Orchestrating Europe (Text Only)

The Bundesbank wished monetary policy to come within the Treaties but strongly opposed EMU (as Otmar Emminger’s letter of protest had shown in 1979) even at the level of a future Treaty preamble, it being a matter for member states to safeguard their monetary sovereignty, whilst at the same time taking account of the EC’s common interest. Issues relating to foreign policy or defence which required positive responses were treated cautiously; like Schmidt before him, Kohl showed himself willing to accept a steer, either from the European Council, or from France acting in lieu.

The principal weakness of this complicated, decentralized policy-making was that it inhibited German initiatives and thus disguised Germany’s latent strength (which was, paradoxically, German politicians’ intention). It also put the onus informally on the Chancellor either to concert policy in advance with France, or simply to acquiesce in what French governments did (the case of Schmidt’s decisiveness over EMS is unusual). Finally, it tended to irritate British ministers, making any closer relationship with them unlikely, even if that had not already been excluded in the 1980s by personal antipathy between their two leaders.

BRITAIN

The case is apparently simple, especially as expounded in Margaret Thatcher’s memoir, The Downing Street Years. In fact it was ambiguous, full of nuances, and hidden passages reflected in contrasting accounts.

In an assessment of the economic significance of membership, made in 1979, the Treasury had noted that Britain had become a European country visited by 7 million EC tourists, with 42% of its export trade to, and 44% of its exports from, Europe and 2.5 million jobs directly dependent on the EC.

Free trade within the Community, after deducting the costs of the CAP (£250 million) and the common fisheries policy (£150 million) added a net total of £120 million to the British economy; furthermore, 59% of United States foreign direct investment went to Britain and the EC – a matter of the greatest significance also for Scotland and Northern Ireland.

By 1984, on the other hand, Britain’s post-War settlement, expressed over three decades of neo-Keynesian macroeconomic management and tripartite industrial and labour policies, had been largely replaced by a deflationary fiscal and monetary policy, and what may be called the obverse of an industrial one, concerned with privatizing the state sector and forcing flexibility into the labour market. Contested with little success by a demoralized Labour party and a trade union movement suffering rapid membership decline, the new values in politics, finance and industry contrasted sharply with EC social initiatives such as Vredeling, or the defensive industrial cartels associated with Davignon. Britain had long been hostile to the CAP and was to remain so. Whenever ‘own resources’ or institutional reforms surfaced, Thatcherite politicians tended to read the worst into Commission initiatives.

Assuming that the imbalance in the British budget contribution and the CAP’S iniquities represented the EC’s true face, Margaret Thatcher tended always to present herself as the purveyor of financial discipline and sound book-keeping. She publicly construed Stuttgart’s ‘solemn declaration’ as meaningless and attacked the Spinelli Report for absurd idealism. But she was determined to increase Britain’s share of world trade and financial services after decades of decline, and therefore endorsed the internal market as a free trade landmark.

So, for more complex reasons of inward investment and new technology, did the DTI: thus the core of civil servants in Whitehall were encouraged to assist the Commission in its 1983 harmonization plan (see p (#ulink_2d0d323f-29f2-5d4b-b918-f808923d7065)) and later in preparing the government paper Europe and the Future.

Nigel Lawson, chancellor of the exchequer 1983–8, realized that Britain’s ERM entry would add the exchange rate weapon to his very limited armoury, once the strict monetary policy based on £M3 had been abandoned in 1983.

But the Bank of England’s support for entry, which had been strong up to July 1983 under the Governor, Gordon Richardson, evaporated under his successor, Robin Leigh Pemberton. Lawson’s failure on his own to convince the prime minister that sterling should join the ERM led, after the 1984–5 sterling crisis, to sterling’s ‘shadowing’ of the DM, an irregular and informal policy about which Thatcher later claimed not to have known.

The Conservative party had failed to evolve a coherent EC strategy when in opposition in the late 1970s and its leadership remained obsessed with Britain’s contentious budget contribution until mid–1984. Nothing of note therefore appeared in the 1983 election manifesto. Geoffrey Howe’s growing interest, which led to what in Conservative party terms was a surprisingly open paper, Europe and the Future (July 1984, defended by Howe at the party’s autumn conference) dated only from Stuttgart. Meanwhile, beyond Whitehall and Westminister, layers of antipathy remained in both political parties. The popular press reflected the adversarial mood and helped to shape perceptions in a very different way from 1972–5, so that the level of public ignorance actually increased.

Industry, which had strong interests in the internal market, could make no impact on this political combination. The CBI monitored EC developments closely but had lost much of its earlier influence with the prime minister in the early 1980s; City markets showed little interest at that stage (though the Bank of England soon picked up its significance for financial services and insurance). Even in Parliament it was the House of Lords Select Committee that investigated rather more than committees in the Commons. Meanwhile, whatever civil servants and diplomats thought, ministers’ policies were effectively defended during the British Presidency in 1981, so that Labour’s poor handling of the office in 1977 was forgotten. But Britain’s partisan nationalism nevertheless antagonized other member states.

Up to 1985, the Conservative political animus lay not primarily against the Commission (indeed Thatcher supported Delors for the Presidency) so much as the EC’s integrationist ethos, so that the second Thatcher government saw no merit in moving beyond free trade and the internal market. Stronger supporters of the latter, such as Geoffrey Howe, Leon Brittan, and Michael Heseltine, thought in terms of detailed legislation and constitutional conventions, rather than the prevalent EC way of operational texts to be interpreted later. Yet there was evidence of change at the top of the Conservative party in 1983, and again at the Dublin Summit in December 1984, even on the subject of QMV. Probably as a result of the Athens debacle, Thatcher herself prepared to concede some extension, though preferably only after prior inter-governmental agreement.

As French and West German politicians saw the future in terms of their own recent history, so did British leaders, who envisaged a market-led project in which they, like the Americans, could hold on to their early deregulatory lead. They opposed not only the idea of a two tier EC but what was later styled ‘variable geometry’; and they construed the single market itself as the only important aim, unconnected to EMU or political union. But they were realistic and prepared to concede trade-offs such as QMV to attain that primary aim.

ITALY

Since 1957, Italy’s relationship with the EC had reflected an underlying formalism, a largely juridical approach, so that by the 1980s several distinct government institutions existed, each with a separate function, joined neither by political coordination nor synoptic thinking, apart from what was provided by a governing majority led usually by successive factions in the Christian Democratic party (DC). Despite political society’s apparently widespread enthusiasm for the EC idea, there had been little continuous involvement over the years – hence the importance of a few individuals and interest groups, together with giant firms which, for lack of government support, maintained direct links in Brussels. Except in the industrial north, and on the left (mainly in the unusually open Communist party), political and civil society rarely engaged with each other. In default of a coherent, incorrupt and efficient policy-mongering bureaucracy (as existed more obviously in northern Europe), sustained policy depended on the vagaries of political brokerage which sustained the pentapartito, the long-running coalition.

Thus what appeared to be Italy’s prompt responsiveness to EC thinking compared badly with the Rome government’s actual implementation of legislation (highlighted by the high number of ECJ judgments against Italy). This indicated that Italian institutions had not been permeated by EC values, even when the Commission or Council tried specifically to do so, as they did in reclaiming the endlessly backward Mezzogiorno administration. Because the Italian parliament had in effect been excluded from the EU coordination process as a result of party bargains, a substantial democratic deficit existed. An uninterested public and an inward-looking bureaucracy confronted a tiny elite of insiders in the Foreign Ministry and the Italian Permanent Representation in Brussels. But the most effective of these were usually not party men. Those with a career in Rome in mind tended to stay apart from Commission colleagues who in turn found them deficient in European ideals.

Italy’s initiatives therefore tended to come from a few leading politicians in the Foreign Ministry such as Emilio Colombo. If the activists were outside government, like the Independent MEP Altiero Spinelli, their work had little resonance in political life. Even if the evolution of increasingly powerful regional administrations (often run by the PCI in a relatively incorrupt and efficient way after the 1976 elections) produced regional linkages to Brussels (see below, chapter 9 (#litres_trial_promo)), this led to significant conflicts over competence with the Italian Constitutional Court and, in the 1980s, a renewed bout of government centralization. Any hopes that EC membership might be a means to reform Rome itself could not yet be fulfilled.

Italian reformers however welcomed the Parliament’s attempt to relaunch political union. The undoubted effect of the EMS in curbing Italian inflation, together with the firm support of the Banca d’Italia and the heads of the largest industrial firms, ensured enthusiasm for the internal market project. Socialists as well as Christian Democrats concurred. Italian industrialists, members of the ERT, or Confindustria (which used the newspaper it owned, 24 Ore, selling 300,000 copies a day, as its advocate) took an active part. The only real opposition came from the banks and the insurance sector, both of which were deeply uneasy about the price of adjustment; and, in an ill-focused way, from Parliament whose MPs resented their exclusion from the process.

Foreign and Economic Ministries, Banca d’Italia (one of the few wholly untainted institutions), giant firms such as Fiat, Ferruzzi and Olivetti, and even small firms in the North eager to escape the state’s tainted bureaucracy, could agree that the internal market would bring opportunities, long overdue restructuring, and administrative reform. But there was no detailed plan, no prior decision as to whether to follow the Davignon or the ‘Anglo-Saxon’ interpretation, so that in no other member state were the practical details of the 1985 White Paper so far reaching in their effect on how the discussion would evolve. Meanwhile, on the way to the Single European Act, the byzantine games played out on the EC stage and under the Italian Presidency (including the crucial Milan Summit 1985), reflected both the sum of domestic political strategies and Italy’s bilateral bargaining with France and Germany. In short, Italy presented a genially positive face to the EC, excusing its shortcomings in implementing legislation or coordinating policy on the grounds of overload, while the political parties milked EC resources – not always for local advantage. This state of affairs was almost the exact antithesis of that in Britain.

THE NETHERLANDS

Since the 1950s, the EC had been a fundamental article of faith in Dutch political and public life. Seen originally as a means to contain Germany, it became, once post-War hostility had diminished, a larger replica of the Netherlands itself, a legally based form of collective rule. Given that Dutch involvement in Benelux’s economic integration pre-dated the Treaty of Rome, this worked well in the 1960s while the EC still behaved as a collective, and when two Dutch former prime ministers filled senior posts in Brussels. But it was threatened, firstly by de Gaulle’s intransigence, and secondly by the advent of the Franco-German entente, which Dutch leaders saw as inevitably prejudicial to the aspirations of small and medium-sized states.

The Netherlands was wholly opposed to the developing practice of settling issues between heads of government (inter-governmentalism) and its governments deliberately set themselves up to act as the guarantor of small states’ rights under the Treaties. In Dutch hands, the Presidency served as a means to help the collective machine run smoothly, with none of the directive tones supplied by Giscard or Schmidt. Many of late 1970s’ and early 1980s’ changes seemed, to the Dutch, undesirable: the Franco-German understanding, the advent of the European Council, the EMS, and the backlog of delay in dealing with Commission proposals. The Dutch therefore sought QMV on a wider scale. But unlike the Belgians, they stuck to a conception of the EC which had been implanted much earlier in the Beyen Plan (see p (#ulink_9f59b4ee-e9a9-5a9f-8147-fce6f127ce66)): they tended to accept whatever ideas the Commission proposed, believing that course of action to be a correct reading of the 1957 Treaty.

A few giant companies dominated industry and treated such initiatives as Wisse Dekker’s report (see p (#ulink_d30acf9c-26fc-54b0-8b66-71238ebf6ce7), above) as part of their corporate strategy. The VMO’s outlook paralleled the country’s ‘instinctive political attitude, never really discussed’; which envisaged the internal market in terms of controlled adjustment rather than full liberalization – though the VMO did lobby extensively for telecoms deregulation.

Further, progressive integration was taken for granted by Dutch public opinion, together with an increasing role for the European Parliament, while progress to EMU and political union ranked as high as abolishing trade barriers. Progress was to come according to agreed procedures and deadlines, beyond the capacity of larger governments to adjust. Given its open economy, the Netherlands strongly opposed protectionist tendencies and looked outwards to international as well as European trade. Successive governments supported NATO, were generally favourable to the USA, to liberal tax regimes, and FDI rules, and were adamantly against state intervention – thus coming closer to the British interpretation than that of Germany, despite having linked the guilder to the DM since 1973-

Long habituated to ideas about social harmony, decentralization of state power and tripartism, Dutch governments supported any Commission proposals to give organized labour greater advantage vis-à-vis capital and management, and still vested some hope in Ecosoc as the forum to discuss employment policy and the social dimension. In spite of a decentralized system of administration which required endless harmonization, the Dutch impetus was often effective on the European Council.

BELGIUM

As with the Netherlands, the EC was never a matter of dispute. Belgium received great economic benefits and a status which no small country could have achieved on its own. The price – if it was a price – had to be paid in terms of the impact of EC federalism in a country whose increasingly polarized ethnic divisions reflected its nineteenth-century social evolution and the creation of the state out of two distinct elements. Whether EC membership actually accentuated the process of transforming the unitary state of 1970 into a federal one in 1990, (‘a federal state composed of communities and regions’) is unclear, but all relations with the EC and its institutions became politicized, though not necessarily in a contentious way. Each Belgian Presidency had to replicate the domestic role of government in a sort of permanent arbitrage between decentralized units.

For the majority of Belgians, their polity pre-figured what the EC would eventually become: a cooperative framework of states and institutions with a strong regional dimension and a common citizenship. These assumptions underlay the Belgian Presidency’s conduct of EC crisis management in the case of Poland, Libya and the Falklands war in 1982. On the other hand, because of complex national competences and Flemish/Walloon rivalries, long delays in incorporating EC laws were inevitable – and much criticized by the ECJ.

All-party consensus prevailed on matters concerning the economy and integration, partly because 70% of Belgium’s trade lay within the EC and partly because the EC was taken for granted as the prime source of Belgian status in the world. Any moves towards reinvigorating it, including the internal market, were welcome. But on balance, Belgian governments followed the lines set by Davignon and recommended by Dekker, because of the relatively huge part still played by their declining steel, coal and textiles sectors.

LUXEMBOURG

Living in a tiny country with no pretensions to any of the usual connotations of power, Luxembourgeois had long held a deep fear of being swamped by their neighbours. They had always been eager to propagate the idea of integration, emphasizing that progress should be achieved by legal instruments and collective action. A long history of close cooperation with Belgium and the Netherlands, predating the EC itself, showed itself in the currency link with the former dating from 1922. Despite its small population, Luxembourg had no problem with all the roles required by its status as a member.

Precisely because it was so communautaire and disinterested in larger states’ rivalries, Luxembourg had been able shrewdly to manage its Presidencies. In 1976, it helped to institute the Troika, and in 1980 to stage manage the EC-Arab talks, the North-South dialogue, and the evolution of CSCE during the Solidarity crisis in Poland.

As a fully open and integrationist state, wedded to free trade (on which its industries had developed and its banking sector had become a leader in the EC in the 1970s), Luxembourg welcomed the internal market, especially the free movement of capital which greatly benefited its own financial services. It also sought EMU, after the 1982 currency crisis in which Belgium had devalued without joint consultation. (From then on it was clear that the Belgian franc would be tied to the DM inside the EMS.) Luxembourg had wisely reduced its dependency on the steel industry and expected unequivocal benefits from EC regeneration. Yet potential problems existed, chiefly in the field of harmonization, for its banks had no wish to fit in with German requirements on taxation – especially withholding tax – nor to change the laws on banking secrecy: the Luxembourg economy benefited too much to envisage a truly level playing field.

IRELAND

Entry to the EC had offered Ireland the chance to break out from its narrowly constructed, protectionist, rather bigoted provincial identity, to become a distinct European nation. By 1980, largely through its EC links, it had also escaped the long shadow of the United Kingdom and its poor and backward economy had experienced a greater recovery, and greater politico-cultural benefits than either of the other 1973 entrants. In the early 1980s, Ireland also enjoyed regular trade surpluses

and financial transfer payments.

In its economic aspect at least, the public was united: 83% had voted in favour of entry in the 1972 referendum and 68 7% were to vote for Maastricht in 1992, despite the fact that previously undreamt-of legal and constitutional implications had emerged.

New affinities with France began to replace the ancient ambiguity of cohabitation with Britain. In its first presidency in 1975, Ireland was able to stand up on the international stage as Garret FitzGerald addressed Commission-Council relations directly, having negotiated ably with the United States in Henry Kissinger’s day. It also subsequently played a mediating role during the second oil shock, despite problems with the European Parliament.

Agriculture benefited unequivocally from increasing specialization while industry drew in foreign investment, particularly from Germany, to replace its formerly sheltered sectors – though this came at the expense of local capacity. Despite the disruptions so caused, Irish governments retained their interests in liberalizing their domestic markets. But EMS membership, the only alternative to linking the punt to sterling, produced a hardening currency, welcome for its disinflationary effect but unwelcome in its impact on domestic production in the early 1980s. Some of this disadvantage was offset by transfers from the EC’s Regional Fund because all of Ireland still qualified for assistance.

Manufacturing and food processing would have suffered in any case from global changes. The prospect of a link between the internal market and structured funding helped to mediate this, and to curb any hankering for a repetition of the failed experiment in protection during the 1960s. Wisely, Irish governments used EC money and technology transfers to address structural failures. This was the overt reason for going forward to the single market, as the Dooge Committee recommended. But, as the Fine Gael party saw, structured change would be the real means to modernize the economy in the European dimension, to which a purely national market was an obstacle.

This insight passed in due course to Charles Haughey’s Fianna Fáil government which, despite its historic tendency towards isolation, was content to accept that the country’s future lay wholly in the EC.

That there would be costs in unemployment, rising national debt, and disruption of rural society was not denied. The EC could moderate the pain, increase economic and social cohesion, and restore a measure of real independence to offset the surrender of formal sovereignty. This was a synoptic viewpoint, in sharp contrast with Britain’s, shared by farmers, trade unionists and most of industry, despite the predicted impact of EC imports on domestic market share: in the late 1980s and with the support of the Irish Labour party, it was to lead on to support for EMU and European Union.

DENMARK

Denmark, like Ireland, found itself faced by economic readjustments after entry in 1973, but without a basis of political consent. The EC had until then been presented as a superior sort of EFTA, a customs union with a few ‘political dreams’ attached. Membership was already a contentious subject and this was not alleviated by the first, unfortunate, Danish Presidency, which took office after only six months’ membership experience, at the time in 1973 when the oil shock hit the EC. The Social Democratic party remained as divided as the British Labour party, while fears persisted among the Six that the Danes would use the EC as a milch cow. These were dispelled during subsequent Presidencies: in 1978 by an unsuccessful Danish attempt to launch a growth programme, and in 1982 when, in Copenhagen in June, the odium for lack of progress fell on Britain.

Denmark’s complex and devolved decision-making processes ensured that in the absence of public consensus the passage to the internal market would be difficult. The White Paper’s mixture of economics and politics, and disputes between the government and the Folketing over whether EC affairs counted as foreign or domestic, made it hard for the government to take decisions and helped to produce an appearance of obstructionism.

At home, government usually won its case but at the price of later electoral retribution. To get the Single Act through, it had finally to by-pass the Folketing majority (80 to 75) with a national referendum (56.2% in favour, 43.8% against).

The internal market offered clear advantages to industry and consumers, yet morbid fears persisted about the EC’s bureaucratic centralization, and the portents of harmonization, as a threat to ecological purity from an overweening EC state. Without a clear mandate, the government confronted a range of domestic pressure groups which feared liberalization. But the Confederation of Danish Industries favoured the single market, in order to achieve a stable market for its few but globally oriented medium-sized companies. For them the EC was the home market, and although they disliked talk of industrial policy, they remained fiercely antiprotectionist. But the Confederation represented a small sector of the population with only 300,000 employees, fewer than Siemens employed in the EC.

Swayed by these pressures, and different oppositions, the government alternated between alliances with Britain (for example on aspects of the Dooge Report), and a claim similar to the Netherlands that institutional reform was essential to restore the EC’s dynamism. Denmark (whose currency link to the DM owed more to economic force majeure than political affinity) was seen therefore as contre: against inter-governmental action, political union, and EMU. It voted against an IGC in Milan in July 1985 but then later conceded, anxious not to be the only member state left out.