by Gordon Brown
I did not object in principle to a single currency. It could cut costs for businesses and consumers, not least by reducing the high costs of currency conversion. It could deepen commercial links and, by getting interest rates and inflation down, ensure greater stability. When, in October 1997, I first set out the Labour government’s position on the euro, I also said that, if we joined the single currency, Britain’s trade could, under the right circumstances, increase substantially – perhaps by 50 per cent over thirty years. Overall, inside the euro, UK national income could rise over that time by between 5 and 9 per cent.
But without measures to mitigate the inflexibility of locking our exchange rates forever, the euro could not work for contemporary Britain – its housing market, its small-business sector and public finances. I was also mindful of how deeply the European project had divided Britain over time – both the country and parties. In the early 1960s, I had read the words of the Labour leader Hugh Gaitskell, who famously rejected Europe in favour of the Commonwealth, warning about ‘the end of a thousand years of history’. At that time, it was the left who opposed joining the European project because they considered it too neoliberal. In the late 1980s, however, the president of the European Commission, Jacques Delors, with whom I spoke regularly, convinced the Labour Party of his vision of a social Europe with guaranteed workers’ rights – a vision I already believed in. Anti-Europeanism then became a cause of the right wing who took up the argument that increasing integration meant the end of Britain as we knew it.
As we prepared for government – and dealing with the creation of a European single currency – I was fully aware that we would have to negotiate a difficult path. In February 1997, I invited the BBC’s John Sergeant to join Geoffrey Robinson, Ed Balls and myself to cover a speech I was giving in New York. In a pre-speech interview, I told him that we saw benefits in principle of joining the euro while also highlighting issues of concern. Expecting me to say there were ‘formidable obstacles’ – as Tony and I had agreed – and frustrated by my unwillingness to say so, Sergeant exploded: ‘That’s it. I’ve had enough. I can’t take this any more.’
In one sense, Sergeant was right: we had to be more precise about the conditions we would attach if Britain was to enter the euro. This would be the main subject of my speech the next day to the American European Community Association which we simultaneously issued in Britain. It was in this speech that I first set out the five tests that would determine whether joining the euro was in our best interests or not. These were to do with whether members would have the economic flexibility to deal with shocks, the potential for convergence between the UK and European economies, and the likely impact on financial services, investment and jobs. It has been reported that Ed and I scrawled these five tests on the back of an envelope while on a taxi journey across Manhattan. In fact, the five tests had been decided in advance of our visit to America. What did happen was that, while in New York, Ed briefed the story to the UK press from the back of a taxi.
But when it came to the general election in 1997, Tony felt it necessary to show the Murdoch press that he was sceptical about euro entry. He responded to entreaties from Rupert Murdoch and told the Sun that he ‘loved’ the pound. Against my advice at the time not to tie our hands, he promised that if we ever considered joining, there would have to be a referendum first.
Once in government a decision had to be made. There was only a brief honeymoon period on all issues European. Soon questions about the euro came thick and fast. With the mainland European states planning to join together in the single currency as early as 1999, the question was: what would we do in the new parliament? A further layer of complication was our upcoming presidency of the European Union in 1998, when all the main decisions would be finalised.
And yet big questions about the euro remained unaddressed. How would Britain converge with the different economies of continental Europe? On the way to membership of the euro, would we have to return to John Major’s failed experiment of managing the exchange rate? How would our unique housing market respond if interest rates were cut? Even if we did satisfy ourselves on the merits of joining the euro, our opponents would inevitably recast our decision to make the Bank of England independent as a Trojan Horse for surrendering interest-rate decisions to the planned European Central Bank.
In July 1997, Tony was persuaded by Philip Gould that he should break with tradition and campaign as prime minister in a by-election in Uxbridge. In the event, the Conservatives not only held the seat but secured a swing of 5 per cent from Labour to their candidate. It was only a few weeks since the general election but it was already clear that if we opted to join the first wave of the euro, we could not assume a clear run in any referendum.
While people feared we would make a wholly political decision, I insisted, as I had done since well before the election, that whatever we ultimately proposed, a persuasive economic case was essential. The British people needed to know we had thoroughly tested the euro’s viability for Britain before deciding.
For all my predecessor Ken Clarke’s enthusiasm for membership of the euro, we discovered that few preparations for it had been made inside the Treasury, so we instructed officials to flesh out the detail of the five tests. I was taken aback when Treasury staff told me that, in their view, there were not really five tests at all but four, and that the fifth – would the euro promote higher growth and a lasting increase in jobs? – was an amalgam of the fourth and fifth and should be dropped. I told them no, and less than five months later they produced a forty-page assessment that provided the basis for the huge doorstopper document that was finally published in 2003.
Given the media’s interest in all things European, murmurings quickly started about where we were headed. Our Foreign Secretary, Robin Cook, was pro-euro, as was Lord Simon – formerly head of BP – who joined the government as Minister for Trade and Competitiveness in Europe. Peter Mandelson, ensconced in the Cabinet Office and with Tony’s ear, was also pushing its case. Even so, in his first months as prime minister Tony oscillated from unalloyed enthusiasm to musing that the euro was a dead duck. At one point, in a somewhat unlikely proposition, Tony said he would ring Chancellor Helmut Kohl of Germany to persuade him to postpone the whole project until Britain was ready to join.
At this stage, though, we were engaged in private discussions: there was no plan for us to make any definitive public statement. But soon we would have to do so; if we did not, as was becoming increasingly clear, the rumour machine would spin out of control.
The first signs that it was doing so came with a Financial Times article in late September reporting that the Labour government was moving closer to joining the single currency. Some days later there was a story on the front page of the Independent claiming that a war had broken out between Tony and myself over the euro. Their story – that I was trying to bounce Tony into what was portrayed as the early death of sterling – came out of thin air and the suggestion there were divisions started to threaten the credibility of the government.
I recalled how the Conservatives’ handling of the same issue, saying they would join ‘when the time is right’, had split them asunder as they fell victim to press questions every day, every week, every month about whether the ‘time was right’. I decided this new round of speculation now needed a definitive rebuttal. So, when we had our usual weekly strategy meeting on the afternoon of Thursday 16 October in Downing Street – attended by Robin Cook, Peter Mandelson and Jonathan Powell, the No. 10 chief of staff, as well as Tony and myself – we discussed how to handle the issue of UK participation in the euro.
It was accepted that we would have to make an announcement that Britain would not be joining in the first wave in 1999, and would have to do so by the end of the year – the last possible date we could apply for membership. Given these realities, I felt there was nothing to be gained in delaying the announcement and losing credibility as we let speculation mount and moved closer to the deadline. As a result,
when Tony and I spoke on the phone just after the meeting, I offered to do a newspaper interview. This would end the speculation, clear the air and rebut the allegation that there was a split between the Treasury and Downing Street. Tony asked me to talk to Alastair Campbell, now his director of communications, who also supported dealing with the issue.
That Friday, Ed Balls called Philip Webster, the Westminster political editor of The Times, and it was agreed to give him an exclusive interview on the euro. At the time, Philip was out playing golf with his opposite number from the Sun, Trevor Kavanagh. Given where he was – on the links with the arch anti-European Kavanagh – there could be no interview over the phone. Instead we faxed him a statement which we had shared and agreed with Alastair. In the fax, I restated our five economic tests for euro membership, including the need for the British economic cycle to be in line with that of Europe. We also reminded Philip that in our manifesto we had said there were ‘formidable obstacles’ to Britain joining in the first wave in 1999. That remained our position. I was determined that we would not fall into the trap that the Conservatives fell into over the Exchange Rate Mechanism. We would not resort to the discredited Tory proposition of joining when the ‘time is right’ – implying we could join the next week or the next month, allowing that possibility to dominate every hour and day, and then eventually being forced to make a decision for short-term political reasons. We would, I said, join when we were sure the five British tests were met – our policy was ‘prepare and decide’.
I had concluded, as I informed Webster, we would not join in the first wave of countries and that it was ‘highly unlikely’ we would join in the lifetime of the parliament. He interpreted this as ruling it out for the whole parliament. It is true that I believed that, if we did not take part in the first wave in 1999, we would not be in any position to join before 2001. Imagine having a referendum on the euro in either of the two most likely pre-election years, 1999 or 2000? It was inconceivable that we would have put the return of a Labour government at risk by calling a referendum so close to polling day in 2001. But I was also clear in my statement that we did not completely rule out the possibility of joining before 2001. However, The Times reported: ‘BROWN RULES OUT SINGLE CURRENCY FOR LIFETIME OF THE PARLIAMENT’.
On the Friday evening, operating from his mobile phone on the pavement outside the Red Lion pub in Westminster, Charlie Whelan, and then Alastair Campbell, who was working from home, confirmed to the BBC and ITN that, while not closing down all our options, I was effectively ruling out British membership for the Parliament. According to one account, Charlie suggested to the Sun’s editor, Stuart Higgins, that the headline in his next day’s edition should be ‘BROWN SAVES POUND’. At any rate, Charlie’s more general remarks outside the pub were overheard by two Liberal Democrat press officers who notified the Press Association. We were now rapidly losing control of the story.
That night, Charlie took a call on his mobile from a very senior – and very angry – member of the government trying to discover what was happening: the prime minister. Stuck at Chequers, Tony was desperate to discover what was being briefed to the newspapers. Unable to get hold of me – I was at constituency surgeries – or Alastair Campbell, Tony was only able to track down Charlie. The conversation, as Alastair records in his diary, went as follows: ‘TB asked if we had ruled out EMU [Economic and Monetary Union] this parliament. Yes, said Charlie. “Is that not what you want?” No, it is not, said TB. “Oh,” said Charlie.’
In a hastily arranged Saturday conference call between Tony and myself, involving Alastair, Ed Balls, Peter Mandelson and Charlie, we tried to deal with what was now a crisis of our own making. But we knew the cement was already set: we could not row back. Alastair later wrote that both he and Charlie believed that they were doing the right thing. Some of Tony’s staff have written that ‘the intention had been to rule out entry to EMU only for 1998 and 1999 and not beyond’. But Alastair, who was aware of the Times headline, had believed it right to rule it out for the parliament. Indeed he wrote later that while the Treasury drafted the words, he made changes to tone down its pro-Europeanism. There was not a conflict, in truth, between the Treasury and No. 10: it was between those who accepted the hard realities and those who wished they were different. It was obvious that if we did not join the first wave of the euro in 1999 we would not be in a position to join in the run-up to the 2001 election.
Following a fractious weekend dealing with the fallout from the Times story, I then had to face my own Black Monday – or ‘Brown Monday’, as it was dubbed. On 20 October, I was presiding over the opening of the London Stock Exchange’s new computerised trading system but because of the turmoil over the euro I found that just as I did so the electronic screen turned bright red behind me – giving the press an ideal photo op suggesting that shares were in freefall.
When it came to the Commons statement on 27 October, Tony wanted to pull rank and deliver it himself. I replied that the issue was a Treasury matter. In any event, Tony was at the Commonwealth Prime Ministers’ Conference in Edinburgh, making it impossible for him to do the necessary preparations for such a major statement. That did not stop his private secretaries drafting a very glib statement which I found unacceptable. I used my own words, emphasising our support for the principle of joining and stating our policy was ‘prepare and decide’, a position Tony agreed with. I announced a National Changeover Plan and the establishment of a Standing Committee on Euro Preparations, and made clear we could only join if the currency was successful and the economic case was clear and unambiguous. I said again that this was unlikely to happen before the end of the parliament and – adding some words that Tony wanted and I was happy to agree to – ‘barring some fundamental or unforeseen change in economic circumstances’.
We went ahead to consult on and publish the National Changeover Plan in February 1999. In October, I was present with Tony, the Liberal Democrat leader Charles Kennedy, Ken Clarke and Michael Heseltine for the launch of ‘Britain in Europe’, which was aimed at countering the Conservatives’ ‘Save the Pound’ campaign. I used my annual Mansion House speech in June 2000 to affirm that, while we found the mechanics difficult, we were still in favour of joining the euro in principle. At the same time, I said that the Treasury was the ‘guardian of the policy’ and thus the tests. I reminded people we had a triple lock: the British opt-out on the euro, the vote that had to happen in Parliament if we wanted to go ahead, and the referendum.
Tony returned to the issue of euro membership in the months leading up to the 2001 general election as he planned his second term. He was thinking about a possible referendum on the euro in autumn 2002 or summer 2003. While he didn’t think we could do it with Britain’s high exchange rate of 2.80 DM to the pound, he suggested we redefine the issue from ‘whether’ Britain should join to ‘when’. Even if we did so, Tony and I agreed that the economic logic would have to dictate the timing as well as the argument for a ‘yes’ vote. There is absolutely no truth in any claim that I used the euro as a ‘political lever’ and told Tony that I would only consent to entry if he later stood down. The opposite was, in fact, to prove to be the case.
There was one hiccup. In February 2001, Tony said at Prime Minister’s Questions that he intended to make the case for joining the euro ‘early in the next parliament’. William Hague, the Conservative leader, asked him: ‘Does early mean the first two years of the parliament?’ To which Tony replied: ‘Early in the next parliament means exactly what it says … within the first two years.’ I don’t think Tony was bouncing the Treasury or me into action we opposed, but it did mean that we would have to do an assessment, publish it and put it to the House of Commons by mid-2003.
Tony’s language on euro membership became a lot more bullish after the 2001 election. In a speech he had prepared to give to the TUC but was cancelled because of 9/11 – the contents of which he delivered at the Labour conference later that year – his tone was decidedly more positive. He calle
d on us to ‘have the courage of our argument’ on the euro and cemented the idea in people’s minds that we had a timetable. We agreed that there would now be a ‘full assessment’ by 5 June 2003, though he still accepted my caveat, that the results of the tests had to be ‘clear and unambiguous’.
Now well into the euro assessment, I kept asking myself: what do we do if I say ‘no’ and Tony demands a ‘yes’? How could our partnership survive? Although Tony’s preoccupation with the Iraq War overshadowed almost everything else, events made him more enthusiastic about joining the euro. He felt that after falling out with Germany and France on Iraq, he could rebuild alliances over the euro, and, of course, he also saw it as part of his legacy. He sent me messages – directly through John Prescott and Clare Short and indirectly through Sue Nye – that if he got his way on the euro he would be ready to leave and pass me the leadership. But I was adamant: I would not put what I considered to be the national economic interest second to my own political interest.
I had wanted to issue our euro assessment on the day of the 2003 Budget – scheduled for 9 April – but a disagreement between Tony and me on what tests had been met delayed the timetable. It was probably just as well: I was giving my Budget speech as Baghdad fell and Saddam Hussein’s statue was symbolically hauled to the ground.