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Email this citationCIAO DATE: 12/98
Britain, New Labour, Europe and the Euro: Current Policy and Historical Perspectives
July 1998
By mid-June, 1997, the kaleidoscopic nature of European politics was already most apparent. In Britain, a divided Conservative party, replete with ‘Euro-skeptics’ negative about the single currency, had been replaced by ‘New’ Labor. The change ended, at least in theory, 17 years of procrastination and obstructionism by the previous two prime ministers, John Major and Margaret Thatcher. 1 Across the Channel, meanwhile, the run-away juggernaut towards EMU (European Monetary and Economic Union), as seen by British Conservatives, had apparently been stopped in its tracks. President Jacques Chirac, gambling that early elections would provide “a clear glide-path to EMU,” ill judged the public mood, so that the center-right coalition of Alain Juppé was replaced by the socialist Lionel Jospin amid high unemployment and public protest for state intervention. In Germany, meanwhile, it became unclear that the Maastricht criteria for qualification would be met, leading Theo Waigel, the finance minister, to devise an ingenious scheme to reduce the over-sized deficit by re-valuing the gold reserves. The result here was direct confrontation with the (much revered) Bundesbank and its president, Hans Tietmeyer. In short, it suddenly seemed that perhaps neither Germany nor France would qualify for the first wave of the single currency due to high deficits, and EMU suddenly seemed in peril of postponement, if not complete abandonment.
The most persistent lesson to be learnt from European politics, however, is that obstacles can melt away as fast as new ones emerge and that rarely has the momentum towards collective goals, such as EMU, been held back for long. Thus, although the Amsterdam summit of EU leaders (June, 1997) was rocked by French demands for étatisme and job creation, and although the German expediency of re-valuing the gold reserves was for a short while insoluble (eventually going ahead), the Luxembourg summit of September generated surprising resolve. Not only was the single currency placed back on track, but the timetable suddenly seemed as if it had accelerated, with the announcement that May 1998 would see the fixing of conversion rates to the euro. For each state qualifying for membership by this time, 2 the single currency would become a reality on January 1st, 1999. At the time of writing, this remains the timetable and is unlikely to be blown off course even by last ditch legal sabotage by German academics or the German election which will take place later in 1998. 3
The Political Will Behind the Single Currency
Such resolve indicates that the most striking factor in European convergence towards EMU is that it has been driven by fundamentally political currents. Economic fundamentals, although visible, have instead been subject to flexibility. Returning from Luxembourg in the summer of 1997, Philippe Maystadt, Belgian finance minister, was asked if delay could occur in the timetable. He replied: “Delay? That subject is closed. Nobody talks about it anymore.” 4 Such an attitude demonstrated the resolve of EU leaders to wed their own political credibility inextricably to the single currency timetable and to avoid the slightest hesitation that might unsettle the financial markets.
Most recently, February 27, 1998 saw the first eleven EU states clear the fiscal hurdles for EMU when previously there had been numerous doubts. 5 In fact, the monetary figures for budget deficit and debt submitted by Germany, France, Italy, Portugal and Spain were all remarkably better than analysts had predicted, prompting talk of the great Euro ‘fudge’. German economics professor Renate Ohr, one of 155 German and Austrian economists who called for the Euro to be postponed, reacted with astonishment, saying that “There must have been some very creative bookkeeping.” 6 Budget deficits had to be 3% or less of GDP during 1997; debt 60% or less as a proportion of GDP. Germany presented figures of 2.70 and 61.3% respectively. Professor Wilhelm Hankel, one of the academics attempting to stop the Euro via action in Germany’s Constitutional Court, accused the German government of presenting false figures. In the case of Italy, a deficit of 8% of GDP in 1995 suddenly plunged to 2.7% in time for qualifying, based on a series of emergency budgets and a special one-off ‘euro-tax’. Spain and Portugal, ironically, came in with deficit figures of 2.6 and 2.45% respectively, undercutting both France and Germany, having slammed the brakes on spending. The impression of this ‘Maastricht figures game’ is indeed of a project propelled primarily by political will, which leaves many economists worried that a return to old economic habits might prove exceptionally destructive to a currency union in the future.
It is the political nature of European integration that most clearly defines the British diffidence on the subject. If all that were proposed were a prosperous and dynamic free trade area, there would in all likelihood be few British objectors. But the fear has always been that such plans were merely a blue print for wide ranging political union, perhaps leading to the development of a federal, United States of Europe. British politicians, and most of the British people, remain implacably opposed to the idea, as does New Labor. In his March 25 (1998) speech to the French parliament, Tony Blair explicitly argued that further union should not impinge upon issues such as welfare, health or taxation.
To date, New Labor have conspicuously avoided political visions, concentrating instead on economic arguments, both for and against EMU. Equivocation finally ended on Monday, October 27, 1997 when Gordon Brown (Chancellor of the Exchequer) announced that Britain would enter the single currency only when the time was right, and certainly not in the current parliament. The implications of this enormous policy decision remain hugely controversial and not entirely transparent. 7 It was clearly a break from past policy, in that it indicated the absence of constitutional objections to a single currency for the first time. Yet it also disappointed many Europeans who hoped for a firm commitment to EMU in the first wave, suggesting that New Labor were turning out to be much like their Conservative predecessors, with good words but little action.
Given the continuation of a ‘wait-and-see’ policy by New Labor, the difficulty is to determine the reality behind the policy statement made by Brown on October 27, 1997. This applies first to the actual (economic) arguments invoked to justify delay, but also to a more far reaching series of domestic political, strategic, and cultural factors which can be assessed only with reference to a wider historical context.
Economic Objections by New Labor
In the first place Brown considered that the disparity in business cycles between Britain and Germany/France was sufficient to justify delay. 8 In the currency union, interest rates for all member states will be set by the European Central Bank (ECB). Brown stated that “If conditions in the rest of the EMU area were very different from those in the UK, euro interest rates could often be too high or too low for the UK, making economic conditions less stable.” Thus, “...convergence must be capable of being sustained and likely to be sustained” before Britain could embrace the euro, something that would take “a period of years.” Secondly, Britain needed to achieve labor market reforms for the sake of flexibility, and to address long-term unemployment and serious skills shortages. Thirdly, a long-term and stable macro-economic environment was needed for British business to benefit from EMU. Fourthly, the financial services industry, a pillar of the British economy, might benefit from EMU but would thrive whether Britain joined or not. And finally, Brown broached the critical issue of employment and growth, saying that he believed “a successful single currency would provide far greater trade and business in Europe.” 9
In these five areas Brown utilized economic arguments to justify a wait-and-see stance, partly praising the idea of the single currency but in other ways conveying diffidence. Of course, it was not a question of economics or politics so much as their relationship, guided ultimately by a balance of the possible and the desirable concerning the national interest and the state of public opinion. Yet economic criteria were still conspicuous, and grand political vision absent. The Maastricht criteria for qualification for EMU (which, apart from the need to be members of the ERM for a qualifying period of at least two years, presented no obstacle to Britain in any case) 10 were relegated to the sidelines. In their place were the five arguments just outlined, which were all qualitative in character. Enforcing the sense in which Britain has something of an economic and political sonderweg, Brown offered no concrete figures as objectives, leaving himself with ample room for retreat in case the euro failed or the British public developed cold feet.
Consideration of the Economic Arguments for Delay
Concerning the non-alignment of economic cycles and apprehension over employment and growth, it is hard to argue that Brown was guilty of prevarication and deliberate delay. Convergence of interest rates matters because the Bank of England would cede control to the European Central Bank in the event of membership of EMU. At the time of writing, British interest rates remain in the 7–8% range, with another rise expected, whilst French and German rates remain much lower in the 3–4% range. None of the repeated attempts of the Bank of England to ‘talk down the pound’ have had any effect over the longer term, and in the week beginning March 16, 1998, figures released showed that unemployment in Britain had fallen once again to 1.38 million—only 6% of the labor force and the lowest figure since 1980. During the same week, the pound reached a new, nine year, trade weighted high. Meanwhile in Europe, unemployment levels remain at their historic peaks, with French and Italian unemployment at over 12%, and German unemployment at 11.2%, the highest figure since 1945. 11 Thus in the short term, at least, Brown’s concern over disparate trade cycles has been justified.
Of course, this disparity includes an element of self-prophesy, and the pound has remained strong partly because it has been kept out of first entry to EMU, becoming something of a hedge currency. But the actual performance indices of the economy, as exemplified by the employment data just mentioned, indicate the deeper validity of Brown’s position. In this respect the British economy has shown alignment with the US model rather than the continental one. And in other respects it continues to exhibit structural differences from France and Germany. The quantity of trade carried out with the world beyond Europe exceeds that of comparable EU states, making Britain more vulnerable to global factors such as the recent Asian crisis. Britain is more vulnerable to interest rate fluctuation since mortgage debt is equivalent to 57% of GDP compared with the European average of 33%. And thirdly, the UK has been a substantial net exporter of oil since 1980 and is likely to remain so for the foreseeable future. Sensitivity to oil price movements remains, therefore, a source of potential economic instability. Any chancellor would be justified in wishing to retain a degree of budgetary control to respond to these factors. In this respect, at least, the declared need for ‘sustainable convergence’ would appear to be justified. 12
Differences in Business Culture Between Britain and the Continent
In a more general sense, there remain enormous differences in business culture separating Britain from the continent. Neither French nor German economies are particularly ‘open’ to free and unfettered competition. French truckers completely paralyzed the road network leading to cross channel ports during 1997, with doleful consequences for British exporters. Yet when British farmers, angered by the BSE related decimation of their industry, attempted similar tactics in Britain, the forces of law and order prevailed and there was no question of such a blockade. The British Rail network, privatized by a Conservative government in 1996–7, is now owned and run by a series of franchisees competing in a (relatively) open market. In France, SNCF is instead a state run entity which costs the French taxpayer $9 billion a year. Comparisons of business culture are not dissimilar in Germany. Telecommunications privatization has occurred yet Deutsche Telecom remains a virtual monopoly with private user charges far ahead of comparable British and American firms. And in the motor industry, offices of Mercedes and Volkswagen have been raided by EU competition officers following their refusal to comply with the reality of the open market. Under pressure from the manufacturers, dealers will not supply right hand drive models to British buyers in Germany or Amsterdam, despite their legal obligation to do so. The obvious reason is lost profit, since Britain remains the most expensive place to buy a car in the EU, with prices up to 40% higher than on the continent.
These anecdotal examples highlight more substantive factors, some of which have already been mentioned. Trade Unions are smaller and less powerful in Britain. And in terms of financial services and stock market capitalization, Britain remains behind the USA but far ahead of Germany, where banks are the traditional suppliers of finance capital. Only 16% of German capitalization of business is represented by the various regional bourses, whose diminutive size and diverse location contrasts starkly with the global status of London as a center of financial services.
All of this has been much to the fore in New Labor’s approach to the presidency of the EU, which began in January, 1998. Blair’s rhetoric at the party conference back in the fall of 1997 included much talk of promoting free trade, improving the democratic accountability of the EU institutions and promoting labor market flexibility. 13 Gordon Brown has also sought to export British economic policy to Europe, and has consistently criticized his EU colleagues for failing to tackle structural reform in the run up to the single currency. This signaled a determination to ‘place Britain at the heart of Europe’. But it also highlighted the fundamental cyclical and structural differences among the participating states, and provides further reasons why British caution is probably well founded. In this respect, there is some value in briefly considering some of the principal problems of convergence faced by Germany, France and Italy, the three most powerful nations that will join EMU in the first wave.
Problems Faced by Germany, France and Italy
Germany has its problems, and only just qualified for EMU in terms of its debt, which, technically, was not supposed to exceed 60% of GDP. Germany weighed in at 61.3%. Qualifying thus depended mostly on the hesitancy of the original treaty language which referred to the figure as a ‘reference value’ rather than as an absolute. Yet, even then, indicators suggest the figure is rising rather than falling, partly because of the continuing cost of unification. More serious still, from a British view point, was the failure in October 1997 of highly necessary tax reforms, which were scuppered for purely political reasons by the Social Democrat Party frustrated by its long term in opposition. Manfred Neumann, chairman of the economic ministry’s council of expert advisors in Germany, charged that “close to nothing” had been done to reform Germany’s labor market regulations, the public pension system or the tax system, even though it was widely recognized by all political parties that existing structures were “seriously deficient and required major changes.” 14
In France, the extraordinarily long arm of the state and Jospin’s pursuit of La préférence européenne (polite words for protectionism) have indicated profound differences of intent about the future political and economic course of Europe. Since election, Jospin’s government has introduced legislation to reduce the working week to 35 hours, embarked on a state funded job creation program and included three communists among its ministers. 15 Air France is state owned, as is the main arms producer, Giat. The French state employs six million people, and during 1996 taxation accounted for an astonishing 45.7% of GDP. The successes of the state in France should not be undervalued, and public ownership has without doubt been more appropriate than privatization for large, infra-structural projects such as the Channel Tunnel. The French economy has shown a powerful export sector, positive trade balance, low inflation and a thriving technology sector in the past few years. Just as in the case of all the other EU member states, étatisme has its roots in the distant past, as well as the post war decades which saw a transformation of a largely agrarian rural economy to one of the world’s leading industrial powers by the late 1970’s. But none of these considerations lessen the need for structural reform in order to ‘converge’ with France’s neighbors, and it is perfectly reasonable for Blair to have shown a measure of restraint about plunging in to a currency union that might impose it’s own version of archaic structures and restrictive practices. At the time of qualification for EMU, France had debt of 58%, only just below the Maastricht figure of 60%, and a budget deficit of exactly 3% of GDP, where only eight months before French politicians had been predicting a figure of closer to 3.4%. As in the case of Germany, there was a certain amount of creative accounting needed to produce the right numbers.
Italy, to general surprise, breezed through the Maastricht criteria qualification in the spring of 1998. A 1995 deficit of 8% of GDP, falling to 6.7% in 1996, had by 1998 been reduced to 2.7%, against the Maastricht limit of 3%. Since the overall budget deficit is set to fall even further in 1998, it could be argued that Italy was more in keeping with the spirit of Maastricht than was Germany, whose deficit is rising. But Italy’s historical propensity for inflation, huge debt and a soft lira has ruffled the calm of other EU states, the Dutch and Germans in particular. Much of Italy’s fiscal tightening has been due to Carlo Azeglio Ciampi, whose prudence and toughness has won even the respect of Bundesbank hawks. But at 77, it remains an open question how long he will remain in his job. At the time of writing, the debate about conversion rates to the euro, which will determine how ‘hard’ or ‘soft’ a currency it will be, was precipitating a row centering over Italy. In contrast to the European Commission, the Bundesbank wanted Italy to design a firm program for cutting its substantial national debt, not satisfied with the mere act of qualifying in the short term.
British caution is well justified given all the above factors. Political energies achieved the footwork necessary to qualify at all, yet they were aided by deeper macro-economic factors that consisted mostly of good luck. The rapid convergence of the past year has taken place against a background of lessening global inflation, encouraged by falling commodity prices (especially oil, but also semi-precious metals) and intensified competition resulting from globalization. In addition, signs of an upswing in the economies have helped to bring deficits down just at the moment such momentum was most needed. “We’ve had a fair weather convergence under the rigor of a tough deadline,” said David Marsh of Robert Fleming. 16 Thus the principal question remains whether the luck factor runs out—the resumption of hostilities in the Middle East, or renewed OPEC collaboration, could quickly spike the price of oil—and whether the political resolve to qualify translates into future sustainability.
In September 1997, the International Monetary Fund warned that structural economic reforms in Germany, France and Italy lagged far behind. It went on to suggest that greater labor market flexibility was almost as important for the future of EMU as sound fiscal policy. Without labor market reform, unemployment could continue to rise, as it has so far, undermining public support for a single currency. In this vein, it is relevant that whilst Germany, France and Italy have historically high structural unemployment, they are eclipsed by even worse levels in Ireland, Belgium, and Spain. Spain is forecast to average over 20% unemployment during 1998. 17 The views of The European in this respect are not too exaggerated. It has stated that the EU is “host to the most effective job destroying economies in the world,” 18 and that:
| Economies (e.g. the United States, Britain) where a measure of such labor market flexibility is in place have tended to perform much better in the job-creating game than those with rigid employee protection. The message from America is unequivocal: the country that fires the most is also the country that hires most. 19 |
Thus in both the first and fifth (economic cycles, promotion of trade and business) of Gordon Brown’s criteria for British membership of EMU, his caution appears to be merited. That “...convergence must be capable of being sustained and likely to be sustained” before Britain could embrace the euro, is an eminently reasonable stance, as is the qualified endorsement of the single currency for employment and job growth, which presumes that it would be a success before it would be beneficial (“a successful single currency would provide far greater trade and business in Europe”). 20
British Equivocation?
Merely to see New Labor and Europe in terms of a policy of ‘wait-and-see’ misses the subtlety of it, as well as the full range of responses that followed Brown’s October speech in the media. Serious evaluation of New Labor in power has scarcely begun, and it is all too easy to draw historical parallels that may turn out to be erroneous. Before Brown’s clarification of policy in October 1997, The European accused Blair of having “played a preposterous, contrary and often contradictory game of hide and seek, like a blushing virgin at a ploughboys’ ball,” instead of the strong and open government he promised before the election. 21 To europhiles everywhere, there was a sinking feeling of déjà-vu. Yet in March, 1998, he addressed the French parliament in flawless French, delivering a full length speech on his vision for Europe, challenging the left and right to see that there was a third way forwards to economic growth and job creation. For a British prime minister, it was noteworthy genuflection towards French language and culture.
Similarly, Brown’s clarification of British intentions was heralded as a remarkable change in British policy, seen historically. Although Brown had effectively put the issue out of play until at least 2001, many observers took the declaration as a ‘yes’ to EMU. The Independent declared in large print:
| No one should be fooled by the ifs and buts, or the delay. The Chancellor wants to join a successful single currency; and he is preparing the country for entry. ‘No, unless’ under the Tories has become ‘yes, when’ under Labour. Sooner or later, Tony Blair will gamble his reputation on winning the argument. 22 |
Stating that “The time for indecision is over,” and that “The period for practical preparation has begun,” Brown left no one in any doubt about the eventual direction of British policy. Even against the recent past, this was an enormous moment, and in utter contrast with the rhetoric of Margaret Thatcher, who, as recently as 1992, had compared the process of Maastricht to the spread of Communism. 23 Crystal ball gazers concluded that a general election would be held in 2001, allowing the referendum on the single currency to take place soon afterwards and sterling to be part of EMU by 2002, the same year in which Euros will be issued for the first time as coins and bank notes for ordinary use.
Against this ‘smooth path’ prediction of the future, there are naturally alternative scenarios, and an indication of positive intent does not constitute a promise. For one thing, there remains an outside chance that EMU will be called off, or could be so volatile that one of the original members opts out. Even if it is successful, there is no ultimate guarantee that Britain will join EMU, and Brown’s “five points” agenda is so wide ranging and so open to interpretation that it could be construed as one, vast fire exit in case of rising heat. Having presented the matter to the cabinet, a bill would be drawn up and presented to parliament, debated, passed (perhaps), and then thrown open to a referendum. At any stage the British bid for entry could fail. It would be something of an exaggeration to affirm the statement of the Conservative shadow chancellor, Peter Lilley, that “We now know when we probably won’t enter the single currency, but we don’t know when, if ever, we will be ready to enter.” 24 In short, there remains a real air of uncertainty.
For some onlookers, this policy has amounted to one of willful delay, belying its stated intention to become a leader in Europe. For Edward Heath, who led Britain in to the Common Market in 1972–3, 25 Blair’s “...refusal to accept the single currency immediately as one of the original members” was “bitterly disappointing.” 26 Although a more “extreme” europhile on British soil, Heath is merely in alignment with the other heads of the eleven EMU entrant states in wanting to be part of EMU from the outset. Like some others, his fear is that Britain will “miss the bus”, as it was supposed to have done with the European Coal and Steel Community in 1950 and the original European Community in 1957. In doing so, Britain might slide to the sidelines and crucially fail to direct and guide the future shape of Europe, just as foundational arrangements are being made at the inception of the single currency area.
Without assuming this analysis to be accurate, it most clearly utilizes a particular version of British post-1945 history (“missing the bus”) to argue a particular case. It therefore provides a convenient point at which to explore at least some of the historical context in order to judge the position of New Labour on Europe, opening up the analysis to other strategic factors that have for the past five decades exerted great force on the making of British foreign policy.
Strategic Considerations and the Constraint of Security
Part of the anguished debate about British ‘decline’ in the twentieth century and the loss or weakening of British identity has led some to decry British entanglement in Europe and others to urge it ahead, with corresponding interpretations of policy history. While the historical record probably lies somewhere in between, it will take several decades before the British response to Europe since 1945 properly comes into focus. Nowhere is the debate more paradoxical than in the realm of defense strategy. At least since 1940, it has consistently been those conservatives essentially hostile to British integration in Europe who have been most supportive of European union in time of national need. An early example of this is the Anglo–French Union of June 16, 1940, presided over by Winston Churchill. Not only did it cede sovereignty for a ‘Franco–British Union’, to provide joint “organs of defence, foreign, financial, and economic policies,” but even the two parliaments would be “formally associated.” 27 As Michael Howard described it in 1972, the generation of 1914–18 eschewed the continental commitment, while the generation of 1939–45 understood it to be canonical:
| no continental adversary could be defeated without a military decision on the mainland of Europe and Britain could wield no influence either in war or in peace unless she was prepared to make a major contribution to that decision. 28 |
Returning to Churchill shows that his own position on the subject was quite visionary. It was he who subsequently called for the creation of a United States of Europe in his speech in Zurich, September 19, 1946. But it was not a vision that included British participation except in the role of offshore ‘honest broker’. In other words, the acceptance that there would henceforth be the need of a ‘continental commitment’ did not necessarily imply the end of great power ambitions so much as their logical course. On this thinking, Britain would commit to Europe enough to see that Germany remained safe, thus enabling a desirable return to Atlantic and global interests as before the war.
Margaret Thatcher was the last great exponent of this policy. She was one of the staunchest supporters of NATO, yet it did not mean that she saw a connection between defense cooperation and other forms of political and monetary integration in Europe. The end of the Cold War in the late 1980’s, precisely because it removed the threat of a Russian pre-emptive strike, had the effect not of opening her mind to European Union but sharpening her distaste for the idea of German Unification. Her attempts to prevent this from happening became at times shrill, and were exceeded only by the comments of her fellow minister Nicholas Ridley, whose view was that further cooperation with Germany by Britain indicated that the Second World War had been a waste: Britain might as well have given in to Hitler.
That this stance now seems not only preposterous but also unthinkable indicates how much the end of the Cold War has altered the European sphere. The Russian shadow has been replaced by security threats much less focused in appearance, such as terrorism and the proliferation of potentially dangerous technologies. As recent scares over anthrax poisoning indicates, it is likely to be painstaking cooperation between security forces rather than nuclear deterrence that will be effective against this kind of threat. And as the envisaged Russian attack has receded, so the dependence on an American ‘nuclear guarantee’ has also receded. The outcome for NATO remains to be seen: the predicament it currently finds itself in over membership and raison d’être is merely additional evidence of the enormous changes still taking place after four decades of relative certainty.
Concerning European integration, the strategic landscape offers few concrete lessons. The “Euro Fighter” project, although behind schedule and over budget, has proven that there is great scope for European cooperation in matters of defense. The end of the Cold War has, arguably, enhanced this situation by reducing immediate, operational pressures which in the past have encouraged a national or American solution to hardware needs. But the post-Cold War landscape has simultaneously blurred the strategic direction of defense as well, so that other, more fundamental factors have become central. In this respect the future of NATO and the future of the EU (beyond the scope of this paper) have much in common, including a basic debate about enlargement and common purpose. 29 Perhaps the greater lesson of the whole post-1945 period is that even in matters of national security, the stubborn tendency towards national interests has never been eradicated. This is one of the main conclusions of the recent study of post-1945 nuclear strategies by Beatrice Heuser:
| Over the five decades, nuclear weapons became the litmus-test of the plans which European politicians, diplomats and other strategists had for European integration, the ‘sign of sovereignty’ which could have been (and never was) visibly conferred upon a European Union. 30 |
One could argue in reply, of course, that the national pursuit of nuclear capability by France and Britain was due to a genuine perception of threat and a genuine doubt of American support, 31 and that therefore neither policy could be construed as ‘anti-European’ as such. However, the fact that national nuclear strategies were employed indicates the constraining nature of the Cold War where European integration was concerned. In other words, the threat of nuclear annihilation encouraged go-it-alone policies as well as the type of continental commitments performed by Britain in light of its membership of NATO.
The ‘Special Relationship’
This conclusion is best demonstrated in respect of French nuclear strategy, which offers a valuable comparison against which to measure the argument that Britain has been a deliberate saboteur of European integration through its ‘special relationship’ with the USA. French nuclear ambitions were confirmed by 1954 at the latest, yet the ensuing policy was never less than paradoxical, and always split between the desire to merely defend French soil and to play a more collaborative role within NATO. 32
In this respect, the tendency to see France as a more cooperative and ‘European’ member of European Union than Britain is suspect. 33 The European Defense Community (1950–4) had an element of nuclear cooperation written in to it, yet de Gaulle scotched it on his return to power in 1958—his first diplomatic act, as he proudly described it. De Gaulle had no problem with deeper European integration as long as it was French led. To have ceded control of nuclear weapons production would have been to have squandered a critical aspect of French ascendancy. In this respect French nuclear strategy (and the nationalistic belligerence behind it) was most clearly illogical, being based as it was on long range strategic missiles rather than smaller, battle ground devices. De Gaulle tried hard to wrest the Federal Republic of Germany from American control without being able to offer any equivalent nuclear guarantee in its place. The dependence on “pure and hard deterrence” by France, like Dulles’ doctrine of “massive retaliatory force”, was in every respect opposed to the needs of West Germany, and threatened to make it the target for complete annihilation by Russian attack.
British nuclear policy, guided partly by the continuing memory of the “Grand Alliance” and Great Power status, was also enmeshed in the recasting of this memory as a ‘special relationship’. But this relationship was also balanced by pragmatism and the careful husbanding of material and strategic resources absent in the French example, and all too often overlooked in the analyses of this period. In this respect the ‘special relationship’ was itself more than window dressing. It was born partly of the 1943 Quebec agreement, which led to the Manhattan project and allowed for “complete interchange of information and ideas” on atomic research between the US, Canada and Britain. It also came from unparalleled military cooperation and joint experience during the latter stages of the war, the existence of strategic British air bases around the world of use to America, and of the American need to have good allies after 1945, especially at a time when Europe was otherwise in a state of chaos. Britain allowed atomic bombs to be stationed on British soil after the outbreak of the Korean war, thus effectively making the nation a target for any Russian strike. And there was a steady exchange of information and analysis, the Malayan ‘emergency’ of the 1950’s yielding lessons in counter-insurgency used subsequently in Vietnam, American support enabling the British to use the AIM 9–L sidewinder missile in the Falklands War, and British bases allowing American strikes on Libya in 1986. It is therefore untrue to say that the ‘special relationship’ has had no substance, just as it is inaccurate to argue that it has been of more benefit to the US than to Britain. Quite apart from meta-strategic factors such as a common language and Anglo–Saxon heritage, the British–US collaboration has been an important factor in their respective pursuit of extra-European ambitions and European security since 1945.
Although the relationship was by no means straightforward for either party, Britain maximized its ‘pivotal’ role as an interface between the US and Europe. The British retention of the independence of nuclear launch, like the French, was based partly on fear of American default and a degree of suspicion that escalated after Suez. Yet even here, the British made their policy of nuclear independence a source of greater cooperation with the US, unlike the French, who made it a source of attrition. By arguing the virtue of Britain as a “second center of decision,” British policy managed to convey a pivotal role in NATO of advantage to America and Europe alike, and capable of different emphasis over time. Under Harold Macmillan, ‘interdependence’ had meant the closest possible cooperation with the Americans to the exclusion of other powers. By the mid to late 1960’s, it had assumed a more European meaning which included the extension of deterrence and cooperation linked to British hopes of entry into the EEC. In this way, London could present itself to Bonn and Paris as the friendly alternative to American dependency.
As the renewal of stand-off hostility between Iraq and the West during spring 1998 demonstrated, the ‘special relationship’ continues apace with a bond developing between Tony Blair and Bill Clinton as cohesive as any that previously existed between Thatcher and Reagan. To the French, for whom the ‘special relationship’ has always been a source of anti-American sentiment and irritation with Britain, the whole spectacle remains inexplicable. But viewed historically, and against the example of French nuclear strategy, the ‘special relationship’ seems not only logical, but a wise utilization of diplomacy to achieve a policy objective that maximized British and European ‘options’ faced with a Russian threat. It offers no lessons for the assessment of Blair, except that seen historically, it was not a constraint on Britain’s European policy so much as an integral component of European policy at a time when even economic and industrial questions came second to defense during a Cold War environment.
In this respect there is no evidence that the continuation of the relationship need imply lack of participation in the EU by Britain. Rather it indicates the growing alignment of US–British economic models and similar political visions (Welfare reform, for example) for domestic progress. It also represents a shared vigilance respecting global security, such as in the case of Iraq. None of these policies are in any way anti-European, but rather offer alternative visions for achieving future prosperity, full employment and a secure global environment in which to do business. The question Blair has yet to answer is whether he sees his relationship with the US in terms of utility with sentiment added, or as one of concomitance, as Clinton has construed it: Britain is more useful to America as long as it is at the heart of Europe.
In this respect the ‘special relationship’ has adapted over the course of time, and may now be a catalyst for British involvement in Europe. The last US nuclear weapons were removed from British soil in 1996, and the RAF will leave its last base in Germany in 2002, ending continuous occupation since 1945. Unless new threats emerge, or old ones resurface, there will no longer be any reason for Britain to substitute strategic logic for political and economic participation with a unified Germany within a united Europe, replacing four decades of limited economic cooperation based on a strategic presence of containment with military preparedness and the legacy of 1939–45. 34 The single currency may yet prove to be the fullest expression of the type of Europe envisaged by General George Marshall when he made his original “Marshall plan” speech on June 5, 1947. If so, Europe may achieve the type of intricate meshing of self-interest with the common goal of a peaceful Europe that Bismarck, even in his wildest dreams, could never have envisaged.
The Imperial and Commonwealth Aspect
Whilst the Cold War was uniquely European in origin and in enactment, it would be a large oversight to exclude the imperial aspect of Britain’s past, which also continues to haunt New Labour. Within weeks of clarifying his government’s stance on the euro, Tony Blair was hosting the Commonwealth Heads of Government meeting in Edinburgh. As with most other foreign policy, this supposed relic of the colonial era has instead come alive again in the past ten years, with expanding membership and new vitality. As with NATO and the special relationship, the question is whether the legacy of empire is a constraint on Britain’s participation in Europe.
In terms of de-colonization the speed of events must still seem incredible for those who have participated. Lord Hailey had produced a secret report in 1941–2, in which he warned at the outset that “the outstanding impression of Africa must be one of rapid change, and of greater change impending.” But it was not published until 1979. As late as 1945 there remained an official mentality of “indefinite time ahead” as to the timetable for transfer of power to the colonies. The mere fact that most African colonies did not achieve independence until the 1960’s is indication enough of just how recently empire was still a reality. 35
Empire affected British views of Europe in peripheral yet powerful ways, just as it affected European views of Britain. When de Gaulle rejected the British application for membership of the EEC, he did so citing the insulaire and maritime quality of British identity. Britain was not, he implied, European enough to be part of Europe. Of course, he could use such an argument without complete self-irony only because of the French colonial policy of assimilation and France d’outre mer. French colonial subjects, according to this belief, were no longer Africans but French men in the making, and thus European by extension. The utter difference between this (less humane) policy and the British policy of Indirect Rule in Africa served as a powerful reminder of national difference. After 1945, the same differences were played out with bloody and less bloody experiences of decolonization, ranging from Indochina to Algeria, Malaysia and Kenya.
It is against this background that the British non-participation in the Coal and Steel Community should be viewed, and the later decision in 1955 to shun the customs union. Between 1945–55 the British mentality was one of re-focusing on imperial matters: until Suez there remained the illusion of Greatness and no immediate understanding of the growing forces of nationalism in the colonies. Paradoxically, the ending of indirect rule for “responsible local government” in Africa (Creech Jones, Local Government despatch, 1948) meant increased British involvement in the dependent territories at a grass roots level, just as the war had led to central control for resources and manpower. Thus, exactly at the moment that events began to accelerate towards independence so also metropolitan control reached its zenith.
The illusion of greatness was exacerbated by the dwindling American pressure for speedy transfer of power after 1945, which illustrates the increasing priority of ‘containment’ by 1950. Asked in 1943 who they thought most likely to be the next enemy of America by Time magazine, the majority of US readers thought it would be the British Empire. And, most famously, the Atlantic Charter of August 1941 proclaimed the principle of self-determination, to all people, which for Roosevelt included African colonies. British terminology (‘partnership’ instead of ‘trusteeship’) changed accordingly, as did its aid contributions (the 1944 Colonial Development and Welfare Act). By the spring of 1950 the communist threat implied new commitments abroad from American initiatives, (NSC–68, for example) along with the need to bolster western Europe. The end result, most visible in the American replacement of French forces in Indochina after the disastrous defeat of Dien Bien Phu in 1954, was that America had herself adopted an imperial mission.
Add to this a domestic dimension in which the British coal industry was thriving, and a continental context in which the Coal and Steel Community was largely driven by French ambitions to obtain secure coal supplies and to control the German steel industry, and Attlee’s decision to avoid involvement in this enterprise seems rational. As a recent study has sought to demonstrate, the idea that Britain “missed the [European] bus” largely evades serious analysis. 36 The decision—if it can be so simply described—was due not to lack of political vision but to “the time-lag in the Europeanization of Britain’s trade and political interests,” artificially inflated by the 1932 Ottawa preference arrangement. 37
The value of this longer term perspective is that it indicates something of the indelible nature of empire in the recent history of Britain. Enormous changes led to swift transfer of power so that by 1965 almost all former British colonies had won independence. The reduction of the Commonwealth Heads of Government Meeting in Edinburgh in 1997 to a one day event instead of a longer, more elaborate meeting is indicative of the continuing retreat from empire. And the Commonwealth itself has changed in character so that it fulfills several discrete functions rather well. It is one of the only forums where the leader of Tuvalu can mix with the Prime minister of India, and thus serves as a vast and constructive talking shop. 38 It can uphold certain standards of human rights. It confers a measure of status through membership, and, perhaps most importantly, it provides the scope for economic cooperation and trade expansion.
The economic aspect was most obviously stressed by Blair as he simultaneously marketed the new “Cool Britannia” image of Britain developed by New Labour and talked of global free trade and peace. The single notable agreement of the assembled heads was to globalization, partly in light of the fact that Commonwealth members contribute one fifth of world trade. The final outlook is thus of a rather odd heritage but with practical potential. Mozambique and Cameroon joined the Commonwealth in 1995, Fiji has been readmitted, and Yemen and Rwanda are keen to follow, and the Palestinian National Authority wants to apply after 1999 when it receives national sovereignty. The Commonwealth has 54 member states which collectively slice across all other comparable groups in existence, G7, the EU, Asean, SSARC, OAU, CARICOM and the South Pacific Forum. This is itself a valuable contribution towards global stability.
By adapting the standards of liberal free trade to the future function of the Commonwealth, Tony Blair demonstrated a remarkable consistency with his approach to Europe. His ‘special relationship’ with America is in the same vein, so that it would be mistaken to see Europe as the strangled third option. It may, therefore, be the case that the famous overlapping spheres (The Atlantic sphere, the Commonwealth sphere and the European sphere ) envisaged by Churchill in 1946 have finally achieved a measure of convergence. For Churchill, speaking in Zurich in 1946, Britain, assured of her own special destiny, would broker each sphere, remaining pivotal but nonetheless in a certain sense detached. In practice, (although the historical record is in the process of being re-written) each sphere generated its own momentum creating continual tensions. Europe, although a priority for Britain in terms of security and NATO membership, remained relatively distant and ‘foreign’ for most of the period 1945–90, even after membership of the EEC in 1973. For Tony Blair in 1998, the model is one of almost Gladstonian dimensions, in which the state maintains a conscientious presence yet in economics becomes again a night-watchman. This model has, in turn, become a significant driver of foreign policy, so that Commonwealth, US and European relations have been re-modeled on it.
A Consideration of Why Britain May Join EMU
History appears to be pulling in the direction of European integration with a compelling combination of financial and market forces on the one hand, and political will on the other. The remainder of this paper will attempt to indicate a range of practical and strategic reasons why Britain may join EMU early in the next millennium.
Practical Considerations: Public Opinion
By promising in the 1997 general election that EMU entry would depend on a successful ‘yes’ vote in a referendum, New Labour ensured that a vigorous public debate on EMU will need to take place in the not too distant future. At the time of writing, this debate remained in its infancy. Survey data from October 1997 showed that about 61% of UK residents firmly opposed EMU. It may well be this data that helped swing cabinet sentiment away from the mooted possibility of an early entry soon after 1999 to a more cautious policy of waiting until at least the next parliament. In England, only 15% of respondents were committed to EMU, while the corresponding figure was the same for Wales and higher (30%) for the more European minded Scots. 39
Assuming that the theory of an optimal single currency area is realized to a sufficient degree, 40 and assuming that the European Central Bank (ECB), as planned, will have near complete autonomy from political pressures, the result would be a Europe that represented something approaching a pure market. The price of a Mercedes would be comparable in any EU state and subject to immediate scrutiny by consumers and consumer organizations. There would be the elimination of exchange commissions for ordinary travelers. 41 And employment options for individuals could become even more flexible than they are currently, traversing national boundaries on a regular and unfettered basis. Although, in the big picture, these factors merely represent a thousand micro-economic adjustments, they will be the most tangible benefit felt by most ordinary EU citizens. And therefore they may well come to be crucial in any referendum in Britain. Since British cars are the most expensive in Europe, foreign holidays are normal for substantial numbers of families and individuals, and British construction workers regularly grace German building sites already, there is good reason to believe that a single currency would be beneficial.
Whether such arguments will prevail over popular fear about losing the Queen’s head on coins and receiving beer measured in liters instead of imperial pints remains to be decided. Indications suggest that survey data can be extremely fickle, as can public opinion. Negative sentiment can quickly become positive depending on circumstances, and may not actually influence the outcome of a referendum. The general election of 1997 demonstrated, for example, that anti-European policies pulled few or no votes from the electorate. Over 200 Conservative MP’s went to battle on an anti-EMU ticket and the vast majority lost their seats. Analyzing the result, Michael Heseltine argued that there was “not a shred of evidence” to suggest that Europhobia won votes. 42 Even if one reads the result as indifference to Europe, it may be good news for the future result of any referendum, since there is a practical difference between active hostility, (which has been largely absent), and neutrality.
The lesson of the 1975 referendum over whether Britain should stay in the EEC provides something of a parallel in this respect. The previous year saw anti-marketeers bolstered by poll ratings showing the public to be hostile. Yet the actual referendum saw a 67% vote in favor. Of course, since Britain already belonged to the EEC, the vote could be seen as a further defense of the status quo, rather than anything radical. But the same pattern was subsequently repeated during the early premiership of Margaret Thatcher. Poll findings encouraged Labour to pursue a more anti-Common Market strategy. Yet Labour was trounced in the 1983 general election. Even given other decisive factors such as the recent victory in the Falklands Campaign, one lesson seems clear: in neither 1975, 1983 nor 1997 did euro-skepticism win votes. In the 1997 election, the anti-Europe ‘Referendum party’ founded and financed by Sir James Goldsmith polled a tiny vote and won no seats.
In contrast, the negative poll finding of October 1997 already appears to be out of date, or at least potentially misleading. In a ‘deliberative poll’ conducted by Channel Four as early as 1995, 300 voters were brought together to debate the euro. At the outset, 58 to 16% were against British participation. By the end, the ratio had altered to 44 to 28, still negative but by a smaller margin. This example suggests that free debate may lead ordinary Britons to move in favor of EMU. Since New Labour announced its intention to eventually join EMU, changes in favor of joining have already been noticeable. A BBC Newsnight poll of its audience showed a complete reversal of earlier views, with 48% in favor of early entry to EMU, 28% against, and 24% undecided. 43
Bi-Partisan Support for the Euro
Since the debate in Britain about EMU has barely begun in any substantial way, apart from media attention and a steady stream of news on the convergence of other EU member states, other forces may account for this change. In the first place, there has been a dramatic increase in bi-partisan support for British membership of EMU. January 5, 1998 saw a swathe of high powered Tories turning their backs on the official policy of their leader, William Hague, of remaining out of EMU for a minimum of ten years. They included six former cabinet ministers and two former deputy prime ministers, among them Geoffrey Howe, Kenneth Clarke, Edward Heath and Michael Heseltine. 44 Publishing a letter in the Independent, they emphasized the positive results of EEC membership since 1973, they offered support to Tony Blair “in making the right decisions on the difficult challenges which lie ahead,” and on the subject of EMU stressed the need to ensure “that we suffer as little as possible from (once again) choosing not to be in right from the start. We believe it important that EMU succeed and for Britain to prepare now...” 45 The letter seemed to signal the start of a campaign across the political spectrum to abolish sterling in favor of the euro, an astonishing change of course for members of a party that only months before had fought an election without any commitment to EMU.
The View From the City
A second, powerful source of pro-EMU opinion is to be found in the British business sector and financial services industry. Admittedly, this is not a uniform consensus of opinion, and there are many small business owners who remain opposed to EMU, according to “The Forum of Private Business”. But at the other extreme, the City represents a powerful and vocal source of support. Prior to Brown’s clarifying speech concerning EMU, there was a tremendous amount of indecision and mounting pressure from financial markets and business for a clear lead. As sentiment swung one way and then the other, it became perfectly clear that the markets viewed early participation in EMU as an unqualified good. Friday, September 26 saw an apparently reliable leak to the Financial Times from a Treasury source, suggesting that Labour was much keener to join EMU than had previously been thought, maybe even intent on joining in the first wave. Markets reacted the same day with the largest ever one day surge in the FTSE 100, and a convergence rally in UK gilts based on the theory of converging interest rates. 46
A week later, however, the government went in the opposite direction by arranging an interview in the Murdoch owned Times with Charlie Whelan, the chief press advisor for Labour. 47 In this capacity he sought to provide opposite ‘spin’ to the story and left the markets with a more sober impression of government intentions. By Monday morning this had turned to skepticism so that as Brown opened the new Stock Exchange Trading System (SETS) the large electronic screen behind him turned scarlet and the stock market lost over a 100 points in a matter of minutes. The Evening Standard lost no time in dubbing the day “Brown Monday”, 48 a punishment to the government for its dismal and uncertain attitude to EMU. In other words, there are powerful currents in the market place that point in the direction of a single currency, and which may be a decisive factor in the eventual decision to join.
As for businesses, particularly those who export or trade with Europe, the attractions of European Monetary and Economic Union are substantial. Most importantly, a single currency promises a more stable and long term macro-economic environment, suitable for long term investment and planning. Exchange rate fluctuation would be eliminated as well as currency conversion costs. A single market for debt and equity would be created throughout most of the EU. A stable currency would result from the control of interest rates by the ECB, eliminating speculation and the interference of politicians. Competitive devaluation of national currencies as a means of stimulating export growth would not be able to happen; nor would a sudden rise in interest rates as a means of protecting or strengthening a currency against speculative pressures, which would in any case disappear.
Of course, the same ‘purity of market’ will lead to a tremendous shake out for inefficient or undercapitalized businesses across Europe, and the loss of thousands of jobs in Foreign Exchange business. But it seems unlikely that, from a purely British perspective, this will be bad news. Many British businesses in the thriving support services, distribution and household goods sectors are already expanding across Europe by acquiring under performing European businesses. Labor market flexibility in Britain is well ahead of France and Germany, where unionization remains a serious challenge to government reform. As for financial services, it remains to be seen which center, (London, Paris or Frankfurt) will reap the largest rewards from the single market, but London’s pre-eminence, especially in the bond market, is unlikely to be diminished. The likely explosion in merger and acquisition business may more than make up for the loss of Foreign exchange earnings. 49
The Short Term Future for Britain...
There are many economists who, along with the Bundesbank, 50 remain nervous about Belgian and Italian debt, French and German spending and all the potential that these disparities imply for the future single currency area. Yet, for British euro-skeptics who eagerly peddle dire warnings about a soft euro or even a EMU melt down, there is a refusal to understand that the experiment already controls the British economy in far reaching ways. The Bank of England has for some time been attempting to align with the European cycle of business, and when the EMU group is in place Britain will not attempt a go-it-alone policy of competitive devaluation. Howard Davies, former deputy Governor of the Bank of England, addressed the German–British Chamber of Industry declaring that “...our policy aim as an outsider would be broadly the same as that of the European Central Bank.” 51
As for potentially disruptive effects, it is likely (and already the case) that British business, especially the export sector, will suffer from increasing distortion as monetary union draws closer and the pound is viewed more and more as a safe haven currency. Thus the harder the euro-skeptics beat their drum the worse the situation gets for British exporters, and global investors consider their options and opt for (relative) security. If the EMU group is a success, of course, the pound could crash from its DM 3:00–3:10 peg to its fair value, which is considered to lie in the DM 2:50–70 range, bringing back memories of Black Wednesday when the flight on the pound drove it below its ERM floor. In other words, the lesson of being a freely floating ‘out’ currency, (as for the Swiss franc) is that it is likely to suffer violent fluctuation, completely at odds with the declared intention of New Labour to create a stable, long term macro economic environment in which to do business.
For this and other more ‘strategic’ reasons, it may eventually become impolitic for New Labour (or any other British government) to stay out of EMU. Above all, a successful euro is the most likely means by which labor reforms dear to Blair’s heart will be achieved in Europe. The same system is, ironically, likely to be injurious to the social welfare policies entrenched in Europe today.
| The ultimate irony of the flawed euro is that should it fail, it will destroy the process of European integration; for it to work, it must destroy the very social model that Messrs. Kohl and Jospin cling to. 52 |
Secondly, it is clear to most economists and observers, particularly outside of Europe, that as an ‘out’ currency, the pound stands to weaken the euro and will render it little more than an enhanced D–Mark bloc. As a participant, it would help to make it a world class currency.
On this note, it is impossible to avoid the observation that New Labour policy on the euro, wise though it may be, is nonetheless contradictory as to ends and means. Blair has the Presidency of the EU between January and June 1998, and will preside over the setting of conversion rates in May. He has declared that he wants Britain to lead Europe, but he will preside over this historic moment as an outsider. When that moment has passed, the EMU group will exist. Its first meeting will be under Austrian chairmanship, and thereafter it is an open question to what extent Britain will influence the EMU bloc. For this reason, as for all the others, the pressures for British entry may escalate more quickly than anyone expected during the years leading up to the issue of physical ecus, time tabled for 2002.
Conclusion
It has been observed that Chancellor Kohl is a historian who wants to be remembered as the architect of a solution to Germany’s troubled past in Europe. With unification, the further objective of anchoring Germany securely in a western oriented Europe, without the resumption of easterly ambitions or lebensraum tendencies, has become a political and moral imperative for German leaders. Few of them would be sanguine enough about the future to be certain that Germany will one day be a European state in a federal arrangement, the equivalent of Texas or California in the United States. Yet the analogy is brandished frequently enough to communicate its message, that there is no reason why “the German question” need persist indefinitely. 53 For French leaders, the persistence of traditional ambitions in the anticipation of a united Europe equivalent in size and power to a global superpower presents a separate set of dilemmas, which may involve the final relinquishing of “exceptionalism”. 54 For Britain, the big question remains to what extent it is prepared to throw in its lot with economic union, when it threatens progressive erosion of sovereignty and of traditional British interests, whether as federalism (Germany) or as anti-American global ascendancy (France). Fortified by innate caution and genuine doubts, Labour must recognize that non-participation will eventually preclude meaningful influence on the future direction of the union.
The chance of EMU being completely abandoned has been estimated at 10%, though this would depend on a complete and fundamental change of heart by France or Germany to occur. 55 Such a clean derailment is less likely in practice than in theory. However, that does not mean that there could not be grave difficulties. The effect of external factors such as commodity prices has already been mentioned, and the Werner plan of the 1970’s (an early version of the ERM) failed largely because of the effects of the first oil price shock. If economic recovery in Europe is not forthcoming during 1998–9, as predicted, or if it is upset by (for example) another Gulf war and an oil price hike, the tensions among EU states could quickly mount. In this respect Germany retains a sonderweg. The benefits of EMU for Germany are political rather than economic, and the Deutsch Mark is set to be weakened by the euro. Public opinion, still mindful of the chronic inflation experienced in 1923, is extremely reluctant to take a leap in the dark with so much to lose and so little to gain. It is therefore easy to envisage a situation in which there were a crisis of popular confidence, a backlash from conservative Bundesbank economists and genuine doubt about participation. Beyond a certain point, turmoil would ensue in foreign exchange markets, the Mark would suddenly strengthen, the pound, peseta and lira would crash and there would be bitter recriminations against Germany. This could conceivably occur well after the locking of conversion rates on January 1, 1999, since that date represents the beginning of the great experiment, not the end. If it did, the results would be all the more damaging for the European Union, with the whole project placed in jeopardy. Only the future can reveal the actual experience of EMU. Supporters will be praying for a benign economic wind to speed the vessel to its destination.
Endnotes
Note 1: See: Helen Thompson, The British Conservative Government and the European Exchange Rate Mechanism (London, New York: Pinter, 1996). Back.
Note 2: Countries wishing to join the single currency must meet the following convergence criteria as outlined in the Maastricht treaty: 1. Inflation to be no more than 1.5% higher than that of the three countries with the lowest inflation. 2. Long-term interest rates to be no more than 2% higher than those of the three countries with the lowest inflation. 3. General government deficit to be no more than 3% of GDP (as a reference value). 4. Gross public sector debt to be no more than 60% of GDP (as a reference value, i.e. moving steadily and sustainably towards it). 5. The currency to have respected the ‘normal’ bands of the ERM for two years without devaluing. Back.
Note 3: The Maastricht treaty stipulates that 1 January 1999 is the latest possible date for the introduction of the euro. With its ratification, the EU member states are bound by international law to this launch date. This was affirmed at the Amsterdam summit in 1997. Gerhard Schröder, the new leader of the Social Democrats, has been compared to Tony Blair and is not nearly as traditional a socialist as his predecessor. Back.
Note 4: The European, Sept. 18–24, 1997. Back.
Note 5: The eleven qualifying states are: Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, Holland, Austria, Portugal, Finland. Britain, Denmark, Sweden and Greece have opted to remain out of the first wave. At the time of writing, Greece had entered the Exchange Rate Mechanism with a planned entry to EMU in 2001. Back.
Note 6: Daily Telegraph, Feb. 28, 1998. Back.
Note 7: Commentators in Britain have focused on the complete division within the Conservative party over Europe, but generally ignored the potential for dissent in the Labour party, which has by no means resolved its own policy. There is, for instance, a ‘Labour Euro-Safeguards Campaign’ which is against EMU: Contrast, for instance: Brian Burkitt, Philip Whyman, Mark Baimbridge, Economic and Monetary Union, The Issues Labour Must Confront (London: 1996), with Angela Billingham (MEP), A Single Currency for Europe (February 1998). Back.
Note 8: Interest rate disparity between sterling and the deutschmark has averaged 3.5 % during the year 1997–8. Back.
Note 9: Financial Times, Oct. 28, 1997. Back.
Note 10: Britain is not a member of the ERM. The pound was suspended from membership on September 16, 1992 (“Black Wednesday”) when the pound, the lira and the peseta were all forced below the ERM floors by market pressures. Back.
Note 11: As a % of total labor force, seasonally adjusted. The figures for France, Italy and Britain are from Financial Times, Oct. 28, 1997. The figure for Germany is from The European, 6–12 Nov. 1997. Back.
Note 12: At the time of writing, the Bank of England is walking a knife-edge between making interest rates too high, damaging the export sector and slowing manufacturing industry to the verge of recession, and damping down inflationary tendencies seen in wage rises and consumer spending. If interest rates were suddenly to be set by the ECB at, say, a rate of 4% it is hard to see that there would not be a sudden and unsustainable boom in manufacturing and consumer spending followed by dramatic inflationary pressures. Back.
Note 13: Financial Times, Oct. 4, 1997. Back.
Note 14: Financial Times, ‘Need for Realism about EMU’, Sept. 22, 1997. Back.
Note 15: The European, 13–19 Nov. 1997. Back.
Note 16: The Observer, March 22, 1998. Back.
Note 18: The European, 6–12 Nov. 1997. Back.
Note 19: The European, ‘The Jobless Recovery’, 6–12 November, 1997. Back.
Note 20: Financial Times, Oct. 28, 1997. Back.
Note 21: The European, 23–29 October, 1997. Back.
Note 22: Independent, Oct. 28, 1997. Back.
Note 23: Michael Spicer, A Treaty too Far, A New Policy for Europe (London: Fourth Estate, 1992); foreword by Margaret Thatcher. “Do not be discomforted by any attempt to suggest that ‘Maastricht is inevitable. That’s what they said about Communism.” Back.
Note 24: Financial Times, Oct. 28, 1997. Back.
Note 25: It was Heath who re-opened the negotiations for British entry into the EEC in October, 1961. He eventually achieved this objective as Conservative Prime Minister, Jan. 1, 1973. Back.
Note 26: Financial Times, Oct. 28, 1997. Back.
Note 27: Richard Vaughan, ed., Post-War Integration in Europe (London: Edward Arnold, 1976), 13. Back.
Note 28: Michael Howard, The Continental Commitment (London: Ashfield Press, 1972), 8. Back.
Note 29: It is interesting to notice that the hugely wasteful and over ambitious Common Agricultural Policy (CAP) is being revised less because of its shortcomings than because of the realization that it could not possibly be extended to new EU members in Eastern Europe, whose economies are more agrarian in character. Back.
Note 30: Beatrice Heuser, NATO, Britain, France and the FRG, Nuclear Strategies and Forces for Europe, 1949–2000 (London: Macmillan, 1997). Back.
Note 31: The US “nuclear guarantee” was never quite iron cast and always a matter of faith for European leaders. The wording of the NAT, paragraph five, was that member states were bound to “assist the Party or Parties attacked by taking forthwith...such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.” The decision over what kind of armed force was left undetermined. Back.
Note 32: France opted out of the integrated military structure of NATO in 1966, but did not completely abandon the alliance. Back.
Note 33: This one sided view is conveyed very strongly by Roy Denman, Missed Chances, Britain and Europe in the Twentieth Century (London: Cassell, 1996). The author’s close personal involvement in many of the events narrated prevents a wider consideration of the policy making environment and its constraints. Back.
Note 34: See: Alex Danchev, On Specialness, Essays in Anglo–American Relations (London: St. Anthony’s, 1997). He argues that the special relationship is an abstraction and that “cool Britannia” is an illusion. Back.
Note 35: See: Anthony Kirk–Greene, ‘Decolonisation in British Africa’, History Today, 42, 1992, 44–50. Back.
Note 36: Wolfram Kaiser, Using Europe, Abusing the Europeans, British and European Integration, 1945–63 (London: Macmillan, 1996). Back.
Note 37: Kaiser, 1996, 205. Back.
Note 38: Independent, ‘Colonial Relic? Then why do so many want to join?’, October 19, 1997. Back.
Note 39: The survey came from the annual British Social Attitudes Survey, and is the most comprehensive of its kind. Back.
Note 40: The theory that a single currency will only work in an area with sufficient structural similarities between participants. Back.
Note 41: According to one calculation, 1000 francs swapped through each currency in the EU would leave one with 500 francs on returning to Paris, the entire difference being soaked up by commission and exchange rates. Back.
Note 42: London Evening Standard, ‘Why anti-Europe polls don’t make Britain anti-Europe’, 3 Nov. 1997. Back.
Note 43: Newsnight, March 26, 1998. Also: Financial Times, “Support for single currency ‘gathering pace’”, March 21, 1998. Back.
Note 44: The others were: Leon Britain, Peter Carrington, David Curry, John Gummer, Chris Pattern, Ian Taylor, Christopher Tugenghat and George Younger. Back.
Note 45: The Independent, Jan. 5, 1998. Back.
Note 46: This is the gamble that interest rates on a peripheral currency such as sterling will, over time, become identical to that of a central currency such as the deutschmark. Back.
Note 47: Murdoch supported Blair in the 1997 general election, but is against European Union. Back.
Note 48: This was October 20, the tenth anniversary of “Black Monday”. Back.
Note 49: The Union Bank of Switzerland publication Preparing for the Euro: Solutions for Private Investors, indicates something of the banking perspective on the matter: “Lower exchange rate sensitivity, a more stable economic framework and more transparent accounting standards will reduce forecasting uncertainty in assessing individual companies and bolster investor confidence. Deregulation, privatization and corporate spin-offs will ensure an increasing and interesting supply of newly listed companies. There will be greater integration between individual equity markets, some of which were until now highly fragmented. Thus, the markets will gain in breadth and liquidity, which will be to the advantage of both institutional and private market participants. Finally, permanently lower long-term interest rates will force investors to look for alternative investment in equities relatively more attractive.” 14. Back.
Note 50: The Bundesbank published a report in March, 1998, whose authors mooted grave doubts over the actual, as opposed to the ostensible, convergence to Maastricht criteria for the eleven states poised for first wave entry to EMU. Back.
Note 51: The European Movement, The Other Side of the Coin, 31. Back.
Note 52: The European, 25 Sept.–1st Oct. 1997. Back.
Note 53: Hans Ulrich Wehler, Die Gegenwart als Geschichte, Essays (Munich: C.H. Beck, 1995). Wehler, like Kohl, perceives a ‘safe’ future for Germany as a federal future. Back.
Note 54: Lester C. Thurow, Head to Head, The Coming Economic Battle among Japan, Europe and America (London: Nicholas Brearley, 1993). Thurow judged that Europe has the potential to eclipse even the USA in economic strength. Back.
Note 55: Christopher Taylor, ‘Introduction: the economics and politics of EMU’, in Ruth Pitchford and Adam Cox, eds., EMU Explained (London: Kogan Page, 1997), 49. Back.
