3, 5, 34–5 unemployment (1992–4), 193 Deutschemark, 5, 31–2, 97, 98, 99, 102, 113, 118, 126, 127, 193 abolition of, 92, 172–6 anchor currency, 171 ‘cause of German decency’ (since 1945), 174 disastrous consequences (actual and potential) of overvaluation of other currencies against, 100 see also Currencies Deutschmark zone, 90 Devaluation, 33 Dolls, 105–6(n21) Duchene, François, 200 Dulles, John Foster (1888–1959), 204 Duncan-Smith, Iain (b 1954), 55 Duties, 139 East Germany (DDR), 172, 202 East Timor: ‘a nation, not a province’, 152 Eastern Europe, see Central and Eastern Europe Eastern Europeans: foreign direct investment, 141 ‘have potential to limit EU integrationist impulse’, 7 EC, see European Communities ECB, see European Central Bank Economic experiments, 75–107, 142 integration, 73–144 lessons of the 1930s and 1940s, 14 liberalisation, 8

214

Index

Economic – continued miracles, 17, 76–7, 86, 111–12 philosophies: ‘intellectual battle’ of, 195 Economic growth, 75, 76, 77, 88, 114, 133, 157, 171, 195 Asia-Pacific, 193 eastern Germany (post-1990), 100 EC, 76, 104(n1) EU, 1, 193 Japan, 76, 104(n1), 157 lower post-oil crisis (1973–4), 76 and objections to EMU, 99 Poland, Czech Republic, Hungary, 111 predicted impact of EMU on, 104 Single Market aims to increase, 77 UK, 23 USA, 104(n1), 193 Economic Growth in Europe since 1945 (Crafts and Toniolo, 1996), 196, 202–3 Economic and Monetary Union (EMU), 60, 130, 131, 171, 178 arguments in favour, 90 changing US opinion, 127–30 different tax regime (from the USA), 137–40 economic objections, 96–104 external shocks (1970s), 124 external shocks (1990s), 124–7 foreign direct investment, 141–2 impossibility of escape from, 133 ‘indigestibility’ (for UK) of, 136–7 interest rates and exchange rates, 141 Lamont ‘avowed opponent’ of, 47 Maastricht Treaty, 92–6 models, 90–1, 95–6 ‘not intended to achieve the advantages of a free-trade zone’, 130

not suited for the UK, 134–7 origins, 89 political dimension of, 123 ‘rejected by Thatcher, endorsed by Major’, 30 risks of, 104 single market, single currency, 90 Stage III (1999–), 43, 63, 92, 94, 117, 126 threat to German stability, 175 threat of potential asymmetric shocks, 133 trade policy, 140 ‘transatlantic implications’ of, 121–44 (conclusions, 142–3) see also Currencies; Euro; European Single Currency Economic Policy After 1992 (Gowland and James, 1991), 181–2 Economics of the Common Market: Integration in the European Union (Swann, 1995), 194–5 Economist, 40–1, 110, 178 Economists (academic), 101 Economy of Ireland: Policy and Performance of a Small European Country (O’Hagan, 1996), 196, 197–8 ECSC, see European Coal and Steel Community Eden, Sir Anthony (Lord Avon, 1897–1977), 15, 170, 179–80(n16), 204 ‘accurately predicts federalist EEC destination’, 15, 26(n5) ‘brilliant prescience’ of, 15 differences between the UK and the continent, 170 refuses to partake in European integration process, 123 ‘robust opposition’ to British membership of the EEC, 15 World War Two ‘not caused by nation-states’, 13

Index

EEC (European Economic Community), see European Communities EFTA (European Free Trade Association), 7, 76, 109 Eichengreen, Barry, 202 Elections: Eastern and Central Europe, 119(n5) EU (1990s), 1 European Parliament (6.1999), 56, 58–9, 62, 68 France (National Assembly, 1968), 167 UK (1945–79), 154 UK (1992), 27–8, 30–1, 54 UK (1997), 54, 70 see also Democracy; Referendums Electric shavers, 80 Electronic commerce, 63 Elites EU, 1, 2, 3, 5, 7 French, 2 German, 2 nomenklatura, 185 Eltis, Dr Walter (b 1933), 126–7, 143(n3) Elysée Treaty (1963), 167 Emissions: European Commission regulations, 81–2 Employment, 75, 77, 88, 102, 131, 157, 196 eastern Germany (post-1990), 100 and objections to EMU, 99 see also Unemployment EMI (European Monetary Institute), 95 EMS (European Monetary System), 171 EMU, see Economic and Monetary Union English History 1914–45 (A.J.P. Taylor), 160 Erhard, Ludwig (1897–1977), 17, 166, 179(n8)

215

ERM, see Exchange Rate Mechanism ESCB, see European System of Central Banks Estonia, 7, 112, 153 Euro (currency), 2, 62, 63, 69–70, 126, 127, 130, 180(n37) campaign to convert British public opinion to, 65 ‘economic version of Maginot Line’, 129 ‘elite consensus’ in Germany re, 1 Franco-German relationship ‘survives birth’ of, 2 German commitment to, 176–7 ‘instrument of political integration’ (Portillo), 66 legal tender (by 2002), 117 ‘lunatic idea’ (Samuelson, 1997), 129 see also Currencies; Economic and Monetary Union (EMU); European Single Currency Eurocrats, 131 Euroenthusiasts, 47, 53, 55, 67, 75, 195 Eurofanatics, 29–30, 37, 49 Eurointegrationists, 54, 151, 153 Europe (Atlantic to Urals) book reviews, 181–205 Cohesion Fund development, 115–17 common currency not single currency, 117–18 East and West, 199–200 economic divergence in East and West, 111–13 economic growth (1945–), 196, 202–3 economic integration (East and West, 1989–96), 109–20 (conclusion, 118–19) free market, 109

216

Index

Europe – continued large-scale privatisation, 110–11 macro-economic stabilisation, 111 proposed ‘genuine free trade zone’ in, 113 rich countries ‘no longer all in the West’, 112 ‘should remain a continent, not seek to become a country’, 121 small-scale enterprise, 110 structural unemployment, 192 three suggestions for reform, 114–18 trade liberalisation, 114–15 European army: talk of, 57, 123 European Bank for Reconstruction and Development, 185 European Central Bank (ECB), 2–3, 4, 92, 93, 95, 98 ‘anything other than controlled by Germans’, 176 ‘immensely powerful’, 2 ‘not democratically accountable’ (Portillo, 1.1998), 66 opposition to, 136 projected, 91, 97, 107(n53) third stage of EMU, 92 ‘undemocratic’, 175 ‘unelected’, 156 see also Maastricht Treaty European Coal and Steel Community (ECSC), 3–4, 12 ‘essentially a protectionist cartel’, 12 ‘strong case’ exists for dismantling of, 114 ‘supported by de Gaulle’, 168 ‘totally unreformable’, 140 European Commission, 2, 5, 19, 42, 57, 94, 95, 96, 104–5(n3), 128, 132, 135, 155, 166, 180(n37), 181 ‘absurdities’ of harmonisation by, 81

‘acts as judge and jury over a uniform market’, 79 ‘arrogant, self-serving elite’, 168 ‘Brussels’, 40, 61, 131, 154, 168 ‘federal EU’ tendency, 25 ‘gleeful promotion of common standards’, 78 ‘inappropriate’ arguments for a single currency, 96–7 in the Maastricht Treaty, 93 Major ‘on collision course’ (1994) with, 43 ‘mere technocrats’ (de Gaulle), 167, 168 non-EC companies too successful in Europe, 83–5 ‘not democratically accountable’ (Portillo, 1.1998), 66 ‘resignation in disgrace’ (1999), 5, 57 standardisation/harmonisation, 78 ‘undemocratic’, 175 ‘unelected’, 155 European Communities (EC)/ European Economic Community (EEC) (1957–93), 183, 203, 204 ‘barrier to socialism’ (discussed), 17–19, 23–4 beyond Maastricht: the Conservative choice (1994), 24–5 British aim to change from within, 21 British delusions about, 18–24 British presidency (7–12.1992), 31 British reasons for joining, 158 budgetary contribution (UK) to, 38, 49 (‘scandal’, 23) budgetary policy, 181, 182 comparatively sluggish economically (1973–83), 77 comparison with CEE pre- and post-Cold War, 156–7

Index

complacency (re Japan), 77 ‘consequence (rather than cause) of peace’, 150 Conservative Party and, 11–26 Conservatives reject membership (1950s) of, 13–15 (subsequent U-turn, 15–19) cost to the UK of membership (1973–94), 26(n13) ‘customs union’, 12, 23, 166, 188 delusions about ‘lack of leadership’ in, 18–19 economic experiment (1957–), 75–107 ‘economic growth lower than USA, Japan’ (1985–95), 157 ‘economic panacea’, 17, 22–3 ‘economic success story’, 156–9 ‘essential objectives of founders’ (1957), 12 ‘essentially Franco-German enterprise’, 123 ‘Euro-centrism’ (1950s) of, 13, 15 expansion of, 196, 198–9 financial policy, 181–2 foreign direct investment (1992–4), 85 ‘foreign investment welcome as long as not successful’, 85 founding fathers of, 12–13, 42 Franco-German friendship, 18–19 golden years (1950–73), 202 growth rates, 76, 104(n1) internal mobility, 77 internal tariffs, 76 ‘Little European’ approach, 157 macro-economic strategy, 181 mercantilist political economy, 12, 166 ‘needs restructuring’ (Klaus, 1994), 87–8 ‘not a Cold War organisation’, 12–13 ‘not a panacea for the British economy’, 23

217

origins, 11–13 political and economic integration, 12 protectionism, 20, 166 (‘petty, spiteful, economically unjustified’, 87) reaction to oil crisis (1973–4), 76 regional policy, 182 ‘regional rather than global trade preference’, 14 ‘revenue shortfall’ (post-oil crisis, 1973–4), 76 Single Market to Single Currency, 75–107 ‘spiteful restrictions on market access’ in, 83–6 ‘substitute empire’, 16 trading surplus with UK, 69 trend towards federation (1950s), 15 veto of British membership by President de Gaulle (1963), 19–24 ‘widespread disillusion’ (Tugendhat, 1995) with, 79 see also European Union; Treaty of Rome European Community: Vision and Reality (Barber and Reed, 1973), 201 European Council of Ministers, 166 European Court of Auditors, 156, 175 European Court of Justice, 2, 155–6, 166, 175 European integration, 53, 95–6, 165, 196, 201, 203–4 ‘changing opinion’ in USA re, 127–30 ‘consequence of peace, not cause of it’, 176 de Gaulle and, 167, 168 ‘dirigiste, mercantilist’ economics of, 167 driving force behind, 2 federal express of, 45

218

Index

European integration – continued German policy, 172–6 limits of, 5–8 principles (1957–) of, 166 scope of, 1–5 UK and, 9–71 see also European superstate European Integration and American Interests (Gedmin), 128 European Integration and Disintegration: East and West (Bideleux and Taylor, 1996), 196, 199–200 European Monetary System, 23 European ‘national champions’, 85–6 European Parliament, 2, 25, 43, 62, 57, 95, 155 European police force: talk of, 123 European Reform Group, 46 European regionalism (opposed to ‘globalism’), 122 European Single Currency, 25, 39, 41, 44, 46–7, 49, 50(n32), 53, 58, 65, 89–104, 117, 123, 126, 142, 172, 176, 195, 197 banknote design, 95 discussions on name of, 94 ‘end of the UK as an independent country’ (Beloff), 67 Hague’s policy, 60–4 impact in Germany of a loss in value, 174 implicit in the Delors Report and Maastricht Treaty, 29 Major’s approach, 29, 43, 47, 60 ‘needs a government to run it’, 66 ‘no exits’ (Hague warnings, 10.1997, 11.1997) from, 61 not certain to keep its value, 97–9, 104 opposition on constitutional grounds, 63, 64 third stage of EMU, 92

UK adherence would be ‘to abandon centuries of selfgovernment for a minority voice among foreigners’ (Beloff), 67 workability on the continent, 131–4 (for the UK, 134–5) see also Euro; Exchange Rate Mechanism European Single Market (1992–), 7, 25, 32, 40, 41, 90, 113, 139, 159, 181–3, 194, 195 competition policy, 83–6 ‘deficiencies’ of, 79–89 external protectionism, 86–8 harmonisation, 79–83 ‘has done more harm than good’, 89 origins, 75–9 ‘resounding success’, 75 ‘supply-side measure’, 77 ‘transformed into a uniform market’, 79 VAT, 88–9 European Social Model, 44, 69, 135, 163; ‘fatally flawed’, 6 European superstate (‘Federal Europe’/’Federal Union’/ ‘United States of Europe’), 5, 57, 61, 65, 123, 142, 175, 177, 178, 179, 180(n37), 204 advocated by Tietmeyer (10.1997), 173 American vision of, 122–3, 127–30 case against (1996), 147–61 ‘comprises nations, therefore doomed to failure’, 152 designed to preserve peace, 12, 13 German elite quest for, 2 German post-war guilt and, 202 Kohl/Mitterrand agenda, 22 ‘no redness or exit’, 156 origins, 166 planned (1950s) to become a third superpower, 166

Index

predicted by Neil Marten MP (1970), 25 Thatcher’s opposition to, 121 ‘threat to democracy’, 154–5 see also Bruges speech; Economic and Monetary Union; European integration; Federalism European System of Central Banks (ESCB), 92, 93 European Union (EU, 1993–), 11, 45, 47, 109, 111, 196 adhesion of CEE states to, 153 ‘anti-Americanism’ of, 68 any future treaty ‘must contain flexibility clause’ (Hague, 14.10.1999), 59 British delusions about, 49, 176–7 British electorate ‘does not want to be run by’ (Hague 7.1999), 59 ‘British problem’, 6, 7 budget, 6, 136–7, 195 ‘burden of membership’ of, 7 case for macroeconomic reform accepted, 4 Central and Eastern Europeans and, 7 ‘citizens’ of, 3 common language: absence of, 132 Conservative Party and, 11–26 ‘Core-Europe’ concept, 173–4 ‘customs union’ disadvantageous to UK interests, 122, 158–9 draft budget (2000), 57 different tradition of government compared with the UK, 155 ‘divergent economies’ of, 133 Dublin summit (1996), 134 ‘economic divergence’ (rather than convergence) in, 112–13

219

economic experiment (1995 evaluation), 75–107 economic success (or not), 147, 156–9 economy ‘not analogous to the American economy’, 133, 142 ‘embryonic federal state’, 2–3 enlargement, 43, 57, 59, 65, 199–200 ‘essentially autarchic’, 140 ‘Europeanisation’ of national political economy, 196 ‘ever-closer’, 2 ‘exchange rate monetarism’ in, 141 executive power in, 155 external trade policy, 187–8 federalist tendency, 7, 25 foreign direct investment, 141 Franco-German relations ‘motor’ (Vedrine, 11.1998) of, 177 funding of pensions, 136 government spending (percentage of GDP), 136 ‘implies Socialist projects which threaten the Thatcher legacy’, 24 ‘inability to copy best practice’ in world economy, 4 inflation, 4 institutional innovation, 2–3 integration and disintegration, 196, 199–200 ‘integrationist project’ (1990s) in, 1 interest rates and exchange rates, 141 Ireland’s ‘district’ status within, 197–8 ‘keeps TAFTA off the agenda’, 140 labour market, 4, 136 ‘likely to fall further behind North America’, 4

220

Index

European Union – continued ‘limits to political integration’ (Hague) of, 55–6 ‘Little Europe’ mentality, 157, 199 ‘low growth’, 1, 157 Major’s policy (1990–7) towards, 27–51 membership ‘incompatible with British interests’, 49, 67, 69, 70 missed opportunities, 118–19 ‘need for decentralisation of power’ in, 58 ‘need for reform’ (Blair) of, 163 Norwegian, Icelandic and Swiss model (of relations with EU), 7 non-wage costs, 44 ‘not democratically accountable’ (Portillo, 1.1998), 66–7 ‘not a genuine free-trade area’, 3 ‘not an optimal currency area’, 130–1, 134, 137 ‘perpetuating an economic division of Europe’ 118 output, 99 political elite, 1, 2 political institutions, 2 political integration, 7–8, 145–80 ‘potential superpower’, 8 press resistance (UK, 1992–3) to, 35 privatisation, 137 process of integration, 121–2 protectionism, 3–4, 114, 128–9, 140, 164, 186, 201 public opinion, 1, 5 pursues policies which the UK ‘did not design, cannot reform and ought not to endure’, 7, 25 pursuit of European identity, 140, 142 regional transfer payments, 192 relationship with CEE, 110, 113, 195

‘rigid labour market’, 132, 141 ‘rigid tax structure’, 133 ‘serious heavyweight criticism’ (1994) of, 38 ‘short-sighted policies’ of, 118 social funds, 192 ‘Social Model’ legislation, 69 suggested re-negotiation of UK relationship with, 24–5 summit agendas, 6 ‘superpower ambitions’, 3 Swann on the economics of, 194–5 tax harmonisation, 58, 138 tax regimes, 137–40 threat of globalisation to, 7–8 three suggestions for reform (vis-à-vis CEE), 113–18 trade policy, 140 trading surplus with UK, 69 ‘two-tier’ (proposed), 42, 199 ‘undemocratic’, 122, 175 unemployment, 1, 44, 99, [133–4] 157 VAT burden on small business sector, 138 welfare policy, 4 workability of single currency in, 131–4 see also European Communities Europeanism, 3, 140, 142, 203 Eurorealism, 75 Euroscepticism, 6, 48, 61 ‘Conservative instinct’, 48 Conservative Party conference (1992), 37 in France (1992), 5 Hague, 60 (‘works with grain of opinion’, 53) increase (1990s) of, 5 ‘internationalism not isolationism’, 156 Major’s ‘anxiety at the growth’ (1994) of, 39 party and press opinion (UK 1992–3), 35

Index

potential development in Central and Eastern Europe, 7 usually confined to fringe parties, 1 Eurosceptics, 30, 46, 47, 59, 60, 70, 129, 175–6, 203 on the ‘absurdities of harmonisation’, 81 appointed to Hague’s Shadow Cabinet, 55 Major ‘prepared to wage war’ (1992–3) on, 34 ‘occupy intellectual high ground’, 142–3 ‘opposed to monetary union on principle’, 123 Professor A.J.P. Taylor, 159–60 ‘win argument that European integration is damaging transatlantic partnership’, 142–3 ‘Eurosclerosis’, 81, 202 Eurotax (Italy), 125, 126 Eurozone, 7, 66 British economy ‘structurally incompatible’ (Maude, 2.1999) with, 66 Événements (5.1968), 167 Exchange Rate System, 191 Exchange rates, 32, 131, 133, 134, 180(n35), 191, 193, 197 fixed (1999) leading to the single currency (2002), 94 floating, 171, 191 Exchange Rate Mechanism (ERM), 27, 29, 32–3, 61, 99, 103, 124–5, 133, 171, 182, 197 bands, 36, 91–2, 94, 101, 125 British goals in joining (1990), 31–2 British lessons, 101 Clarke and Heseltine ‘favour early return’ to, 47 Deutschmark anchor of, 91–2 exit of pound sterling (9.1992) from, 35–6

221

fiasco, 54 meltdown (1992–3), 173 Maastricht convergence criteria, 92, 93 Mark II (1999), 94 ‘overvaluations’ in, 100 pound’s membership of, 31–2 ‘pound might replace Deutschmark as anchor currency’ (Major, 1992), 32 UK ‘liberation’ (9.1992) from 193 ‘Walters critique’, 195 see also European Single Currency Export: ‘essential for sustainable economic growth’, 114 Export agreements, 187 External shocks (1970s), 124 (1990s), 124–7 External tariffs and protectionism, 79 Fascism, 3, 13, 97, 109 ‘cause of World War Two’, 148 ‘no headway in Germany’ (post-1945), 149, 174 reason for immunity to, 155 ‘very short journey from the administrative state model’ to, 155 Federal Reserve (USA), 97, 98, 132, 141 Federalism Franco-German friendship and the destination of, 163–80 (conclusions, 176–9) ‘not a political doctrine of universal application’, 152 successful and unsuccessful examples, 151–2 see also European superstate Federation of Small Businesses, 61–2 Feldstein, Professor Martin (b 1939), 99–100, 130

222

Index

Ferry travel, 85 Fiat, subsidies to, 85–6 Fictional dialogue, 183–7 Financial services, 158, 182 Fiscal adjustment, 134 ‘dumping’, 136 expansion, 193 policy, 100; (UK), 134 transfers, 193 union: potential result of, 107(n53) Fischer, Joschka, (b 1948), 177 Fisher, Antony, 191 Fishing industry (British), 44 Five Essays on Philosophy (Mao, 1977), 198 Fixed exchange rates, 102–3, 191 Fleming, John, 185 Flight, Howard (b 1948), 55 Foreign direct investment (FDI), 85, 136, 141–2 Foreign exchange, 114, 115, 186 markets, 98, 101, 113, 158 operations, 93 reserves, 93 Forestry Race Law (Germany, 1934), 82 Forestry Reproductive Materials, European Commission directive (number 66/404), 82 ‘Fortress Europe’, 188 France, 61, 65, 122, 202, 204 blocks export of Nissan cars from the UK, 84 consumer debt, 107(n53) doubts about German unification, 180(n20) elite, 172, 173 Euroscepticism (1992), 5 experience of the ERM, 102 ‘federal EU’ tendency, 25 foreign direct investment, 85, 142 Gaullist years, 2 high levels of taxation, 143(n17)

‘lack of any liberal trade theory’, 188 monetary union, reasons for embracing, 172, 180(n18) motives for European integration, 200 non-wage costs, 44 objectives (1950s), 164–7 ‘pay-as-you-go’ pension schemes, 107(n53) ‘popular scepticism’ (1992), 2 referendum (1992), 2 Suez crisis (1956), 16 ‘Telecom pension arrangements fiddle’, 125 tradition of government, 155 ‘uses nuclear power’, 98 war with Germany, 12 working week, 4 Vichy regime, 148 see also de Gaulle France-Britain Association, 105(n14) Franco-German friendship, 2, 18–19, 42, 123, 163–80 (conclusions, 176–9) de Gaulle, Germany and Europe, 167–70 federal engine, 204 French policy (post-de Gaulle), 170–2 Germany policy, 172–6 objectives (1950s), 164–7 Frankfurt-am-Main, 192 Frankfurter, 204 Fraud, 5–6 Free Convertibility of Sterling (Winder, 1955), 191 Free-market economics (Anglo-Saxon), 68 economies, 109–10 ideology, 202 political economy, 189 radicalism, 190 tradition, 77 transformation, 191

Index

see also Anglo-Saxon free market model Free trade, 122, 134, 135 Atlantic to Urals, 109 UK need of, 23, 26(n12), 137 Free trade zones, 97, 100, 166 Fresh Start Group, 46 Friedman, Professor Milton (b 1912), 98, 130, 139, 190 Front National (France), 174 Frost, Gerald, 128 G7, 156, 183 Gaitskell, Hugh (1906–63), 18, 26(n5) Garel-Jones, Tristan (Lord GarelJones, b 1941), 45 Gasperi, Alcide de (1881–1954), 12, 166 GATT, see General Agreement on Tariffs and Trade Gaullism, 2, 5, 176 Gedmin, Jeffrey, 128 General Agreement on Tariffs and Trade (GATT), 12, 13, 86, 156, 183, 187–8, 195 ‘based on multilateral world trade’, 14 ‘UK need to be at the heart’ of, 23 Uruguay Round, 158, 188, 195, 202 Genocide, 148, 164 Georgakopoulos, Professor, 182 George, Sir Edward (‘Eddie’) (b 1938), 99, 103–4, 134 German National Party (banned, 6.1933), 149 Germany, 65, 107(n53), 122, 182–3 ‘anchor currency country’, 103 approach to ‘1992’, 182 brewing laws, 78 budgetary contribution, 179(n7) cause of war with France, 12 constitution (1949), 174

223

consumer debt, 107(n53) debt to GDP ratio, 125 ‘democratic and tolerant’ political culture (1945–), 175 division and occupation (1945–90) of, 149 (therefore incapable of starting a new war, 149) ‘economic clout’, 168 and economic divergence among EU countries, 113 economic effects of unification (1990), 100 ‘elite consensus favouring Euro’, 1 ‘engine of EEC economic growth’ (up to mid-1970s), 76 ‘federal EU’ tendency, 25 feminine-hygiene sector, 84 foreign direct investment (1992–4), 85 French attitude towards unification, 172 global trade profile, 135 ‘highly dependent on imported oil and gas’, 98 ‘impeccably democratic’ (1945–), 149–50 labour mobility, 132 ‘making a sacrifice laden with risk and possible tragedy’, 176 monetary history, 97 non-wage costs, 44 objectives (1950s), 164–7 ‘pay-as-you-go’ pension schemes, 107(n53) policies towards European integration, 172–6 political prisoners (of Hitler), 149 post-war guilt, 202 ‘proven record of low inflation’, 90–1

224

Index

Germany – continued public opinion, 5 re-unification (1990), [149–]150 sacrifices entailed by EMU, 174–5 ‘subsidises the CAP’, 167 successful example of federalism, 151–2 ‘tough negotiator’, 179(n7) tradition of government, 155 transfers of funds to poorer countries, 116 Wirtschaftswunder, 17 ‘working with UK to reduce European regulation’, 42 world’s second largest exporter, 113 Gillette, 84–5 Gingrich, Newton Leroy (b 1943), 140 Giscard d’Estaing, Valéry (b 1926), 171 Globalisation, 69, 178 EU ‘resistence’ to, 4 limiting factor on European integration, 7–8 welcomed by UK, feared by EU, 135, 142 Globalism, 122, 135, 142 Gold, 79 Gold standard, 101 Goods, 77, 80 Goods and services, 139 Gorbachev, Mikhail (b 1931), 150–1 Gove, Michael, 69 Government: ‘administrative state’ model, 155 Government spending: percentage of GDP, 136 Gowland, David and Stephen James (1991), 181–2 Great Society (LBJ) model, 184 Greece, 85, 91, 116–17, 148–9, 157, 165, 179(n7) Greenhill, Denis (Lord Greenhill, b 1913), 22

Greenspan, Alan (b 1926), 141, 180(n35) Growth, see Economic growth Gummer, John (b 1939), 45 Haddock, Bruce, 200 Hague, William (b 1961) ‘aversion to renegotiation’ (of British EU membership), 69 ballot of Conservative Party members, 62 ‘boldly pushed policy in Eurosceptical direction’, 65 ‘breaks with the policy of the Major years’, 60 Budapest speech (13.5.1999), 57–8, 69 champions new democracies of central Europe, 57 ‘eight reasons to keep the pound’ (7.1999), 62–3 European policy, 53–71 (conclusions, 64–70) Eurosceptic candidate for Conservative party leadership (1997), 54 Fontainebleau speech (5.1998), 62 ‘golden opportunity to embrace the policy of fundamental renegotiation, 70 ‘growing authority but no power’, 65 inadequacy of ‘in Europe, not run by Europe’ mantra, 67–8 ‘most Eurosceptical policy since 1990’, 59–60 overall European policy, 54–60 rejects tax harmonisation (1999), 58 single currency policy, 60–4 speech to Congress for Democracy Conference (7.1999), 58–9 Haider, Jörg (b 1950), 175

Index

Handbagging, 49 Harmonisation, 113, 136, 141, 159, 181 ‘absurdities’ of, 81 ‘Brussels principle of equal misery’ (Lord Young, 1994), 78 and the consumer (‘deficiency’ of the EC/EU), 79–83 ‘creates uniform market’, 83 defined, 78 ‘increases costs’, 83 same as ‘standardisation’, 78 see also Tax harmonisation Harris, Ralph, 190 Hartley, Professor Keith (b 1940), 181 Haughton, Jonathan, 197 Havel, Václav (b 1936), 150, 151, 153 Hawke, Professor Steve H., 131 Hayek, F.A. von (1899–1992), 190 Hayes, J.P., 187–8 Healey, Denis (Lord Healey, b 1917), 80 Health, 79; ‘harmonisation’ of, 78 ‘Heart of Europe’ strategy, 22, 32–3, 6, 49, 147, 163; what Major meant to say, 28–9 Heath, (Sir) Edward (b 1916), 18, 29–30, 34, 45, 123 defies whip, 54 ‘no objection’ to the Social Chapter, 30 ‘wrong to argue that EEC membership would be a great panacea for the British economy’, 23 Heath administration (1970–4) ‘disatrous’, 197 ‘errors’ of, 54 ‘sustained by the Opposition benches’, 34 ‘wretched failure’, 190 Heathcoat-Amory, David (b 1949), 47, 55

225

Heathites, 37 Hedge funds, 126 Heilbronner, Professor Robert (b 1919), 184 Herbal medicines, 82 Heseltine, Michael (b 1933), 18, 29, 45, 47, 65, 83 anticipates (1987) benefits of Single Market, 80 (1994 reality, 81) ‘powerful role in policymaking’, 51(n49) ‘publicly repudiated’ by Hague, 54 Heseltinies, 28 High technology, 8 Hill, Stephen, 28 Hine, Professor R.C., 187 Hitiris, Professor, 182 Hitler, Adolf (1889–1945), 12, 97, 109, 148, 160 bomb plot (7.1944) against, 149 ‘planned a European currency’, 89 Hodges, Michael, 182 see also Woolcock, Stephen Hogg, Douglas (b 1945), 46 Hogg, Sarah (Baroness Hogg, b 1946), 28 Holland, see Netherlands Holman, Otto, 196, 198–9 Holmes, Martin, 185 blunt warning to Hague, 70 ERM predictions (1990), 26(n11), 101 see also Sayings Home-owners (UK), 63 Horn, Dr Gyula (b 1932), 87, 114–15 House of Commons (UK) Gaitskell (1962), 26(n5) internal party dissent, 38 Sir Richard Nugent (1962), 21 rare opportunity to restrain executive, 34 ratification of Maastricht Treaty (1993), 11, 34, 35, 36

226

Index

House of Commons (UK) – continued Select Committee on Public Accounts, 88 Select Committee Report on VAT (1994), 138 Social Security Select Committee, 136 Housing market, 107(n53), 135–6 Howard, Michael (b 1941), 21, 55 Howe, Sir Geoffrey (Lord Howe, b 1926), 18, 29, 45, 191, 192 Hugenberg, 149 Hull, Cordell (1871–1955), 14, 203 Hungary, 116–17 ‘bold reformer’, 111 EU protectionism (1993) against, 87 ‘leading success story’, 7 radical reforms (communist era), 151 ‘spontaneous privatisation’ in, 111 ‘surprising performance’, 112 ‘tiger economy’, 157 Hurd, Douglas (Lord Hurd, b 1930), 29, 35, 39, 45, 65, 79 Hyper-inflation, 97 Iberian countries, 165 Iceland, 7, 198 Ideology, 142 ‘gets in the way of intelligent debate’ (EU), 140 IEA (Institute of Economic Affairs), 190, 191 IGC, see Intergovernmental Conference Iliescu, President Ion (b 1930), 185–6 I’m All Right Jack (film), 17 IMF (International Monetary Fund), 86, 111, 185 Imperial measures, 82–3 Import prices, 33 India, 152 Indirect taxation, 88–9, 138

Indonesia, 152 Inflation, 31, 32, 33, 63, 75, 76, 77, 88, 89, 90, 91, 97, 98, 102, 118, 133, 134 convergence criteria, 92 EU, 4 Germany, 174 Ireland, 197 Poland (1988), 111 post-oil crisis (1973–4), 76 USA, 141 Yugoslavia (1989), 111 INSEAD Business School (Fontainebleau): Hague’s policy pronouncement (5.1998) at, 55–6 Institute of Directors, 61–2 Institute of Economic Affairs (IEA), 190, 191 Institute of Export, 61–2 Insurance, 85 Integrating Southern Europe: EC Expansion and the Transnationalization of Spain (Holman, 1996), 196, 198–9 Interbank transactions, 95 Interest rates, 32, 44, 62–3, 99, 101, 102, 103, 107(n53), 137, 176, 193–4 Asia-Pacific, 193 control (projected European superstate) of, 156 EU, 193 Eurozone, 7 ‘one-size-fits-all’, 63, 134 potential loss of control over setting of, 104 raised to 15% on ‘White Wednesday’, 36 UK, 135 and unemployment (EC/EU), 157 USA, 193 Inter-Governmental Conference (IGC) (2000), 3 Inter-governmentalism, 68

Index

International currency dealers, 126 International Monetary Fund (IMF), 86 loans to Eastern and Central Europe, 111 ‘not a bastion of pure monetarist rectitude’, 185 Internationalism, 156 Investment, 44, 83, 113 Iowa, taxation in, 132 Iraq, 153 Ireland (Irish Republic), 96, 202, 204 agricultural competitiveness and rural development, 197 agricultural subsidies, 125 economy, 196, 197–8 EU subsidisation of, 198 experience of the ERM, 102 ‘final solution’ in, 39 global competition, 197 manufacturing, 197 net recipient country, 179(n7) ‘not as dynamic’ as some Eastern European economies, 112, 157 public opinion, 5 referendums, 5 ‘sceptical view of recent economic developments’, 119(n9) transfer of funds to, 116–17 unemployment, 197–8 Iron, 87 Islam, 148 Israel, 16 Italy, 61, 127, 178, 200, 202, 204 blocks export of Nissan cars from the UK, 84 debt to GDP ratio, 125 domestic political context, 6 foreign direct investment, 85, 142 labour mobility, 132 non-wage costs, 44

227

‘pay-as-you-go’ pension schemes, 107(n53) tradition of government, 155 under Mussolini, 148 James, Stephen, see Gowland, D. Japan, 97 growth rates, 76, 104(n1), 157 investment in the UK, 141 reaction to oil crisis (1973–4), 76–7 ‘single market, single currency’, 90 Jenkins, Ms Lindsay, 203–4 Johnson, President L.B. (1908–73), 184 Jones, Andrew M., 181 Joseph, Sir Keith (Lord Joseph, 1918–94), 54, 190 Kapteyn, Paul, 196, 201–2 Kavanagh, D., see Butler, D.E. Kellner, Peter, 11 Kennedy, President J.F. (1917–63), 13 Kennedy, Professor Paul M. (b 1945), 16 Keynes, John Maynard (Lord Keynes, 1883–1946), 14, 192 Keynesianism, 4, 189 Keynesians, 191, 192 Kinnock, Neil (b 1942), 30–1 Kissinger, Dr Henry (b 1923), 13, 123, 204 Klaus, Václav (b 1941), 87, 115, 130, 185 Kohl, Dr Helmut (b 1930), 1, 7, 22, 28, 51(n38), 65–6, 123, 172, 173 on the demise of the nationstate, 151 economic policies (12.1990 election), 100 ‘honest federalist’, 96 and Major, 42, 43 ‘more preoccupied by Brussels than Berlin’, 173

228

Index

Kohl, Dr Helmut – continued on the significance of Maastricht, 51(n38) Korea, Republic of, 114 Kuwait, 153 Laar, Mart (Prime Minister of Estonia, b 1960), 153 Labour, 77 Labour costs, 77, 129 Labour markets, 81, 131, 136, 164, 178 EU, 132–3, 141 rigidities, 4, 132, 141 Labour Party, 17–18, 34 under Blair, 24 ‘divided’ re the Maastricht Treaty, 30–1 ‘doubts about EEC entry hastens Conservative enthusiasm’ (1960s), 18 ‘ideological difficulties during the Bevanite era’, 38 left-wing of, 15, 18 policy re single currency, 62 renegotiation of 1974–75, 68 supports decision for pound sterling to join ERM (1990), 101 Labour Party conference (1997), 163 Labour politicians, 59, 68 Labour practices, 129 Labour spokesmen, 64 Laffer, Professor Arthur, 139 Lafontaine, Oskar (b 1943), 176, 177, 180(n35) Lamers, Karl, 173 Lamfalussy, Baron Alexandre (b 1929), 95 Lamont, Norman (Lord Lamont, b 1942), 11–12, 36, 47, 50(n8), 51(n52), 71(n28), 96, 125 Land distribution, 185 Latin America, UK links with, 170

Latvia, 112 Laughland, John, 203 Lawson, Dominic (b 1956), 51 (n44) Lawson, Nigel (Lord Lawson, b 1932), 32, 90, 191, 192 Left-wing, 18, 62 attitude towards super-powers, 13, 15 Leipziger Volkszeitung, 177 Lenin, V.I. (1870–1924), 148 Lettuces, 81–2 Liberal Party (UK), 101 Liberal Democrats (UK), 34, 59, 62, 64, 68 Lilley, Peter (b 1943), 55, 64, 65–6 Lithuania, 112, 185 ‘Little Europe’ mentality, 157, 199 Living standards, 4, 112 Louis XIV (r. 1643–1715), 155 Ludwig, King (of Bavaria), 152 Luxembourg, 125 Maastricht convergence criteria, 39, 43, 46–7, 50(n32), 60, 91, 92, 93, 94, 103, 113, 124–5, 130, 174, 193 ignored, 125 Major (1994) on, 41 Spain, 199 Maastricht Treaty (1991–3), 22, 29, 60, 65, 68, 89, 92–6, 97, 98, 113, 123, 124, 127, 130, 151, 172, 175, 192, 193 Article 3(A), 92 Article 102(3), 93 Article 103(1), 93 Article 103(4), 93 Article 104c, 125 Article 105(2), 93 Article 105(4), 93 Article 107, 92–3 Article 108(1), 93 Article 108(3), 93 Article 109a, 98

Index

back-bench opposition (UK) to, 46 British opt-out, need for activation of, 104 British political parties internally divided on, 30–1 ‘Cohesion Policy’, 115–17 ‘combined twin objectives of monetary union and political union’, 70 Conservative options (as at 1994) re, 24–5 Danish referendums (1992–3), 1–2, 3, 5 ‘Delors Report [1989] model’, 92, 106(n30) and the downfall (1997) of Major, 49 economic arrangements for monetary union under, 41 and economic deterioration in Spain (1991–), 198 ERM features ‘with almost theological prominence’ in, 36 ‘Euro stems from’, 70 extension of QMV, 3 ‘highly corrosive issue’ for the Conservative Party, 46 ‘lays the basis for political union in Europe’ (Kohl), 51(n38) made a motion of confidence (UK), 34 Major’s loyalty to, 37 Major’s ‘three opportunities’ (6.1992, 9.1992, 10.1992) to abandon, 34–7 negotiations, 28, 33 Protocol 5, 125 ratification, 11, 27, 31, 33–4, 40, 54 (Conservative rebels against the Second Reading, 46) ‘second attempt to bring about monetary union within EC’, 89

229

signed in December 1991, ratified November 1993, 92 Social Chapter, 4, 30, 44, 57 (UK opt-out, 24, 30, 42) ‘threat to democracy’, 154–5, 161(n10) ‘treaty too far’, 30 see also QMV McAleese, Dermot, 197 McDonnell, Douglas, 128 Macedonia, 112, 185 Macmillan, Harold (Lord Stockton, 1894–1986), 123, 204 ‘delusions’ of, 18–19, 20–1, 23, 161n ignores de Gaulle’s rationale, 20–1, 169–70 ‘not prepared to tackle forces of socialism’, 17 ‘regulated, welfarist middle way’ favoured by, 184 U-turn re membership of the EEC (early 1960s), 15–19 Macro-economic stabilisation (CEE), 111, 119(n5) Macroeconomics, 157–8, 193 Mad Officials (Booker and North, 1994), 81 Madrid summit (EC, 12.1995), 94 Maginot Line: single currency ‘an economic version’ of, 129 Mainstream organisation (11.1997–), 60 Major John (b 1943), 39, 50(n8), 103, 163, 192 ambiguity of, 29 anonymity of Cabinet of, 38 ‘attacks concept of federal Europe’, 42 ‘castigates tax harmonisation folly’ (1998), 136 as Chancellor, 32 character (as politician), 47–8 ‘compromise candidate’ (for Party leadership, 1990), 27–8

230

Index

Major John – continued ‘defied public opinion’ (1990–7), 48 ‘delusions’ about Europe, 22 did not rule out UK membership of EMU Stage III, 63 downfall (1997), 48, 49 ‘Euroenthusiast when it mattered’, 37, 45 ‘eight Eurosceptical pronouncements’ (1993–7), 40–5 European policy (1990–7), 27–51 (conclusions, 45–9; ‘unequivocal failure’, 49) ‘fails to take arguments to logical conclusion’, 44 ‘golden opportunity to reassess UK relationship with EU’, 24–5 ‘growing disillusionment with EU’, 6 ‘hard ecu’ plan (1990), 46, 91, 95 ‘industrial language’, 50(n11) interpretation of Thatcherite legacy, 51(n59) interview with Der Spiegel (25.4.1994), 94 ‘lacked coherent European strategy’, 30 missed opportunities, 34–7, 47, 49 opts out of the Social Chapter (Maastricht Treaty), 24 party conference speech (1991), 29 party management, 27, 30–1, 34, 37–8, 45–6, 51(n47), 54 ‘power but no authority’, 65 ‘Prime Minister of Maastricht’, 49 ‘refused to consider European issues from first principles’, 47 ‘respect for Delors as an economist’, 31

‘should have ruled out UK participation in European single currency for the duration of his premiership’, 47 speech at Leiden (7.9.1994), 42 speech at the Ritz hotel (7.12.1994), 38–9 speech (27.7.1994) on the tide of European regulation, 42 ‘unable to unite the Conservative Party on Europe’, 53 unwilling to renegotiate British relationship with the EU, 70 ‘wait and see’ (‘negotiate and decide’), 45, 47, 49, 51(n44), 60 (‘bunker’, 45) see also ‘Heart of Europe’ strategy Major administration (1990–7), 137 ‘Compromise Mark I’ era (1990–2), 27, 27–31 ‘Compromise Mark II’ era (1993–7), 27, 37–45 ‘Euro-enthusiasm’ era (4.1992–9.1993), 27, 31–7 ‘sustained by the Opposition benches’, 34 three phases (1990–7), 27, 54 Making Trade Policy in the European Community (Hayes, 1993), 187–8 Malaysia, 152 Managerial class, 110 Managing the British Economy in the 1960s: A Treasury Perspective (Cairncross, 1996), 196–7 Manchester: urban case study, 192 Mandelson, Peter (b 1953), 64 Mao Tse Tung (1893–1976), 198 Maples, John (b 1943), 59

Index

Market, 4; power of, 36 Marketing, 110, 187 Markets, 131, 142, 183 liberalisation (USA) of, 140 Marsh, David, 172 Marten, Neil, 25 Martino, Antonio, 182 Marx, Karl (1818–83), 4, 148, 166 Marxism, 111, 167 Marxist jargon, 198 Matthews, Alan, 197 Maude, Francis (b 1953), 66 Mayhew, Sir Patrick (b 1929), 39 Measures to Encourage the Development of the European Audio Visual Industry (EC, 1994), 106(n21) Meat production, 82 Melville-Ross, Tim, 107(n53) Mercantilism, 4, 12, 13, 135, 140, 143, 195 Mercedes, 186 Mergers, 182 Microeconomics, 192–3, 194 Miert, Karel van (b 1942), 128 Milk products, 82 Minford, Professor Patrick (b 1943), 192 Minimum wages, 131 Mitbestimmung (shared management), 183 Mitterrand, François (1916–96), 1, 22, 172, 202 Major ‘on collision course’ (1994) with, 43 ‘regulated, welfarist middle way’ favoured by, 184 rejects views of Major, 42 Monetarism, 141 Monetarists, 191–2 Monetary discipline, 4, 31 Monetary policy, 32, 77, 98, 134, 194 Monetary union, see Single currency

231

Monnet, Jean (1888–1979), 7, 12, 13, 56, 150, 166, 176 Monopoly power, 185 Mont Pelerin Society (1947–), 190 Monti, Mario (Tax Commissioner), 136 Montpellier: urban case study, 192 Mortgage interest rates, 135–6 Mortgages (UK), 63 MPR, see Mutual product recognition Multinational companies, 111, 142 prefer the USA rather than EC, 85 Mundell, Professor Robert (b 1932), 139–40 Murdoch, Rupert (b 1931), 35 Mussolini, Benito (1883–1945), 155 Mutton and lamb, 80 Mutual product recognition (MPR), 77–8, 79 Mutually assured destruction, 150 NAFTA, see North American Free Trade Area Napoleon, 89 Nation-state, 42, 43, 45, 51(n38), 63 ‘cannot solve problems of twenty-first century’ (Kohl, 2.1996), 173 ‘cause of war’, 12–13 distinction between ‘state’ and ‘nation’, 152 key component of the independence of a, 58 ‘no desire to return’ (Kohl, 2.1996) to, 173 ‘not an outmoded concept’ (Hague), 56, 58 ‘obsolete’, 147, 151–6 threat of a European superstate to, 121–2

232

Index

Nation-state – continued upheld by Major, 42 see also Bruges speech National champions, 181 National Socialism, 13–14, 148, 160 National sovereignty, 153 Nationalisation, 18, 23 Nationalism, 147–9 NATO, see North Atlantic Treaty Organisation Nazism, 13–14, 148, 160 Nebraska: taxation in, 132 ‘Neo-functionalism’, 176 Netherlands, 113, 116, 202 Neues Forum (East Germany), 151 New Labour, 163 New technology, 4 New York, 127 New York State: taxation in, 132 New Yorker, 44–5 News of the World, 35 Nigeria, 152 Nissan, 84 Nobel Peace Prize, ‘won by Walesa, not by a European Commissioner’, 151 Nölling, Professor Wilhelm, 133 Non-tariff barriers, 77, 78, 86, 114 North, R., see Booker, C. North America, 178 foreign direct investment, 141 implications of European monetary union, 121–44 living standards, 4 no equivalent to VAT, 88 North American Free Trade Area (NAFTA), 140 no plans for a single currency in, 96–7 North Atlantic Treaty Organisation (NATO, 1949–), 13, 14–15, 40, 121, 122, 150, 156, 170, 176, 204 North Sea oil, 98, 158 Norway, 7, 149, 198

Nuclear terror, 150 Nuclear weapons, 14 Nugent, Sir Richard (Lord Nugent, 1907–94), 21 ‘Number two’ syndrome, 171 Nuremberg trials, 148 Oak trees, 82 OECD (Organisation for Economic Cooperation and Development), 85, 141–2, 198 O’Hagan, J.W., 196, 197–8 Oil crisis (1973–4), 75, 76, 89, 124 Oil prices, 98 Old-age pensions, 159 Olson, M., 202 Omnibuses, 81 O’Neill, Michael (Nottingham Trent University), 196, 201 OPEC (Organisation of PetroleumExporting Countries), 76 Optimal currency area, 130–1, 132, 137 Organisation for Economic Cooperation and Development (OECD), 85, 141–2, 198 Ostpolitik, 172 O’Sullivan, Mary, 197 Ottawa conference (1932), 14 Owen, Lord (b 1938), 177 Oxley, Alan, 188 Paisley South by-election (1997), 55 Palmerio, Giovanni, 182 Parallel currency model (Lawson, 1989), 90 Paris-Bonn friendship, 2, 164 Parliament (UK), 30 ‘steady transfer’ of powers to Brussels, 22 threat to sovereignty of, 18, 25, 63 see also House of Commons

Index

Patten, Christopher (b 1944), 190 Penguin Books, 194 Pensions, 4, 107(n53), 111, 131, 136 Philips: subsidies to, 85–6 Pit closures, 38, 47 Pöhl, Karl-Otto (b 1929), 95 ‘Poisoned Chalice’ (BBC2 programme, 30/5/1996), 35 Poland, 116–17, 148, 185 belief in nation-state, 153 ‘bold reformer’, 111 EU protectionism against, 87, 186 inflation (1988), 111 ‘leading success story’, 7 support for privatisation of health care, 184 ‘surprising performance’, 112 ‘tiger economy’, 157 Politeia (‘think-tank’), 58 Politics of European Integration: A Reader (O’Neill, 1996), 196, 201 ‘Poll tax’ (UK), 190 Pompidou, Georges (1911–74), 170–1 Ponting, Clive, 200 Pork-barrel politics, 116–17 Portes, Professor Richard (b 1941), 127 Portillo, Michael (b 1953), 64, 66 Portugal, 102, 112, 116–17, 125, 157, 179(n7), 202 Post Office privatisation, 38 Post-communist parties, 119(n5) Pound (sterling), 29, 32, 33, 47, 66, 68, 90, 96, 118, 191 arguments for retaining, 69 Conservative opposition to scrapping of, 62 and ERM (1990–2), 35–6, 101, 171 Hague’s policy, 59, 60, 62–3 ‘moves in line with US dollar rather than with EU currencies’, 135

233

‘petro-currency’, 137 ‘wait and see’ approach ditched, 60 Powell, Sir Charles (b 1941), 48 PPP (Purchasing Power Parity), 112, 157 Prices, 130–1 Privatisation, 17, 110–11, 137, 184, 185–6 Pro-Euro Conservative Party, 68 Procter & Gamble, 83–4 Prodi, Romano (b 1939), 6, 57, 59 Protectionism, 86–8, 105–6(n21), 140, 188 British Empire, 14 EC/EU, 3–4, 86–8, 114, 140, 158, 182, 201 USA, 14 Public opinion continental, 43 re EU’s ‘glaring budgetary imperfections’, 6 Germany, 5 ‘hostile to EU integrationist project’ (1990s), 1 Ireland, 5 Sweden, 5 UK, 6, 48, 51(n55) see also Elections; Referendums Public procurement, 182 Public purchasing, 181 Purchasing Power Parity (PPP), 112, 157 QMV (Qualified majority voting), 3, 7, 59, 68, 93, 154–5, 161(n10) ‘attempt to circumvent’ British opt-out of Social Chapter, 24 Quantitative controls, 187 Reading University: Trade Policy Research Centre, 187 Reagan, Ronald (b 1911), 35, 150, 151, 171

234

Index

Redwood, John (b 1951), 41, 47, 55, 71(n28) Reed, Bruce, see Barber, James Referendums advocated by Hague on the Amsterdam Treaty, 54 of British people re membership of European Single Currency, 39–40 Denmark (6.1992, 5.1993), 1–2, 34–5, 124, 173 France (9.1992), 2, 5 Ireland, 5 UK (1975), 6, 102, 124 see also Public opinion Reflation, 76 Regional policy (EU), 115, 193, 194 Regulation (red tape), 23, 24, 41–2, 44, 62, 63, 81, 138, 159, 164 EU, 141 of small businesses (EU), 4 ‘standardisation’, 42 VAT, 88–9 Regulation 950349, 105(n21) Renault, subsidies to, [85–]86 Retailing: European Commission regulations, 82, 105(n14) ‘Rhineland’ version of capitalism, 44, 142, 178 Ricardo, David (1772–1823), 115, 135, 167 Riddell, Peter (b 1948), 34 Rigidities, 131 of economic thought, 3 labour market (EU), 4 ‘rigid labour market’, 132, 141 ‘rigid tax structure’, 133 VAT, 138 Robbins, Lionel (Lord Robbins, 1898–1984), 192 Roman Empire, 59, 89 Romania, 87, 112, 156, 185–6 Roosevelt, F.D. (1882–1945), 194 Rotterdam: urban case study, 192

Rubin, Robert (b 1938), 180(n35) Rule of law, 125, 139 Russia, 112, 200; ‘Mother Russia’, 148, 168 Russian Orthodox Church, 148 Saarland, 177 Safety, 78, 79 Samuelson, Robert, 129 Santer, Jacques (b 1937), 57, 180(n37) Sayings ‘Europe from the Atlantic to the Urals’ (de Gaulle), 109 ‘if goods cannot cross borders, armies will’, 14 ‘internationalism not isolationism’ (Eurosceptic watchword), 156 ‘No! No! No!’ (Thatcher), 48–9, 53 ‘the option of [the UK] leaving the EU is as necessary as it is unlikely’ (Holmes), 204 ‘a strong currency is the result of a strong economy, and not the other way round’ (Holmes), 101–2, 141 ‘Third Way leads to Third World’ (Klaus), 185 ‘treaty too far’ (Thatcher), 30 ‘we [UK] are with Europe but not of it’ (Churchill, 1953), 15 ‘we [UK] can survive within it [the EU], but we would prosper outside it’ (Holmes), 159 ‘We [UK] want to be in Europe but not run by Europe’ (Conservative Party manifesto, 1997), 45, 57, 65, 68 (‘meaningless piety’, 70) ‘We should live under the laws made by our own parliament, and no other laws’ (Holmes), 154

Index

Scandinavia, 113, 155 Schäuble, Dr Wolfgang (b 1942), 173 Schengen Treaty (1995–), 201–2 Schlesinger, Dr Helmut (b 1924), 96–7 Schmidt, Helmut (b 1918), 171, 172 Schreiber, Kristin, 182 see also Woolcock, Stephen Schroeder, Gerhard (b 1944), 176–7, 179(n7) Schuman, Robert (1886–1963), 12, 166 Schwartz, Anna, 98 Schwartz, Professor Pedro, 100–1 Seldon, Dr Anthony (b 1953), 28 Seldon, Arthur, 190 Sellers, Peter (1925–80), 16 Selsdon Group, 51(n52) Shadow Cabinet (Hague era), 61, 64 Sherman, Sir Alfred, 190 Shocks, 133 Shore, Peter (Lord Shore, b 1924), 80 Silguy, Yves-Thibault de (b 1948), 58, 95, 136 Silver, 89 Single European Act, 60, 68, 78, 151 Single European Currency, see Euro; European Single Currency Single Market, see European single market Sked, A. and C. Cook (1993), 95 Slaughterhouses, 82 Sleaze, 5–6 Slovakia, 87, 112 Slovenia, 7, 112 Small business, 4, 88, 110, 138 Smith, Adam (1723–90), 135, 167 Smith, David (b 1954), 47 Smoot-Hawley Act (USA, 1930), 14, 140

235

Social Chapter (Maastricht Treaty), 4, 57 attacked by Major (Brussels, 2.1997), 44 British exemption from, 24, 30, 42 ‘Marxist’, 30 Social Democrats Germany (1930s), 149 Germany (1950s–), 19 ‘Social dumping’, 4 Social engineering, 3, 86 Social Policy (EU), 194 Social security entitlements, 131 Socialism: Conservative fear of, 17–19, 23–4 Society of Conservative Lawyers, 17 Solidarity (Poland), 151 Soros, George (b 1930), 126 South-East Asia, 168 Southern Europe, 113 entrepreneurial spirit ‘sapped’ in, 116 Southern Italy, 112, 116 Sovereignty: ‘ability to make your own choices’ (Hague, 7.1999), 62–3 Soviet Central Asia, 148 Soviet system, 150–1 Soviet Union (Union of Soviet Socialist Republics, 1922–91), 113, 204 de Gaulle’s visit (1966) to, 168 deterrence of, 150 EEC a potential rival to, 26(n5) fate of businessmen in, 110 ‘formidable military threat’, 15 ‘likely model for any European superstate’, 152–3 ‘Mother Russia’, 148, 168 NATO deterrence of, 14 patriotism (World War Two) in, 148 ‘still much to do’ (postcommunist economic reform), 112

236

Index

Soviet Union – continued Suez crisis (1956), 16 super-power, 13 unsuccessful example of federalism, 152 Spaak, Paul Henri (1899–1972), 166 Spain, 61 debt to GDP ratio, 125 EU fiscal transfers to, 198 experience of the ERM, 102 net recipient country, 179(n7) ‘not as dynamic’ as some Eastern European economies, 112, 157 ‘rapid deterioration of the economy’ (1991–), 198–9 transfer of funds to, 116–17 transnationalization of, 196, 198–9, 202 Spectator, 35 Spicer, (Sir) Michael (b 1943), 58 Spiegel, Eurosceptic pronouncement by John Major (25.4.1994) in, 41 Spinelli, Altiero, 166, 203 Stability, 45 Stability pact fines, 134 Standardisation, see harmonisation Stateless Market: The European Dilemma of Integration and Civilization (Kapteyn, 1996), 196, 201–2 Statist intervention, 189 Steel, 17, 85–6, 87, 114, 186; see also ECSC Stelzer, Irwin, 128 Stephens, Philip, 36 Stock exchange, 158 Stock market returns: divergence within the EU (1990s), 113 Stoiber, Dr Edmund (b 1941) 174 Strauss Kahn, Dominique (b 1949), 180(n34) Subsidiarity concept, 37

Subsidies ailing industries, 131 concealed, 139 ‘industry policy’ network of, 77 Treaty of Rome rules on, 18 Suchocka, H. (b 1946), 186 Suez crisis (1956), 16 Sun, 35, 48 Sunday Express, 82 Sunday Telegraph, 28, 35 Sunday Times, 11, 35, 47, 106(n21), 128 Superpowes, 12–13 EEC as a potential rival to, 26(n5) Europe a pawn (1950s) of, 166 need for Europe to stand up to, 168–9 spheres of influence, 13 Supranational bodies, 3 Supranationalism, 2, 68, 171 Swann, Dennis, 194–5 Sweden, 5, 202 Switzerland, 7, 155, 198 Symes, Dr Valerie, 192–4 TAFTA, see Transatlantic Free Trade Area Tariffs, 69, 86, 114, 166, 186 Bretton Woods conference, 14 EEC, 12 on Nissan cars made in the UK, 84 Tax competition, 138 reform, 140 regimes, 137–40, 141 structures, 140 Tax harmonisation (EU), 58, 63, 66, 136, 138, 139–40 ‘biggest threat for lasting prosperity’ (Lafter, 1998), 139 ‘euphemism for collusion’ (Lafter, 1998), 139 rejected by Hague, 58, 62 see also Harmonisation

Index

Taxation, 61, 107(n53), 129, 131, 134, 136, 156, 181 Taylor, A.J.P. (1906–90), 159–60 Taylor, Ian (b 1945), 55 Taylor, Richard, see Bideleux, Robert Tebbit, Norman (Lord Tebbit, b 1931), Eurosceptic (1992), 37 Technical barriers, 80 Technical standards, 182 Telecommunications, 85, 182 Television sets, 80 Temple-Morris, Peter (b 1938), 61 Texas, taxation in, 132 Textiles, 114, 140, 186 EC/EU protectionism, 86, 87, 114 Thatcher, Margaret (b 1925), 35, 48–9, 53, 78, 121, 171, 191, 192, 202 champions new democracies of central Europe, 57 confronts Socialism, 17, 23–4 (‘legacy threatened by Socialist EU’, 24) de Gaulle’s ‘similarities’ with, 168 ending of the Cold War, 150, 151 ‘growing disillusionment with EC’, 6 hostile (1990) to EMU, 120(n22) intellectual origin of downfall, 191 lower taxation policies, 136 memoirs, 30 on Major’s belief in the ERM, 32 objects to Delors Report (1989), 95 ‘open hostility’ to Europe, 29 opposition to Brussels, 168 ‘political weakness’ allowed British entry into the ERM (1990), 33

237

‘publicly endorsed Hague’s policy’ (8.1999), 67 rejects (1988) Delors Plan for Monetary Union, 6 reservations about German unification, 172 ‘stayed silent’ on Maastricht, 30 unable to renegotiate British relationship with the EU, 70 see also Bruges speech; Sayings Thatcherism, 136, 137, 178, 189, 191, 202 Thatcherite legacy, 24, 51(n59) Thatcherites, 28, 30, 37 Think-tanks, 189–92 Thinking the Unthinkable: ThinkTanks and the Economic Counter-Revolution, 1931–83 (Cockett, 1994), 189–92 Third Reich (Hitlerzeit), 82, 148, 155, 164, 165, 172 Third World, 140 Thirlwall, Professor Anthony, 134 Thompson Bull, subsidies to, 85–6 Tietmeyer, Dr Hans (b 1931), 102–3, 173 Tiger economies, 76–7 Asia, 114, 157 Eastern Europe, 112, 157 Times, 35, 59, 105(n21), 107(n53) article by Blair (12.1998) in, 163 Times Higher Education Supplement, 101 Tito (Josip Broz, 1892–1980), 152, 185 Toniolo, Gianni, see Crafts, N. Tourism, 158 Tourists, 90 Toys, 105–6(n21) Tractors, 80 Trade, 196 Trade barriers, 85, 188

238

Index

Trade – continued issues, 186 liberalisation, 188 policy, 188 see also Tariffs Trade unions ‘Scargill-style’, 132 support decision for pound sterling to join ERM (1990), 101 Thatcher reforms, 183 ‘undiluted power’ (continental) of, 4 Transaction costs, 90 Transatlantic cooperation: adverse effects on, 130–43 Transatlantic Free Trade Area (TAFTA): proposed, 140 Travellers, 90 Treaty of Rome (1957), 15, 40, 60, 80, 123, 166, 171, 175 Article 110, 120(n19), 188 ‘capitalist club’, 18 ‘consequence (rather than cause) of peace’, 150 promotion of external free trade, 120(n19) Truman, Harry (1884–1972), 122 Tugendhat, Lord (b 1937), 78 UKIP, see United Kingdom Independence Party Ulster Unionists, 34 UNCTAD (United Nations Commission for Trade and Development), 86–7 Unemployment, 61, 63, 89, 99, 101, 129, 130, 133, 171, 185, 193, 195 ‘caused by red tape’, 62 eastern Germany, 100 EU, 1, 44, [133–]134, 157, 192–4 Ireland, 197–8 OECD countries, 198 post-oil crisis (1973–4), 76 Spain, 198–9

structural, 104 UK, 23 USA, 141 see also Employment Unemployment benefits, 131 Unemployment in Europe: Problems and Policies (Symes, 1995), 192–4 United Kingdom (UK), 107(n53), 182–3, 202 agriculture, 137 ‘already run by Europe’, 68 application (1961) to join the EEC, 15–16 approach to ‘1992’, 182 attitude towards privatisation of health care, 184 balance of payments, 158, 197 (deficit with EU, surplus with rest of world, 135) bargaining cards with Europe, 69 budgetary contributions to EC/ EU, 69, 75, 159 business cycle, 135 ‘consumer-led affluence and social stability’ (post-1951), 17 ‘currency debauched stagflation’, 197 defence consensus (post-1945), 14–15 delusions about Europe, 204 deregulation, 137 ‘differs profoundly from Europe’ (de Gaulle), 1.1963), 169 devaluation (1967), 197 and economic divergence among EU countries, 113 ‘economic drawbacks’ of EEC membership, 22–3 economic problems (1950s, 1960s), 17 economy (1960s), 196–7 economy ‘complementary to, and dissimilar from, continental economies’, 137 economy ‘fundamentally

Index

different from continental economies’, 134 EEC leadership ambitions (1960s), 16 EEC membership encouraged by the USA, 123 effect of common policies, 136–7 ‘Europe’s only oil exporter’, 65 and European integration, 9–71 Europhile pledges (1975), 6 Eurosceptic support for de Gaulle’s 1963 analysis, 19–20 export destinations, 23 export industries, 158 ‘exports higher percentage of GDP than Japan’, 159 fixed exchange rate regime, 191 food prices, 23 foreign direct investment, 85, 141, 142 French companies switch to, 143(n17) funding of pensions, 136 global (rather than European) interests of, 158 global trade and export opportunities, 26(n11) government spending (percentage of GDP), 136 ‘growing disillusionment with EC/EU’ of successive Prime Ministers (1976–), 6–7 ‘held hostage’, 203–4 ‘holds back’ EU federal ambitions, 7 housing market, 107(n53), 135 ‘incapable of changing the EU from within’, 49 industrial relations, 17 ‘irreconcilable differences with the continent’, 69 labour market, 136 ‘least enthusiastic participant in move towards federation’, 6 ‘liked post-war international

239

economic settlement’, 14 loss of parliamentary selfgovernance, 75 low level of taxes (by 1997) in, 58 lower taxes than in France, 143(n17) manufacturing industry, 86 marginalised by Franco-German friendship, 176–9 (opposing view, 180 n36) National Government (1931–), 194 nationalised industries, 17 nature of economy, 158, 170 ‘needs free trade’, 137 Nissan factory, 84 non-wage costs, 44 Norwegian, Icelandic and Swiss model (of relations with EU), 7 options open to, 7 Ottawa conference (1932), 14 ‘ought not to endure’ EU policies, 7 ‘parliamentarist tradition of government’, 155 pensions, 107(n53) political and economic tradition, ‘cannot be reconciled’ with EEC, 20 ‘political wind blows from the left’ (1960s), 17–18 position reserved on EMU Stage III, 43 privatisation, 137 public opinion, 6 public spending (1979–91), 190 Rebate Agreement (with EC, 1984), 23 recession (1991–2), 23, 31 renegotiation [of EU membership] ‘merely a codeword for withdrawal’, 68 ‘should reject single currency indefinitely’, 135

240

Index

United Kingdom (UK) – continued ‘should withdraw from EU rather than acquiesce in superstate’, 25 ‘similarities’ with US economy, 137 and the Single Market, 75 ‘sixth largest economy in the world’ (1999), 62 (‘fourth largest’, 69) Stage III opt-out (Maastricht Treaty), 29 state sector, 190 ‘steadily outsmarted’ (1972–92), 22 ‘structural economic decline’ (1950s), 17 taxation as proportion of GDP, 136 ten objections to EMU, 135–7 ‘threat to sovereignty’ of, 22 ‘time running out’ for, 25 trade of, 65 trade and investment pattern, 135 transfers of funds to poorer countries, 116 unemployment, 193 US nuclear weapons stationed in, 14 ‘well suited to meet challenges of globalisation’, 69 ‘withdrawal from EU, only way to avoid inclusion in superstate’, 179 workability of single currency for, 134–7 ‘would have prospered far more outside EEC’, 23, 26(n13) would not join a federalist Europe, 43–4 see also Elections United Kingdom Independence Party (UKIP), 68 United Kingdom Treasury (1960s), 196–7 United Nations, 16, 156

United States of America (USA), 97, 114, 170, 193, 194 ‘changing opinion’ (re European integration) in, 127–30 creation of new jobs in, 44 danger of return to isolationism, 14 ‘devises Western European security policy’, 13 EC/EU a potential rival to, 3, 26(n5) EC/EU protectionism against, 86, 128–9 faster economic growth than the EU (1985–), 157 ‘favour Atlanticist EC’, 123 foreign direct investment (1992–4), 85, 141–2 growth rates, 76, 104(n1) ‘globalistic trading policy’, 203 government spending (percentage of GDP), 136 interest rates and exchange rates, 141 investment in the EC, 83 investment in the UK, 141 labour mobility (mid-1980s), 132 liberalism, 187–8 needed as a close ally by Western Europe, 14 ‘no equivalent’ of VAT in, 138 ‘no inter-state tax harmonisation’ in, 138 not converging with the EU economy, 142 ‘opposes customs union/ regional bloc approach’ (post-1945), 14 ‘outperforms EU’, 131 ‘petty offender’ (protectionism), 186 ‘proper debate about European integration’ in, 129–30 reaction to oil crisis (1973–4), 76

Index

role in European integration, 203–4 (delusions about, 204) ‘single market, single currency’, 90 small business sector, 138 successful example of federalism, 151–2 and Suez crisis (1956), 16 super-power, 13 supports post-war European integration, 122 taxation in, 132, 137–40 textile lobby (South Carolina), 186 trade policy, 140 UK economic similarities with, 137 UK membership of EMU ‘not in interest’ of, 137 UK ‘special relationship’ with, 156 unemployment, 99, 157 world’s largest exporter, 113 see also NAFTA; North America United States of Europe, see ‘European superstate’ Urban case studies, 192 Uruguay Round, see GATT USSR, see Soviet Union VAT, 38, 79, 133, 158, 159, 190–1 on art imports (into the UK), 57 ‘crushing burden on small businesses’, 138 ‘deficiency’ of the EC, 88–9 ‘no equivalent’ of the EC, 88–9 ‘no equivalent’ in the USA or Asia-Pacific, 138 ‘raises revenue at the expense of economic growth’, 138 Vedrine, Hubert (b 1947), 177 VERs, see Voluntary export restraints Versailles meeting of European finance ministers (4.1995), 93 Veto (national), 7, 30, 43 see also de Gaulle

241

Vienna Summit (1998), 179(n7) Voluntary export restraints (VERs), 84 Wage inflation, 33 Wages, 44, 104, 130–1, 158 eastern Germany, 100 Walesa, Lech (b 1943), 118–19, 151 Wall Street, 174 Wall Street Crash (1929), 98 Wall Street Journal, 84 Wall Street Journal – Europe, 128 Wallace, William, 35 Walters, Sir Alan (b 1926), 103, 192; critique of ERM, 195 War causes of, 12 elimination of, 32–3 ‘European integration has prevented’, 147–51 (conclusions, 159–60) Franco-German (1870), 147–8 World War One (1914–18), 147–8 World War Two (1939–45), 147–8, 159–60; lessons of, 12–14 see also Cold War Warsaw Pact (1955–91), 113, 176 Warsaw Uprising (1944), 148 Washington Post, 129 Weimar Republic (1919–33), 174 Welfare budgets, 158 dependency (S Europe), 116 expenditure, 77 payments (CEE), 111 policy, 4 programmes, 129 provision, 76 Welfare capitalism (continental model), 75 Welfare State, 129, 160, 190 Werner Report (1970), 89, 124, 174 see also Delors Report

242

Index

West Germany, 202 Westminster Eight, 53 Where There’s a Will (Heseltine, 1987), 80 Whisky, 82 White, Harry Dexter, 14 ‘White Wednesday’ (16.9.1992), 23, 35, 36, 133; same as ‘Black Wednesday’, 36, 61 Wilson, Harold (Lord Wilson of Rievaulx, 1916–95), 17, 45, 48, 123 on ‘too much talk about harmonisation’ (1974), 79–80 ‘treated European issue as a function of party management’, 45 ‘worked with the grain of the British people’ (early 1970s), 48 Wilson administrations (1964–70), British economy under, 197

Wilson administration (1974–6), 102, 204 renegotiation of terms of EEC entry, 124 Winder, George, 191 Winds of change, 16 Woolcock, Stephen; M. Hodges; and K. Schreiber (1991), 182–3 Worker/management buyouts, 111 Working hours directive, 4 World affairs: ‘no longer decided in Europe’ (post-1945), 13 World Trade Organisation (WTO), 3, 23, 89, 156, 202 Wyn Ellis, Nesta, 32 Young, Lord (b 1932), 78 Young, Hugo (b 1938), 69 Young, John W., 28 Yugoslavia, 111, 112, 148–9, 152–3 Zhirinovsky, Vladimir (b 1946), 200

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