It quickly became clear that I was not going to make the other heads of government see matters like this. Some, for example the Dutch Prime Minister, Mr Andries Van Agt, were reasonable, but most were not. I had the strong feeling that they had decided to test whether I was able and willing to stand up to them. It was quite shameless: they were determined to keep as much of our money as they could. By the time the Council broke up Britain had been offered a refund of only £350 million, implying a net contribution of some £650 million. That refund was just not big enough and I was not going to accept it. I had agreed that there should be another Council to discuss the matter further, but I was not overoptimistic after what I had seen and heard in Dublin. For me it went much further than hard bargaining about money, which was inevitable. What I would not accept was the attitude that fairness as such did not seem to enter into the equation at all. I was completely sincere when I had said that Britain was asking no more than its due; and my anger when such a proposition was regarded with cynical indifference was equally genuine.
It was while reflecting on the quintessentially un-English outlook displayed by the Community at this time and later that I came across the following lines from Kipling’s ‘Norman and Saxon’ in my old, battered collection of my favourite poet’s verse. The Norman baron with large estates is warning his son about our English forefathers, the Anglo-Saxons, and says:
The Saxon is not like us Normans. His manners are not so polite.
But he never means anything serious till he talks about justice and right.
When he stands like an ox in the furrow with his sullen set eyes on your own,
And grumbles, ‘This isn’t fair dealing’, My son, leave the Saxon alone.
At the press conference after the Council, I gave a vigorous defence of our position. I said that the other states should not have ‘expected me to settle for a third of a loaf. I also refused to accept the communautaire language about ‘own resources’. I continued to state without apology that we were talking about Britain’s money, not Europe’s. I said:
I am only talking about our money, no one else’s; there should be a cash refund of our money to bring our receipts up to the average level of receipts in the Community.
Most of the other heads of government were furious. The Irish press was vitriolic. One British newspaper, The Times, described my performance at the press conference as ‘bravura’, though there was more criticism from the leader columns. The best comment, I felt, was from Le Figaro, which said:
To accuse Mrs Thatcher of wishing to torpedo Europe because she defends the interests of her country with great determination is to question her underlying intentions in the same way that people used to question those of de Gaulle in regard to French interests.
I liked the comparison.
We used the period between the end of the Dublin meeting and the next European Council to press our case, both in public and through diplomatic means. On 29 and 30 January I had talks with the Italian Prime Minister (later President) Francesco Cossiga. I had already had dealings with Sig. Cossiga in 1979 when the Schild family, my constituents, were kidnapped in Sardinia. I had found him highly competent and deeply concerned. He was also a man of principle, as his earlier resignation as Minister of the Interior after the murder of the former Christian Democrat Leader Aldo Moro showed, and as I already knew him to be from my own experience. Italian politics and Italian politicians do not evoke much understanding or sympathy from the British, or indeed from the Italians, and I confess to sharing some of that disenchantment. But Francesco Cossiga was himself a sceptic about the usual Italian practices. He was the nearest thing to an independent in Italian politics; in negotiations he always played a straight hand; he could be relied upon to keep his word, as he did over the stationing of Cruise missiles in Italy; and he was an undoubted Anglophile and a strong admirer of the Glorious Revolution of 1688 as the birth of true liberal politics. I was glad that it was Sig. Cossiga who was due to host the next European Council.
On 25 February Helmut Schmidt came to London again. Our talks centred on the question of our budget contribution and on the German Chancellor’s repeated wish to see sterling within the ERM, and — contrary to the usual misleading press reports — they were useful and quite jolly. On 27 and 28 March there was a full scale Anglo-German summit in London. I sought once more to stress how seriously we felt about the British contribution. Subsequently, I learned that Helmut Schmidt had been telling other Community governments that if there were no solution there was a danger that we would withhold British contributions to the Community. So I had created the desired impression. The European Council due for 31 March and 1 April had to be postponed because of a political crisis in Italy (not an unusual event), but we pressed for a new Council before the end of April and it was finally called for Sunday and Monday 27 and 28, to meet in Luxemburg.
At this time, there was a marked hardening of public opinion in Britain as the result of our treatment by the Community. In particular, there was much speculation about possible withholding of Britain’s contributions, which did not displease me, though I was cautious in public on the subject. I said on Panorama on 25 February that we would consider withholding but would be loath to do it because it meant going against Community law. I also went on French television on 10 March and said:
I wouldn’t expect France to be the biggest contributor if she had an income below average in the Community. And I do indeed assure you that your very distinguished French politicians would be the first to complain if that were so.
I gave an interview to Die Welt in which I said:
We shall do our utmost to prevent matters coming to a crisis. But it must be realized that things cannot continue like this.
The atmosphere in Luxemburg turned out to be a good deal better than in Dublin. I was optimistic. From a discussion I had had with Sig. Cossiga, who had spoken to President Giscard, it seemed at first that the French were prepared to set a ceiling on the size of our net contributions for a period of years irrespective of the growth in the overall Community budget, subject to review at the end of the period. This would have been a step forward. On closer examination, however, it became clear that what the French really wanted was to get decisions on their most politically sensitive topics — farm prices in the CAP, lamb and fishing rights — before settling the budget. Finally, it was agreed that parallel meetings should be held over the weekend: Agriculture ministers would meet and so would a group of officials working on the budget issue.
As a result we did not get around to talking about the budget at all at our first session. Indeed, only after dinner, and the usual foreign affairs tour de table, did I obtain agreement that the official group should resume effective negotiation that evening. The French were the main stumbling block: the proposals their officials presented were much less helpful to us than President Giscard’s had seemed to be. In the meantime, the Agriculture ministers of the other governments of the Community had agreed on a package of proposals which would have raised farm prices, increasing again the proportion of the Community budget devoted to agriculture (quite contrary to the proposals put forward in Dublin) and giving the French a sheep meat regime which was more or less all that they wanted. Against this — for us — distinctly unfavourable background, we received eventually the offer of a limit on our net contribution of about £325 million, applying only to the year 1980. Under a subsequent proposal our net contribution would have been limited to about £550 million for 1981 as well.
My reaction was that this was too little. But above all I was not prepared to have a settlement that only lasted for two years. Helmut Schmidt, Roy Jenkins (President of the Commission) and almost everyone else urged me to settle. But I was not willing to return the following year to face precisely the same problem and the attitude that went with it. So I rejected the offer. The draft communiqué, moreover, was unacceptable to us since it continued to insist on the old dogma that ‘own resources are intended to provide the fina
nce for Community policies; they are not contributions from member states.’ Nor did it make reference to the assurances we had been given on our accession to the Community that action would be taken ‘should an unacceptable situation arise’.
Many reacted to my decision in luxemburg with disbelief: in some circles the very last thing expected of a British prime minister was that he or she should quite so unashamedly defend British interests. But there was, I noted, a contrast between the reaction in some of the press which was extremely hostile and the reaction in the House of Commons and the country, which was thoroughly supportive.
In fact, we were a good deal closer to a settlement than was widely recognized. Great progress had already been made in winning agreement to substantial reductions in our contribution. What remained was to secure these reductions for the first two years with a reliable undertaking for the third. We had a number of powerful levers by which we could apply pressure to this end. The French were increasingly desperate to achieve their aims in the Agriculture Council. There was even talk of overriding the British veto by abrogating the so-called Luxemburg compromise of 1966, established to accommodate de Gaulle. (This was an understanding rather than a formal agreement with the force of law, which enabled any one country to block a majority decision when its vital national interests were at stake.) In fact, precisely this did happen at the Agriculture Council in May 1982 — and this during the Falklands War. However, at this particular time it would have been a dangerous move, particularly since the French had already been found in breach of Community law over lamb imports. The Germans, too, were keen to see higher agricultural prices. Most important of all, the Community would, we thought, probably reach the limit of its financial resources in 1982. Its persistent overspending was catching up with it, and greater resources could only be made available with British agreement. Ultimately our negotiating position was a strong one.
It soon became clear that Luxemburg, following the clashes in Dublin, had had the desired effect. In spite of talk of the Luxemburg offer having now been ‘withdrawn’, there was evidence of a general desire to solve the budget issue before the next full European Council at Venice in June. The easiest way to achieve this appeared to be a meeting of the Community Foreign ministers.
Peter Carrington, having received his mandate from me, flew to Brussels on Thursday 29 May with Ian Gilmour. After a marathon eighteen-hour session they came back with what they considered an acceptable agreement, arriving at lunch time on Friday to brief me at Chequers.
My immediate reaction was far from favourable. The deal involved a net budget contribution in 1980 higher than envisaged at Luxemburg. It appeared from Peter’s figures that we would pay rather less under the new package in 1981, though to some extent this was sleight of hand, reflecting different assumptions about the size of that year’s total budget. But the Brussels proposal had one great advantage: it now offered us a three-year solution. We were promised a major review of the budget problem by mid-1981 and if this had not been achieved (as proved to be the case) the Commission would make proposals along the lines of the formula for 1980–81 and the Council would act accordingly. The other elements of the Brussels package relating to agriculture, lamb and fisheries, were more or less acceptable. We had to agree a 5 per cent rise in farm prices. Overall, the deal marked a refund of two-thirds of our net contribution and it marked huge progress from the position the Government had inherited. I therefore decided to accept the offer.
CRISES IN THE MIDDLE EAST
Wider international affairs had not stood still while we were engaged in bringing Rhodesia to legal independence and negotiating a reduction in our Community Budget contribution. In November 1979, forty-nine American diplomatic personnel had been taken hostage in Iran, a source of deep and growing humiliation to the greatest western power. In December at the invitation of President Carter I made a short visit to the United States — the first of many as Prime Minister. In a short speech at my reception on the White House Lawn I went out of my way to reaffirm my support for American leadership of the West. Then in a speech the next day in New York I warned of the dangers of Soviet ambitions and urged the need for strong western defence:
The immediate threat from the Soviet Union is military rather than ideological. The threat is not only to our security in Europe and North America but also, both directly and by proxy, in the Third World… we can argue about Soviet motives but the fact is that the Russians have the weapons and are getting more of them. It is simple prudence for the West to respond.
I also undertook to support the United States in the UN Security Council in seeking international economic sanctions against Iran under Chapter 7 of the UN Charter. The President and I discussed defence and the situation in Ulster. I took the opportunity to thank him for all he had been doing behind the scenes in the final stages of the negotiations on Rhodesia.
Then, at the end of 1979, the world reached one of those genuine watersheds which are so often predicted, which so rarely occur — and which take almost everyone by surprise when they do: the Soviet invasion of Afghanistan. In April 1978, the Government of Afghanistan had been overthrown in a communist-inspired coup; a pro-Soviet government was established, which, however, was met by widespread opposition and eventual rebellion. In September 1979 the new President, Taraki, was himself overthrown and killed by his deputy, Hafizullah Amin. On 27 December, Amin in turn was overthrown and killed, to be replaced by Babrak Karmal, whose regime was supported by thousands of Soviet troops.
The Soviets had long considered Afghanistan to have a special strategic significance and sought to exercise influence there through so-called ‘Treaties of Friendship’. It was said that they were probably concerned, in the light of events in Iran, at the possibility of anarchy in Afghanistan leading to a second fundamentalist Muslim state on their borders, which might destabilize their own subject Muslim population. The West had for some time been anxious that the Soviets would make a drive for the oil in the Gulf. And the energy crisis gave them a still stronger reason to do so.
Perhaps I was less shocked than some by the invasion of Afghanistan. I had long understood that détente had been ruthlessly used by the Soviets to exploit western weakness and disarray. I knew the beast.
What had happened in Afghanistan was only part of a wider pattern. The Soviets had instigated Cubans and East Germans to advance their aims and ambitions in Africa. They had been working to further communist subversion throughout the Third World, and for all the talk of international peace and friendship, they had built up armed forces far beyond their defensive needs. Whatever their precise motives now in Afghanistan, they must have known that they had threatened the stability of Pakistan and Iran — the latter unstable enough already under the Ayatollah — and were within 300 miles of the Straits of Hormuz. Moreover, bad as the situation was in itself, it could be worse as a precedent. There were other areas of the world in which the Soviets might prefer aggression to diplomacy, if they now prevailed: for example, Marshal Tito was evidently approaching the end of his life in Yugoslavia and there could be opportunities for Soviet intervention there. They clearly had to be punished for their aggression and taught, albeit belatedly, that the West would not only talk about freedom but was prepared to make sacrifices to defend it.
On Friday 28 December President Carter rang me at Chequers and we discussed at length what the Soviets were doing in Afghanistan and what our reaction should be. What had happened was a bitter blow to him. Britain had not felt able to comply with all that the Americans had wanted of us in response to the hostage crisis: in particular, we were not willing (or indeed legally able) to freeze Iranian financial assets, which would have had a devastating effect on international confidence in the City of London as a world financial centre. However, I was determined that we should follow America’s lead now in taking action against the USSR and its puppet regime in Kabul. We therefore decided on a range of measures, including the curtailment of visits and contacts, non-renewal of th
e Anglo-Soviet credit agreement and a tightening of the rules on technology transfer. I also sought to mobilize the governments of the European Community to support the Americans. But, like President Carter, I was sure that the most effective thing we could do would be to prevent their using the forthcoming Moscow Olympics for propaganda purposes. Unfortunately, most of the British Olympic team decided to attend the Games, though we tried to persuade them otherwise: of course, unlike their equivalents in the Soviet Union, our athletes were left free to make up their own minds. At the UN our ambassador, Tony Parsons, helped to rally the ‘non-aligned’ countries to condemn the Soviet Union’s aggression. In London, on 3 January, I saw the Soviet Ambassador to enlarge in vigorous terms on the contents of my exchanges by telegram with President Brezhnev.
From now on, the whole tone of international affairs began to change, and for the better. Hard-headed realism and strong defence became the order of the day. The Soviets had made a fatal miscalculation: they had prepared the way for the renaissance of America under Ronald Reagan.
But this was the future. America had still to go through the humiliating agony of the failed attempt to rescue the Iranian hostages. As I watched President Carter’s television broadcast explaining what had happened, I felt America’s wound as if it were Britain’s own; and in a sense it was, for anyone who exposed American weakness increased ours. I was soon, though, in a position to demonstrate that there would be no flinching when it came to dealing with our own brand of Middle East terrorism.
I first learned of the terrorist attack on the Iranian Embassy at Prince’s Gate in Knightsbridge on Wednesday 30 April during a visit I was making to the BBC. The early reports were, in fact, misleadingly anodyne. It soon became known, however, that several gunmen had forced their way into the Iranian Embassy and were holding twenty hostages — most of them Iranian staff, but also including a policeman who had been on duty outside and two BBC journalists who had been applying for visas. The gunmen were threatening to blow up both the embassy and the hostages if their demands were not met. The terrorists belonged to an organization calling itself ‘the Group of the Martyr’; they were Iranian Arabs from Arabistan, Iraqi-trained and bitterly opposed to the prevailing regime in Iran. They demanded that a list of 91 prisoners be set free by the Iranian Government, that the rights of Iranian dissidents should be recognized and a special aeroplane provided to take them and the hostages out of Britain. The Iranian Government had no intention of conceding these demands; and we, for our part, had no intention of allowing terrorists to succeed in their hostage taking. I was conscious that, though the group involved was a different one, this was no less an attempt to exploit perceived western weakness than was the hostage taking of the American embassy personnel in Tehran. My policy would be to do everything possible to resolve the crisis peacefully, without unnecessarily risking the lives of the hostages, but above all to ensure that terrorism should be — and be seen to be — defeated.
The Downing Street Years, 1979-1990 Page 11
