Since countries differ in their level of economic development and potential, their fiscal policies and their rates of inflation, the most flexible and realistic method of economic adjustment is a system of floating exchange rates. Each country can then order its monetary policy to suit its domestic conditions — and then there is no need for any ministerial shouting across the exchanges…
It is high time to make as complete a reversal of policy on Maastricht as has been done on the ERM. And of course the connection is very close, economically and politically. If the divergence between different European economies is so great that even the ERM cannot contain them, how would those economies react to a single European currency? The answer is that there would be chaos and resentment of the sort which would make the difficulties of recent days pale by comparison.
The Washington audience greeted this speech very warmly and the reaction even in the British media was favourable, if divergent at points: ‘Mag-nanimous’ said the Sunday Express, ‘Maggie Gets Her Revenge’ said the Mail on Sunday. ‘An elegant I told you so’ said the BBC, splitting the difference.
But partly for reasons of injured pride and partly because so much political capital had been invested in the Maastricht project, the Government refused to rule out sterling’s return to the ERM. At the time this refusal did not seem too significant. The circumstances of our departure from it convinced most Conservative MPs, a large majority of public opinion and, significantly, most of the financial world that pegged exchange rates were deeply damaging. It seemed that events themselves had ruled out a return to the ERM and therefore a formal undertaking was not needed. Almost overnight I found that the attitude towards my viewpoint had changed. I was ‘right after all’. Unfortunately, by then the damage had been done — not least to the standing of the Government and the Conservative Party.
Appropriately enough, the pursuit of a policy towards Europe designed to comply with foreign rather than with domestic expectations had now led us into the extraordinary situation whereby the controversial Maastricht Bill’s fate was itself determined by foreigners. Although the Irish, the Danes and the French were permitted referenda, the demand for one was consistently refused by the British Government. Yet it was made clear that if the French voted against Maastricht in their referendum, the Bill would not go ahead in Parliament. I had discreetly done what I could to encourage the anti-Maastricht campaign in France. I found it enormously encouraging that the three main right-of-centre opponents of Maastricht — Philippe de Villiers, Philippe Séguin and Charles Pasqua — were clearly among the most dynamic and charismatic French politicians, and that in spite of media bias their campaign quickly struck a chord with the immensely patriotic ordinary people of France. In the end, however, it was not quite enough, and by 50.95 per cent to 49.05 per cent the vote went in favour of Maastricht. And so if 269,706 French voters had voted against rather than for, Britain would never have implemented the Maastricht Treaty.
The European involvement in the agonies of ex-Yugoslavia provided in its way as devastating a commentary on Maastricht as did the collapse of the ERM. It will be recalled that Article B of the Maastricht Treaty envisaged a common European foreign and security policy leading to a common defence policy and perhaps common defence. A strengthened role for the Western European Union (WEU) was envisaged and a start on ‘common defence’ was made with the Franco-German ‘Eurocorps’. And it was immediately realized, not least by the framers of Maastricht, that the crisis in ex-Yugoslavia on Europe’s south-eastern border would be a crucial, indeed decisive, test of these aspirations. As Jacques Poos, Foreign Minister of Luxembourg, then heading the ‘troika’ of European foreign ministers responsible for directing the common foreign policy, graphically put it, this was ‘the hour of Europe’. Setting out with his Dutch and Italian colleagues to mediate, he went on: ‘If one problem can be solved by the Europeans, it is the Yugoslav problem. This is a European country and it is not up to the Americans. It is not up to anyone else.’[73]
Nor was it merely that the Europeans proved incapable of grasping, let alone altering, the realities of the war of aggression which Serbia and the communist-dominated Yugoslav national army were waging; Community diplomacy actually made the situation worse. The Community continued to support a policy of keeping Yugoslavia together long after it had become clear that what effectively amounted to a Serb coup against federal Yugoslav institutions had occurred. The Community ‘monitors’ became sucked into the complications of war and failed to denounce the aggressors clearly. Even when the Yugoslav army withdrew from Croatia it was allowed to station its heavily armed forces in Bosnia, the obvious next target for aggression. When an exasperated Germany finally insisted that Slovenia and Croatia be recognized at the start of 1992, against the wishes of most other Community members, the last nail was hammered into the coffin of an effective European foreign policy — let alone a common defence policy — based on consensus.
A NEW BEGINNING
Not only have the economic and political aspirations of Maastricht been discredited: a Government which started with a small but satisfactory working majority has come perilously near on more than one occasion to being forced into a general election as a result of divisions on the issue on the Conservative benches. Since the Maastricht Bill became law in the summer of 1993, an attempt has been made to bridge divisions with a return to the rhetoric of Euro-scepticism. The trouble is that rhetoric is not enough. We now have to have a clearer strategic objective and a cleverer tactical game plan than for Maastricht.
The essential starting-point for this is to weigh up honestly and objectively our negotiating strengths and weaknesses. We should not be under any illusion that we are ‘winning the argument’ in Europe. It is deeply unpersuasive to say at one and the same time that one subscribes to the objectives of one’s partners, while trying to change them. In any case, argument is of little importance in European Community decision-making. While France, Germany and a sufficient number of other Community members remain intent on federalism, expositions of the virtues of the alternative are, for immediate practical purposes, wasted effort. This situation will not necessarily last for ever. But it would be altogether unrealistic to assume that the balance will alter between now and 1996.
It is equally necessary to learn from experience. Ever since Britain joined the EEC we have seen European institutions, supported by other European governments, placing a systematically different interpretation on texts than those which we accepted. From ‘ever closer union’ in the Treaty of Rome, to ‘economic and monetary union’ endorsed as the official objective at the Paris European Council in October 1972,[74] to the Single European Act where the new majority voting provisions intended solely to implement the Single Market were used by the Commission to extend its regulatory powers, our experience has been the same. Vague declarations, which we assumed at the time had no practical implication, are subsequently cited to justify the extension of Community powers into fresh areas of national life. Consequently, in judging whether further verbal concessions to federalism should be made in the Maastricht negotiations, we had no excuse for naivete about the extent to which they would be exploited and indeed twisted. Maastricht was a treaty too far. Even without Maastricht, moreover, it would have been necessary to revise some aspects of earlier agreements, going right back to the Treaty of Rome, if the unwelcome momentum was to be resisted.
This is especially relevant to the activities of the European Court of Justice. Most of us, including myself, paid insufficient regard to the issue of sovereignty in consideration of the case for joining the EEC at the beginning of the 1970s. There was, of course, a basic intellectual confusion, when phrases about ‘pooling sovereignty’ were used, resting on what Noel Malcolm has described as the failure ‘to make any distinction between power and authority’.[75]
But beyond that there was a failure to grasp the true nature of the European Court and the relationship which would emerge between British law and Community law.
The latter is directly applied through the courts of member states which, in the event of a conflict, are bound to give Community law, as interpreted by the European Court, precedence over domestic law. This was demonstrated by the Factortame case, brought against Britain by Spanish fishermen who had found a legal loophole by which they could register their ships in Britain and make use of British fishing quotas, thus thwarting the intentions of the Common Fisheries Policy. In 1988 Parliament passed a Merchant Shipping Act to close the loophole, but the subsequent litigation went against the British Government and resulted in the suspension and ultimate setting aside of the Act by the British courts, following reference of the case to the European Court.
What makes this legal situation all the more significant is that the European Court is a far from impartial interpreter of the treaties and Community laws. It makes no bones about being a force for European integration. Its opportunities for extending the powers of Community institutions are still greater under Maastricht. Above all, it will be for the Court to decide on the reality of the opt-outs on monetary union and the Social Chapter which the Prime Minister obtained for Britain. Its past attitudes and activities give little cause for comfort.
Against all these difficulties, however, Britain has even more important negotiating strengths, as long as we are prepared to use them to the full. The first and most important is our trading position and opportunities. Our trade balance with the Community has been consistently in deficit. Not that there is anything wrong with that in itself. But it does establish that other EC members have a clear interest in continuing trading with us and so puts into perspective the exaggerated fear that if we do not comply with their wishes, they will find ways to cut us off from their markets.
In addition, the European Community’s relative importance as regards both world trade and Britain’s global trading opportunities is diminishing and will continue to diminish. Our politicians should become less concerned with European markets, whose most dramatic expansion has probably now been achieved, and more interested in the new opportunities emerging in the Far East, Latin America and the North American Free Trade Area. The disposition of Britain’s massive portfolio of overseas assets — over £1,300 billion in 1993 — provides an insight into the judgement of the private sector on this question: over 80 per cent are held in countries outside the EC, and the proportion in the emerging markets is expanding vigorously. The share of our total trade with countries outside the EC, and particularly with the Pacific Rim, is increasing and will continue to do so.
Moreover, although some of the investment which comes to Britain doubtless does so because we are within the European Community, investment will also increasingly go elsewhere than to Europe because of the EU’s regulatory inflexibilities and high social costs. Both by tradition and because of the pre-eminent position of the City of London as an international financial centre, Britain is naturally a global rather than a Continental trading country. But we need to retain the right to hold down our industrial costs if we are to compete successfully in the new global market. None of this is to say that we should lightly pick quarrels with our European neighbours. But it does suggest that we must stop speaking as if Britain’s economic future primarily depended upon proving ourselves to be ‘good Europeans’.
Secondly, it is also important to recognize the important non-economic strengths Britain possesses, which give us a special weight in European negotiations. In spite of the present chill in relations between the US Administration and the British Government, the ‘special relationship’, depending as it does upon shared experience, traditions and sentiments, is still an important underlying reality. My own experience of Anglo-American relations in the run-up to the Gulf War convinces me that, whatever the calculations of officials in the US State Department or the British Foreign Office, when serious work has to be done we all know that the US can rely only upon a handful of well-established nation states with a global outlook and a willingness to uphold international order. That means, principally, ourselves and the French; and the French, though they played a gallant part in the Gulf War, have generally been suspicious of American-led ventures. The Anglo-American relationship is itself, of course, closely linked to the unchallenged predominance of English as the language of the twenty-first century. There are, therefore, good strategic reasons for shrewd Continental European statesmen to wish to keep a mutually satisfactory, or at least tolerable, relationship with us.
Finally, our partners should not assume that we will always want to sign an agreement in the end. Although we prefer cooperation, we should be quite prepared to be very un-cooperative indeed. If there are attempts to steamroller us into further steps towards federalism, or indeed if our demands for revision of existing arrangements which have worked against us are ignored, we must be prepared to exercise our veto and resolutely use all avenues of non-cooperation open to us under the existing treaties. We have reached the point at which a Gaullist mantle may fall fittingly on Anglo-Saxon shoulders.
Years of fighting for Britain’s interests at successive European Councils, not least at my final Rome Council in October 1990, caution me against believing that it will be simple, let alone easy, to achieve a successful outcome in 1996. The pressures will be applied in different ways and from different quarters well in advance. The proposals from the German CDU in September 1994 for a ‘hard core’ of European states committed to monetary union demonstrate that the process of softening up has already begun — though, as I shall suggest, the concept of a ‘two tier’ Europe should certainly not be dismissed out of hand. In the detailed negotiations it will be important to combine tactics and toughness in order to achieve the best outcome for Britain. But even at this stage it is important to spell out just what such an outcome would be.
All but a small minority of convinced Euro-federalists recognized that Britain’s entry to the European Economic Community involved a balance of advantages and disadvantages. Although strategic considerations were not without weight when the frontier of communism cut through the centre of Europe, this balance was essentially economic, as the EEC’s name suggests. On the one hand, we gained unhindered access to a large Western European market which we envisaged would develop both as our economies grew and as policies of internal free trade prevailed. On the other side of the ledger, we would be large net contributors to the Community budget which reflected the disproportionate costs of the Common Agricultural Policy. We were aware that France’s inclination towards subsidies and protection threatened to push the EEC in the wrong direction; but we blithely thought that these could be restrained and perhaps reversed. More seriously, we did not foresee the impulse towards centralized decision-making as a result of the ambitions of the Commission, nor the spread of interventionist social regulation from Brussels, nor the scale of the challenge to parliamentary sovereignty and to the law of the United Kingdom. How can the balance of advantage be tilted back in Britain’s interests?
The initial step requires only the bare minimum of consultation or negotiation with our European partners and should not be delayed. It is not good enough to say that the issue of whether we are prepared to abandon the pound sterling and sign up to a single European currency is simply one for the future. To make such a decision at any time would be to take the heart out of democracy by removing (in theory at least ‘irreversibly’) the central aspects of economic policy from the control of the British Government. Certainly, such a far-reaching decision should not be contemplated without a referendum. Still better, if the Government were now to declare against a single currency, that would both reassure the public and demonstrate our principled dissent from the federalist objectives of most other European governments. Similarly, it should be made clear that there is no question of sterling’s return to the ERM or any successor system. To make such statements now would both lead the rest of the Community to take us more seriously and increase the pressure for other governments to reveal their hands to their electorates. It would also do no end
of good in restoring support for the Conservative Party.
It is also necessary to clarify our attitude towards the project of a ‘two tier’ Europe in which the inner bloc embraces economic and monetary union, a high degree of social regulation and common foreign, security and defence policies. The immediate reaction in Britain to this project was hostile, but for a variety of sometimes confused and even mutually contradictory reasons. Some critics view it as a further unacceptable step towards a federal Europe whose agenda is dominated by the Franco-German axis. But others oppose it because they hanker after Britain being part of that ‘hard core’, for example on defence matters. In neither internal nor external European relations, however, is it in our interests to subordinate our autonomy further; in fact the reverse. There should certainly be no question of placing our defence decision-making under European control. The proper — indeed the only militarily practicable — international framework for this is NATO.
But the new situation also provides us with an opportunity. It is essential to make clear that if we were to permit amendments to the existing treaty framework which would allow the proposed development to go ahead, then our own interests would have to be accommodated. If there were an attempt to construct such a ‘hard core’ without respecting our fundamental views and interests, then we should be fully justified in pursuing every measure of obstruction and disruption open to us. An absolutely essential requirement would be to ensure that the ‘hard core’ countries were not able to impose on other members their own priorities on questions, like the operation of the Single Market, where their interests might well turn out to be different from ours. The price of our agreement to changes which those countries seek might further include the unbundling of a number of provisions in existing treaties which work to our disadvantage and, incidentally, to that of other member states.
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