The Downing Street Years, 1979-1990

by Margaret Thatcher

  I had a long discussion with Geoffrey Howe and my officials. We argued through each element. It seemed to me that the discipline was going to prove tighter and more effective than I had earlier thought — and perhaps than others had really understood. So when the full Council reconvened I was able to join in giving broad support to the proposals in the paper which was now circulated.

  Anyone who imagined that it would now all be plain sailing underrated the French. The agreement we had reached covered the main agricultural products at issue. But it assumed that the other products for which stabilizers had been agreed at Copenhagen would also be covered. To everyone’s surprise President Mitterrand and M. Chirac would not agree to this. A heated argument erupted which lasted more than four hours about their proposal to have the stabilizers for ‘other products’ referred to the Agriculture Council. In the end a Danish suggestion that it should go to a Foreign ministers’ meeting in ten days’ time was agreed. Ruud Lubbers and I insisted that our agreement to the overall package was conditional on the Foreign ministers not reopening the Copenhagen agreement on ‘other products’. In fact, the French had to concede the issue when the Foreign ministers met.

  I was right to settle when I did. I had secured my basic aims: effective and legally binding controls on expenditure, measures to reduce agricultural surpluses in which automatic price cuts were the principal weapon, no Oils and Fats tax, and Britain’s rebate which had saved us some £3 billion in the past three years secure. I had had to concede a little on the threshold at which stabilizers began to work. I had had to compromise over the structural funds. I had reluctantly agreed a new 1.2 per cent of GNP ceiling for Community ‘own resources’. But it was much better than a draw. Agricultural surpluses started to fall quite sharply and the new measures to enforce budget discipline were successful. None of that, of course, changed the fundamental direction or defects of the Community. The CAP was still wasteful and costly. Britain was still making a financial contribution which I considered too high. The bureaucratic and centralizing tendencies remained. But within its limits the February 1988 Brussels Agreement was not at all bad.

  FREE TRADE V. PROTECTION

  It is fair to say that from about this point onwards — early 1988 — the agenda in Europe began to take an increasingly unwelcome shape. It also began to deviate sharply from that being pursued in the wider international community. That does not mean, however, that my own relations with other European heads of government worsened at a personal level; far from it. I was sorry — though not surprised — to see the Right beaten in the French presidential elections. But I sent a message of congratulations to President Mitterrand and went to see him in Paris that June to talk about the international scene in general and the forthcoming Toronto G7 summit and Hanover European Council in particular.

  I found him in understandably good humour now that he had been freed from the domestic torment of ‘cohabitation’ with the Right. He was pressing a scheme — not dissimilar to one advanced by Nigel Lawson — to tackle the crippling level of Third World debt. I would have had more sympathy with his ideas if France had not been so determinedly protectionist, an approach which did far more harm to poorer countries than any amount of overseas aid did good. The French line was expressed — or rather concealed — in a splendid piece of Euro-jargon: the concept of ‘globality’. That is to say progress must be made on all the issues before the GATT at roughly the same pace, a transparent device for avoiding concentration on the thorniest issue — that of agricultural subsidies and protection. He was also keen to have a committee of ‘wise men’ set up to report on how to achieve economic and monetary union; he specifically hankered after a European Central Bank. I roundly rejected this. I said that the proposal for such a bank was motivated by political not technical considerations and that this was not an area for playing games. The President smiled and said that it was nice to be reminded that I knew how to say no. But I had no illusion that he was going to desist because of that.

  I also met M. Rocard, the new Socialist Prime Minister. I had met him before but did not know him well. He spoke disarmingly and I felt sincerely about his affection for Britain and the special understanding — inherited from wartime — between the two countries. As French Socialists go, he was moderate, pragmatic and sensible and I warmed to him. I hoped that he might come to exercise some moderating influence on France’s flirtation with European federalism.

  On Saturday 18 June 1988 I flew to Toronto for the G7 economic summit. President Mitterrand had suggested optimistically to me in Paris that this being President Reagan’s last summit there might be an inclination to put off difficult decisions. I had replied that I did not think this likely and, for my part, I was determined to ensure that we used this occasion to get to grips with agriculture and the GATT. By the time I reached Toronto I had done my homework on the subject. In particular, we had devised a mythical beast known informally as ‘Howe’s Cow’ or more precisely as a ‘Producer Subsidy Equivalent’. This was the calculation of how much agricultural support, whether in direct subsidy or from protection, each country provided, divided by the number of cows. The greediest cow turned out to be Japan’s — so not surprisingly, the Japanese, with some support from the Americans, disputed our statistical approach.

  I was, therefore, well armed with useful facts and figures when Brian Mulroney, the summit chairman, asked me to open the economic discussion on the Sunday afternoon. I drew attention to the success of the current second cycle of summits, now ending, compared with the first. We had seen economic growth, low inflation and more jobs in the years since the Montebello summit in 1981, because we had stuck to getting the fundamentals right rather than concentrating on demand management. But there was more to do. Above all, we must fight down protectionism. I strongly urged — and repeated in a further intervention the following day — that all of us should honour the commitments made at the start of the GATT Uruguay round in September 1986 by coming up with firm proposals at the forthcoming ‘Medium Term Review’ meeting of the GATT.

  As the dispute over measuring agricultural subsidies exemplified, free trade is something which almost everyone subscribes to in principle and finds politically painful in practice. Britain always had everything to gain from a global open trading system. The United States too traditionally believed in free trade. But Britain’s own trade policy was now in the hands of the Community, which contained a majority of countries with a tradition of cartels and corporatism and a politically influential agricultural sector. We were in a minority in Europe when it came to deciding trade policy. As for the United States, its huge trade deficit had given a protectionist turn to policy which President Reagan, a convinced free trader, found difficulty resisting. For its part, Japan not only subsidized and protected its agriculture more than anyone else; it also continued to place obstacles in the way of foreign imports of nonagricultural goods and services. Consequently, I increasingly had to look to the ‘Cairns Group’ of fourteen countries (which includes Canada, Australia, and Argentina) and to Third World countries, anxious to export their agriculture and textiles, to bring pressure on this wealthy western protection racket. I always regarded free trade as far more important than all the other ambitious and often counter-productive strategies of global economic policy — for example the policies of ‘co-ordinated growth’ which led principally to inflation. Free trade provided a means not only for poorer countries to earn foreign currency and increase their peoples’ standards of living. It was also a force for peace, freedom and political decentralization: peace, because economic links between nations reinforce mutual understanding with mutual interest; freedom, because trade between individuals bypasses the apparatus of the state and disperses power to customers not planners; political decentralization, because the size of the political unit is not dictated by the size of the market and vice versa.

  After some two and a half hours of discussion on this subject at Toronto we achieved a broadly satisfactory communiqué. It rea
ffirmed the Uruguay round commitments and underlined the importance of its ‘Medium Term Meeting’, while avoiding inclusion of what seemed to me the unrealistic United States objective of no agricultural subsidies by the year 2000. What remained to be seen was how the GATT negotiations now actually evolved. Had I been an optimist I might have drawn comfort from the fact that Toronto was the first time that M. Delors praised one of my speeches. But I kept my optimism in check.

  DISCUSSION OF EMU

  At Toronto I had an hour’s meeting with Chancellor Kohl. Much of it focused on the forthcoming Hanover summit. Chancellor Kohl, supported by the German Finance Ministry and the Bundesbank, seemed ready now to plump for a committee of central bankers rather than academic experts — as the French and Hans-Dietrich Genscher wanted — to report on EMU. This I welcomed. But I restated my unbending hostility to setting up a European Central Bank. By now I was having to recognize that the chance of stopping the committee being set up at all was ebbing away; but I was determined to try to minimize the harm it would do. I also had to recognize that we were saddled with M. Delors as President of the Commission for another two years, since my own favoured candidate, Ruud Lubbers, was not going to stand and the French and Germans supported M. Delors. (In the end I bit the bullet and seconded M. Delors’s reappointment myself.)

  The Hanover Council turned out to be a fairly good-humoured if disputatious affair. The most important discussion took place on the first evening over dinner. Jacques Delors introduced the discussion of EMU. Chancellor Kohl suggested that a committee of Central Bank governors with a few outsiders be set up under M. Delors’s chairmanship. In the ensuing discussion most of the heads of government wanted the report to centre on a European Central Bank. Poul Schlüter opposed this and I supported him strongly, quoting from an excellent article by Karl Otto Pöhl, the President of the Bundesbank, to illustrate all the difficulties in the way of such an institution. We succeeded in getting mention of the Central Bank removed. But otherwise there was nothing I could do to stop the committee being set up. The Delors Group was to report back to the June 1989 European Council — that is in a year’s time. I hoped that the Governor of the Bank of England and the sceptical Herr Pöhl would manage to put a spoke in the wheel of this particular vehicle of European integration; unfortunately, as I have already explained, that was not to be.

  My problem throughout these discussions of EMU was twofold. First, of course, was the fact that I had so few allies; only Denmark, a small country with plenty of spirit but less weight, was with me. But I was fighting with one hand tied behind my back for another reason. As a ‘future member’ of the EEC, the UK had agreed a communiqué in Paris following a conference of heads of government in October 1972. This reaffirmed ‘the resolve of the member states of the enlarged Community to move irrevocably [towards] Economic and Monetary Union, by confirming all the details of the acts passed by the Council and by the member states’ representatives on 22 March 1971 and 21 March 1972’. Such language may have reflected Ted Heath’s wishes. It certainly did not reflect mine. But there was no point in picking a quarrel which we would have lost. So I preferred to let sleeping dogs lie.

  Then, of course, they woke up and started barking in the course of the negotiation of the Single European Act of 1985–6.1 had not wanted any reference to EMU in at all. The Germans failed to support me and so the reference to EMU was inserted. But I had Article 20 of the Single European Act give my interpretation of what EMU meant; its title read: ‘Co-operation in Economic and Monetary Policy (Economic and Monetary Union)’. This enabled me to claim at subsequent forums that EMU now meant economic and monetary co-operation, not moving towards a single currency. There was a studied ambiguity about all this. Councils at Hanover in June 1988 and then at Madrid in 1989 referred back to the Single European Act’s ‘objective of progressive realization of economic and monetary union’. I was more or less happy with this, because it meant no more than co-operation. The rest of the European heads of government were equally happy, because they interpreted it as progress towards a European Central Bank and a single currency. But at some point, of course, these two interpretations would clash. And when they did I was bound to be fighting on ground not of my choosing.

  For the fact was that the more I saw of how the Community operated the less I was attracted by any further steps on the road towards monetary integration. We advanced our proposals for a ‘hard ecu’. We issued Treasury bills denominated in ecu terms. And (though this was done because it was in our own interests, not in order to please our European partners) we had swept away exchange controls before anyone else. All this was very communautaire in its way, as I never ceased to point out when criticized for resisting entry into the ERM. But my own preference was always for open markets, floating exchange rates and strong political and economic transatlantic links. In arguing for that alternative approach I was bound to be handicapped by the formal commitment to European ‘economic and monetary union’ — or indeed that of ‘ever closer union’ contained in the preamble to the original Treaty of Rome. These phrases predetermined many decisions which we thought we had reserved for future consideration. This gave a psychological advantage to my opponents, who never let an opportunity go by of making use of it.

  THE BRUGES SPEECH

  Not the least of those opponents was Jacques Delors. By the summer of 1988 he had altogether slipped his leash as a fonctionnaire and become a fully fledged political spokesman for federalism. The blurring of the roles of civil servants and elected representatives was more in the continental tradition than in ours. It proceeded from the widespread distrust which their voters had for politicians in countries like France and Italy. That same distrust also fuelled the federalist express. If you have no real confidence in the political system or political leaders of your own country you are bound to be more tolerant of foreigners of manifest intelligence, ability and integrity like M. Delors telling you how to run your affairs. Or to put it more bluntly, if I were an Italian I might prefer rule from Brussels too. But the mood in Britain was different. I sensed it. More than that, I shared it and I decided that the time had come to strike out against what I saw as the erosion of democracy by centralization and bureaucracy, and to set out an alternative view of Europe’s future.

  It was high time. It was clear that the momentum towards full blooded EMU, which I always recognized must mean political union too, was building. In July M. Delors told the European Parliament that ‘we are not going to manage to take all the decisions needed between now and 1995 unless we see the beginnings of European government in one form or another,’ and predicted that within ten years the Community would be the source of ‘80 per cent of our economic legislation and perhaps even our fiscal and social legislation as well’. In September he addressed the TUC in Bournemouth calling for measures to be taken on collective bargaining at the European level.

  But there were also more subtle, less easily detectable, but perhaps even more important signs of the way things were going. That summer I commissioned a paper from officials which spelt out in precise detail how the Commission was pushing forward the frontiers of its ‘competence’ into new areas — culture, education, health and social security. It used a whole range of techniques. It set up ‘advisory committees’ whose membership was neither appointed by, nor answerable to, member states and which tended therefore to reach communautaire decisions. It carefully built up a library of declaratory language, largely drawn from the sort of vacuous nonsense which found its way into Council conclusions, in order to justify subsequent proposals. It used a special budgetary procedure, known as ‘actions ponctuelles’ which enabled it to finance new projects without a legal base for doing so. But, most seriously of all, it consistently misemployed treaty articles requiring only a qualified majority to issue directives which it could not pass under articles which required unanimity.

  Often, as over the environment, or later on health and hours of work, it was difficult to explain to the general publ
ic precisely why we opposed the specific measure the Commission wanted. When commissioners issued directives outside their competence they were careful to choose popular causes which had support among pressure groups in member countries, thus presenting themselves as the true friends of the British worker, pensioner and environmentalist. This made it politically difficult to resist the creeping expansion of the Commission’s authority. In theory, it would have been possible to fight all this in the courts; for time after time the Commission were twisting the words and intentions of the European Council to its own ends. We did indeed fight, and won a number of cases on these grounds before the European Court of Justice (ECJ). But the advice from the lawyers was that in relation to questions of Community and Commission competence the ECJ would favour ‘dynamic and expansive’ interpretations of the treaty over restrictive ones. The dice were loaded against us.

  The more I considered all this, the greater my frustration and the deeper my anger became. Were British democracy, parliamentary sovereignty, the common law, our traditional sense of fairness, our ability to run our own affairs in our own way to be subordinated to the demands of a remote European bureaucracy, resting on very different traditions? I had by now heard about as much of the European ‘ideal’ as I could take; I suspected that many others had too. In the name of this ideal, waste, corruption and abuse of power were reaching levels which no one who supported, as I had done, entry to the European Economic Community could have foreseen. Because Britain was the most stable and developed democracy in Europe we had perhaps most to lose from these developments. But Frenchmen who wanted to see France free to decide her own destiny would be losers too. So would Germans, who wished to retain their own currency, the deutschmark, which they had made the most credible in the world.