Just as worrying as the policy disagreements was the increasingly personalised animosity between Chancellor and Prime Minister. She took to referring to him among members of her inner circle as ‘a riverboat gambler’ to which she added, ‘and I won’t let him gamble with the British economy’.27 Her line was that he had gone off to the ERM casino, placed the wrong bet on inflation and lost her hard-won reputation for good economic management.
‘Nigel has cost us two years’, she told David Hart.28 These and other pejorative comments were made in anger, not humour. Nigel Lawson was hurt by them: ‘She was in a permanent state of resentment with me for having – as she saw it – allowed inflation to rise’, he recalled, ‘and she was determined to rub my nose in it.’29
One part of that determination involved a controversial new appointment to the staff at No. 10. The appointee was Alan Walters, whom Margaret Thatcher chose to be her personal economic adviser in July 1988. He had been in this position before, from 1981 to 1983. At that time he had quietly given her discreet advice from his low-profile post. Five years on, quietness and discretion were no longer part of the Walters style, for he had become something of a celebrity in the world of academic commentators. Some of his fame derived from his outspoken public criticism of Nigel Lawson’s policies.
Margaret Thatcher brought Alan Walters back into her team as a deliberate counter-weight to the Chancellor. He took up his post in May 1989 on a two-year contract. She never seems to have understood what an insult to Nigel Lawson this appointment would be, and how likely it was to blow up into big trouble. What it meant was that the Prime Minister would have two sources of advice on the management of the economy, which on past form would often be in conflict. The potential for discord was enormous.
Realising the dangers posed by Alan Walters’ appointment, the Chancellor argued strenuously against it. Margaret Thatcher, displaying a side of her personality that enjoyed dividing and ruling, refused to listen to his objections. She had lost confidence in Nigel Lawson, and was determined to have an alternative source of advice within her inner circle.
In the short term, the Alan Walters’ appointment won considerable sympathy and support for Nigel Lawson. Among Tory MPs, sentiments of outrage were expressed against it.
I recall attending a stormy meeting of the back-bench finance committee at which it was said that the Prime Minister ‘had gone off her rocker’, and that Walters was ‘a Trojan horse’, ‘far too big for his boots’ and even ‘a fifth columnist’. This last description was amusingly qualified by the Member who made it, Nicholas Budgen. ‘I call him that because he seems to write five columns a week, most of them critical of the Chancellor.’30
What MPs could see, even if the Prime Minister could not, was that the conflict between her unelected economic adviser and her Chancellor would certainly be divisive and might be explosive.
HOWE STIRS THE ERM DISPUTE
It is unlikely that Margaret Thatcher’s troubles with her Chancellor would ever have escalated to the point of threatening her tenure as Prime Minister had they not become inextricably linked to her difficulties with the Foreign Secretary.
Sir Geoffrey Howe had been simmering resentfully in his post for many months. His personal relations with Margaret Thatcher were deteriorating. There were also policy differences between them in several areas. By far the most important of these was the growing divergence in their attitudes towards Europe. In simplified terms, she was an Atlanticist, while he was a Europhile. She was increasingly sceptical about the direction in which the European Community seemed to be heading. He took the opposite view, supportively accepting much of the federalist agenda in Brussels, which was being spearheaded by the energetic new President of the European Commission, Jacques Delors.*
Against the background of these tensions, Sir Geoffrey took the far from benign decision to involve himself publicly in the row with Lawson over the European ERM. Howe had long been a strong but quiet supporter of Britain’s entry into the ERM. Unfortunately, he chose to declare his hand at the most awkward of moments from the Prime Minister’s point of view, right in the middle of her split with the Chancellor, which had been exposed by Neil Kinnock’s questions in Parliament on 12 May 1988.
The following day, 13 May, Geoffrey Howe was speaking at the Scottish Conservative Party Conference in Perth when he departed from his prepared text. Having mentioned the time-honoured formula about joining the ERM ‘when the time is right’, he ad-libbed his opinion that ‘We cannot forever go on adding that qualification to the underlying commitment’.31 Inevitably the press made hay and many negative headlines over this evidence of a further split within the cabinet.
This was a red rag to Margaret Thatcher. She was furious with Howe for ‘making mischief’ on the ERM at such a sensitive time.32 He claimed that he had no such intention, and had merely been innocently replying to points raised in a European debate by Scottish Tories. This seemed a disingenuous explanation to the Prime Minister, who thought her Foreign Secretary had been stirring up trouble and the consequent media coverage quite deliberately.
The day after his speech in Scotland, with the newspaper headlines trumpeting about the disastrous cabinet divisions over the ERM, Geoffrey Howe telephoned Margaret Thatcher at Chequers to suggest they should meet together with Nigel Lawson to ‘settle the semi-public dispute’.33 He claimed that he made the call ‘in all innocence’.34
She thought his motives were less pure. She gave him the full blast of her fury in the belief that his purpose in asking for the meeting was so that he and the Chancellor could steamroller her into agreement with their views on the ERM. ‘No, I shall certainly not see the two of you together about this’, she shouted.
Howe was ‘astonished by the ferocity of her reaction’.35 He was left in no doubt about her hostility to his proposal since she repeated her refusal to meet three times. She also told him that the best thing he could now do was to keep quiet, adding for good measure, ‘We were not going into the ERM at present, and that is that’.36
This row had far-reaching consequences a year later when Howe reopened the arguments about the ERM to mount what was later called the ‘Madrid Ambush’. It consisted of a joint effort by the Foreign Secretary and the Chancellor to persuade the Prime Minister to change her mind about the ERM on the eve of a European Council Summit Meeting in Madrid.
The ambush failed, but it had severe repercussions for all parties. As the Madrid European Council Meeting itself was only tangentially concerned with the ERM, this episode is dealt with in a later chapter,† which focuses on Margaret Thatcher’s growing alienation from the centralising policies of the European Community. But the issue of the ERM could not be separated from the issues of running the British economy. From mid-1988 onwards Margaret Thatcher had put herself in the dangerous position of fighting against two of her most senior ministers on two different fronts.
This was a situation that could only end in tears. So it proved. But it took another thirty months before this passion play, born in the complexities of a technical dispute about exchange rates, ended with not one but three political crucifixions.
REFLECTION
The ERM dispute between Margaret Thatcher and her senior colleagues in the 1980s is an arcane relic of twentieth-century economic history, which has about as much relevance to contemporary politics as the Schleswig–Holstein question. This was the nineteenth-century diplomatic dispute about Danish and German principalities now remembered solely for Lord Palmerston’s joke: ‘Only three people have ever really understood the Schleswig–Holstein business – the Prince Consort, who is dead – a German professor, who has gone mad – and I, who have forgotten all about it.’37
In the same way, it now seems extraordinary that Nigel Lawson, Geoffrey Howe and Margaret Thatcher could ever have become so obsessed with the intricacies of the ERM that they fought about it as if it was the Holy Grail of the British economy. It was nothing like that important. The ERM was a technical tool for stabilis
ing international exchange rates and keeping down inflation. What made it different was first, that it required co-operation with European central banks and, second, that most of the grey eminences of Britain’s economic establishment were in favour of this move throughout the 1980s.
At the ministerial meeting on 13 November 1985, Willie Whitelaw summed up the situation by saying, ‘If the Chancellor, the Governor and the Foreign Secretary are all agreed that we should join the EMS then that should be decisive. It has certainly decided me.’38 Consensus man had spoken.
Margaret Thatcher’s rejection of this unanimity and her walk-out from the meeting was as dramatic as it was unexpected. For there did not seem to be any great issue of principle on the table with which she could quarrel so vehemently. Seven years earlier she had chided Jim Callaghan for not signing up to the ERM. Four years later she was finally persuaded by John Major and Douglas Hurd to allow her government to join it. The pros and cons of Britain’s membership were always argued in technical terms such as timing, currency stability, exchange-rate fluctuations and the effect on inflation.
Sir Geoffrey Howe may well have had the cause of greater British participation in the European Community’s future grand designs for European Monetary Union (EMU) on his mind, but this was not the case he stated. Equally, Margaret Thatcher never at the time took her stand against the ERM because she thought it would be a Trojan horse leading to a single currency. She may have had some silent fears in this direction, but she never expressed them. It was more likely, as Terry Burns saw at the time, that her opposition was rooted in anxieties about the loss of control, the loss of British self-government, that joining the EMS involved.
Whatever her reasons, the Prime Minister’s instinctive veto on ERM membership was to prove the killer on the policy for the next five years. The harder she maintained those killer instincts, the harder Geoffrey Howe and Nigel Lawson attacked her. Their challenges opened up a dark side in Margaret Thatcher, revealing a character willing to engage in bitter personality clashes against old friends who had turned into her new foes. She preferred not to seek a collegiate solution with them, but to fight against them at every turn. The ERM dispute thus became personal, eventually with dire consequences for all three combatants in the power struggle.
But who was right on the substantive issue? History vindicates the judgement of Margaret Thatcher. For after she reluctantly agreed to allow Britain to join the ERM during the last six months of her premiership in June 1990, it soon became apparent that the policy would lead not to economic stability but to a roller-coaster ride of exchange-rate fluctuations, interest-rate surges, expensive interventions, huge losses of foreign-exchange reserves and chaos in the markets.
Eventually, Britain’s membership proved so catastrophic that the then Chancellor, Norman Lamont, had to make an ignominious exit from the ERM on ‘Black Wednesday’, 16 September 1992. It was seen as a disaster at the time although once Britain regained control of its own economic destiny, a recovery soon followed.
One Treasury official who had a ringside seat throughout the seven-year ERM drama – first as Chief Economic Adviser to the Treasury and later as its Permanent Secretary – was Sir Terence Burns. What was his verdict on Margaret Thatcher’s opposition to joining the ERM during the Lawson–Howe era?
‘Seen with the full flow of history, I believe Margaret Thatcher was right’, said Terry Burns, when interviewed for this biography. ‘She recognised ahead of others that the UK just could not live with the European level of interest rates.’39
It was one of the paradoxes of Margaret Thatcher’s personality that she often reached the right judgements but enforced them in the wrong way. Some of her ministers could take this. In the third term, Nigel Lawson and Geoffrey Howe could not.
The ERM dispute was a sideshow which they promoted into a Punch and Judy show with the stage management of their Madrid ambush. In the same histrionic spirit, the Prime Minister acted out the part of the policeman wielding a truncheon. She hit them too hard with it. There were better ways of handling the problem.
Margaret Thatcher’s aggressive man-management methods were an obstacle to reconciling the policy differences at the top of her government. The virtues of her arguments became clouded by the flaws in her personality. She was setting herself up for much worse trouble with her most senior colleagues.
________________
* Jacques Delors (1925–), French economist and politician, eighth President of the European Commission, and first person to serve three terms in office, 1985–1995.
† See Chapter 33.
32
Swinging towards Euroscepticism
ALWAYS A DOUBTER
Margaret Thatcher made a long crossing of the desert between her ‘Yes’ campaigning in the 1975 referendum on Britain’s membership of the European Economic Community (EEC) and her resounding ‘No! No. No!’1 denunciations of moves towards closer European integration in 1990. During the intervening fifteen years, Europe changed far more than she did. Through her roots and her instincts she was consistently inclined towards Euroscepticism. Although the term was not invented until late in her political lifetime, there are clues running through her career, which suggest that she was never a believer in the creed which proclaimed an ever-closer British relationship with Europe.
Those clues include the nationalistic patriotism of her Grantham upbringing; her wartime enmity towards the Germans; the pro-Commonwealth zeal of her constituency speeches in Dartford and Finchley; and her lifelong commitment to the primacy of the Anglo-American alliance. Her ardour for these causes far exceeded her lukewarm endorsement of the EEC. Although, as the newly elected Leader of the Opposition she campaigned for a ‘Yes’ vote in the referendum of 1975, her support was punctilious rather than passionate. Her most memorable contribution was to be photographed wearing a jersey patterned with the flags of the EEC states. Yet this sartorial gesture was not matched by more substantive activities. She left the lion’s share of the speech-making and campaign leadership to Ted Heath, from whom she was keeping a careful political distance in the aftermath of their leadership battle.
Some observers did notice that she stayed aloof from the enthusiasts of the ‘Yes’ campaign. Although present at its launch, she made no major speeches in the run-up to the referendum vote. Harold Wilson dubbed her ‘The reluctant debutante’. The Sun drew attention to her absence with a story headlined: ‘Missing: one Tory leader. Answers to the name of Margaret Thatcher. Mysteriously disappeared from the Market Referendum campaign eleven days ago.’2
In private there were other clues to the mystery. Her political secretary, Richard Ryder, recalled her comment ‘Gosh, that was good’ after watching the ‘No’ campaign’s national broadcast. He also remembered her saying that she wished she didn’t have to vote at all.3
Despite such occasional signs of hesitancy about Tory policy towards Europe, Margaret Thatcher did not show her true colours as a Eurosceptic until she had been Prime Minister for nine years and a Member of Parliament for nearly thirty years. Why did it take her so long?
The answer lies in the culture and climate of the Conservative Party. For most of the 1960s, 1970s and 1980s, it was essential to be pro-Europe if you were an ambitious Tory MP eager to move up the ladder of promotion. Throughout the Macmillan–Heath era, the leadership’s prevailing view and slogan was ‘We are the party of Europe’. There were some notable dissenters from this official line headed by Enoch Powell, Neil Marten, Robin Turton, Derek Walker-Smith and Hugh Fraser, all of whom opposed the 1972 European Communities Act. But they were a minority faction. Perhaps, as Geoffrey Howe later observed, Margaret Thatcher should have been part of this group, since he came to see her as ‘a natural member’ of it.4 But she was as cautious as she was ambitious when climbing towards the top of the greasy pole. So she went along with the prevailing Europeanism to get ahead within the party.
Challenging the orthodox acceptance of British membership of the European Community was
a step too far in her early years as Prime Minister. Her initial rebellion against Brussels, the ‘I want my money back’ battle of the budget rebate from June 1979 to May 1980, was a single-issue stand of defiance rather than a sustained challenge to the establishment consensus. But although her abrasive advocacy for a rebate may have seemed to her a simple question of budgetary fairness, she gave deeper offence to her Community partners over what they regarded as an issue of principle. They believed she was attacking the Europhile article of faith which maintained that the EEC had its ‘own resources’, which could not be earmarked for, let alone rebated to, individual member states.
Quite rightly, Margaret Thatcher was dismissive towards this theological concept of ‘own resources’. So, by persistent in fighting she won her rebate for Britain. This was a great achievement. Yet it left behind an atmosphere of British negativity towards Europe. This was only dispelled when the Prime Minister was persuaded to sign up for the Single European Act (SEA) of 1985. It was the one and only time when she was positively engaged in the future direction of the European Community.
DIDDLED BY THE SINGLE EUROPEAN ACT (SEA)
The SEA was a major turning point for European integration. Margaret Thatcher saw its positive benefits, the creation of a single market, but failed to realise that the small print of the legislation could be used to pave the way for European Monetary Union (EMU).
The Prime Minister was not alone in this error of judgement. It was surprising how few Eurosceptics, let alone ordinary rank and file Conservatives, saw any pitfalls ahead as the legislation went through its stages in Parliament. I was one of nine Tory MPs to vote against the second reading of the bill.* Another was my fellow Eurosceptic Teddy Taylor. By chance, he and I encountered Margaret Thatcher just after we came out of the ‘No’ lobby on the night of that vote. ‘Why on earth are you two voting against us?’ she demanded. ‘Because this will be the Trojan horse for Economic and Monetary Union’, replied Teddy.
Margaret Thatcher: Power and Personality Page 70
