The Path to Power m-2

by Margaret Thatcher

  In March 1991 I made my first major public speech since leaving office — in Washington at a meeting arranged by several American conservative think-tanks. I steered clear of the more sensitive areas for British domestic politics and concentrated on the European Community’s geo-political role.

  A democratic Europe of nation states could be a force for liberty, enterprise and open trade. But, if creating a United States of Europe overrides these goals, the new Europe will be one of subsidy and protection.

  The European Community does indeed have a political mission. It is to anchor new and vulnerable democracies more securely to freedom and to the West. This is what happened after the end of authoritarian rule in Spain, Portugal and Greece. So the offer of full Community membership must be open to the countries of Eastern and Central Europe just as soon as democracy and the free market have taken root. In the meantime, we must strengthen links of trade, investment and culture.

  It was, of course, particularly apposite to make these points in the United States which had, more or less consistently over the years, been pressing Britain towards closer integration in Europe. That approach was based on a double illusion: first, the assumption that a politically united Europe would be friendly towards the United States, relieving her of some or all of the burden of defence. In fact, the most committed European federalists quite consciously seek to move away from America, to create another superpower that would be the equal of the US and, because it would have distinct interests, eventually its rival in world affairs. This has already had practical effects. The growing protectionism of Europe provoked a series of trade skirmishes across the Atlantic even when the Cold War restrained such rivalry. Since the collapse of communism, and the draw-down of American troops in Europe, disputes over trade have become more serious, as in the US-EU row over GATT. And almost every expression of the European Community’s foreign policy-making, from the 1980 Venice Declaration on the Middle East[65] to the Community’s early and futile interventions in the Yugoslav war, have been designed to distinguish Europe from the United States, sometimes expressly so. Over time, such disputes are bound to erode the cultural and diplomatic sympathies that have hitherto underpinned Atlantic defence cooperation. At the same time, these disputes are the inevitable results of the development of a united Europe along federalist lines.

  The second false assumption made by US policy-makers was that such a European superstate, moulded from separate nations, separate cultures and separate languages, could be ‘democratic’ in the American (and full) sense of the word. I answered this point directly in my Washington speech.

  The false political mission which some would set for the European Community is to turn it into a… United States of Europe: a Europe in which individual nations each with its own living democracy would be subordinated within an artificial federal structure which is inevitably bureaucratic. A Community lacking a common language can have no public opinion to which the bureaucrats are accountable.

  Since the British Government’s stance, rhetorically at least, was similarly hostile to a United States of Europe, these were, in domestic political terms, easier points to make than criticisms of economic and monetary union, where the Government’s position appeared far less clear. Indeed, actions were already speaking louder than words ever could. In 1991 it was clear that economic policy was now principally determined by the parity of sterling with the Deutschmark, rather than by considerations of domestic monetary policy. At the same time the Exchange Rate Mechanism (ERM) was being used as a vehicle towards economic and monetary union, which was quite contrary to what I at least had intended on entry. Nor was this impression diminished by anything that the authorities had to say on the matter; the possibility of currency realignment was dismissed, and indeed it became Government policy that Britain should move to the narrow (+ or-) 2.25 per cent band rather than the present 6 per cent.

  Yet I was conscious that in criticizing what was now occurring, I was bound to open myself up to criticism. Just as defenders of the Maastricht Treaty maintained that it was I who had sold the pass in signing the Single European Act, and that they were merely dotting ‘i’s and crossing ‘t’s, so those who were now forcing the British economy into the straitjacket of a politically determined exchange rate claimed that I had no right to criticize this, since I had taken sterling into the ERM. I knew that I had good answers to both these charges. The Maastricht framework which now looked like emerging was fundamentally different from the — in practice unsatisfactory — arrangements reached as a result of negotiation on the Single European Act. The ERM was being used for a purpose of which I not only disapproved but which I had made clear within Government I would never implement.[66] Equally, these arguments were not likely to deter the critics.

  So, speaking to the Economic Club of New York on Tuesday 18 June 1991, I put my argument against managed exchange rates both in an international context and in terms which frankly admitted the mistakes which my own Government had made.

  With the Louvre and Plaza Agreements in the mid-1980s, we sought to put the objective of greater stability of international exchange rates above that of the control of inflation.[67] In Britain, we compounded this error when in 1987–88 we tried to shadow the Deutschmark. Again, the objective of a stable exchange rate was pursued at the expense of monetary discipline. These policies led to falls in interest rates to artificial and unsustainable levels, which in turn prompted excessive monetary and credit growth. That produced the inflation with which we are all too familiar, and which is the underlying cause of the present recession.[68] ‘Experience,’ said Oscar Wilde, ‘is the name we give to our mistakes.’ And the conclusion to be drawn from our experience in both the 1970s and the 1980s is that governments should commit themselves to price stability — which can only be achieved by reduced monetary growth — and leave it to companies and individuals in the marketplace to calculate the various other risks in the business of wealth creation.

  Targeting exchange rates injects excessive monetary pressure when central bankers ‘guesstimate’ the wrong rate and, like fine-tuning, can produce wild swings towards inflation or deflation when the rate is either undervalued or overvalued, as East Germany is currently discovering. When that happens, the ‘stability’ that makes fixed exchange rates superficially attractive to businessmen is either abandoned in dramatic devaluation or maintained at the cost of far more damaging instabilities like rapid inflation and higher interest rates. In the ERM Britain is fortunate to have a margin of 6 per cent to accommodate variations in the exchange rate.

  In general, however, I recall the words of Karl-Otto Pöhl, former President of the Bundesbank: ‘Interest rates should be set according to domestic monetary conditions and the exchange rate should be left to go where it will.’ To which I will add: if you fix the exchange rate, then interest rates and domestic monetary conditions go where they will. And finance ministers are left like innocent bystanders at the scene of an accident.

  It is fair to say that this analysis was not much appreciated by the Government. But some fifteen months later it was proved to be all too correct. Yet the reaction to my interventions confirmed just how difficult it was to tread the narrow line between general support for the Government and vigorous disagreement on a central aspect of what was emerging as Government policy.

  One could just about get away with such a strategy outside Westminster. But it is one of the strengths of the House of Commons that speakers are pressed in debate to reveal their true opinions; and, beyond a certain point, I had neither the intention, nor, after all those years of speaking my mind, probably even the ability to dissemble. The impossibility of the situation was brought home to me by the House of Commons Debate on the European Community on Wednesday 20 November 1991. In my speech, which would in fact be my last in the House, I supported the Government’s motion, attacked the Labour Party’s policy on a single currency and dealt with the criticisms levelled against me for signing the Single European Act. But I went on t
o question whether any ‘opt-out’ for sterling from a single European currency would be worth much in practice, bearing in mind that the Maastricht Treaty would still require us to sign up to the goal of a single currency and the institutions designed to prepare the way for it. Repeating an idea which I had floated in interviews during my leadership election campaign almost exactly a year earlier, I called for a referendum if there was a decision to abandon the right to issue the pound sterling. This, however, was something which the Government refused to promise.

  Events now moved swiftly and, as far as I was concerned, in the wrong direction. Although for some time it would prove difficult even for Members of Parliament, let alone members of the general public, to obtain the full text of the Maastricht Treaty, its provisions were agreed and the Prime Minister made his statement on it on Wednesday 11 December. Those who knew me well also knew that I could not ultimately go along with Maastricht. I could never have signed such a treaty. There were well-meaning and increasingly desperate attempts to persuade me that I could and should remain silent. I would dearly have liked to comply.

  An embarrassing little occasion the day after the Prime Minister’s statement illustrated how far wishful thinking would go. I was delighted that John Major was able to come to Denis’s and my fortieth wedding anniversary party at Claridge’s on Thursday evening. We chatted amiably about everything other than what was on our minds. But when I went out of the hotel to see the Prime Minister to his car I was faced by a whole battery of cameras and asked how I felt about his performance at the Maastricht Council. I replied that I thought he had done ‘brilliantly’. And I did indeed believe that as a political operation designed to present his approach in the best possible light he had shown great skill. But naturally my remark was taken as signifying agreement with the Maastricht Treaty itself. As I read the newspapers the following day I resolved that there could be no more misunderstandings of this sort, however painful for all concerned the consequences might be.

  THE MAASTRICHT TREATY

  Article A of the Maastricht Treaty — viewed superficially at least — nicely combines the two alternative views of Maastricht’s purpose and effect.

  By this Treaty, the High Contracting Parties establish among themselves a European Union, hereinafter called ‘the Union’. This Treaty marks a new stage in the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as closely as possible to the citizen.

  The phrase ‘ever closer union’ is repeated from the original Treaty of Rome, though it is worth noting that in the Rome Treaty it was in the Preamble. Maastricht elevated it for the first time into the substantive treaty text as part of the Treaty’s objectives clauses. But, in any case, the concept of a ‘Union’ is clearly a major extension of that — ‘a new stage’, in fact. Moreover, Articlefsets out clearly the objectives of this Union, including ‘the establishment of economic and monetary union, ultimately including a single currency’, ‘to assert its identity on the international scene, in particular through the implementation of a common foreign and security policy including the eventual framing of a common defence policy, which might in time lead to a common defence’, and the ‘introduction of a citizenship of the Union’. Understandably, therefore, Chancellor Kohl has commented:

  In Maastricht we laid the foundation-stone for the completion of the European Union. The European Union Treaty introduces a new and decisive stage in the process of European union which within a few years will lead to the creation of what the founder fathers of modern Europe dreamed of following the last war: the United States of Europe.[69]

  On the other hand, the phrase ‘in which decisions are taken as closely as possible to the citizen’, combined with the removal at British insistence of the phrase ‘federal goal’ from the earlier draft Treaty, gave the British Government a pretext for claiming that Maastricht actually devolved power from the centre to individual governments responsible to national parliaments. The flurry of interest in ‘subsidiarity’ similarly stemmed from the British Government’s desire to give the impression that Maastricht was a liberalizing rather than centralizing measure. Indeed, a new Article 3b was inserted by Maastricht into the Treaty of Rome:

  In areas which do not fall within its exclusive competence, the Community shall take action, in accordance with the principle of subsidiarity, only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can, therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community.

  This wording has rightly been described by a former President of the European Court of Justice as ‘gobbledygook’. The past behaviour of the European Commission gives no reason to believe that it would constrain that body’s activities. Initially, the Commission itself determines whether the matter is something to be devolved under the subsidiarity rule. It is extremely unlikely that the rule would be enforceable in the European Court of Justice to any practical extent. In any case, it would not apply to those areas which do fall within the Community’s ‘exclusive competence’, thus ruling out its application to wide areas of Community law such as most of the internal market measures and many social provisions. Anyone who reads the Treaty closely and intelligently will see that Chancellor Kohl’s interpretation of it is a great deal more accurate than the British Government’s. And that, perhaps, is why it was initially made so difficult to gain access to the full text of Maastricht and why generalities and slogans were the preferred means of its exposition.

  In fact, the attempt to portray Maastricht as the opposite of what it was met with only limited success. Anti-federalist Conservative MPs supported it only insofar as they felt it necessary to support the Prime Minister. The real argument therefore came to centre on the ‘opt-outs’ which Britain obtained. In practical terms, the best that could be said for Maastricht was that not all of it applied to us. Unfortunately, it is not at all clear how effective these exemptions will prove to be either in law or in practice.

  It will be recalled that when John Major and I had been discussing the tactics required to resist pressure towards economic and monetary union in the summer of 1990, I had been quite prepared for the other eleven Governments to negotiate a separate treaty for Economic and Monetary Union (EMU). Under this, Germany and France would finish up paying all the regional subventions which the poorer countries would insist upon if they were going to lose their ability to compete on the basis of a currency that reflected their economic performance. I also thought that the Germans’ anxiety about the weakening of their anti-inflation policies, entailed by moves towards a single currency and away from the Deutschmark, could be exploited in negotiations. Above all, we must be prepared to use our veto — and be known to be prepared — if we were to bring our Community partners up against the harsh realities which would make them think twice.[70] Precisely how matters would have gone if this strategy had been pursued is, of course, now impossible to say. But there was no practical reason to worry about our being ‘isolated’, despite the hysterical incantations to that effect. We could have continued benefiting from the Single Market under the existing Treaty arrangements — while still having to tolerate the CAP and the incursions of the European Court. The only Götterdämmerung was in the frenzied imaginations of panic-stricken Tory MPs.

  The problem with John Major’s alternative approach was that although it initially won plaudits, it left the fundamental problems unresolved. Under it, we would effectively abandon our attempts to win support for our alternative vision of the Community, going along with a new European framework which did not suit us, while relying on special exemptions which ultimately depended on the goodwill and fair dealing of people and institutions whose purposes were radically different from ours. Arguably, the changed approach actually made our position worse by accepting important points of principle about the Union’s future direction, for example by acceptance of the general objectives set out in Articles A and B, which
will make it more difficult for Britain to argue for its own conception of Europe in the future.

  As it turned out, Britain succeeded in negotiating two special ‘opt-outs’. The first exempted Britain from the regulations on workplace and trade union rights contained in the ‘Social Chapter’, and the second allowed us to opt out of the third and final stage of monetary union. The Government was absolutely right to resist the social provisions, which would have increased business costs, reduced flexibility and competitiveness and destroyed jobs. But this exemption relates only to new provisions and not to other directives on social policy under the Treaty of Rome amended by the Single European Act. These still offer a means of imposing the high social costs of Germany and France on Britain by the back door. A particularly important example, which has indeed become a test case, is the June 1993 ‘working time’ directive, which laid down a maximum forty-eight-hour week. This was introduced as a ‘health and safety’ measure under Article 118a to which qualified majority voting applies. The Government has mounted a legal challenge in the European Court. But the directives — whether on maternity leave or part-time employment — continue to flow. All of these measures would have one main effect — and arguably also have one main objective — namely, reducing the flexibility and competitiveness of British industry, to bring us into line with Europe.